ECONOMICS PCB10

Mrunal’s Economy for UPSC Prelims-2024-25 (PCB10-RAFTAAR)

10 🏛🏛BRIEF INFO ABOUT THE COURSE (PCB10-RAFTAAR)

- UPSC Syllabus, Strategy, Booklist, Cut-off: https://mrunal.org/syllabus
- Economy: how much I’ll teach, what books do you’ve to read on your own etc.
https://mrunal.org/pcb10
- Basically this PCB10-Raftaar Course deals only with Prelims-Specific Economy.

u
- This is NOT Mains Economy. Not Microeconomics. (separate courses for it, u don’t have to pay

yo
extra, it’s part of your Netflix/Unacademy subscription). More explained in Lecture#1
- Only for serious competitive exam mindset candidates shd attend this. Timepass Babushone/
Faaltu-ki-PHD krnewalle, harr baat pe 🚩🚩Zhandaa-uthaane-walle (those with habit of making

lp
mountain out of molehills) should avoid my courses.
Old Students (PCB1to9) NEED NOT Sit again. They should see FREE UPDATE next year [Win24].

he
10.2.1 🏛🏛🏛🏛 What has UPSC asked from Economy in recent years?
Prelims P1 (GS 100 🔠🔠❓MCQs) Mains GSM-1-2-3 (750 Marks)
6 Pillars of
Utility in exam

ill
2023*
economy
2018

2019

2020

2021

2022

2023

2018

2019

2020

2021

2022
w
💳💳1_Money
Banking, Most useful in Prelims but
7 7 9 6 8 7 0 0 15 15 0
Finance & less in Mains
d
Insurance
go

🍋🍋2_Budget,
Second lowest utility after
FC, GST, 4 1 1 1 3 1 25 25 15 20 0
5_Infra
FRBM
💱💱3_Intl_Tr Third lowest utility after
rs

4 7 7 2 4 3 30 0 15 15 0
ade, BoP 2_Budget.
🛒🛒4_Sectors,
he

GDP,
Useful for both prelims and
Inflation, 3 8 5 5 4 4 50 65 55 60 85
Mains.
Microecono
ot

mics
Lowest utility among 6
🏗🏗5_Infra 1 3 1 0 2 4 15 15 15 30 20
pillars.
p

Less in prelims but more in

�6_HRD 6 2 0 0 0 2 60 75 85 45 20
el

Mains.
25 28 23 14 21 21 180 180 200 185 125
Total
H

Qs Qs Qs Qs Qs Qs m m m m m
�*FAQ: Why 2023-Mains column EMPTY? Ans. Handout updated on 5th Sept 2023. But, Mains
starts on 15th Sept.

💸💸Economy Pillar #1-A1) Money: Barter to Bitcoin

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1A1 Money: Barter to Bitcoins → Page 1

KING R & QUEEN P Help others god will help you

 - 😰😰Storage of perishable commodities is difficult, results in loss of value. (नाशवान वस्तुओ का मूल्यहास)
- 😰😰Doesn’t encourage specialization and division of labour (श्रम िवभाजन को प्रोत्सािहत नहीं करता).

10.4 📏📏MONEY: FUNCTIONS OF (पैसे के कायर्)

Primary:2 functions[प्राथिमक] Secondary(S-T-D) 3functions [सहायक कायर्] Contingent 3functions [प्रासं िगक कायर्]
1. 📏📏Measure of 1. 🐷🐷🐷🐷Store of Value (मूल्य का 1. Basis of credit system,

u
Value: gm=wt, सं चय) Financial markets (share,
ml=vol, ₹=value (मूल्य bond etc.: More in

yo
2. 🚛🚛Transfer of Value (मूल्य का
का मापक). 📑📑Pillar#1C-sharemarket)
स्थानांतरण). Soldier in Kashmir to
2. 🛒🛒Medium of िवत्तीय बाजार का आधार है पैसा
parents in Kanyakumari
Exchange: Buy & Sell
3. ⏰Deferred Payments (स्थिगत 2. Employing factor of

lp
goods and services
भुगतानो का मानक). E.g. Buy production i.e. Land, Labour,
using money as the
Capital (More in

he
‘medium’. (िविनमय का iphone12 @₹3177 only per
माध्यम). month x 36 months’ Equated 📑📑Pillar#4C) उत्पादन के कारक
Monthly Installments (EMIs) जुटाने में मदद करता है है पैसा
= ₹1,14,372. Actual price is 3. Creation & Redistribution of
₹79,900, but ₹34,472 extra
ill
Interest.(ब्याज पर िकश्तों में खरीदारी
National Income via
taxation. (📑📑Pillar#2) अमीरों पे
w
सं भव) ज्यादा कर वसूल के राष्ट्रीय आय के
पुन:िवतरण करने में मदद
d

10.5 💵💵 MONEY: EVOLUTION & TYPES (मुद्रा की उत्क्रांित व् प्रकार)

go

Paper /Token /
Commodity Metallic Bank Money,
Representative / Crypto Currency
Money Money Deposit Money
Fiat Money
rs

10.5.1 🥜🥜Commodity Money / वस्तु मुद्रा (Intrinsic value: अंतभूर्त मूल्य? Yes)
he

⇒ Iron Nails, Bear Pelts, Cocoa Beans, Whale Teeth, Gold Nuggets
⇒ Problems? Perishable, not uniform, not pure, foreigners may not accept.
नाशवान, एकसमान नहीं, शुद्ध नहीं, अस्वीकार भी कर सकते है.
ot

10.5.2 🥇🥇Metallic Money / धातु मुद्रा (Intrinsic value? Yes)

p

⇒ Traders & Kings stamped their marks on gold nuggets for uniformity & trust. (सोने पर अपना
el

िचन्ह/छाप लगा देते – तािक लोगों को उसकी शुद्धता पे यक़ीन हो)

⇒ Indo Greek kings & Kushana kings issued gold coins, but Gupta Gold coins most spectacular-
H

king is playing Veena, shooting animals, standing with wife.(इन राजाओने सोने के िसक्के िनकाले थे)
⇒ Delhi Sultanate Kings: Silver Tanka. Sher Shah Suri Rupiyah silver coin. Akbar: Muhr.
� Further SELF STUDY: History of Indian coins from History Lecture/Notes.

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1A1 Money: Barter to Bitcoins → Page 5

KING R & QUEEN P Help others god will help you

 10.5.3 💪💪 Metallic Money → Full Bodied vs Token Coins
Table 1: Types of Coins

Gupta Coin: ~8 gm GOLD 50 paisa modern coin: ~4 gm steel

💪💪 Full Bodied Coins Token Coins (प्रतीककात्मक)

u
Intrinsic Value (अंतभूर्त मूल्य) is Equal to or MORE LESS. (धातु एकदम सस्ती वाली इस्तेमाल करते हैं या बहुत ही कम

yo
than its Face Value (अंिकत मूल्य) वजन की धातु इस्तेमाल करते हैं)
Challenge? ⇒ 1330s: Tughlaq's Token coin
⇒ Debasement: ⏬decreasing the amount of experimentation = #EPICFAIL (Why?

lp
metal in coins. Usually happens when Prepare in History subject).
king’s rule gets weak/poor e.g. Aurangzeb, ⇒ Modern Indian coins are token coins.

he
Roman Kings. िसक्के में धातु की मात्रा को कम िकया Cupronickel metal used to discourage
जाए तब लोगों का उस राजा के शासन से िवश्वास कम होने melting.
लगता है ⇒ Coinage Act 2011 prohibits melting of

ill
coins. (िसक्का िपघलाना एक अपराध है)
w
10.5.4 💍💍📔📔Intrinsic value of a coin? (अंतभूर्त मूल्य)
PRECIOUS METAL COINS (धातु के िसक्के) PAPER CURRENCY (काग़ज़ी मुद्रा/नोट)
d
Metal has INTRINSIC VALUE i.e. Metallic You can't use currency-note's paper as a
money =Use it as "money", or you can melt the notebook or diary.
go

metal → use that metal for making jewellery / So currency notes have no intrinsic value. (उसके
weapons because metal itself has its value / कागज का उपयोिगता कु छ नहीं है, क्योिक उसपे छपाई कर दी है.)
usages. (उस मुद्रा की धातु िपघला कर कु छ और चीजे भी बना
rs

सकते है. क्योिक धातु का अपना : अंतभूर्त मूल्य / उपयोिगता है.)

he

10.5.5 💵💵Paper Money / कागजी मुद्रा (Intrinsic Value? No)

Fiat money (वैधािनक मुद्रा): It MUST fulfil two conditions SIMULTANEOUSLY: दो शतोर्ं का एकसाथ पालन :
ot

1. It MUST BE in the form of Physical Currency Coin / Physical Currency Notes / VirtualCoin/
DigitalCoin/ CryptoCoin which can measure value AND simultaneously और साथ ही साथ
2. It MUST BE issued by the order of a King / Queen / Government / Central Bank.
p

⇒ Govt issues all coins upto ₹ 1,000, using powers of powers of Coinage Act 2011.
el

⇒ Presently, govt issues Rs.50 paisa to Rs.20 coins.

⇒
H

Rs.20 coin: 12-sided Polygon shape (Dodecagon आकार: बारह बाजुओ वाला चतुष्कोण है)
⇒ ₹ 1 Note signed by Finance Secretary (िवत्त सिचव)
⇒ ₹ 1 note doesn’t contain “I promise to pay bearer…”

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1A1 Money: Barter to Bitcoins → Page 6

KING R & QUEEN P Help others god will help you

 ⇒ RBI issues: Currency notes other than ₹ 1 Note under RBI Act 1934.
⇒ Currency notes have Governor’s sign: “I promise to pay bearer…”

😤😤 FAQ: why is it like this!!!??? WHY CAN’T RBI ISSUE BOTH coins & currency notes!!?
Ans. Send your suggestion to PM, to merge above two laws. Until it’s implemented, remember table
for passing exam. प्रधानमं त्री को कागज िलखो- दोनों कानूनों का एकीकरण करने के िलए. जब तक वह नहीं होता तो इस handout को रटो।

u
10.5.6 💵💵⚖Legal Tender (वैधािनक िनिवदा)

yo
lp
he
ill
w
d
go
rs

To become a ‘legal tender’, a given coin/currency MUST fulfil two conditions SIMULTANEOUSLY:
he

एक साथ दो शतोर् को पूरा करना होगा. => PP

1. It must be a FIAT MONEY (जो हमने ऊपर के सेक्शन में पढ़ा). AND SIMULTENOUSLY और साथ ही साथ
2. It must be legally valid for all debts & transactions throughout the country. Other party can’t
ot

refuse to accept. (लेनदार उसको अस्वीकार नहीं कर सकता)

Table 2: fiat money and legal tender in India
A) Is it in form D) At present, is it E) Is it
p

C) Result: Is it
of a physical B) Is it issued by legally valid for LEGAL
Fiat money?
el

coin OR physical Central Bank / transaction in Tender in

ITEM (YES If Both
Note OR Digital Govt / King / India as per India (Yes, IF
Cell A+B give
Coin that can Queen Coinage Act or C+D give
H

✅+✅)
measure ‘value’? RBI Act? ✅+✅)
₹ Indian Rupee:
Coins & Notes, CBDC ✅ ✅ ✅ ✅ ✅
Demonetized
(िवमुद्रीकृ त) ₹500,₹1000 ✅ ✅ ✅ ✋ ✋

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1A1 Money: Barter to Bitcoins → Page 7

KING R & QUEEN P Help others god will help you

 A) Is it in form D) At present, is it E) Is it
C) Result: Is it
of a physical B) Is it issued by legally valid for LEGAL
Fiat money?
coin OR physical Central Bank / transaction in Tender in
ITEM (YES If Both
Note OR Digital Govt / King / India as per India (Yes, IF
Cell A+B give
Coin that can Queen Coinage Act or C+D give
✅+✅)
measure ‘value’? RBI Act? ✅+✅)
Dollar$, Yuan, Yen,
Euro etc ✅ ✅ ✅ ✋ ✋

u
G-Sec, T-Bill
(what is this-Ans.

yo
✋ ✅ ✋ ✋ ✋
explained in video)
Shares, Bonds, DD,
Cheque, ATM, Cards,
Kirana coin, Casino ✋ ✋ ✋ ✋ ✋

lp
coin, Filmstar-Notes
Marshall Island: SOV

he
Venezuela: Petro coin ✅ ✅ ✅ ✋ ✋

Bitcoins ✅ ✋ ✋ ✋## ✋
⇒ Bitcoin is not a Fiat money, yet it is legal tender in El-Salvador nation. But it is an exception.
##

ill
(िबट-कोइन का अल-साल्वाडोर देश में वेधिनक िनिवदा होना के वल एक अपवाद है, वो पूरी दू िनया के िलए िनयम/व्याख्या नहीं है।)
⇒ Commemorative Coins = Fiat money yes but not legal tender unless notified by
w
RBI/Government to be used as legal tenders. (स्मृितिचन्ह रूप िसक्के- सामान्य भुगतान में इस्तेमाल निह हो सकते,
िसवाय के सरकार/आरबीआई उसकी अनुमित दे।)
d
� FAQ: we can use cheque / credit card to pay fees. So, why are they not fiat money/legal tender?
go
rs
he
ot
p
el

� FAQ: I did not understand this thing and/or I want to engage in intellectual debate why “X”
H

thing is legal tender? Ans. Please watch lecture’s recorded video again at 1X speed, more peacefully.

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1A1 Money: Barter to Bitcoins → Page 8

KING R & QUEEN P Help others god will help you

 10.5.7 💵💵⚖Legal Tender (वैधािनक िनिवदा)- Limited and Unlimited
Table 3: Fiat Money: Two types of legal tenders
A) 🚯🚯Limited legal tenders B) ∞ Unlimited legal tenders:
(सीिमत वैधािनक िनिवदा) (असीिमत वैधािनक िनिवदा)

u
yo
Recipient can refuse accepting payment beyond a No such restriction.**
limit (एक हद से ज्यादा छू टटे पेसे स्वीकारने से सामने वाला मना कर
सकता है)

lp
⇒ Coinage Act 2011 ⇒ RBI Act 1934 - Section 26: Every bank
⇒ Paper Note: Rs. 1 (एक रुपए की काग़ज़ी नोट) note is legal tender in India.

he
⇒ Coins Rs. 1 / above → upto Rs.1000 ⇒ They can be used for settling any amount
⇒ Coins 50 paisa x 20 coins → upto Rs.10 of debt in India**, lender can’t refuse to
⇒ Below 50 paisa coins are withdrawn (in 2011) accept it.
So, 10 paisa, 25 paisa are ✋not legal tenders.
ill
w
(10 पैसा और 25 पैसा वैधािनक िनिवदा नहीं है। 50 पैसा
वैधािनक िनिवदा है)
**Although in real life, Finance Act 2017: “Cash transactions for less than Rs.2 lakh only. Beyond that
d

use Cheque, DD, NEFT etc. else penalty.” This rule is to discourage tax-evasion / black money. For
go

more Ref: 📑📑Pillar#2. But for MCQs, simply accept that bank notes = unlimited legal tenders. हालांिक
वास्तिवक जीवन में काले धन / करचोरी को रोकने के िलए नगदी लेनदेन पर कु छ सीमा के बाद रोक है, िकन्तु MCQ के िलए स्वीकार लो की
rs

🚩🚩� FAQ# my shopkeeper doesn’t accept 50 paisa. Then how it is legal tender? मेरा दुकानदार नहीं लेता
50 पैसा का िसक्का। तो आप कै से कह सकते है वो वैधािनक िनिवदा है?
he

Ans. as per RBI notification, 50 paisa is legal tender. So, accept it for MCQ & move to next topic.
Further, feel free to file police case against shopkeeper, if you have plenty of free time/outrage for it.
ot

🔠🔠❓MCQ: Which correctly describes the meaning of legal tender money? (Pre-2018)
p

(a) The money which is tendered in courts of law to defray the fee of legal cases
(b) The money which a creditor is under compulsion to accept in settlement of his claims
el

(c) The bank money in the form of cheques, drafts, bills of exchange, etc.
(d) The metallic money in circulation in a country
H

🔠🔠❓MCQ: Consider the following statements (Asked in UPSC-CDS-2011-II)

1. In India the minimum denomination coin acceptable for transaction is 50 paise.
2. Coins below 50 praise is not a legal tender for payment.
Which of the statements given above is/are correct?
(a) Only 1 (b) Only 2 (c) Both 1 and 2 (d) Neither 1 nor 2

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1A1 Money: Barter to Bitcoins → Page 9

KING R & QUEEN P Help others god will help you

 10.5.8 ��RBI’s App to help the blind identify currency notes
80 lakh people in India are blind (नेत्रहीन). To help them identify currency notes:
⇒ Old series of Gandhi notes have square (50), triangle (100) shaped markings.
⇒ New series of Gandhi notes have bleed lines, raised printing of Gandhi etc.
⇒ But, so many varieties of notes, difficult for VH persons to remember size & shapes so,

u
2020-Jan: RBI launched ‘Mobile Aided Note Identifier (=MANI)’ App.

yo
⇒ Mobile camera scan & identifies the note (Even if it’s half folded), gives audio notification in
Hindi/English, also works offline
⇒ But can’t validate whether note is genuine or fake (Counterfeit जाली नोट नहीं पकड़ सकता यह ऐप),

lp
⇒ If a user is both blind and deaf, the app will tell him by giving vibrations.(मोबाइल कं पन)

he
10.5.9 💵💵 Currency related General Knowledge:

ill
w
Which note has what colour, which note has Red Fort / Sun Temple photo etc? General Knowledge
d
�Less important for UPSC-exams, more IMP for Non-UPSC Exams. So I’m removing it from
Raftaar-Handout. You can learn such general knowledge from https://paisaboltahai.rbi.org.in/
go

New rupee ₹: selected through a competition by Dept of Economic Affairs in 2010. Designed by
symbol D.Udaya Kumar, a Professor @IIT Guwahati.
rs

Nation - Lion Emblem: Sarnath Pillar, Uttar Pradesh से िलया गया है

Symbol - “Satyamev Jayate”: slogan from Mundaka Upanishad से िलया गया है
he

Languages While Constitution’s 8th Schedule has 22 languages, but currency note has only 17.
(15 on Reverse + Hindi & English on frontside (obverse) = 17)
🤯🤯FAQ: Why it is like this? Ans. Either some Indian languages have similar fonts
ot

and/or send suggestion to RBI.

Museum Budget-2020: a museum on numismatics and trade (िसक्काशास्त्र और व्यापार का सं ग्रहालय) will
p

be built at the historic ‘Old Mint Building’ in Kolkata .

el

10.5.10 💵💵 “I promise to pay the bearer…”: Meaning of this promise?

H

Colonia era: Promised to convert into full bodied gold or silver bars / coins worth
the equal value in weight. E.g. 1 US Dollar = ~14 grams of gold. 1 British pound =
~73 grams of gold.
(�in my handout ‘~’ means ‘approximate’)

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1A1 Money: Barter to Bitcoins → Page 10

KING R & QUEEN P Help others god will help you

 ⇒ Modern era: Conversion into other Bank notes and “token coins” of equal face value. ₹ 2000 =
500 x 4 Nos.= 100 x 20 Nos etc.
⇒ Not inflation adjusted value. Not linked with weight of gold or silver.
⇒ Currency note is zero interest, anonymous bearer bond / Promissory Note.

10.6 💵💵 DEMONETIZATION OF FIAT MONEY (िवमुद्रीकरण: PREVIOUSLY 1946, 1978)

u
Definition? Demonetization means the REMOVAL of legal tender status of currency notes. (िकसी मुद्रा

yo
की वैधािनक-िनिवदा के दजेर्/ क़ानूनन वैधता को रद्द करना- उसे िवमुद्रीकरण या नोटबं दी कहते हैं)
⇒ 8/Nov/2016: Finance Ministry → Dept of Economic Affairs → notification to ban the
“Specified Bank Notes” (SBN) of Mahatma Gandhi series ₹ 500 and 1000.

lp
⇒ Specified Bank Notes (Cessation of Liabilities) Act 2017= RBI not required to honor “I promise
to pay…”.

he
⇒ Banned notes (500,1000) can’t be kept except for research or numismatics-hobby or museum-
and that too in limited amount! More in 📑📑pillar#2: taxation → black money.
⇒ SC Judgement on Demonetization ? Ans. REFER📑📑pillar#2: taxation → black money.

10.7 💵💵 ₹2000 WITHDRAWN BUT CONTINUED AS LEGAL TENDER ill

w
2016-Nov: RBI introduced ₹2000 note, to meet the currency requirement of the economy in an faster
manner after demonetisation of ₹500 and ₹1000 (नोटों की िकल्लत पूरा करने के िलए इसको छापा जा रहा था)
d

-
go

2018–19: printing of ₹2000 banknotes was stopped.

- 2023-May-23rd: RBI asked people to either any of the following thing by two things
30/Sept/2023.
Option at Bank Limit
rs

Deposit this note in your bank account no limit. Whatever money you have you
अपने बैंक खाते में जमा करवादो can deposit- 2 lakh, 2 crore doesn’t matter
he

Exchange ₹2000 note with other notes e.g. ₹20,000/- per visit
100/200/500 बदलवा दो
ot

10.7.1 💵💵 ₹2000 NOT DEMONETIZED but WITHDRAWN from circulation

(इसका िवमुद्रीकरण नहीं हुआ. बस चलन में इसे हटा िदया गया है)
p

- 2023-June: Reporter asked : Will the RBI withdraw the legal tender of ₹2000 note after September
el

30?
- RBI Governor Shaktikanta Das replied: “There is no such idea.” That means
H

Question interpretation
is ₹2000 fiat money? Yes
is ₹2000 legal tender? Yes
is ₹2000 in withdrawn from circulation? Yes
is ₹2000 DEMONETIZED? NOT YET.

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1A1 Money: Barter to Bitcoins → Page 11

KING R & QUEEN P Help others god will help you

 10.7.2 💵💵 ₹ 2000 withdrawn- WHY? (क्यों चलन से हटाया गया)
We will only prepare the official reasons given by the RBI.

 2000 Notes were issued as a temporary measure to address shortage of currency. Now there is
adequate supply of other currency notes e.g. 100/200/500.
 This note is not commonly used for transactions. (वैसे भी भुगतान में इसका उपयोग कम ही होता है)
 RBIs clean note policy: to ensure availability of good quality banknotes to the members of public.

u
 2000 note’s paper has a lifespan of 4–5 yrs. Since most of these notes were printed in 2016–2017.

yo
So by 2022–23 its paper quality may start to deteriorate. (चार पांच वषोर्ं में कागज वैसे भी खराब हो जाता है)
 THERE IS NO MENTION of fighting black money/ corruption / fake notes by ISI-Dawood in
RBI press release.

lp
10.8 🤫🤫💸💸👜👜🥚🥚 REDENOMINATION: IRAN’S TOMAN CURRENCY

he
⇒ Removed for #RAFTAAR. Those who want to waste time/satisfy curiosity can learn it from last
course (PCB6) at https://unacademy.com/course/mrunals-economy-course-for-upsc-prelims-
mains-2022-52/I1OWWV6Y (मेरे को अब ये परीक्षा के नजिरये से बहुत काम का नहीं लगता, इसिलए टॉिपक हटा िदया है)

Commodity Metallic
Paper /Token /
Representative /
ill Bank Money,
Crypto Currency
w
Money Money Deposit Money
Fiat Money

10.9 🐷🐷🔖🔖BANK MONEY / DEPOSIT MONEY

d
go
rs

10.9.1 🐷🐷🔖🔖 Paper orders: Cheque, Demand Draft (DD)

Law Viceroy Ripon’s Negotiable Instruments Act, 1881: Primary Objective? Cheque
he

dishonor & forgery (परक्राम्य िलखत अिधिनयम: बेंक खाते मे अप्राप्त रकम के चलते चेक अस्वीकार होना/जालसाजी के
िख़लाफ़ क़ानून).
Cheque - THREE parties in a cheque: 1) Drawer (Sender), 2) Drawee (Bank), 3) Payee
ot

(Recipient)
- Types of cheques: 1) Stale: Not withdrawn in 3 months (3 महीनों में नहीं डाला तो
p

बासी/अस्वीकायर् होगा), 2) Post-dated: After a specific date, 3) Ante-Dated: notimp for

IAS exam.
el

- Open / bearer cheque: No ‘crossing’. Anyone can encash.

IFSC IFSC code: Indian Financial System Code- 11 alphanumeric numbers to identify the
H

bank branch, just like PINCODE identifies an area. (कौन सी बैंक ब्रांच है उसे िचिन्हत करता है)
MICR MICR code: Magnetic Ink Character Recognition. 9 digits code written in Iron Oxide
ink for automated clearance. (चुम्बकीय स्याही से चेक के नम्बर को जाँचने के िलए।)

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1A1 Money: Barter to Bitcoins → Page 12

KING R & QUEEN P Help others god will help you

 10.9.2 🔖🔖DD and Overdraft

u
yo
lp
he
ill
w
- Overdraft: When person has insufficient bank balance, still he may withdraw money from his
account (as a loan). Such facility is called Overdraft. Pradhan Mantri Jan-Dhan account has
Overdraft upto Rs 10,000/- with certain conditions. (More in Pillar1D: Financial Inclusion).
d

o Overdraft is mainly for short-term operating expenses. (अस्थाई रूप से लघु अविध के िलए कजर्)
go

o Loans is mainly for longer term higher value expenses. (दीघर् अविध के िलए मोटी रकम का कजर् लेना)
10.9.3 🐷🐷🔖🔖 Cheque → NPCi’s Cheque Truncation System (CTS) & Positive Pay Mechanism
rs
he
ot
p
el
H

NPCi’s Mechanism Benefit (first SEE THE DIAGRAM)

Cheque Truncation If SBI sent the copy of cheque in post/courier = more time wasted.
System (CTS) CTS IS FASTER because SBI sending scanned image online.

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1A1 Money: Barter to Bitcoins → Page 13

KING R & QUEEN P Help others god will help you

 Positive Pay If Mrunal (recipient) manipulated the cheque numbers e.g. using magic-
Mechanism marker/eraser to write ₹5,00,000 in place of ₹50,000 YET Roman
(Sender) will be protected because both images will not match → then
cheque will be rejected by his bank.
⇒ �FAQ: I still DID NOT understand this. Ans. Watch The video lecture.
⇒ 🤔🤔FAQ: I’ve 500 counter arguments about how James Bond villain can misuse it? Ans. NOT

u
IMP.#RAFTAAR.

yo
10.10🐷🐷💸💸💸💸 ELECTRONIC ORDERS / DIGITAL PAYMENT
Payment & Settlement System Act 2007 empowers RBI to regulate card payment, e-payment related

lp
products and services. (भुगतान और िनपटान प्रणाली अिधिनयम 2007)

he
10.10.1 💸💸💸💸CBS ( full form: Core Banking Solution /system)
⇒ It is a banking software with web-platform for centralized data management & branch-less
banking. E.g. Finacle software; BanCS software; E-Kuber (used in RBI)

ill
w
🚩🚩�🎓🎓 FAQ I didn’t understand this. Ans. Watch lecture, sufficiently explained in it.
🚩🚩�🎓🎓 FAQ: What is the difference between Core Banking Solution (CBS) versus Core Banking
d
System (CBS)? Ans. Fundamentally it is the same thing. Dictionary word difference/legal
go

pedantry/academic pedantry/hairsplittery= notimp4exam. #🕰🕰थोड़ा-पढ़ो-आगे-बढ़ो

10.10.2 💸💸💸💸RBI’s Next Generation Treasury Application (NGTA), 2020-Oct

Deleting from handout. Because yet to be implemented. This topic didn’t develop much after 2020.
rs

🔠🔠❓MCQ: The term ‘Core Banking Solutions’ correct term? (UPSC Prelims-2016)
he

1. It is a networking of a bank’s branches which enables customers to operate their accounts

regardless of where they open their accounts.
2. It is an effort to increase RBI’s control over commercial banks through computerization.
ot

3. It is a detailed procedure by which a bank with huge non-performing assets is taken over by
another bank.
p

Answer Codes: (a) 1 only (b) 2 and 3 only (c) 1 and 3 only (d) 1, 2 and 3
el

Table 4: Digital Payment Systems- transaction limits may differ, depending on banks
RBI's centralised payment systems (CPS)## NPCi’s IMPS
H

⏰RBI’s NEFT:
RBI’s RTGS: Real Time Immediate
� Type National Electronic
Gross Settlement Payment Service
Funds Transfer
💸💸 Transfer Min ₹2 lakh to ₹2000 ₹ 1 to maximum
upto ₹10 lakhs (SBI).
Amount crores (SBI). ₹5 lakhs

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1A1 Money: Barter to Bitcoins → Page 14

KING R & QUEEN P Help others god will help you

 RBI's centralised payment systems (CPS)## NPCi’s IMPS

Bizmen wanting high

� Target Ordinary retail customers (आम जनता के छोटे भुगतानों
value transactions
customers के िलए है)
instantly
- Settles net amount
🚛🚛 Settlement 🤩🤩Instant settlement 🤩🤩Instant
between banks at

u
mechanism (झटपट/ तुरंत िनपटारा) settlement
interval of 30 min.

yo
BEFORE: only weekday BEFORE: only weekday
office hours. office hours. 24/7 on all days
⏰ Timing
After RBI reforms After RBI reforms (िदन रात अिवरल रूप से)

lp
24/7. 24/7.
BEFORE: fee + GST Tax**
💰💰 Fees fee + GST#

he
After RBI Reforms: Rs.0
- BEFORE-2021: Only Banks can provide this Banks + Prepaid
facility Payment
Instrument (PPI)/
� Who can
provide this
-

ill
2021: RBI announces that non-bank entities can
also become members of centralized payment / mobile-wallet
w
facility? systems (CPS = NEFT & RTGS). companies like
- So, in future, Amazonpay, PhonePe etc could also Phonepe,
directly allow this
d
Mobikwik etc.
⇒ # Although some banks don’t charge IMPS fees for transactions upto ₹ ”X”/- (EXACT Fig
go

NOTIMP)
⇒ ##
FAQ: 🚩🚩�🎓🎓 Why doesn’t RBI Merge RTGS & NEFT? Ans. RBI may have some technical
operational reasons for it. RBI never bothered to disclose it in some big press release or
rs

newspaper headline. So I never bothered to do James-Bond Google search/PHD on it. Because it

is an inefficient way of preparing for UPSC. Nonetheless, if u feel morally-outraged then send
he

suggestion to RBI Governor. Until implemented, prepare things as given in handout. Also, Plz
change your ‘approach’ towards preparation of competitive exam. PHD-walli academic curiosity
is of no use.
ot

� Mrunal comments before next section: In the digital wallet apps → companies introduce new features & RBI
introduces new technical norms on daily basis. We are not here to write a MBA research paper on their business-
p

model & RBI regulations. Q.“sir u said x thing can’t be done in phonepe App but now it can be done…as per my
experience!! Ans. I’ve given simple illustration to explain thing. They keep adding new features in the App. UPSC
el

asking only general broad MCQs from this. #🕰🕰थोड़ा-पढ़ो-आगे-बढ़ो

H

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1A1 Money: Barter to Bitcoins → Page 15

KING R & QUEEN P Help others god will help you

 10.10.3 LPSS- lightweight payment and settlement system

u
yo
- RBI’s (emergency/backup) alternative to NEFT, RTGS and IMPS/UPI.
- To provide a temporary & portable solution during natural disasters and war. (प्राकृ ितक आपदा या युद्ध
के चलते बाकी प्रणािलयाँ बं द हो जाए तो अस्थायी रूप से इसको इस्तेमाल कर सकते)

lp
- Can be operated from anywhere by a bare minimum staff. How it works, what are the features?
NOTIMP.

he
10.11� NATIONAL PAYMENT CORPORATION OF INDIA(NPCI)
⇒ 2008: NPCi is registered under Company Act as a “Not for Profit Company”. (मुनाफा रिहत कं पनी)

ill
⇒ Originally it was founded by 10 banks with ₹ 100cr capital. Later on in 2020: Paytm, PhonePe,
w
Amazon Pay etc also became shareholders of NPCi (ये सब शेयर धारकों ने पूंजी डालकर इस कं पनी को बनाया है)
⇒ Objective? cost-effective payment solutions / technology for Banks. (िरयायती लागत पर बैंिकंग टेक्नोलॉजी)
⇒ Its UPI-BHIM app & other mechanisms also help in financial inclusion of villagers & poors by
d

expanding the reach of banking network. (गरीबों / गाँववालों के िवत्तीय समोवेशन में मदद के िलए अलग अलग
go

तकनीकी आिवष्कार िकए है) ✅More abt financial inclusion in 📑📑Pillar# 1D.

� MCQ-EPFO-2023: Consider the following statements:

rs

- Statement I: In India, the RTGS and NEFT payment systems are owned and operated by
National Payment Corporation of India (NPCI).
he

- Statement II: National Payment Corporation of India is an entity promoted (=owned) by banks.
Which of the following is correct in respect of the above statements?
ot

a) Both statement I and statement II are correct and statement II is the correct explanation for
statement I
b) Both statement I and statement II are correct and statement II is not the correct explanation for
p

statement I
el

c) Statement I is correct but statement II is incorrect (D) Statement I is incorrect but statement II is
correct
H

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1A1 Money: Barter to Bitcoins → Page 16

KING R & QUEEN P Help others god will help you

 u
yo
lp
he
Above is not hundred percent technically correct explanation, but it is just to help you visualise the
concept.
ill
w
10.12� 🤳🤳NPCI → UPI (UNIFIED PAYMENT INTERFACE)
d
It is a technology for building digital payment apps based on IMPS with following features:
go

⇒ QR Scan & Pay to merchants.

⇒ You can link bank account for direct transfer of money without storing money in ‘wallet’ first.
(unlike AmazonPay / Mobikwick etc)
rs

⇒ Such app can have Push transaction (e.g. Remittance to family), Pull Transaction (e.g. monthly
bill deduction by Electricity Co.) or even Bill sharing among friends.
he

⇒ Examples of UPI based app: SBI’s SBIBuddy/Yono, Axis Bank’s AxisPay and NPCi’s BHIM.
⇒ UPI 2.0 (2018): Upgraded version of UPI. What are its new features? How is it different than
UPI 1.0? Ans. NOTIMP #RAFTAAR 🏎🏎🐢🐢
ot

⇒ NPCI has been signing agreements with organisations in Bhutan, Nepal, Singapore, Europe etc.
so that directly Indian tourists in those foreign countries can directly spend the money from
p

their Indian bank account by using UPI-Based Apps. How? Ans. NOTIMP #RAFTAAR 🏎🏎🐢🐢
el

10.12.1 🤌🤌 UPI: Push vs Pull Transactions

UPI based apps allow for both 👉👉Push transactions and 👉👉Push transactions.
H

👉👉Push transactions �Pull transaction

�Push = when u send money by your own �Pull transaction = when you have given
discretion(मज़ीर्) e.g. sending money to a command that every month electricity
relative/friend based on your mood. company should cut the money from my bank

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1A1 Money: Barter to Bitcoins → Page 17

KING R & QUEEN P Help others god will help you

 👉👉Push transactions �Pull transaction
account → company will pull money without
requiring u to push/click buttons every month.
🚩🚩�FAQ: Beyond that, whether “X” thing is push/pull?= Ans. NOTIMP #RAFTAAR ��

10.13� 🤳🤳NPCI → UPI → 123PAY FOR FEATUREPHONES

u
yo
lp
he
Figure 1: बेटी मेरे नोिकया के non-smart phone पे UPI आसानी से कै से इस्तेमाल करूँ?

⇒ If user doesn’t have a smartphone. If he has a Basicphone/Featurephone- with number pads:-

ill
still he can use UPI using USSD (Unstructured Supplementary Service Data) code (99#).
⇒ However this feature was very cumbersome. It was not very popular among the people. (स्माटर्फ़ोन में
w
तो UPI आधािरत ढेर सारी एप्स हैं िकन्तु बेिजक/फ़ीचर फ़ोन में UPI द्वारा पैसों का लेन देन काफ़ी जिटल और किनष्ठ िक़स्म का था.
इसिलए ग़रीब लोग इसे इस्तेमाल निह करते थे। िरज़वर् बैंक और NPCI ने िमलकर नई मुिहम/ प्लेटफ़ॉमर् बनाया ‘123PAY’)
d
So, 2022-March: RBI launched a new UPI platform named 123PAY (with help of NPCI) to give more
UPI-payment options for Featurephones/Basicphones such as-
go

- 1) USSD – (This was already available.)

- 2) Interactive voice response or (IVR)
- 3) missed call-based payments - user sends a missed call and then system calls him back in IVR
rs

mode (ग़रीब आदमी िमस्ड कॉल देता है तो सामने से उसे स्वचािलत फ़ोन कॉल आएगा जहाँ वो िरकॉडेर्ड आवाज़ द्वारा िदए गए
सूचनाओं के िहसाब से अलग अलग नं बर दबाकर पैसों का भुगतान कर सकता है।)
he

- 4) proximity sound-based payments -allow transactions using sound waves for contactless
payments to other phones. (ध्विन आधािरत स्पशर्-हीन भुगतान)
ot

- 5) easier utility bill payment (gas, electricity etc) via feature phone
- 6) user need to link the bank account with feature phone. → Money transfer, check account
balances, pay utility bills, recharge FAST Tags of their vehicles etc
p

- 7) New app for Featurephone

el

Benefit? 😍😍⏫ Digital payment among the poor people who do not have smart phones but have
feature phones. (ग़रीब लोग िजनके पास महँ गा वाला स्माटर्फ़ोन नहीं है वे भी िडिजटल भुगतान कर पाएं गे.)
H

10.13.1 UPI observations by 📙📙Economic Survey-ES-2023

Year Total No. of Digital Transactions (Crores) UPI’s Share of Digital Transactions
FY19 3,100 17%
FY20 4,600 27%

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1A1 Money: Barter to Bitcoins → Page 18

KING R & QUEEN P Help others god will help you

 FY22 8,840 52%
 total number of digital transactions steadily increased in the last three years.
 % share of UPI in the total digital transactions also steadily increased in the last three years.
यूपीआई द्वारा िडिजटल भुगतान में काफी बढ़ोतरी हुई है और यह सब बहुत महान है ऐसा आिर्थक सवेर्क्षण ने पाया.

10.13.2 UPI single-block-and-multiple-debits functionality (2022-Dec)

Not important for the scope of exam / poor cost:benefit in spending time over this topic... after

u
observing the previous years papers.

yo
10.13.3 UPI-Lite (on-device wallet)

lp
he
ill
w
User adds money from his bank account to his UPI Lite wallet on his mobile App. (e.g. Google Pay
App, BHIM App)
d

Usage (NUMBER NOT VERY IMP) UPI-LITE Limit as of 01/Sep/23

go

Max. Limit PER transaction ₹500

Max. Balance / storage capacity of wallet ₹2,000
Max. TOTAL transaction within 24 HRS (i.e. by adding new ₹4,000
rs

money in wallet repeatedly after previous balance is finished.

तािक एसा दुरुपयोग ना हो की हेकर २-२००० हज़ार ख़ाली करके िफर भरता रहेगा और पीिड़त
he

का बड़ा नुक़सान हो जाए।)

� Benefits of UPI-Lite wallet?
ot

- 🤩🤩Faster. Because No need to provide UPI-PIN number during transaction.

- 🤩🤩Less chances of transaction failure- even if sender’s bank server is facing technical issues.
p

10.13.4 �UPI-Lite + NFC = Offline Retail Payment / Tap-and-pay

el

RBI aims to implement Near Field Communication (NFC) in ‘UPI-LITE’. For following benefits
H

- 1) off-line transaction will be possible. Helps in villages with poor internet connectivity.
- 2) contactless / Tap and Pay facility / touch and pay facility by touching your mobile with
merchant’s device.
- 3) More faster / error-free transaction.

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1A1 Money: Barter to Bitcoins → Page 19

KING R & QUEEN P Help others god will help you

 - �FAQ1: What is NFC? Ans. Refer Sci-Tech material. E.g. in USA, u can tap Apple smartwatch
with coffeeshop’s POS-device to pay money.
- �FAQ2: UPI developed by NPCi. Then why is RBI making all these announcements? Ans.
Because RBI is the regulator of such all digital payment technologies. उनके आशीवार्द के िबना नहीं हो
सकता।

10.13.5 💬💬 Conversational payments in UPI

u
- It will help users to chat/converse with AI-powered systems to make payments.

yo
- e.g. similar to how Smart speakers function: ‘Hey Siri/Alexa/Google remind me to buy milk on X
date.’.
- you can similar payment such a instruction via TEXT or voice note to UPI system.

lp
- How it works? Ans. Wait till the official features release.
Benefit?

he
- 🤩🤩Voice command more convenient for blind users.
- 🤩🤩Text based chat can happen within shopping site. No need to redirect to third-party payment
Gateway website like CCBill, CCAvenue, Razerpay, etc. = more secure / efficient.

ill
w
10.13.6 UPI facility to foreign tourists coming to India (2023)
d
go
rs
he
ot

िवदेशी व्यिक्त भारत में बैंक खाता खोलकर यूपीआई वाली मोबाइल ऐप द्वारा भारत में खरीदारी कर सके ऐसे िरजवर् बैंक कदम उठा
रहा है.
p

BEFORE From 2023

if such non-resident/foreigner came to India, he could not do This facility made available to
el

shopping using UPI money transfer from their NRE/NRO** G20 nations ke tourists coming
bank account, to India.
H

** Non-Resident Indians/foreigners can open bank accounts in Indian banks. Such accounts are
known as NRE/NRO/FCNR (Foreign Currency Non-Resident Account). NRE/NRO/FCNR=
internal difference is not imp. For our exam.

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1A1 Money: Barter to Bitcoins → Page 20

KING R & QUEEN P Help others god will help you

 10.13.7 � 🤳🤳NPCI → UPI BHIM Full form: Bharat Interface for Money (2016)
⇒ Money transfer app designed by NPCi. It works on Android, iOS/Apple mobiles as an APP,
⇒ Works even on non-smart (=basic feature) phones using *99# USSD- Unstructured
Supplementary Service Data.
⇒ Bank to bank / peer to peer transaction using mobile phone (xyz@upi). No need to install
multiple apps for each bank account (SBIBuddy, AxisPay etc) just one BHIM app to use all such

u
bank accounts. App has 3 factor authentication system.
⇒ Your money stays in bank account and earns interest. It’s not stored in ‘wallet outside your bank

yo
account’ as it happens in Mobikwick, Phonepe etc. (PS: in later stage, PhonePe etc private apps
also included UPI type mechanism so storing money in ‘wallet’ became optional but we need not
engage in Hairsplittery/PHD.)

lp
⇒ No cards involved so no MDR or such hidden charges.

he
10.14� 💳💳 NPCI → RUPAY CARD PAYMENT GATEWAY (2012)

ill
w
d
go
rs
he

⇒ Rupee + Payment = RuPay card is world’s 7th payment gateway similar to Mastercard, Visacard,
ot

China’s Union Pay. Rupay charges less fees than other companies.
⇒ Works in 3 channels: 1) ATM, 2) Point of Sale Device (PoS/card reader machine), 3) Online
portals.
p

⇒ Rupay debit card given free with PMJDY (Jan Dhan) Bank account (Refer Pill#1D).
el

⇒ Rupay has signed collaboration agreements with some digital payments companies in Singapore,
Japan etc. So, it may be used in those countries. But presently Rupay is not having the widest
H

reach across all the countries unlike MasterCard and Visa.

10.14.1 � NPCI other notable initiatives

Table 5: NPCi has built following mechanisms / platforms / systems / apps:
- Bharat Bill Payment system for monthly payments of utility bills
BBPS & UPMS
(gas, electricity etc.)

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1A1 Money: Barter to Bitcoins → Page 21

KING R & QUEEN P Help others god will help you

 - 2022-Jan: NPCi ‘s daughter/subsidiary company Bharat BillPay Ltd.
Company → launched a Unified Presentment Management System
(UPMS) → but technical stuff. NOTIMP4 exam
😤😤FAQ: How is BBPS vs UPMS similar or different? Ans. NOT IMP 4
Exam. These are one-liner GK. Not PHD thesis topics!
NFS National Financial switch. This technology runs the ATM network

u
CTS Cheque Truncation System (2010) learned in previous section.
NETC ⇒ National Electronic Toll Collection provides technology support to

yo
the FASTag toll collection. (राजमागर् पर पथकर वसूलने के िलए)
PAI chatbot Artificial Intelligence (AI) based chatbot to reply to people’s online
queries about NPCI’s products like FASTag, RuPay, UPI, AePS etc.

lp
DigiSaathi Helpline RBI launched with help of NPCi. - for digital payment & card payments
Number (14431) problems. The No. is 1800 891 3333 (not imp4exam but personal use)

he
DakPay (2020) Payment App by Department of Post and its India Post Payments Bank
BharatQR(2016) Given in next section of this handout. Scroll down
E-Rupi (2021) Given in next section of this handout. Scroll down

10.14.2 NACH-ABPS : Hybrid / Mixed mode in MGNREGA ill

w
Both these technologies developed by NPCi.
d
go
rs
he
ot

National Automated Clearing House for bulk monthly payments of utility

p

bills, dividends, salaries, pension / insurance premiums etc.

NACH
el

😤😤FAQ: How is BBPS vs UPMS vs NACH similar or different? Ans. NOT

IMP 4 Exam. These are one-liner GK. Not PHD thesis topics!
H

AEPS: Aadhar ⇒ Useful for Direct Benefit Transfer (DBT: प्रत्यक्ष हस्तांतिरत लाभ) into
Enabled Payment beneficiary’s account for MNREGA wages, LPG subsidy, scholarship etc.
System 📑📑More in Pill#6
------
⇒ It’s also required for Bankmitra-MicroATM system.

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1A1 Money: Barter to Bitcoins → Page 22

KING R & QUEEN P Help others god will help you

 Aadhaar-based 😤😤FAQ: difference between Aadhaar Enabled Payment system (AEPS) VS
Payment System Aadhaar-based Payment System (ABPS)? Ans. NOTIMP. It is enough to
(ABPS) know, these are related to money transfer to bank account linked with
Aadhar number.

- Mahatma Gandhi National Rural Employment Guarantee Act, 2005: Rural development
Ministry provides 100 days work to villagers. (Ref: Pillar#6 for more)

u
- Presently both NACH and ABPS methods used for giving salaries to MGNREGA workers. Thus,

yo
it’s called Mixed payment mode/hybrid mode for MGNREGA wages.
- Government wants to shift completely to ABPS method. But due to operational and technical
issues, deadline keeps getting delayed. So, topic remains in negative news.

lp
10.15PRE-SANCTIONED CREDIT LINE

he
ill
w
d
go
rs

When a banker allows an account holder to borrow upto a predetermined amount of money, without
having to apply for a loan, it is called Pre-Sanctioned Credit Line. (इसका िहदं ी करने का मतलब नहीं है. मुख्य परीक्षा में
he

इस प्रकार की चीजें नहीं पूछते)

10.15.1 UPI: Pre-sanctioned credit line/Overdraft in UPI (2023-Apr)

ot
p
el
H

- RBI allowed Pre-Sanctioned Credit Line / overdraft facility extended to UPI. (यूपीआइ में ओवर ड्राफ्ट
की सुिवधा)

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1A1 Money: Barter to Bitcoins → Page 23

KING R & QUEEN P Help others god will help you

 - So, even if a person does not have balance in his bank account, still he can PAY using UPI while
shopping. (and then later, when he gets the salary/pension/income deposited in his bank
account, then the banker will recover the principal and interest.)

10.15.2 UPI: Benefits of UPI-overdraft facility?

- Help customers in “Buy now pay later (BNPL)” format of shopping. (Ref: Pillar#1B1 for more)
- Poor people require small small amount of money/loans during last weeks of a month. They

u
cannot travel to the city’s bank branch for the paperwork and banker may take many days to

yo
pass application. Consequently, poor villagers borrow from the local moneylender/Shroff/Baniya
at high interest rate. UPI-Overdraft can help overcoming this to some extend. = helps in
Financial inclusion of the poor. (गरीबों के िवत्तीय समावेशन में मदद)

lp
10.15.3 UPI: Interoperable Card-less Cash Withdrawal (ICCW)

he
ill
w
d

-
go

(ATM मशीन में िबना CARD डाले, मोबाइल ऐप के ज़िरए पैसा िनकाला जा सके ऐसी सुिवधा)
- Benefit? If physical card not inserted in ATM machine → ⏬ dangers of card cloning, etc
scams.
�FAQ: How does it work? My bank not giving this facility?! Ans. 1 line word association for MCQ
rs

is enough.
he

10.15.4 UPI: QR Code based Coin Vending Machine using UPI (2023-Feb)
ot
p
el

Traditionally New experiment by RBI in 2023

insert paper-note to get coin scan QR code�
� transfer money from bank account via UPI
H

�to get coins from machine

कागदी नोट �मशीन में डालकर छु ट्टे अपने बैंक खाते से UPI/QR-code द्वारा पैसा कटवाके बदले में मशीन से छु ट्टे पैसे
पैसे िनकालो िनकालो

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1A1 Money: Barter to Bitcoins → Page 24

KING R & QUEEN P Help others god will help you

 10.16�💸💸💸💸 DBT → E-RUPI BY NPCI (2021)
- (Origin) E-rupi is an SMS /QR Code based Prepaid Cashless Electronic Voucher created by
National Payment Corporation of India (NPCI) using its UPI Platform. [क्यूआर कोड आधािरत प्रीपेड
नगदीरिहत इलेक्ट्रॉिनक रसीद िजसे भारतीय राष्ट्रीय भुगतान िनगम (एनपीसीआई) ने अपने यूपीआई प्लेटफॉमर् का उपयोग कर बनाया]
- It is also supported by finance ministries Department of Financial Services and Health ministry’s
National Health Authority (NHA) [िवत्त मं त्रालय के िवत्तीय सेवा िवभाग और स्वास्थ्य मं त्रालय के राष्टी्र य स्वास्थ्य
प्रािधकरण ने भी इसकी मदद की है]

u
- Can be used to provide 1) Food for mother, child, poor families under various schemes. 1)

yo
Medicines for TB, Corona etc. 3) Fertilizer subsidies for farmers [खाद्य दवाइयां उवर्रक की सिब्सडी]
- Even private sector companies can issue it for 1] employees e.g. Gym membership, golf club
membership, hotel tourism travel. 2] use it for Corporate Social Responsibility (CSR) programs

lp
(What is CSR? Ans. Big companies have to spend a portion of their profit for social service. Ref
Pillar#1C2). [िनजी कं पिनयां भी कमर्चािरयों को िविवध चीजों के िलए दे सकती हैं. कारपोरेट सामािजक दाियत्व अदायगी में भी

he
इसका इस्तेमाल हो सकता है]

ill
w
d
go

- Following reforms taken in E-Rupi in 2022-Feb

BEFORE After
rs

maximum storage limit ₹10,000 per code ₹1 lakh (महत्तम इतना पैसा सं ग्रिहत कर सकते हैं)
code can be used one-time/ single-time ⇒ Code can be used more than once /multi-use -
he

only. (कोड के वल एक-बार इस्तेमाल हो सकता था) until the amount of the voucher is completely
exhausted/redeemed).
ot

⇒ e.g. Out of ₹1 lakh → ₹10,000 paid to furniture

store, ₹20,000 paid to electric-store etc.
p

10.16.1 e-RUPI vouchers: scope expanded (2023-June)

el

Before after 2023-June

Who can Buy E-Rupi Government & 1) Government, Companies AND
H

codes/vouchers? Companies 2) now Individual persons can also buy it (e.g. for
gifting to their maid/driver etc.)
Who can SELL E-Rupi only Banks can 1) Banks AND
codes/vouchers? sell 2) Non-bank Prepaid Payment Instrument (PPI)
e.g. AmazonPay, Mobikwick etc.

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1A1 Money: Barter to Bitcoins → Page 25

KING R & QUEEN P Help others god will help you

 �FAQ: I still didn't understand this! Watch this Youtube Short-
https://youtube.com/shorts/1qoqwvDgbLA?si=VO_aJiHdzisJVCVL

10.16.2 💸💸���Interoperability Problem (इंटरऑपरेिबिलटी)

u
yo
lp
he
🚩🚩�FAQ: What are those technical Rules to improve interoperability? NOTIMP #RAFTAAR.

10.17�💸💸QR CODES: COMPULSORY TO IMPLEMENT UPI/BHARAT QR FROM 2022

-
ill
1990s: 2 dimensional (2D) Quick Response (QR) Code system developed in Japan.
w
- Indian E-payment systems function on 3 types of QR Codes, namely,
Table 6: ✋Difference between UPI QR vs Bharat QR? NOT.IMP.4.EXAM ⏳📚📚थोड़ा-पढ़ो-आगे-बढ़ो
Proprietary QR ⇒ e.g. Paytm or PhonePe ke exclusive QR codes.
d
code ⇒ 😰😰Problem? Other companies’ app may not be able to scan and pay it.
go

⇒ So, RBI has prohibited companies from launching any new

proprietary QR code.

UPI QR code Generated by UPI app of NPCi. 🤩🤩It can be scanned by all Apps which are
rs

developed using UPI technology.

Bharat QR code
he

Developed by NPCi with help of Visa and Mastercard. 🤩🤩It can be

scanned by all Apps which are developed using UPI technology.
⇒ RBI has ordered all the Payment System Operators (PSOs e.g. Paytm, PhonePe, MobiKwik,
ot

Google Pay etc) to shift to UPI QR or Bharat QR by March 31, 2022.

⇒ 🤩🤩Benefit? All Payment apps will be able to scan these QR codes → 'interoperability'.
p
el

10.17.1 �💸💸rMQR (Rectangular Micro QR Code)

H

⇒ 1990s: JAPANESE ENGINEER Masahiro Hara, designed the square QR code

⇒ Now he’s working on rMQR (rectangular QR code).

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1A1 Money: Barter to Bitcoins → Page 26

KING R & QUEEN P Help others god will help you

 ⇒ rMQR can be printed in narrow spaces
⇒ rMQR has same scanning speed are normal square shaped QR code.
10.17.2 💳💳 Card Types based on Security Features: (सुरक्षा प्रणाली के िहसाब से काडर् के प्रकार)

u
yo
lp
he
ill
w
HomeWork: Read about RFID & NFC from Sci-Tech book/internet.
d

10.18💳💳 CREDIT & DEBIT CARDS (ALSO CALLED ‘PLASTIC MONEY’)

go
rs
he
ot
p
el
H

Table 7: 💳💳 Card Types based on Payment modality

1) Credit Card (कजर् पे शॉिपंग) 2) Debit Card (अपने बैंक बचत का पैसा इस्तेमाल करो)
If Credit card used for withdrawing money Debit card can be used to withdraw ₹ ₹ from
from ATM, then it’s a type of ‘borrowing’, so, ATM from your existing bank balance.
bank levies interest rate. So, it’s not ‘borrowing’.

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1A1 Money: Barter to Bitcoins → Page 27

KING R & QUEEN P Help others god will help you

 1) Credit Card (कजर् पे शॉिपंग) 2) Debit Card (अपने बैंक बचत का पैसा इस्तेमाल करो)
Credit card vs Overdraft? Debit card vs Overdraft?
1. Credit cards = for shopping. You carry card You should be intelligent enough to self-
in your pocket. Bank may give u some understand that much. िशक्षक हर चीज की स्पून फीिडंग
reward-points/gifts if you spend “₹.X” per करेगा/चम्मच से िखलाएं वह िवद्याथीर् के मानिसक िवकास के िलए अच्छी
year बात नहीं
2. - for overdraft= you have to manually visit

u
the bank branch, fillup form. It’s not in the

yo
form of a ‘card’. Doesn’t give u points/gifts.
✋Further difference
not.imp.not.here.for.IBPS-exam

lp
⇒ 3) Hybrid Card / Duo Card: Single card with two chips for 1) credit card and 2) debit card. So,
you don’t have to carry two separate cards. E.g. Indusbank Hybrid card. एक ही काडर् में दोनों का मजा🤩🤩

he
⇒ 4) Pre-paid card: It’s a subtype of debit card. Debit card is linked to a given bank account. But
Pre-paid card can be bought even without having account in the given bank e.g. IRCTC’s UBI
Prepaid Card which can be used for buying rail tickets, meals etc. support provided by Union

ill
Bank of India (UBI) and NPCi’s Rupay gateway. (इस काडर् को पैसा देके खरीदना पड़ता है। बैंक खाता होना जरूरी
नहीं )
w
🚩🚩�FAQ: Other technical benefits / MDR challenge / BizGK / PHD-doubts / real life implications
= not imp.
d

10.18.1 💳💳 📧📧 Card Tokenization (from 1/Oct/2022)

go
rs
he
ot

⇒ Tokenisation = creates a set of numbers called ‘token’ to replace/hide the sensitive card data
such as the 16-digit account number, expiry date and security code. (हैिकंग से बचने वास्ते असली काडर्
p

नं बर की जगह टोकन/काल्पिनक-नं बर बनाकर दे दो एसी बात है। तािक िवक्रेता का आपके काडर् की गुप्त जानकारी िमले नहीं)
⇒ This ensures your card information is not disclosed to merchant website= protection from
el

hacking.
H

⇒ Card owner can generate Tokenization through visiting card-issuer’s/banker’s website/App

through laptops, desktops, tablet, wearables (smartwatch) etc.
⇒ From 1/10/2022, this became effective.

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1A1 Money: Barter to Bitcoins → Page 28

KING R & QUEEN P Help others god will help you

 u
yo
lp
he
Figure 2: थप्पड़ से डर नहीं लगता, Identity theft se lagtaa hai!

10.18.2 💳💳 CVC Less transactions

ill
w
⇒ Normally, during online-transaction, customer has to enter Cardholder Verification Code
(CVC) EVERYTIME when making payment.
d
⇒ but after the RBI’s tokenisation norms, this may not be required every time.
⇒ Related topic: WHAT IS Mastercard company’s CVC less transactions? Ans. This much Real life
go

Business general knowledge is not required for exam.

rs

10.18.3 💳💳 🚕🚕 National Common Mobility Card (NCMC, 2019)

‘One Nation One Card Model’ by Ministry of Housing & Urban Affairs (MoHUA) with the help of
he

NPCi, Bharat Electronics Limited (BEL Company), and some banks. It’s basically a card u can use to
buy train/bus tickets etc. Outdated for 2023-24 so Deleting for RAFTAAR.
ot

10.18.4 💳💳 🚕🚕 FASTag for paying toll fees at highways (2017)

FASTags are prepaid rechargeable tags that allow for automatic toll
p

collection at electronic toll collection gates Radio-frequency

el

Identification (RFID) technology.

H

⇒ 2017: National Highways Authority of India (NHAI, a statutory body under Highway ministry)
launched 2 mobile apps MyFASTag and FASTag Partner to facilitate Electronic Toll Collection
(इलेक्ट्रॉिनक माध्यम से पथकर/टोल वसूली के िलए राष्ट्रीय राजमागर् प्रािधकरण द्वारा अलग अलग एप बनवाए गए हैं).
⇒ NPCi’s has developed National Electronic Toll Collection (NETC) technology to aid this.

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1A1 Money: Barter to Bitcoins → Page 29

KING R & QUEEN P Help others god will help you

 ⇒ Persons loads up ₹ ₹ in his mobile app → actives RFID tag in his car → when it passes through
highway toll-booth, the money is automatically deducted. (गाडी टोल नाके से गुजरेगी अपने आप पैसा कट
जाएगा)
⇒ 🤩🤩Benefit? faster traffic movement, tracking stolen cars.
⇒ From 2021, it became mandatory for all vehicles passing through tolls to have FASTags. Vehicles
without FASTags will have pay up more fees/toll at the gates. (ये लगाना अिनवायर् हुआ, अन्यथा ज्यादा फीस)

u
10.19💳💳 MDR: FULL FORM: MERCHANT DISCOUNT RATE (व्यापािरक छू ट दर)

yo
⇒ MDR is the fees that a merchant must pay to his (acquirer) bank for every credit / debit card
transaction.
⇒ MDR fees is shared among 3 parties 1) customer’s card issuing bank 2) merchant’s acquiring

lp
bank 3) payment gateway provider. (तीन पक्षों में इस फीस को बांटा जाता है)

he
⇒ MDR hurts merchants’ profit margin, discourages them from adopting Point of Sale (PoS)
terminals (=card swiping machine) → obstacle to digital economy. (व्यापारी के मुनाफे पर असर होता है
इसिलए वह काडर् मशीन अपनाने में उदासीनता िदखाते है। )
Table 8: Steps taken to address MDR issue
RBI
ill
⇒ 2017: Imposed ceilings on MDR fees i.e. MDR can’t be more than “x%” of the
transaction amount. (िरज़वर् बैंक द्वारा तय सीमा से ज्यादा फीस नहीं मांग सकते)
w
Budget ⇒ It imposed some technical rules to help companies. I’m deleting it because old
2019 /faded news, mostly technical.
d
go

10.19.1 💳💳 MDR Subsidy by MEITY

rs
he
ot
p
el

In above photo, MDR fees % is not actual number but for illustration/example.
H

🔠🔠❓MCQ. Which one of the following best describes the term “Merchant Discount Rate”
sometimes seen in news ? (Pre18 Set-D)
A. The incentive given by a bank to a merchant for accepting payments through debit cards
pertaining to that bank.
B. The amount paid back by banks to their customers when they use debit cards for financial
transactions for purchasing goods or services.

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1A1 Money: Barter to Bitcoins → Page 30

KING R & QUEEN P Help others god will help you

 C. The charge to a merchant by a bank for accepting payments from his customers through the
bank’s cards.
D. The incentive given by the Government, to merchants for promoting digital payments by their
customers through Point of Sale (PoS) machines and debit cards.

u
yo
lp
he
Instrument UPI NPCI's Rupay NPCI's Rupay Credit Card
Debit Card Mastercard/Visa’s Debit/Debit card etc
MDR % on transaction value 0% 0% “x”% (NOT ZERO)

ill
⇒ 😥😥 So, if a banker promotes Rupay debit card / UPI App → Banker will not earn MDR fees. So
bankers promote MasterCard & Visacard to their customers and merchants (instead of
w
Rupay/UPI). (बैंकर को मज़ा नहीं आता क्योंिक उसे डेिबट काडर् व यूपीआई एप में MDR की फ़ीस निह िमलेगी।)
⇒ So, 2021-Dec: MEITY (Ministry of Electronics & Information Technology) announced up to
d
₹2,000 MDR Subsidy to Merchant's Bank for RuPay debit cards transactions and UPI
transactions.# (तो सरकार ने बैंकरों को बोला की तुमको मज़ा िदलवाने के िलए MDR नुक़सान के एवज़ में सिब्सडी देंगे)
go

⇒ 😍😍 this will encourage digital payment especially in small towns / rural areas (िडिजटल भुगतान ऊपर
लगने वाले मरचण्ट िडस्काउं ट रेट पर सरकार द्वारा सिब्सडी दी जाएगी यिद भुगतान रुपये डेिबट काडर् या UPI द्वारा हो रहा है)
⇒ 😥😥 Foreign Players like MasterCard and Visacard are opposed to Indian govt’s preferential
rs

treatment given to India's Rupay. (“रूपे” को िमल रही एसी िरयायतों से िवदेशी काडर् कं पिनया नाराज़ है)
🚩🚩�🎓🎓 FAQ: "I've 500 jaat ke PHD doubts & counter arguments about this MDR subsidy" Ans.
he

Plz waste your precious time reading egazette.nic.in/WriteReadData/2021/231960.pdf

10.20INTERCHANGE FEE BY NPCI (2023-MARCH)
ot
p
el
H

Note: There are many more terms and conditions to this, but we will not waste time in PHD.

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1A1 Money: Barter to Bitcoins → Page 31

KING R & QUEEN P Help others god will help you

 10.20.1 💳💳 🏧🏧 ATM and its Types

⇒ Automated Teller Machine (ATM) allow bank customer to withdraw money or check balance

u
without visiting any branch of a bank. (स्वचािलत रूप से नकदी मुद्रा देने वाला यांित्रक िडब्बा)

yo
⇒ ATM network works on NPCi’s NFS (National Financial Switch) technology.
Bank label Bank itself owns and operates the ATM network.
Brown label Bank owns but operations outsourced (cash refilling truck, guard)

lp
⇒ Note: Some books offer different definition, but I’ve taken above definition
from Economic Times Article 2015.(कु छ िकताबों में व्याख्या अलग है मैंने इधर से ली है)

he
White label - Non-Bank owns & operates. E.g. Muthoot Finance, Tata Comm, Prism
- 🚩🚩�FAQ: What is on-tap licensing system for White-label ATM? Ans.
Outdated topic for 2023.
Micro-ATM

ill
Bankmitra manually makes entries of deposit and withdrawal for customer. He
uses handheld device for using card & Aadhar biometrics. NPCi’s AEPS
w
technology gives backend technological support.
d

10.21💸💸💸💸� 📈📈 MEASURES TO PROMOTE CASHLESS ECONOMY

go

- 2019: RBI setup Nandan Nilekani committee.

- Budget imposed limits and restrictions on cash transactions (more in Pillar2:Black Money)
- + many small small things for Mains Exam. Ignored here for #RAFTAAR-Prelims.
rs

10.21.1 � 💳💳💳💳 Payments Infrastructure Development Fund (PIDF) 2020-Jun

he

⇒ ₹250cr from RBI + ₹250 cr from (Banks and Card Gateway Operators) → ₹500 cr fund setup.
⇒ Objective? Provide funding/ subsidy to encourage merchants in the small towns, villages and
North Eastern states to adopt point-of-sale (PoS) card swiping machines.
ot

भुगतान इं फ्रास्ट्रक्चर के िलए िनिध/कोष: गांव, छोटे शहरों और उत्तर-पूवीर् इलाकों में व्यापािरयों को काडर् मशीन अपनाने के िलए मदद
p

10.22🌐🌐🤝🤝GLOBAL MONEY TRANSFER

el

10.22.1 India-UAE: LCSS: UPI-IPP linkage (2023-Aug)

- 2023: Central banks of India and UAE signed Local Currency Settlement System (LCSS)
H

agreement.
- This will allow importers/exporters/investors/tourists to pay in their respective domestic
currencies i.e. in Indian rupee (INR) and the UAE Dirham (AED). (Without using Dollars.)
- Both nations also trying UPI-IPP linkage for easier Local Currency Settlement System (LCSS).

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1A1 Money: Barter to Bitcoins → Page 32

KING R & QUEEN P Help others god will help you

 u
yo
Country → India UAE
Mobile based Fast Payment Systems Instant Payment Platform
UPI

lp
(FPSs) → (IPP)
� More about currency exchange in (Ref: Pillar#3 Currency Exchange)

he
10.22.2 Nostro-Vostro / Rupee-Ruble / Rupee-Rial Agreement?
(Ref: Pillar#3: international trade / currency exchange)

10.22.3 RUPAY Cards- International acceptance

ill
w
2023-June: RBI allowed international use of RuPay cards. That means an Indian travellers in use
them abroad for ATM money withdrawal and shopping. (subject to terms and conditions)
d
10.22.4 💸💸📞📞Financial Messaging Systems: SWIFT- Russia gets banned
go
rs
he
ot
p

Globally (वैिश्वक स्तर पे पैसा भेजना हो) Within India (भारत के भीतर ही पैसा भेजना हो!)
el

Society for Worldwide Interbank Structured Financial Messaging System (SFMS)

H

financial telecommunication (SWIFT)

By a Cooperative organization in designed by Tata Consultancy Services (TCS) for
Belgium’s La Hulpe city (1973). IDRBT (=Research arm of RBI)

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1A1 Money: Barter to Bitcoins → Page 33

KING R & QUEEN P Help others god will help you

 Globally (वैिश्वक स्तर पे पैसा भेजना हो) Within India (भारत के भीतर ही पैसा भेजना हो!)
To serve the messaging function for to serve the messaging function in NEFT, RTGS, and
Banks, NBFCs & brokers who may / may other inter-bank, intra-bank e-transactions
not have direct bank relations / platforms within India.
settlement systems with each other due to
international borders.

u
😥😥 Nations banned from SWIFT: 1) Iran (Capital Tehran) 2) 2022: Russia got ban, after invading
Ukraine. This will make it very difficult for the Russian banks/ NBFCs /businessmen to send and

yo
receive money internationally (यूक्रेन-आक्रमण के िख़लाफ़ रूस को िस्वफ़्ट-िवत्तीय सं देश प्रणाली से प्रितबं िधत िकया गया है िजसके चलते
रूसी बैंक िवत्तीय सं स्थान और उद्योगपितयों को अंतरराष्टी्र य स्तर पर पैसों के लेन में िदक्कतें आएं गी।)

lp
10.23�📜📜📜📜 PAYMENT SYSTEM OPERATORS?

he
Payment and Settlement Systems Act, 2007: RBI gives license to Payment System Operators (PSOs).
Type of PSO Examples
Umbrella Entity For Retail Payments → NPCi (learned in previous section)
Card Payment Gateway Operator →
Crossborder / International Remittance ill
MasterCard, Visa, Rupay
Western Union, MoneyGram
w
Prepaid Payment Instrument (PPI) AmazonPay, Mobikwik, Phonepe, PayU, PayTM Wallet
etc
d
Payment Aggregators (PAs) They help the merchant to collect payment from
go

customer digitally e.g. Paytm, Amazon, GooglePay,

Zomato, CCBill, CCAvenue, Razerpay, Stripe etc.
ATM Operators SBI etc's own ATMs
rs

White label ATMs by Tata, Muthoot, SREI etc

Financial Market Infrastructure Clearing Corporation of India (CCI): provides digital
he

Provider infrastructure for share/bond/foreign currency deals etc.

(📑📑Ref: HDT-Pillar#1C)
ot

10.23.1 �New Umbrella Entity (NUE) for Retail Payments System (2019)
⇒ Paytm has rival companies like Mobikwick, Phonepe; Mastercard vs Visa; SBI vs Axis Bank;
⇒ But there is no rival company against NPCi. वतर्मान समय में NPCi का प्रितस्पधीर् कोई नहीं है
p

⇒ NPCi is an umbrella entity for retail payments system - it operates in card payment (RuPay),
el

Money transfer (IMPS), Mobile Apps (UPI, BHIM), ATM Network (NFS) etc.
⇒ 2020: RBI issued a proposal, “if any Indian company interested to compete in this (NPCi-like)
H

retail payment segment, we’ll license them as new umbrella entity (NUE: खुदरा भुगतान के िलए नई छतरी
इकाई). Subject to these technical “XYZ” technical eligibility requirements”
�Benefits? More companies like NPCi → more competition → more innovation and cheaper
services for users. (स्पधार् बढ़ेगी तो नए आिवष्कार होंग,े िडिजटल भुगतान सेवाएं पहले से भी ज्यादा सस्ती / िकफायती/बहेतर हो)

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1A1 Money: Barter to Bitcoins → Page 34

KING R & QUEEN P Help others god will help you

 ⇒ Facebook, Google, Amazon, Flipkart and others had applied for NUE licences. But none of them
met RBI’s expectations. So, 2023-Jan: RBI has put this license process on halt/suspension. (िजन
कं पिनयों ने इसके वास्ते अजीर् डाली थी उनके अनुभव और कािबिलयत से िरजवर् बैंक सं तुष्ट नहीं था. इसिलए अभी िरजवर् बैंक ने इस पूरे
मामले को ठं डे बस्ते में डाल िदया है)

🔠🔠❓ MCQ. Find Correct Statement(s) [asked in UPSC- Prelims-2017]

1. NPCI helps in promoting the financial inclusion in the country.

u
2. NPCI has launched RuPay, a card payment scheme.

yo
Answer codes: (a) 1 only (b) 2 only (c) Both 1 and 2 (d) Neither 1 nor 2
🔠🔠❓ MCQ. Find Correct Statement(s) [asked in UPSC- Prelims-2018]
1. BHIM app allows the user to transfer money to anyone with a UPI-enabled bank account.

lp
2. While a chip-pin debit card has four factors of authentication, BHIM app has only two factors of
authentication.

he
Answer codes: (a) 1 only (b) 2 only (c) Both 1 and 2 (d) Neither 1 nor 2

10.23.2 � Third Party Application Providers (TPAPs): Google Pay, Whatsapp Pay
Delhi HC court case going on about their registration. But NOTIMP/outdated. #RAFTAAR �
िजसको IAS/IPS बनना है वह आगे का Next topic पढ़े….
ill
w
10.24� 💳💳 DIGITAL PAYMENT REGULATORY BODIES (िनयं त्रण सं स्थाएँ )
d
10.24.1 � 💳💳 Digital Transactions Ombudsman (DTO-2019)
⇒ RBI designates senior RBI officials at 21 places across India as DTO. They hear customer complaints upto
go

₹ 20 lakh against prepaid payment instruments, Mobile wallets, Apps, NEFT/RTGS and other digital
transactions. ((िडिजटल लेनदेन िशकायत िनवारण अिधकारी/लोकप्रहरी).
⇒ They can order the company / bank to fix problem and pay upto additional ₹ 1 lakh for mental agony of
rs

customer → Higher Appeal to Dy.Gov of RBI. (मानिसक उत्पीड़न के िलए जुमार्ना/मुआवजा).

⇒ If matter > ₹ 20 lakh, then matter outside his jurisdiction. Victim has to approach courts. (20 लाख से अिधक
he

रकम का मामला होगा, तो पीिड़त ने न्याय/इं साफ के िलए अदालत/कोटर् में जाना होगा)

10.24.2 � RBI: BPSS (Statutory body)

ot

⇒ 1998: Narsimham-II Committee on Banking Reforms suggested regulatory framework for e-

banking, card payment etc. Then,
⇒ 2007: Payment & Settlement Systems Act (भुगतान और िनपटान प्रणाली अिधिनयम) → RBI → (Statutory)
p

Board for Regulation and Supervision of Payment and Settlement Systems (BPSS: भुगतान और
el

िनपटान प्रणाली के िविनयमन और पयर्वेक्षण के िलए बोडर्).

⇒ All types of payment system providers have to register with RBI’s BPSS- whether bank, non-
H

bank, wallet/Prepaid Payment Instrument (PPI) etc. (सभी भुगतान सं स्थाओं ने पं जीकरण करवाना अिनवायर्)

10.24.3 �Payment Regulatory Board (PRB)

Government wanted to setup this body few years back. But, this is not YET setup and no new
developments. So, Outdated for 2024. Deleted for #Prelims-RAFTAAR🏎🏎

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1A1 Money: Barter to Bitcoins → Page 35

KING R & QUEEN P Help others god will help you

 10.25🐯🐯📊📊 DIGITAL PAYMENT RELATED INDEX / COMPETITIONS/REPORTS BY RBI
Below table given if preparing for RBI grade-B officer exam etc. I am not spending time in writing
the ranks because poor cost benefit for #IAS-Prelims-RAFTAAR.

��REPORT RBI's Payment and Settlement Systems in India Vision 2019 – 2021
��INDEX/Ranking RBI Digital Payments Index– to check level of digital payment in various areas
of India. (DPI िडिजटल भुगतान सूचकांक)

u
��INDEX/Ranking RBI’s Financial Inclusion Index– to check whether every poor person is having

yo
access to banking, loan, insurance pension, etc. (िवत्तीय समावेशन सूचकांक)
��Competition RBI’s Harbinger Hackathon 2021 competition for innovation in digital
payment.
10.26🔗🔗💮💮 CRYPTO-CURRENCY & BLOCKCHAIN TECHNOLOGY

lp
Note: For easier visualisation, I have wrote “bitcoin” instead of “crypto-currency” at most places.

he
ill
w
d
go
rs
he
ot
p
el
H

⇒ [Definition] Cryptocurrency: is a digital / virtual currency created & stored using blockchain
technology.िक्रप्टोमुद्रा एक िडिजटल मुद्रा है िजसे ब्लॉकचेन तकनीक का उपयोग करके बनाया और सं ग्रहीत िकया जाता है।

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1A1 Money: Barter to Bitcoins → Page 36

KING R & QUEEN P Help others god will help you

 ⇒ [Definition] Blockchain: A secured decentralized database/ distributed ledger technology (DLT)
that maintains a continuously growing list of records / transactions. Old entries can’t be deleted,
new entries will be visible to all. Mainly used for running cryptocurrency network. But it can also
store any type of data. (ब्लॉकचेन एक डेटाबेस है जो िरकॉडर् की िनरंतर बढ़ती सूची को िवके न्द्रीकृ त रूप से बनाए रखता है।)
⇒ [Origin] Anarchist groups lost faith in FIAT MONEY because USA’s Subprime Crisis (2007)
eroded the purchasing power of US Dollar. They also dislike Banks & Card Companies because
of transaction charges on e-banking, card payments, MDR, interoperability issues. (अशासनवादी

u
समूहों को सरकार द्वारा जारी की मुद्रा नापसं द। इन अशासनवादी समूहों को बैंक और काडर् कं पिनयों से भी नफरत है)

yo
⇒ 2009: An anonymous user (अनाम/अज्ञात) Satoshi Nakomoto launched a cryptocurrency ‘Bitcoin’.
⇒ total 21 million Bitcoins, wherein 1 Bitcoin (BTC) = 108 Satoshi (the smallest unit).
⇒ Other examples: Ethereum, Litecoin, Digicoin, Laxmicoin, Ripple, Dogecoin etc.

lp
10.26.1 👝👝Hot Wallet vs Cold Wallet

he
Just like you store money in Paytm DIGITAL Wallet. You can store Bitcoin and other
cryptocurrency in Crypto Digital Wallets. Such wallet could be hot wallet or cold wallet.

⇒ 🔥🔥 Hot wallets are connected to the internet, (e.g. an online app)

ill
⇒ ❄ Cold wallets are not connected to internet (e.g. a USB pendrive).
w
10.26.2 🔗🔗💮💮📉📉:🥶🥶☃Crypto-Winter in Bitcoin Prices (भाव िगरा अब उठ निह रहा है)
⇒ Between 2021-Nov to 2022-Jun: Bitcoin fell from ~$70,000 to $20,000 → almost 70% loss! &
d
similar situation in many other cryptocurrencies.
go

⇒ Some experts fear the prices will remain frozen in this range for upcoming months, hence using
the term "Crypto-Winter" to denote it. (िक्रप्टो-मुद्राओं के दाम िगर गए हैं और वापस ऊपर निह चढ़ रहे, लगता है
िक्रप्टो-बाज़ार सदीर्/ठं डी में जम गया है)
rs

10.26.3 🔗🔗💮💮📉📉:🥶🥶☃ Crypto-scams - Recent Global Scams

Binance It is name of an online exchange/portal to buy/sell cryptocurrency. Remains in
he

negative news because of frauds/scams.

FTX ⇒ It is name of an online exchange/portal/exchange to buy/sell cryptocurrency. It
ot

went bankrupt. Resulting into losses for the investors. . Its founder/CEO arrested
for scam → 10 lakh+ investors’ money got stuck.
��FAQ: FAQ: How were these scams conducted? Ans. Its forensic analysis not important for
p

our exam. Ans. Sufficient to know these are the dangers associated with crypto currency. ऑनलाइन
el

प्लेटफॉमर् जहां िक्रप्टो मुद्रा की खरीद िबक्री की जाती थी. 10 लाख से अिधक िनवेशकों को चूना लगाया गया/ गबन हुआ है
H

��FAQ: FAQ: How is Bitcoin not traceable, we can trace it using XYZ technology?

�Ans. Using HTML, we can create Wikipedia website and using HTML we can also create gmail
website. While everyone can read Wikipedia, I can’t read your gmail page, unless I know your
username password. Blockchain is similar. It depends on designer to make database “open” or

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1A1 Money: Barter to Bitcoins → Page 37

KING R & QUEEN P Help others god will help you

 “private/encrypted”. Beyond that, we are not here for B.Tech (Computer Science) Semester
exam/James Bond recruitment. We just have to memorize 3-4 negative points for exam.

10.26.4 🔗🔗💮💮:Crypto currency observations by 📙📙EcoSurvey’23

⇒ Cryptocurrencies are primarily held by a few big players/“whales”. So they can manipulate the
prices by manipulating the supply.
⇒ Problems related to electricity-consumption, tax-evasion, abnormal fluctuation in prices,

u
investors-fraud, no-intrinsic value et cetera.

yo
⇒ then economic survey, 2023 give various examples of different-different legal provisions in EU,
Japan, Switzerland, Nigeria etc. But from exam point of view not much benefit chasing it.
⇒ sufficient to know that coordinated international effort required to regulate the sector. OECD

lp
and G20 group are working in this direction. More about these intl.orgs in Pillar3B.
⇒ And ideally, we need strict rules over crypto-market, just like we’ve strict rules over sharemarket

he
चं द बडे िखलािड़यों ने ज्यादातर िक्रप्टोमुद्रा अपने कब्जे में की है. और वही िखलाडी इसकी सप्लाई/आपूिर्त को िनयं ित्रत करके , उसके दामों
में छे ड़छाड़ करते रहते हैं. िक्रप्टो मुद्रा में िबजली की खपत, कर-चोरी, आम-िनवेशक से धांधली होती है. िविभन्न देशों में इसपर अलग-
अलग के िनयम/कानून बनाए गए हैं, लेिकन वैिश्वक रूप से िनयमों में एकरूपता और सहकार की जरूरत है- आिर्थक सवेर्क्षण ने पाया.

ill
10.26.5 🔗🔗💮💮:🍋🍋 Cryptocurrency Profit pe 30% Tax and 1% TDS in 👜👜👜👜Budget-2022
w
Refer to Pillar2A: Budget Direct Taxes to learn this matter.
d
10.27⚖🔗🔗💮💮✋ CRYPTOCURRENCY BANNED IN OTHER NATIONS?
go

⇒ Nepal, Algeria, Egypt, Morocco, Turkey , Iran etc: Bitcoin is illegal. (कु छ देशों में िक्रप्टो मुद्रा रखना
गैरकानूनी है)
⇒ Chinese prohibited the banks from providing buying/selling/investment services for bitcoin etc
rs

cryptocurrencies. After this crackdown, Bitcoin prices fallen ⏬⏬ by 30%

10.27.1 Crypto currencies as legal tender is in some countries

he

Two legal tenders: 1) Bolivar Paper currency issued by Govt 2) Petro

Venezuela
Cryptocurrency issued by Govt.
ot

Capital: Majuro, Sovereign state having free association with USA (for defense,
Marshall social security, budget). Legal Tender was U$D. But,
Islands ⇒ 2018-Feb: became first country to launch sovereign cryptocurrency named
p

“Sovereign” [SOV]. So, now two legal tenders: US Dollars and SOV.
el

⇒ El-Salvador: Two Legal tenders [1) US Dollars (from 2001). [2) Bitcoin
(from 2021).
H

El-Salvador
⇒ Thus, El-Salvador became 1st nation in the world to allow Bitcoin as legal
tender
😤😤FAQ: Why El-Salvador allowed Bitcoin? Ans.✋ not important after looking at previous
prelims and mains papers. We’re not preparing for El-Salvadori-ElAS exam

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1A1 Money: Barter to Bitcoins → Page 38

KING R & QUEEN P Help others god will help you

 10.28🔗🔗💮💮:🤩🤩 CRYPTOCURRENCY PERMITTED IN OTHER NATIONS/GROUPS
⇒ United Nations International Children's Emergency Fund (UNICEF, HQ-
🌐🌐 UNICEF
New York,USA; 1946, later renamed to UN Children's Fund)
⇒ 2019: UNICEF setup a Cryptocurrency Fund to accept donations in
cryptocurrencies. It has become the first UN organization to accept
cryptocurrency. (यूिनसेफ सं स्था दान में िक्रप्टो मुद्रा का भी स्वीकार करती है)

u
⇒ 2018: World Bank launched World’s first blockchain bond called “Bond-i”
🌐🌐 World
in Australia, denomination: Australian Dollars → public invests, gets ~2%

yo
Bank
interest after 2 years.
(More about
⇒ Blockchain bond requires less cost in server / database /paperwork
this org in
maintenance unlike traditional bonds. 📑📑More in Pillar#1C:

lp
📑📑Pillar#3B)
SEBI/Sharemarket

he
⇒ World Economic Forum (WEF) is a non-government organization in
Bill of Rights Cologny-Geneva, Switzerland. (िवश्व आिर्थक मं च. गैर सरकारी सं गठन)
⇒ 2020: Published a document, ‘Blockchain Bill of Rights’ . Document talks
(अिधकारो का about rights to accountability, transparency, data privacy, data protection
िवधेयक)
ill
etc. (ब्लॉकचेन अिधकार पत्र/िवधेयक: जवाबदेही, पारदिर्शता, डेटा गोपनीयता, डेटा सुरक्षा आिद के
w
अिधकार)

10.29🔗🔗💮💮🥇🥇 CRYPTOCURRENCY → GLOBAL REGULATIONS

d
go

10.29.1 Global Regulations → MICA regulation by EU (2023)

⇒ European union (EU)’s rules called the Markets in Crypto Assets (MiCA)
⇒ To protect people from scams /frauds in crypto currency investment.
rs

⇒ To combat tax-evasion, money laundering (i.e. converting black money into white) AND terror-
finance.
he

⇒ Doesn’t regulate central bank digital currencies (CBDC). Doesn’t regulate nonfungible tokens
(NFTs).
ot

10.29.2 Global Regulations → CARF Framework by OECD (2022)

⇒ Crypto-Asset Reporting Framework By OECD (Organisation for Economic Co-operation and
Development)O
p

⇒ Objective? Similar to EU’s MICA Rules.

el

10.30🔗🔗💮💮🥇🥇 CRYPTOCURRENCY → STABLE-COINS

H

⇒ Stablecoin is a type of cryptocurrency whose price is backed by a reserve asset like gold / dollar /
fiat currency e.g. Facebook’s proposed ‘Libra’, Tether, Basecoin, and TrueUSD.
⇒ 😰😰But, stablecoins challenges: 1) money laundering (धनशोधन / काले धन को वैध बनाना) 2) terror
financing (आतं की िवत्तपोषण) 3) lack of consumer protection (उपभोक्ता सं रक्षण की कमी) 4) financial
frauds (िवत्तीय धोखाधड़ी). 2019: France, EU, G20 group opposed. (बड़े देश/सं गठन इसके िवरोध में है)

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1A1 Money: Barter to Bitcoins → Page 39

KING R & QUEEN P Help others god will help you

 🔠🔠❓MCQ. Find correct statement(s) about Bitcoin? [UPSC-CDS-2017-I]
1. It is a decentralized virtual currency.
2. It is generated through complex computer software systems.
3. The Reserve Bank of India recognized it as a legal tender in January 2016.
Answer Codes: (a) 1 only (b) 1 and 2 only (c) 2 and 3 only (d) 1, 2 and 3

u
🔠🔠❓ MCQ. Find correct statement(s) about “Blockchain Technology” [UPSC-Prelims-2020]

yo
1. It is a public ledger that everyone can inspect, but which no single user controls.
2. Structure and design of blockchain is such that all the data in it are about cryptocurrency only.
3. Applications that depend on basic features of blockchain can be developed without anybody’s
permission.

lp
Answer Codes: [a) 1 only [b) 1 and 2 only [c) 2 only [d) 1 and 3 only

he
10.31WORLD COIN PROJECT (2021–22)

ill
w
d
go

Pros and Cons? Similar to the Aadhaar card:

- Pros: IF governments across the world ACCEPT this as “identification proof”= easier to avail
various government schemes benefits /college admission / passport application etc. Time-trouble
saved. (यिद देश िवदेश की सरकारें इसे एक आिधकािरक पहचान पत्र के रूप में मान लें तो गरीबों को िविवध योजना स्कू ल कॉलेज
rs

दािखले आिद में काफी सुिवधा हो सकती है)

- Cons: concerns over privacy / misuse. (िनजता का हनन. दरुु पयोग का भय)
he

10.32🐯🐯🔗🔗💮💮 CENTRAL BANK DIGITAL CURRENCY (CBDC)

ot
p
el
H

कें द्रीय बैंक िडिजटल मुद्रा / सं प्रभु िडिजटल मुद्रा

Year Nation Paper Currency CBDC
2020 Bahamas (Capital Nassau) – Bahamaian Dollar “digital B$”, also called ‘sand
1st nation in the world to BSD dollar’. issued Non-Interest
issue CBDC## Bearing CBDC

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1A1 Money: Barter to Bitcoins → Page 40

KING R & QUEEN P Help others god will help you

 Year Nation Paper Currency CBDC
2021 Nigeria (Capital Abuja) Naira the “eNaira”-Non-Interest
Bearing CBDC.
##�
���Marshal island launched SOV currency in 2018 then shouldn’t we call it the first
country to launch CBDC? why above table says Bahamas is 1st country to launch CBDC?

⇒ Ans. Big Newspapers using such headlines. I didn’t bother to write/ask to their chief-editors. If

u
asked in Exam, then tick MCQ depending on options.

yo
lp
he
ill
w
d
go
rs
he
ot

⇒ China, Britain, Japan, Singapore, Sweden have also started such experiments.
⇒ 👜👜👜👜Budget-2022 announced issuance of Digital Rupee using blockchain technology).
p
el

10.32.1 🐯🐯🔗🔗💮💮=👌👌👌👌Benefits of CBDC (कें द्रीय बैंक िडिजटल मुद्रा के फायदे)

CBDC/ Sovereign Digital Fiat Money / Digital Base Money will provide following benefit
H

1. ⏬ Cost printing and transporting physical currency. (नोट छापने की लागत और पिरवहन खचर् में कमी)
2. ⏬ Scope for counterfeiting. (जाली नोट बनाना मुिश्कल)
3. ⏫Traceability, ⏬Anonymity: (ढूँ ढना आसान, गुमनाम/अज्ञात रहेना मुिश्कल)
a. Whether money is reaching the intended beneficiary or not? (लाभाथीर् को योजना का पैसा िमला
िक नहीं)

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1A1 Money: Barter to Bitcoins → Page 41

KING R & QUEEN P Help others god will help you

 b. From where did the businessman accumulate this money, did he pay an appropriate
amount of tax or not? Else auto-alert to the Income tax department for tax evasion.
(करचोरी पर िनगरानी आसान)
4. Possible to develop programmable currency. E.g. govt transferring ₹6000 in poor farmer’s
account with condition ke it must be spent WITHIN next 15 days for buying seeds/farming tools
ONLY.
5. Global money transfer more easier. E.g. in future China may give DIGITAL YUAN currency

u
LOANS directly to Ghana Without converting into US Dollars and without using SWIFT

yo
messaging system.
+ many other things but they are more relevant for Mains rather than Prelims.

�MCQ.Pre-2023: Find correct about Central Bank digital currencies,:

lp
1) It is possible to make payments in a digital currency without using US dollar or SWIFT system.
2) A digital currency can be distributed with a condition programmed into it such as time-frame for

he
spending it.
Codes: (a) 1 only (b) 2 only (c) Both 1 and 2 (d) Neither 1 nor 2
10.32.2 🐯🐯🔗🔗💮💮= ✋🥵🥵Challenges of CBDC (चुनौितयां)

ill
1. 😰😰Digital Divide, Financial Literacy, Access Points: (िडिजटल उपकरणों की उपलब्धता की खाई, िवत्तीय
साक्षरता का भाव, िडिजटल भुगतान इस्तेमाल करने के पहुंच िबदं ओ
ु ं की कमी)
w
a. Not everyone has electronic gadgets or internet connectivity, (सबके पास इं टरनेट निह)
b. Not everyone knows how to operate bank account digitally, (सबको इस्तेमाल करना निह आता)
d
c. Not every village shopkeeper accepts payments in the digital form. (दकु ानदार नक़दी माँगते है)
go

2. 😰😰Cyber Terrorism/Nuclear Attack/Natural Disaster. If electricity stops → economy will stop

functioning. (साइबर आतं कवाद / परमाणु हमला / प्राकृ ितक आपदा: िवद्युत उपकरण बं द तो अथर्व्यवस्था बं द)
3. 😰😰Maintaining the blockchain → 24/7 use of server/electricity → e-waste, pollution. (प्रदू षण)
rs

10.32.3 E-Rupee vs E-Rupi

Term E-Rupee E-Rupi
he

Founder RBI NPCi

Digital GIFT CARD / SMS Code to
Feature Central Bank Digital Currency.
ot

help beneficiary do shopping.

Yes (when it becomes fully
Fiat money and No. Because, this is not money. This
operational. Presently, it is in TRIAL
p

legal tender? is a tool to use money.

STAGE.)
el

10.33💠💠≠ ❇ NON-FUNGIBLE TOKEN (NFT: ग़ैर-फ़ं जीबल टोकन)

H

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1A1 Money: Barter to Bitcoins → Page 42

KING R & QUEEN P Help others god will help you

 10.33.1 (⬜=◻+◻+◻+◻) Fungibility: Meaning?
Item Can it be Is mutual substitution possible in terms of value? Is it
subdivided in fungible?
smaller units?
₹2,000 Yes ₹500x 4 Yes ₹500 x 4 Notes can buy same quantity of ✅Yes
Note Notes=2000 goods as a single ₹2000 Note
1kg gold Yes 100gm x 10 Yes 100gm x 10 biscuits can buy same quantity of

u
✅Yes
bar biscuits=1kg gold goods as a single 1kg gold bar

yo
bar
1Bitcoin 1BTC=10^8 Satoshi Yes 1BTC’s value = 10^8 Satoshi coins. So, ✅Yes
coins theoretically, they buy same quantity of goods

lp
100 gm Bigger single piece diamond considered to be more precious/valuable ✋No
single than small-small pieces diamond. So, 100gm Single_Big_Diamond

he
Diamond =NOT equal 1gm x 100 small_Diamonds, in terms of value
Shares, NOT possible (How Ref: 📑📑Pillar#1C: SEBI sharemarket) ✋No
Bonds
NFT NOT possible. Explained below.

ill ✋No
w
10.33.2 💠💠 Non-fungible token (NFT: ग़ैर-फ़ं जीबल टोकन)
⇒ (Definition) NFT is a Digital file photo file (JPEG), Animated image (GIF), music file (MP3) etc
Stored using blockchain Technology. ब्लॉकचेन प्रौद्योिगकी द्वारा सं ग्रिहत फ़ोटो, सं गीत इत्यािद िक़स्म की िडिजटल फाइल
d

है।
go

⇒ NFT may also be used in storing physical assets. E.g. Ownership document of house, boat,
physical-painting etc. (इस भौितक सम्पित्तयों की मािलकी के दस्तावेजों का भी िडिजटल करण कर एनएफ़टी में सं ग्रिहत कर
सकते है)
rs

⇒ NFT cannot be subdivided. Their individual sub-units cannot be exchanged with one another.
Because their values are different based on buyer’s preference. So NFTs are non-fungible. (अलग
he

अलग िचत्र/सं गीत कृ ितऑ का मूल्य, ग्राहक की पसं द से िहसाब से अलग अलग हो सकता है इसिलए उन्हे छोटे टुकड़ों में िवभािजत करना /
आपस में उनकी अदला-बदली नहीं हो सकती.)
⇒ Mass Hysteria going on to purchase such digital assets from new-age artists using (mostly)
ot

Ethereum cryptocurrency. (नए ज़माने के िडिजटल िचत्र/धुन के एनएफटी ख़रीदने का सामूिहक पागलपन चल रहा है.)
⇒ e.g. American digital artist Beeple’s Painting JPEG auctioned for $70 million
⇒ E.g. Robot Sophia created a digital painting/art "Sophia Instantiation" (NFT)→ Auctioned for
p

more than 6 lakh dollar$.

el

⇒ Many sportsmen, filmstars also creating NFT out of their posters/autographs but we’ll not waste
preparing all that General Knowledge (GK). (मशहूर िखलाड़ी और िफ़ल्म अिभनेता भी इसे जारी कर रहे हैं)
H

10.33.3 💠💠🤩🤩NFT-Charms? (आकषर्ण)

⇒ 1) Multimedia Creators: Easier to trade digital assets (िडिजटल िचत्रकार/धुनकार के िलए कृ ितयों की िबक्री
आसान.)

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1A1 Money: Barter to Bitcoins → Page 43

KING R & QUEEN P Help others god will help you

 ⇒ 2) Easier to verify ownership records. Prevent plagiarism. (सं पती की मािलकी/स्वािमत्व की जाँच करना आसान.
नकलिचयों के िलए जालसाजी करना / बनावटी दस्तावेज बनाना मुिश्कल.)
⇒ 3) Cinema / Sports tournament / Travel tickets etc can be stored with ownership records. Helps
in Paperless administration. (िसनेमा / खेल /पिरवहन की िटकट की िबक्री िडिजटल स्वरूप से करना आसान, काग़ज़ मुक्त
प्रशासन.)

10.33.4 💠💠😰😰NFT-Challenges: (चुनौितयां)

u
⇒ 1) Started in 2017→ steep price rise in 2021. Single GIF /meme file selling for millions

yo
dollar$ worth of cryptocurrencies. This mass-hysteria / investment-bubble will collapse.
Investors will lose money. (ये सामूिहक पागलपन /िनवेश का गुब्बारा फट जाएगा तब िनवेशकों का पैसा डू ब जाएगा.)
⇒ 2) Money laundering & terror Finance. How: Ref Pillar#2. (धनशोधन और आतं की िवत्तपोषण में दरुु पयोग

lp
सम्भव)
⇒ 4) Maintaining such computer blockchain record → Electricity consumption⏫→ CO2

he
Emission. (इस डेटाबेस का सं चालन/वहन करने में बहूत ज़्यादा िबजली खपत होती है, िजससे काबर्न डाइऑक्साइड उत्सजर्न में
बढ़ोतरी.)

ill
🔠🔠❓MCQ. Find correct statements abt Non-Fungible Tokens (NFTs) (Prelims-2022)
w
1. They enable the digital representation of physical assets.
2. They are unique cryptographic tokens that exist on a blockchain.
3. They can be traded or exchanged at equivalency and therefore can be used as a medium of
d
commercial transactions.
go

Codes: (a) 1 and 2 only (b) 2 and 3 only (c) 1 and 3 only (d) 1, 2 and 3

10.33.5 ✍ Mains Answer Writing

rs

From this particular topic, the Mains angles are centred around - why we should promote digital
economy ? what are the challenges? why crypto currencies are bad? how is Blockchain technology
he

useful? what is CBDC? et cetera

⇒ This Raftaar-courses deals purely with Prelims and NOT with Mains. So, You’ve two options:
⇒ A) Watch previous recorded course QEP2 Course finished in 2023-June-to-August: OR
ot

⇒ B) Wait for next LIVE course for Mains-QEP3 from 2023-Nov onwards.
p

📑📑Next Handout: Pillar1A2: Monetary Policy: CRR, SLR, Repo etc.

el
H

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1A1 Money: Barter to Bitcoins → Page 44

KING R & QUEEN P Help others god will help you

 Pillar1A2: 🤑🤑 Money Supply (M0-M4) & Monetary Policy- CRR, SLR, Repo
Previous Years' official UPSC MCQs also given in this handout. You can see that UPSC is not going
into microscopic details of RBI's Operational/technical guidelines. Very simple-broad-overview type
MCQs asked. So, ✋ Donot live in 😰😰imaginary fear that.... काल्पिनक डर मे मत िजयो के …
- Inexperienced Pvt Mock Test-walla asking random/technical Qs so I must do PHD 🎓🎓✋
- EconomicTimes / Financial Express/ Hindu-BusinessLine columnist are writing long winded

u
columns on RBI's Operation Twist or TLTRO so I must do PHD 🎓🎓✋

yo
Table of Contents

11 �Money’s Demand, Supply & Creation ................................................................................... 48

lp
11.11 � Demand of Money: Liquidity Preference Theory (तरलता अिधमान) ........................................... 48
11.11.1 TOTAL demand of money: factors affecting .............................................................................................. 48

he
11.12 ��Supply of Money (मुद्रा की पूिर्त) ............................................................................................... 49
11.12.1 �� Liquidity of assets ............................................................................................................................. 49
11.12.2 �� Liquidity Trap ( तरलता जाल) – refer to end section ............................................................................ 50
11.12.3
ill
���Measures of Money Supply (मुद्रा आपूिर्त के पिरमाण) ............................................................................ 50
w
11.13 ��� Money Supply [M3] .................................................................................................. 51
11.13.1 �Call Money | Notice Money | Term Money .......................................................................................... 52
11.13.2 Full Reserve Banking vs. Fractional Reserve Banking................................................................................ 52
d

11.14 ��Money Multiplier (मुद्रा गुणक) ............................................................................................... 52

go

11.14.1 Money Multiplier From 2019 to 2021: why fallen? .................................................................................... 54

11.14.2 ��Money Multiplier From 1981 to 2020 ............................................................................................. 55

11.15 �� M0: Creation of Money (मुद्रा का िनमार्ण) ................................................................................ 55

rs

11.16 �Money Supply & FRBM Act .................................................................................................. 56

he

11.16.1 Monetisation of deficit (घाटे का मुद्रीकरण) ............................................................................................................. 57

11.16.2 ��Money Supply: observation by EcoSurvey23 ................................................................................. 58
11.16.3 ��: Currency in Circulation (CIC) ....................................................................................................... 59
ot

11.16.4 � Misc. topic: Velocity of Money Circulation (मुद्रा सं चालन का वेग) ................................................................. 59

12 �� Monetary Policy (मौिद्रक नीित) .............................................................................................. 60

p

12.11 ��� MonPolicy: Quantitative Tools (पिरमाणात्मक साधन) ........................................................ 60

el

12.11.1 ��Statutory Reserve Requirements: CRR, SLR (Fight inflation: ↑, deflation: ↓) ............................ 61
12.11.2 : ��CRR SLR on Foreigners/NRI’s deposits in Indian Banks? ........................................................ 62
H

12.12 ���� CRR, SLR: Development in Recent Years .......................................................... 62

12.12.1 ���� (2020-Feb) CRR Exemption for 5 yrs, depending on loans (सीआरआर में छू ट) ...................... 62
12.12.2 ���� (2020-Mar) CRR during and after Corona ....................................................................... 63

12.13 Net Interest Margin, Liquidity overhang & ₹2000 Withdrawal ................................................ 63

(Batch: PCB10-RATFAAR) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 45

KING R & QUEEN P Help others god will help you

 12.14 Incremental CRR after ₹2000 withdrawal .................................................................................. 64
12.14.1 ��: ���� CRR Technical things NOTIMP ......................................................................... 65

12.15 ��� MonPolicy → Quant Tools → Rates → LAF Repo................................................ 66

12.16 Current repo vs [neutral or terminal] repo rate ............................................................................ 67

12.17 �� REPO → Special Windows under Atma Nirbhar ........................................................ 67

u
12.17.1 �� REPO → TLTRO, SLTRO, On-Tap Windows ............................................................................ 67
12.17.2 ��RBI’s Special Windows: Useless Doubts by flag-carrying Babushonas....................................... 68

yo
12.17.3 (2020) ��Reverse Repo Rate cut........................................................................................................... 69
12.17.4 ��� MonPolicy → Quant Tools → Variable Rate Reverse Repo (VRRR) ................................. 69
12.17.5 �� � Enhanced Reverse Repo Rate for Hardworking Bankers ..................................................... 69

lp
12.17.6 ��� MonPolicy → Quant Tools → Rates → MSF (2011) ........................................................... 69
12.17.7 ��� MonPolicy → Quant Tools → Rates → Bank rate (बेंक दर): ................................................... 70

he
12.17.8 ��� Quanti. Tools → SDF (=Reverse Repo walla game Without Collaterals) ........................... 70
12.17.9 MSF Repo vs Reverse Repo vs SDF ............................................................................................................. 71
12.17.10 Policy Corridor / LAF Corridor................................................................................................................... 72

ill
12.17.11 ��� Tri-Party Repo (ित्र-पक्षीय पुन: क्रय-अनुबंध): ........................................................................................... 72
12.17.12 �� BPLR, MCLR, External Benchmarks, etc: ...................................................................................... 73
w
12.18 open market operations- two types............................................................................................. 73
12.18.1 ��� Market Operations (OMO): (Inflation → Sell G-Sec, Deflation → Buy) ........................... 73
d
12.19 ����MonPolicy: Quanti Tools: OMO → Operation Twist ....................................... 73
go

12.19.1 ��: Security → Debt → G-Sec & Bonds (ऋण के िलए जारी की गई प्रितभूितयां) .................................................... 73
12.19.2 � (�
��: ��) Deepening of G-Sec market- Retail investors’ RDAG @RBI ............................. 74
12.19.3 ��:�
�Corporate Bonds: factors that determine its interest rate ...................................................... 74
rs

12.19.4 ��: � Bond Yield (बांड में िनवेश करने पर होने वाली आय या मुनाफा) ........................................................................... 75
12.19.5 ��: � Bond Yield ∝ 1/Price (सस्ते में खरीदा= तो मुनाफा ज्यादा) ......................................................................... 75
he

12.19.6 ��: � Bond yield: other factors affecting it (अन्य कारक) ....................................................................... 75
12.19.7 ����Operation Twist: why? ......................................................................................................... 76
12.19.8 ����RBI’s Operation Twist: methodology (2019-Dec) ............................................................ 76
ot

12.19.9 �� ��: � Bond Yield & Inverted Yield Curve: poor benefit for exam .................................. 77

12.20 ���: � MonPolicy: Quanti Tools: OMO → G-SAP.................................................... 78

p

12.20.1 � OMO → G-SAP : Benefit?................................................................................................. 78

���:�
el

12.21 ��� Monetary Policy: Qualitative Tools (गुणात्मक साधन) ...................................................... 79

12.21.1 � Moral Suasion (नैितक दबाव / सलाह) & Publicity (प्रचार) ................................................................................... 80
H

12.21.2 �� Direct Action (सीधी कायर्वाही: क्योिक लातो के भुत बातो से नहीं मानते) ......................................................................... 80
12.21.3 � Margin Requirements / Loan to Value (LTV) (सीमा अिनवायर्ता) ................................................................ 80
12.21.4 Selective Credit Control (चयनात्मक ऋण िनयं त्रण) ..................................................................................................... 81

12.22 ��� Priority Sector Lending (PSL: प्राथिमकता क्षेत्र के िलए ऋण मानक) ............................................. 81
12.22.1 ��� PSL Reforms-2020: on RRB/SFB/UCB? .................................................................................. 83

(Batch: PCB10-RATFAAR) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 46

KING R & QUEEN P Help others god will help you

 12.22.2 ��� PSL Reforms-2020: Startups, Renewable Energy and Healthcare .......................................... 83
12.22.3 ��� PSL Reforms-2020: Weightage to poor districts (गरीब/िपछड़े िजलों को भारांक) ................................... 83
12.22.4 �PSL Shortfalls: RIDF and UIDF ............................................................................................................... 84
12.22.5 ���:�
� Priority Sector Lending Certificates (PSLC) from 2016 onwards ................................. 84

12.23 � � Monetary Policy Tools: A Ready Reckoner Table ........................................................ 86

12.24 � Monetary Policy in Present-Day India ................................................................................ 87

u
12.24.1 � Monetary Policy Making under RBI Act since 2016 ........................................................................... 87

yo
12.25 � Review of Bi-Monthly Monetary Policies ............................................................................ 90
12.25.1 �� Stance: Calibrated Tightening / Neutral / Accommodative ........................................................ 90

12.26 ���RBI’s Monetary Policies: Before 2020-Corona ......................................................... 91

lp
12.27 ���RBI’s Monetary Policies: Corona 2020 ..................................................................... 91

he
12.28 ���RBI Monetary Policies: April-2022 Onwards ........................................................... 92
12.28.1 ���Monetary Policy: April-2022 (SDF) .......................................................................................... 92
12.28.2 ���Monetary Policy: May-2022 Repo�
� ...................................................................................... 92
12.28.3
ill
���Monetary Policy: 2022 so far upto 2023-Sept .......................................................................... 93
w
12.29 ���Monetary Policy: Governors other regulatory announcements .............................. 93

12.30 ���� Banks’ Lending Rates % (बैंक ऋण की व्याज दरें) ............................................................ 94

d

12.31 ���� Bank’s loan interest rate: External Benchmark (बाहरी बेंचमाकर् ) .............................. 95
go

12.31.1 ���� External Benchmark: Formula Components: ................................................................... 95

12.31.2 ���External Benchmark system: Which borrowers eligible? ....................................................... 95
12.31.3 ���:� ��External Benchmark system: FAQ .............................................................................. 95
rs

12.31.4 Interest Rate Reset of EMI based Floating Interest Loans ......................................................................... 96
12.31.5 Banks’ Lending Rates % → Fixed vs Floating interest loans, teaser loans, NPA etc. ............................ 96
he

12.32 �� Limitations of Monetary Policy in India (मौिद्रक नीती की मयार्दाए) ........................................... 97

12.32.1 �� Monitory policy: liquidity deficit in banking system................................................................... 98
12.32.2 �� Monetary policy limitations: Cheap loans causing inflation? ..................................................... 98
ot

12.32.3 ��USA Quantitative Easing (QE) & Fed Tapering : Impact on India.............................................. 99
12.32.4 �� Monetary policy limitations: Black Swan Events .......................................................................... 99
p

12.33 Monetary policy observations by �ES23 ............................................................................... 100

el

12.33.1 Rate hikes: RBI vs Other Central banks ..................................................................................................... 100

12.33.2 Monetary Policy: Soft landing vs Hard Landing....................................................................................... 101
H

12.33.3 �� Monetary policy limitations: Cantillon Effect ............................................................................. 101

12.33.4 Liquidity Trap (तरलता जाल) ............................................................................................................................ 101
12.33.5 Mains Related Content .............................................................................................................................. 102

(Batch: PCB10-RATFAAR) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 47

KING R & QUEEN P Help others god will help you

 11 🤑🤑MONEY’S DEMAND, SUPPLY & CREATION
11.11🤲🤲 DEMAND OF MONEY: LIQUIDITY PREFERENCE THEORY (तरलता अिधमान)
British Economist John Maynard Keynes (Book: The General Theory of Employment, Interest and
Money, 1936) noted - people prefer to keep a part of assets in liquid form (cash money) with 3
motives: (लोग अपना कु छ पैसा नकदी में हाथ में रखेंगे. सारे का सारा पैसा बैंको में जमा नहीं कर देंगे. क्योंिक तीन कारण होते हैं)

u
yo
lp
1. 🌽🌽 Transaction motive (सं व्यवहार उद्देश्य): For using money as a medium of exchange e.g. for

he
buying daily milk, vegetables and fruits. (रोजाना की खरीद के िलए कु छ पैसा हाथ में रखा जाता है सारा पैसा बैंक में
नहीं जमा करते)
2. 💊💊 Precautionary motive (एहितयाती): To protect against sudden / unforeseen expenditure e.g.

ill
medical emergency or impulsive purchase during a holiday trip. (घर में कोई बीमार हो गया, प्रवास में जाना
है)
w
3. 📉📉 Speculative motive (सट्टा-उद्देश्य): Investors hold cash to make the best use of any investment
opportunity that arises later e.g. waiting for gold / land prices to fall, then “I will use my cash to
d

buy it”. Also known as "Asset Demand of Money". (जो सं पित्त मुझे खरीदनी है उसका दाम थोड़ा िगर जाए उसकी
go

राह देख रहा हूँ )

The amount of money held in cash form vary inversely with (deposit) interest rates. If higher
interest available in Bank Deposits etc. → people would invest money in banks, instead of keeping
rs

money in liquid form (cash). (बैंक वाला अगर बचत खाते पर अच्छा ब्याज देगा तो लोग हाथ में नकदी पैसा कम रखेंगे बैंक में
िनवेश ज्यादा करेंग)े
he

11.11.1 💰💰TOTAL demand of money: factors affecting

ot
p
el
H

(Batch: PCB10-RATFAAR) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 48

KING R & QUEEN P Help others god will help you

 �FAQ: What does above chart mean? Ans. Explained in video.
- Total demand for money in an economy = transaction demand + speculative demand.
- �FAQ: why have you not mentioned speculative demand in above formula? Ans. Because
NCERT has not mentioned it.
11.12 💸💸📥📥SUPPLY OF MONEY (मुद्रा की पूिर्त)

u
yo
lp
🗓🗓 Time Liabilities of a Bank (FDRD) 💪💪 Demand Liabilities of a Bank (CASA)
समय / मीयादी देयताएँ मांग देयताएं

he
- Fixed deposits, Cumulative/ recurring - Current Account
deposits, Staff security deposit etc. - Savings Account
- Bank legally not required to pay customer - Demand Draft
before maturity. But bank may pay after
deducting penalty/ interest. (वक्त से पहले पैसा
-
ill
Overdue balance in Fixed Deposits
w
- Unclaimed deposits. (What does it mean?
िनकाला तो दंड लगेगा) Ans. Explained in Video Lecture.)
- What is Nostro/Vostro account? Ans.
d

Refer Pillar3A. ELSE This Youtube Video:

go

https://youtu.be/UwYqP84l1AQ?t=49
Public parks more money here, because better LESS (ऐसे बचत खातों पर ब्याज कम िमलता है इसिलए जनता
returns / higher interest rates. कम मात्रा में पैसा रखती है यहाँ पर)
rs

LESS liquid. More liquid because easily convertible into

cash on demand.
he

🔠🔠❓ ____ is not included in the assets of a commercial bank in India? (Prelims-2019)
(a) Advances (b) Deposits (c) Investments (d) Money at call and short notice
ot
p
el

11.12.1 ☔💸💸 Liquidity of assets

H

- Liquidity= ease of converting an asset into cash. Cash is the most liquid asset.
- ☔☔Highly liquid assets = Gold, Demand deposits, G-Sec/T-Bill, shares/bonds of reputed
companies. (अत्यिधक तरल सं पित्त: तुरंत खरीदार िमल जाते हैं. आप सं पित्त को नगदी धन में आसानी से पिरविर्तत कर सकते हैं)

(Batch: PCB10-RATFAAR) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 49

KING R & QUEEN P Help others god will help you

 - ☂Relatively illiquid assets= Home/Real estate, Paintings/Sculptures etc. Because difficult to
find buyers at right price instantly. खरीदार आसानी से नहीं िमलता इसिलए इन सं पित्तयों की तरलता थोड़ी कम है
- 💸💸 💉💉Liquidity injection / infusion refers to phenomenon when RBI buys Bank/NBFCs’ G-
Sec/T-bill/financial assets to give them cash. (HOW? Ans. Watch Video) (तरलता अन्तःक्षेपण)

11.12.2 ☔💸💸 Liquidity Trap ( तरलता जाल) – refer to end section

u
- Refer to the end section of this handout.
11.12.3 💸💸📥📥💸💸Measures of Money Supply (मुद्रा आपूिर्त के पिरमाण)

yo
- (Objective) To make a good nutrition scheme for India, the government will have to first find the
weight of the citizens. Similarly, to make a good monetary policy, RBI will have to find the
quantity of money in the system. (कु पोषण के िख़लाफ़ अच्छी योजना बनाने से पहले सरकार ने लोगों का वज़न नापना

lp
होगा. उसी तरह देश के िलए अच्छी मौिद्रक नीित बनाने के िलए िरज़वर् बैंक ने सबसे पहले तो देश में पैसों का जत्था नापना होगा)

he
- (Definition) Money supply means the total amount of money in an economy at any given time.
(िदए गए समय पर अथर्तंत्र में कु ल िमलाकर िकतना पैसा है उसकी मात्रा या जत्थे को कहते हैं “मुद्रा आपूिर्त”)
- (Significance) Money supply plays a crucial role in 1) price level (=inflation) and 2) interest rates

- ill
on deposits & loans. (मुद्रा की आपूिर्त → महंगाई दर और ब्याज दरों पर असर करती है)
(Types) RBI measures the money supply through indicators: M0, M1, M2, M3, M4
w
Table 1: *CU: Coins & Currency with Public
Commercial Banks Post Office Savings Bank
Measure Liquidity Qty
d
Demand Time Demand
*CU Time
सं कु िचत, व्यापक Deposits Deposits Deposits तरलता मात्रा
go

Deposits
(CASA) (FDRD) (SA)
Narrow M1 ✓ ✓ ✗ ✗ ✗ ☆☆☆☆ ☆
Money M2 ✓ ✓ ✗ ✓ ✗ ☆☆☆ ☆☆
rs

Broad M3 ✓ ✓ ✓ ✗ ✗ ☆☆ ☆☆☆
Money M4 ✓ ✓ ✓ ✓ ✓ ☆ ☆☆☆☆
he

Apply logic to derive formula e.g. M3 = M1 + Time deposits with banks. (स्वयं से फामूर्ला बनाइए)

- M3 is the most commonly used measure of money supply, also known as Aggregate Monetary
ot

Resources / Aggregate Money Supply” (समस्त मौिद्रक सं साधन) because out of all the money supply
indicators (M0-M4) this is the indicator RBI will focus the most for its analysis while designing
of monetary policy. (अपनी मौिद्रक नीती बनाते वक्त, िवश्लेषण के िलए िरज़वर् बैंक इस आंकड़े पर खास ध्यान रखती है)
p

- In above formulas for money supply, we are only counting the “NET Demand / NET Time
el

deposits” i.e. only public’s deposits in bank. We are not counting inter-bank deposits i.e. one
commercial bank’s deposit in other commercial banks. एक बैंक से दू सरे बैंक में पैसा िडपॉिजट िकया हो तो उसे
H

इधर नहीं िगनते.

- Corona-2020: Initial months of lockdown (May2May-2020) → deposit⏬⏬ because people
withdrew money in panic / precautionary motive. Although in the later months → Unlockdown
and normalcy → ⏫⏫ bank deposit by Dec-2020. तालाबं दी के शुरुआती महीनों में लोगों ने एहितयाती कारणों से
बैंकों से अपनी िडपॉिजट िनकाली हालांिक पिरिस्थित सामान्य होने पर, बाद के महीनों में वापस बचत की मात्रा में बढ़ोतरी होने लगी है

(Batch: PCB10-RATFAAR) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 50

KING R & QUEEN P Help others god will help you

 🚩🚩🚩🚩 FAQ1: Why M3 is Aggregate Money Supply? ✅Ans. Watch video.
🚩🚩🚩🚩 FAQ2: Why is the liquidity of M4 less than M3? ✅Ans. Watch video.
🚩🚩🚩FAQ3: What is Narrow Money and Broad Money?
M1 and M2 are called Narrow money. Because of their smaller size (since they only cover demand
deposits) M3 and M4 are called broad money, because of their relatively larger size than M1 and M2.

u
since these terms are given in the NCERT so we have to prepare & accept. It is not some great thing

yo
worthy of mains exam that we have to spend more time than that 1 word association.
🚩🚩🚩FAQ: What is Hard Money vs Soft Money? Definition differs from website to website besides
All such random terms mentioned on Investopedia.com are not automatically important for exam.

lp
My boundary for this money-supply/indicator topic is “NCERT textbook, not the entire internet.”

he
🚩🚩🚩🚩FAQ4: As per NCERT class12: “M4 = M3 + Total deposits with Post Office savings
organisations (excluding National Savings Certificates)”. So why you revision table doesn’t talk about
National Savings Certificates. ✅Ans. This much pedantry I find it less imp for exam so don’t want
to overcomplicate my revision friendly table.

ill
w
🔠🔠❓ MCQ. If you withdraw Rs. 1 lakh in cash from your Demand Deposit Account at your bank,
the immediate effect on aggregate money supply in the economy will be _ _ . (Prelims-2020)
d
[a) to reduce it by ₹ 1,00,000 [b) to increase it by ₹ 1,00,000
go

[c) to increase it by more than ₹ 1,00,000 [d) to leave it unchanged

🚩🚩🚩🚩 FAQ: I’ve 500 jaat-ke doubts in above MCQ ✅Ans. Watch entire pillar’s 5 videos.
rs

11.13💸💸📥📥💸💸 MONEY SUPPLY [M3]

💸💸📥📥💸💸Indicator Situation in 2021
he

M0 = also known as reserve money /high Quantity ⏫increased but % growth lower
powered money than 2020. वृिद्ध दर िपछले साल की अपेक्षा कम रहा
ot

<formula in separate section>

M3 = “Aggregate Monetary Resources / Quantity ⏫increased but % growth lower
Aggregate Money Supply” (समस्त मौिद्रक सं साधन). than 2020
p

Money multiplier 5.6 in 2020 and 5.2 in 2021. So, Money

el

= M3 divided by M0 Multiplier decreased than 2020 . (Reason:

(मुद्रा गुणक) Bankers couldn’t find enough loan taker, so,
H

<more explanation in separate section> parked large quantity of deposits with RBI
under Reverse Repo Window.)

(Batch: PCB10-RATFAAR) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 51

KING R & QUEEN P Help others god will help you

 11.13.1 ⏰Call Money | Notice Money | Term Money
These terms are used when bank/Non-Banking Financial Companies (NBFC) lend/borrow money
among themselves for short term (i.e. less than 1 year)

word Duration of LOAN

Call Money borrowed for one day (=This duration also called “overnight”.)
Notice Money 2 days to 14 days

u
Term Money Exceeding 14 days but less than 1 year

yo
�DONOT mix above words with broad money / narrow money / M1/M2/M3/M4 etc.

11.13.2 Full Reserve Banking vs. Fractional Reserve Banking

lp
> इन शब्दों का िहदं ी अनुवाद नहीं करेंगे क्योंिक इस प्रकार की िथयरी पूछने का मुख्य परीक्षा में कोई िरवाज नहीं है.

he
ill
w
d

Full Reserve Banking Fractional Reserve Banking

go

can banker give money from NO. And consequently, YES, can give.
DEMAND Deposits as Banker may not pay
LOANS? (e.g. current account, interest to demand
rs

saving account) depositors.

can banker give money from YES, can give YES, can give
he

TIME Deposits as LOANS?

(e.g. Fixed Deposits)
ot

Bankers’ vulnerability to LESS. Because demand MORE. Because both time and
sudden/panic withdrawals by deposits not given as demand deposits are given as loans.
clients (known as ‘Bank Run’) loans. So if Vijay Mallya fled the country
p

→ it will create more problems!

el

Banker’s ability to help in Less. Because it can give More

Economic growth? less qty of loans.
H

- India uses Fractional Reserve Banking.

11.14💸💸⚡MONEY MULTIPLIER (मुद्रा गुणक)

RBI’s Cash Reserve Ratio (CRR) controls the Fractional Reserve Banking & Credit Creation by the
commercial banks, in the following manner:

(Batch: PCB10-RATFAAR) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 52

KING R & QUEEN P Help others god will help you

 Table 2: this process is called 'Fractional Reserve Banking & Credit Creation'
High Powered money (M0) = 100 Deposits Loaning 10% Reserve (‘R’)
Bank#1 100 90 10
Bank#2 90 81 9
Bank#3 81 72.9 8.1
Bank#.. .. .. ..
Total Money (here M3) Total sum = ₹1000**

u
𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆 𝑆𝑆𝑜𝑜 𝑇𝑇𝑆𝑆𝑆𝑆𝑇𝑇𝑇𝑇 𝑀𝑀𝑆𝑆𝑀𝑀𝑀𝑀𝑀𝑀 (𝑀𝑀3) 1000
𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴 𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴 = = =10

yo
𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆 𝑆𝑆𝑜𝑜 𝐻𝐻𝐻𝐻𝐻𝐻ℎ 𝑃𝑃𝑆𝑆𝑃𝑃𝑀𝑀𝑃𝑃𝑀𝑀𝑃𝑃 𝑚𝑚𝑆𝑆𝑀𝑀𝑀𝑀𝑀𝑀(𝑀𝑀0) 100

🚩🚩🚩🚩 FAQ: How is this possible/ I didn’t understand? ✅Ans. Watch the video.

lp
- In above example, 10% CRR (CRR) generated 10x times of M0 money. [बैंक कजर् देने से पहले यिद 10%

he
रकम आरिक्षत रखती है तो 10 गुना ज्यादा पैसों का िनमार्ण]
- 4% reserve ratio will generate [1/(1/25)]= 25x times (in theory). See formula below:
𝟒𝟒 𝟏𝟏
𝑪𝑪𝑪𝑪𝑪𝑪 𝟒𝟒% = =
𝟏𝟏𝟏𝟏𝟏𝟏 𝟐𝟐𝟐𝟐
𝟏𝟏 𝟏𝟏
ill 𝟏𝟏
w
𝒎𝒎𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴 𝒎𝒎𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴𝑴 𝑴𝑴𝒆𝒆𝒆𝒆𝑴𝑴𝒆𝒆𝑴𝑴 = = = = 𝟐𝟐𝟐𝟐 𝑴𝑴𝑴𝑴𝒎𝒎𝑴𝑴𝒕𝒕
(𝑪𝑪𝑪𝑪𝑪𝑪) (𝟒𝟒%) ( 𝟏𝟏 )
𝟐𝟐𝟐𝟐
d
go
rs
he
ot
p
el

- ✋however in reality the multiplier may be lower than 25x, due to poor banking penetration.
(गांव गांव तक बैंक की सुिवधा नहीं है इसिलए वास्तिवक जीवन में इतना मुद्रा गुणक नहीं होगा)
H

- In a functional economy, money multiplier (MM) is always greater than 1 & CRR will always be
less than 100%. WHY? Ans. Watch video.
- MM directly improves with ⏬reduction in CRR. (सीआरआर घटेगा तो मुद्रा गुणक बढ़ेगा)
- MM indirectly improves as economy develops, consumption / loan demand increases, banking
penetration, digital economy, less-cash economy etc.

(Batch: PCB10-RATFAAR) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 53

KING R & QUEEN P Help others god will help you

 - MM improves with the ⏫in banking penetration, financial inclusion (िवत्तीय समावेशन)
- Boom period, Whenever loan demand ⏫ (तेजी का माहौल → लोन ज्यादा िलए जा रहे हो)
- When RBI adopts Cheap / Easy / Dovish / Expansionary monetary policy to combat deflation.
(जब सस्तापे/ अपस्फीित से लड़ने के िलए िरज़वर् बैंक लोन के ब्याज दर सस्ते कर दे)
- In 1960s = less than 2x, 90s = more than 3x, At present = more than 5x.

u
🚩🚩🚩FAQ: What will be the impact of SLR changes on Money Multiplier? Ans. Can’t be written

yo
mathematically. Reason given in Video.

11.14.1 Money Multiplier From 2019 to 2021: why fallen?

lp
he
ill
w
Money multiplier (MM) fallen from 5.6 on 31/3/20 to 5.2 on 31/3/21 because
d

⇒ if banks kept loaning to households & business firms then (M3/M0)=Money Multiplier would
go

grow thru lending-deposit activity from One bank account to another bank account.
⇒ But this deposit-to-lending activity seems to have slowed down in Corona & afterwards so MM
did not improve.
rs

⇒ Then between 2021-22, the money multiplier remained stable in the range of 5.2 (2021) → 5.1
he

(2022). (मुद्रा गुणक में कु छ खास बदलाव नहीं आया)

✋Note: There may be 500 other factors as well affecting these indicators but gives poor:cost benefit
learning all those things from MCQ point of view. वास्तिवक िजदं गी में और भी 500 कारकों के चलते इन आंकड़ों पर
ot

असर होता है लेिकन उन सब की पं चात करने बैठे तो परीक्षा के िलए उपयोगी नहीं #⏳📚📚थोड़ा-पढ़ो-आगे-बढ़ो
p
el
H

(Batch: PCB10-RATFAAR) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 54

KING R & QUEEN P Help others god will help you

 11.14.2 💸💸⚡Money Multiplier From 1981 to 2020

u
yo
lp
Figure 1: source- Economic Survey 2020, zigzag pattern means 'not increasing steadily'.
- between mid-1990’s to 2016-17: Money multiplier (measured as a ratio of M3/M0) was mostly

he
⏫. Reasons are explained in the video.
- But 2017-18 onwards: Money Multiplier is ⏬. Could be attributed to the lack of growth in
loaning activities & slowdown in economy.

ill
🔠🔠❓ MCQ. Money Multiplier in an economy increases with _ _ _? (UPSC-Prelims-2019)
w
A) Increase in the cash reserve ratio B) Increase in the banking habit of the population
C) Increase in the statutory liquidity ratio D) Increase in the population of the country
d
go

👆👆Same above MCQ also repeated in Prelims 2021

11.15💸💸💸💸 M0: CREATION OF MONEY (मुद्रा का िनमार्ण)

rs

M0 / Reserve Money / Government Money / High Powered Money (उच्च शिक्त मुद्रा) is issued under
RBI Act, by RBI’s ISSUE DEPARTMENT, with condition that ISSUE DEPARTMENT’s assets must
he

match its liabilities. (आरबीआई के वल उतना ही पैसा छाप सकता है िजतनी पिरसं पित्तयां उसके इश्यू-िवभाग के पास हो)
Assets of Issue Department (पिरसं पित्तयाँ) Liabilities of Issue Department [M0]
1. Rupee coins [RBI ‘buys’ coins & ₹1 notes from Total Bank notes in circulation, which
ot

Govt and circulates it as the ‘Agent of govt’] consists of:

2. Gold coins [Min. ₹ 200 crores] सोने के िसक्के 1. Held by Public
3. Gold bullion [Min. ₹ 115 crores] सोने की ईंटे 2. Held by other Banks in “Vault cash”
p

4. Foreign Securities, incl. IMF [Earlier Min. ₹ 400 (i.e. amount kept by banks for day to
el

crores but Post-1995 no such requirement.] day Operations.)

5. (Indian) Govt. Securities [through which Govt 3. Other Deposits in RBI (of Public*,
H

borrows money from RBI & returns Principal + Banks & Governments)
Interest at later date] सरकारी प्रितभूितयां
Total = suppose 100 Cr @”X”date Total = 100 Cr @”X” date.
- * such as PM Garib Kalyan Yojana (2016) under which Blackmoney holder was required to
deposit 25% of his blackmoney in RBI for a lock-in period of 4 years. More in Pillar#2B

(Batch: PCB10-RATFAAR) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 55

KING R & QUEEN P Help others god will help you

 - M0 ⏫increases when RBI’s asset side increases ⏫ e.g. Govt borrowing more from RBI using
G-sec. जब सरकार िरज़वर् बैंक से ज्यादा पैसा कजेर् मे ले तब िरज़वर् बैंक की पिरसं पित्तयों में बढ़ोतरी होती है

11.16💸💸MONEY SUPPLY & FRBM ACT

u
yo
lp
he
ill
w
d
go
rs
he
ot

FISCAL RESPONSIBILITY AND BUDGET MANAGEMENT ACT 2003 (राजकोषीय उत्तरदाियत्व और बजट
प्रबं धन कानून ) Notable provisions:
- Government has to control its fiscal deficit within X% of GDP. (Ref: Pillar#2D) (सरकार ने अपने घाटे
p

को GDP के कु छ प्रितशत से ज़्यादा नहीं बढ़ने देना होगा.)

el

- Government CANNOT borrow from RBI. (In other words, RBI cannot buy government’s loan
instruments for itself from primary market) **Except in TWO situations:**
H

o i) Short term Ways and Means Advances (WMA) (Ref: Pillar#1C)

o ii) During war, disaster, agri-crisis, big fall in GDP. (Ref: Pillar#2D)
- RBI can buy/sell government’s loan instruments from secondary market (i.e. from other
investors in OMO/ Open market operations.) (िरज़वर् बैंक आमतौर पे प्राथिमक बाज़ार से सरकार के लोन कज़र्
उपकरण नहीं ख़रीद सकती है, िकंतु िद्वतीयक बाज़ार ले िरज़वर् बैंक उसकी ख़रीद िबक्री कर सकती है. )

(Batch: PCB10-RATFAAR) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 56

KING R & QUEEN P Help others god will help you

 �FAQ: didn't understand this. Ans. Complete this whole 1A2 pillar ke 5 lectures, Pillar1C AND
pillar2D lectures.

11.16.1 Monetisation of deficit (घाटे का मुद्रीकरण)

u
yo
lp
he
- It means RBI printing more currency notes to give as loans to Government. (जब सरकार को उधार देने
के िलए िरजवर् बैंक नया पैसा छापती है)
- However, this process is difficult/ not easy due to FRBM Act conditions learned above. (हालाँिक
FRBM क़ानून के चलते ये इतना आसान नहीं है अब.)
ill
w
🚩🚩🚩FAQ: Whose responsibility is it to exchange the public’s torn / soiled ₹ 1 note ?
Ans. RBI will do it as the agent of the Govt.
d
go

🚩🚩🚩FAQ: Whose responsibility is it to exchange broken coins?

Ans. First of all it is difficult to break a coin unless with a metal cutter. And secondly I’d not loose
sleep over such JAMES-Bond-Babu-Shona Qs. for UPSC exam point of view. Common-sense
rs

suggests that if RBI is exchanging torn ₹1 Note, then RBI would be exchanges coins as well.
he

🚩🚩🚩FAQ: All coins and ₹1 paper-note is whose liability ? RBI or Govt

⇒ All coins and ₹1 paper-note are issued by Government. (Ref: Pillar1A1 Handout)
ot

⇒ RBI circulate them as “agent of the government”.

⇒ However these items are liability of government. As per RBI Website.
⇒ So, All coins & ₹1 paper-note are liability of Govt.
p

⇒ However, some books interpret that since 1) RBI is circulating them 2) RBI is responsible for
el

getting torn ₹1 rupee notes exchanged, so it is RBI's liability.

H

⇒ If in Doubt for MCQ → then tick “Govt.” as Answer.

🚩🚩🚩FAQ: Can Govt borrow as much ₹₹ as they want via G-Sec? ✅Ans. No! There are legal
limits on govt borrowing under the Fiscal Responsibility And Budget Management act (FRBM).
(More in 📑📑Pillar#2D) (सरकार अंधाधुंध तरीक़े से उधारी नहीं कर सकती FRBM क़ानून के अंतगर्त उस पर कु छ सीमाएं हैं.)

(Batch: PCB10-RATFAAR) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 57

KING R & QUEEN P Help others god will help you

 🚩🚩🚩FAQ: RBI’s money supply is limited by above Asset-liability balance method. But what if govt
issues large number of coins and one rupee notes before election to keep voters happy? Will it not
create problems in the M0 & economy? ✅Ans. Too much money supply without enough goods-
supply → inflation. So, a sensible govt will not do such drama. Beyond that I’ve no interest in
engaging in further PHD-intellectual debates. Not important for exam. Move to next topic. (झं डे वाले

u
बाबूशोनो को ये ख़ास प्रश्न होता है यिद सरकार अपनी तरफ़ से अंधाधुंध तरीक़े से िसक्के छाप देगी तो क्या M0 पे ख़राब असर निह होगा?

yo
जवाब: अगर बहुत िसक्के छापे लेिकन बाज़ार में माल सामान की िक़ल्लत होगी तो महँ गाई बढ़ी जाएगी इसिलए एक िज़म्मेदार सरकार ऐसी
नौटंकी नहीं करेगी. इससे ज़्यादा मेरे को इसकी चचार् नहीं करनी है क्योंिक वो परीक्षा के िलए काम की निह है।)

lp
🚩🚩🚩FAQ: How did RBI print money in British times? Ans.✅ Watch the lecture videos
🚩🚩🚩FAQ: Where is the repo, where is the RBI’s profit in above table? Ans.✅ Watch the videos

he
🚩🚩🚩FAQ: If RBI’s gold/G-sec gets stolen/burned/lost then will M0 decrease? ✅ Watch the videos
🚩🚩🚩FAQ: I’ve 500 jaat-ke other doubts. Ans.✅ then u keep looking for answers on Google until Saif’s son
Taimur grows up & gets married. I am done with this topic from Exam point of view.#🕰🕰थोड़ा-पढ़ो-आगे-बढ़ो

11.16.2 💸💸📥📥Money Supply: observation by EcoSurvey23

ill
w
d
go
rs
he
ot

Indicator Year 2022’s observations by �ES23 (published on 31/Jan/23)

M0 Since RBI � CRR → Bankers deposit in RBI � → M0��.
p

What / how? Ref: Wait till CRR section is over.

el

Money 5.2 (2021) → 5.1 (2022). So broadly remained stable / not much changed. (मुद्रा
Multiplier गुणक में कु छ खास बदलाव नहीं आया)
H

(Batch: PCB10-RATFAAR) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 58

KING R & QUEEN P Help others god will help you

 11.16.3 💸💸⚡: Currency in Circulation (CIC)

u
yo
- What is CIC’s exact formula? Ans. Economic Survey didn’t give, Google giving vague ans.
- CIC is an indicator to measure cash as a payment instrument i.e. instead of other payment
instruments such as Cheque, NEFT/RTGS, Card etc. (भुगतान के िलए नक़दी का िकतना प्रयोग हो रहा है)
2021: Currency in Circulation (CIC) growth (%) declined from Reason: Corona-led

lp
-
precautionary demand for cash has reduced/subsided → People are keeping less qty of cash in

he
hand, and depositing more qty in Banks. (लोगों में कोरोना का ख़ौफ़ कम हुआ है इसिलए जनता अब एहितयादी रूप में
हाथ में नक़दी कम मात्रा में रखती है।)
- 2022: Russia-Ukraine war → temporary increase in ⬆ precautionary cash holdings →

ill
Currency in Circulation (CIC) increased. (रूस यूक्रेन के युद्ध के चलते एहितयाद/सावधानी के िलए लोगों ने हाथ में
नगदी /रोकड़ा रखना ज्यादा मुनािसब/उिचत समझा।)
w
11.16.4 💸💸 Misc. topic: Velocity of Money Circulation (मुद्रा सं चालन का वेग)
d
go
rs

It is the average number of times money passes from one hand to another, during given time period.
e.g. you bought pen worth Rs.10 from shopkeeper, he uses same ₹10 note to buy tea from another
he

shop → same currency note performed function of Rs.20. िकतनी बार एक नोट एक हाथ से दू सरे हाथ में जाता है?
This “Velocity of money circulation” is affected by following factors:
- Income distribution: Money in the hands of poor people has higher velocity than the rich
ot

people. Why/HOW? Ans. Watch Video.

- If more people borrow money → higher velocity. Hence developed countries => higher velocity,
because people save less and spend more because of consumerist lifestyle and confidence in
p

Government’s social-security/pension system e.g. USA. (जब लोगों में बचत की भावना कम हो)
el

- Boom period in economy = more raw material purchase & hiring = higher velocity. (तेजी का माहौल)
- Other 500-jaat-ke-combination-PHD = poor cost:benefit for exam
H

- What is its scene in Corona? Answer not given in 📔📔📔📔ES so no point in SELFPHD.

(Batch: PCB10-RATFAAR) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 59

KING R & QUEEN P Help others god will help you

 12 🐯🐯📢📢 MONETARY POLICY (मौिद्रक नीित)

u
yo
lp
he
- [Definition] Monetary Policy is a macroeconomic policy (समिष्ट आिर्थक नीित), designed by Central
bank of a country, to manage money supply & interest rates. It helps shaping variables such as

ill
inflation, consumption, savings, investment, & capital formation (मुद्राआपूिर्त व ब्याजदरो को िनयं ित्रत कर
w
मुद्रास्फीित/महंगाई, मांग/खपत, बचत, िनवेश, पूंजी िनमार्ण को आकार देना- कें द्रीय बैंक द्वारा बनाई गई इस प्रकार की नीती को
मौिद्रक नीती कहते हैं).
d
- [Significance] Monetary policy plays an important role in price stability [inflation control],
economic growth, job creation and social justice in any economy. (महंगाई-िनयं त्रण, आिर्थक वृिद्ध, रोजगार
go

सृजन, सामािजक न्याय के िलए महत्वपूणर् साधन है ये मौिद्रक नीती)

- Milton Friedman: This American economist’s research on monetary policy made this subject
more popular, he also won a Nobel in Economics in this regard (1976).
rs

- Philip Curve: Inflation ↑ = unemployment ↓ (and vice versa). मं हगाई बढ़ेगी तो बेरोजगारी घटेगी. मं हगाई कम
he

होगी तो बेरोजगारी बढ़ेगी. (More in Pillar#4C)

- So, stable & moderate inflation is good for the economy. (िस्थर व मध्यमस्तर महंगाई अथर्तंत्र के िलए अच्छी)
So, RBI tries to keep inflation with 2-6% Consumer Price Index (CPI: All India) using its bi-monthly
ot

monetary policy made by its 6- member statutory Monetary Policy Committee. (छ:-सदस्यवाली वैधािनक
सिमित द्वारा िद्व-मािसक मौिद्रक नीित िनमार्ण करके िरजवर् बैंक महंगाई दर को उपभोक्ता मूल्य सूचकांक के िहसाब से २-६% में िनयं ित्रत
करने की कोिशश करता है)
p
el

12.11🐯🐯📢📢💸💸 MONPOLICY: QUANTITATIVE TOOLS (पिरमाणात्मक साधन)

Also known as (aka) General or Indirect Tools as they affect the entire economy, and not just a
H

particular sector. (ये साधन / हिथयार / उपकरण सामान्य या अप्रत्यक्ष हैं क्योंिक यह िकसी एक क्षेत्र-िवशेष को नहीं, िकंतु पूरी
अथर्व्यवस्था को असर करते हैं)

(Batch: PCB10-RATFAAR) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 60

KING R & QUEEN P Help others god will help you

 12.11.1 🗄🗄✂Statutory Reserve Requirements: CRR, SLR (Fight inflation: ↑, deflation: ↓)

u
yo
lp
he
ill
w
d

- CRR and SLR are collectively known as “Variable Reserve Ratios” or “Statutory Reserve Ratios”
go

(इन दोनों को पिरवतर्नीय आरिक्षत अनुपात / वैधािनक आरिक्षत अनुपात भी कहा जाता है)
CRR SLR
Full form: Cash Reserve Ratio Full form: Statutory Liquidity Ratio
rs

(नकद कोष अनुपात) (वैधािनक तरलता अनुपात)

Banks must keep this much deposits (or Banks must keep this much deposits in liquid
he

balance) with RBI. RBI doesn’t pay interest on assets such as cash, gold, G-Sec, T-Bills, State
this deposit, except in extraordinary Development Loan Bonds and other securities
ot

circumstances like 1999’s Banking slowdown. notified by RBI. (बेंक ने जमाकतार्ओ ं से हांसील की हुई रकम
(बेंक ने जमाकतार्ओ ं से हांसील की हुई रकम का कु छ िहस्सा िरजवर् का कु छ िहस्सा, िरजवर् बेंक द्वारा मान्य तरल पिरसं पितमे िनवेश
बेंक मे जमा करना पड़ेगा।) करना होगा)
p

Bank earns no profit / interest, as such. Some profit may be involved. (मुनाफा हो सकता है)
el

- CRR: first suggested by British economist Mandated under Banking Regulation Act, 1949
J.M. Keynes & first introduced in US (बैंिकंग िविनयमन अिधिनयम के अनुसार इसे लागू िकया जाता है)
H

Federal Reserves (=Central Bank of USA).

- Mandated under RBI Act, 1934
⇒ RBI can fix any amount of CRR. Legally ⇒ Presently it is 18.00% of NDTL.
there is no minimum or maximum limit.
Although in real life, RBI will not keep

(Batch: PCB10-RATFAAR) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 61

KING R & QUEEN P Help others god will help you

 CRR SLR
CRR@100% otherwise, no bank can give ⇒ Legally, SLR can’t be made more than 40%.
loans then economy will stop functioning. (कानूनन रूप से िरज़वर् बैंक इसे 40% से ज्यादा नहीं रख
⇒ Presently it is 4.50% of Net Demand & सकतीं.)
Time Liabilities of a bank (NDTL: िनवल मांग
और समय देयताएँ )

u
- All Banks must keep CRR. Similar to left cell of this table.
- (सभी प्रकार के बैंक के िलए अिनवायर्. हालांिक क्षेत्रीय ग्रामीण बैंक

yo
However, RBI may prescribe separate %
norms/slabs for Regional Rural Banks तथा सहकारी बैंको के िलए इसकी प्रितशत मात्रा िरज़वर् बैंक, अन्य
(RRBs) and Cooperative Banks. बैंको की तुलना में थोड़ी िभन्न रख सकती है)

lp
- More in 📑📑Pillar1B1: classification
🚩🚩🚩🚩 ✋Difference between NDTL, ODTL, Total DTL?= NOT IMP4IAS. If you want to satisfy

he
your curiosity, do google search yourself but I don’t t think it as best use of time.

- CRR-SLR are counted on fortnightly basis. If not maintained, bank will have to pay penalty

ill
interest rate to RBI. This Penalty rate is linked with Bank Rate%. (हर 15 िदनों के िलए िगना जाता है. यिद
बेंकर ने निह नहीं माना तो जुमार्ना लगेगा.)
w
- CRR-SLR ensure monetary stability of India through two primary functions:
1) CRR assists in money multiplier effect. (HOW? Watch lecture video.)
d

2) CRR-SLR provide buffer/protection during a Bank Run (बैंकों में से जमारािश वापस लेने की दौड़)
go

i.e. an emergency when every depositor wants to pull out money from his bank account
at once, mainly due to fake news / rumours sometimes due to war e.g. in Russia-Ukraine
- Theoretically, CRR/SLR can be used for inflation control. But RBI primarily relies on REPO Rate
rs

(=its Policy Rate) to combat inflation, and not CRR/SLR. (हालांिक, सीआरआर और एसएलआर महंगाई
िनयं त्रण के मुख्य साधन नहीं है. िरज़वर् बैंक महंगाई से लड़ने के िलए मुख्यता रेपो रेट का इस्तेमाल करती है)
he

🚩🚩🚩FAQ: What will be the impact of SLR changes on Money Multiplier? Ans. Can’t be written
ot

mathematically. Reason given in Video.

12.11.2 🌐🌐� : 🗄🗄✂CRR SLR on Foreigners/NRI’s deposits in Indian Banks?

p

🚩🚩🚩FAQ: does CRR and SLR also apply to the deposits made by foreigners / NRIs / FCNR
el

Accounts? Has RBI changed any rules regarding this?

H

Ans. Wait till we reach Pillar3A: Currency Exchange Rate. Presently we are in Pillar1A2.

12.12🐯🐯🗄🗄✂🗓🗓 CRR, SLR: DEVELOPMENT IN RECENT YEARS

12.12.1 🐯🐯🗄🗄✂🗓🗓 (2020-Feb) CRR Exemption for 5 yrs, depending on loans (सीआरआर में छू ट)
- Outdated / technical stuff for 2023-24 exam so removed from handout

(Batch: PCB10-RATFAAR) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 62

KING R & QUEEN P Help others god will help you

 12.12.2 🐯🐯🗄🗄✂🗓🗓 (2020-Mar) CRR during and after Corona

u
yo
lp
he
ill
w
d
go
rs

Graph is self-explanatory. Not adding any text-explanation. IF not understood then watch video.
he

12.13😥😥NET INTEREST MARGIN, LIQUIDITY OVERHANG & ₹2000 WITHDRAWAL

ot
p
el
H

(Batch: PCB10-RATFAAR) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 63

KING R & QUEEN P Help others god will help you

 - Net interest margin (NIM) is difference between Loan interest MINUS Deposit Interest Rate. An NIM of 3–4%
is considered healthy/good for bank’s profitability and growth.
- Liquidity overhang refers to a situation in monetary policy where money supply is >> (higher)
than demand for money (loans). [जब मुद्रा आपूिर्त ज़्यादा और मुद्रा/लोन की माँग कम हो]
- Result? Loan interest rates become cheaper. This could have negative consequences if there is a
problem of high inflation. (Because cheap loans → more shopping → more demand → inflation
problem worsens) (लोन सस्ते हो जाएँ गे, और वे महंगाई की समस्या को जिटल बनायेंग।े )

u
yo
Liquidity overhang may occur in following scenarios

- During Very Dovish (Easy) monetary policy e.g USA’s Quantitative Easing (QE) - Refer to the

lp
last section of this handout.
- During Noteban (Demonetisation) or withdrawal of currency. e.g. ₹2000 in 2023. [Solution: i-

he
CRR. Refer to Next Section]

12.14🔐🔐INCREMENTAL CRR AFTER ₹2000 WITHDRAWAL

-
ill
After withdrawal of ₹2000 notes → 87% of such notes coming as bank deposits. (Meaning public
w
didn’t exchange 87% 2000 notes with other notes like ₹2000 ₹500x4 notes. Public simply
deposited in to their bank accounts.)
-
d
But as we learned in previous section, this can cause problem of ‘Liquidity overhang’
- So, RBI came up with Incremental Cash Reserve Ratio (I-CRR: वृिद्धशील नकद आरिक्षत अनुपात)
go

Normal CRR i-CRR (10%)

Rate 4.5% of NDTL Whatever extra/ additional deposits came during []May
19, 2023 and July 28, 2023]…keep… 10% extra CRR
rs

from it, During 12th-Aug to 7th-Oct on those deposits.

(Exact dates / Exact formula not imp.)
he

2000 के नोट चलन हटाने के बाद बैंको में जो अितिरक्त रािश जमा हुई उसमें
कु छ अितिरक्त CRR एक अस्थायी समय तक रखना होगा ऐसा िनयम.
ot

Objective? - Protection - To suck / absorb excess liquidity after withdrawal of

against bank ₹2000 .
p

run. - To avoid LIQUIDITY overhang problem.

-
el

Controlling
money supply
H

Will RBI pay No. No. िरज़वर् बैंक बैंकरों को कोई ब्याज नहीं देगा इस पर.
interest to
bankers on this?
- i-CRR locked ₹1 trillion worth money.

(Batch: PCB10-RATFAAR) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 64

KING R & QUEEN P Help others god will help you

 - i-CRR was a temporary measure from 12th-Aug to 7th-Oct 2023. Then i-CRR will be
withdrawn/removed.
Earlier, RBI had issued a temporary i-CRR in 2016–17 after demonetisation of ₹500 & ₹1000

�FAQ: does i-CRR only count ₹2000 note deposit or does it also count ₹100-500 type deposits?
Ans. RBI press release didn't clarify. And I didn’t waste time doing self-PHD.

u
12.14.1 🚩🚩🚩🚩✋: 🐯🐯🗄🗄✂🗓🗓 CRR Technical things NOTIMP

yo
Following technical operational aspects of CRR not imp / poor cost benefit in studying for exam
- What is Automated sweep-in and sweep-out (ASISO) facility? = NOT-IMPORTANT.
https://www.youtube.com/watch?v=q-GNbExdTlA&t=2094s (Although explained here)

lp
- What is Flexible Automated Option for Managing CRR? = NOT-IMP
- Banks are required to calculate CRR on a fortnightly (15 days) basis. They have to maintain at

he
least 90% of that amount in CRR on daily basis. RBI also ⏬ minimum daily CRR balance
maintenance from 90% to 80% upto 2020-June. = NOTIMP. परीक्षा के िलए काम की नहीं
🚩🚩🚩🚩✋Above type of information is not really important for the scope of civil service exam. So,

ill
don’t lose sleep if some inexperienced private Mocktest quiz master framing MCQs like this.
w
🔠🔠❓Cash Reserve Ratio refers to _ _ _ . (UPSC-CDS-i-2020)
(a) the share of Net Demand and time liabilities (NDTL) that banks have to hold as liquid assets
d
(b) the share of NDTL that banks have to hold as balances with the RBI
(c) the share of Net demand and time liabilities that banks have to hold as part of their cash reserves
go

(d) the ratio of cash holding to reserves of banks

🔠🔠❓Find correct statements about SLR: (UPSC-CDS-2011-II)
1. To meet SLR, Commercial banks must keep cash only.
rs

2. SLR is maintained by the banks with themselves.

3. SLR restricts the banks leverage in pumping more money into the economy.
he

Answer codes:(a) 1, 2 and 3 (b) 1 and 3 (c) 2 and 3 (d) only 2

🔠🔠❓When RBI reduces SLR by 50 basis points which is likely to happen? (UPSC-Pre-2015)
ot

(a) India's GDP growth rate increases drastically.

(b) Foreign Institutional Investors may bring more capital into our country.
(c) Scheduled Commercial Banks may cut their lending rates.
p

(d) It may drastically reduce the liquidity to the banking system.

el

🔠🔠❓ If the CRR is lowered by the RBI, supply of money in the economy will:_ _ _ (CAPF-2023)
(a) remain unchanged. (b) decrease. (c) increase. (d) have ambiguous impact.
H

🔠🔠❓ The banks are required to maintain a certain ratio between their “cash in hand” and total
assets. This ratio is known as :_ _ _ (CAPF-2023)
(a) Cash Reserve Ratio (CRR) (b) Statutory Liquidity Ratio (SLR)
(c) Central Bank Reserve (CBR) (d) Statutory Bank Ratio (SBR)

(Batch: PCB10-RATFAAR) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 65

KING R & QUEEN P Help others god will help you

 12.15🐯🐯📢📢💸💸 MONPOLICY → QUANT TOOLS → RATES → LAF REPO

u
yo
lp
he
ill
w
RBI’s Liquidity Adjustment Facility (LAF, तरलता समायोजन सुिवधा): has two windows:
d
® LAF-Repo Rate ® ® LAF-Reverse Repo Rate
go

(िरपो दर/पुन: क्रय-अनुबंध) (उलट िरपो/ पुन: क्रय-अनुबंध)

The Interest rate at which RBI lends short-term It’s the interest rate that clients earn when
loans to its clients, keeping their G-Sec as parking their surplus funds with the RBI for
rs

collaterals. (िरजवर् बेंक अपने ग्राहको को लघु अविध के ऋण short periods, to earn interest. (ग्राहक अपना
देता है। उसपर लागू ब्याज दर को िरपो दर कहेते है। ग्राहक ने अितिरक्त धन, िरजवर् बेंक मे लघु अविध के िलए जमा कर जो
he

अपनी सरकारी प्रितभूितयों को िरजवर् बेंक मे िगरवी रखना पड़ता ब्याजदर कमाते है, उसे उलट-िरपो-दर कहेते है)
है)
⇒ Clients enter into an agreement with RBI to Mechanism similar to Repo, RBI gives its G-Sec
ot

repurchase their G-sec at a future date at a as a collateral to client.

(higher) pre-determined price.
p

⇒ Banks can’t pledge their SLR-quota-G-Secs

el

for this borrowing.✋

⇒ Repo also called ‘Ready Forward Reverse Repo Rate = Repo% MINUS x%
H

Transaction’.
⇒ Repo Rate is our Policy Rate to control
inflation. (मौिद्रक नीित दर)
⇒ Repo = RBI lends short term loans its clients, & demands G-Sec/T-bill as collateral. ✋ At every
place, I’ve not mentioned T-bill, as it just reduces the speed of revision.

(Batch: PCB10-RATFAAR) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 66

KING R & QUEEN P Help others god will help you

 ⇒ Market Repo = Players other than RBI (such as bank, NBFCs) loaning short money to other
Banks/NBFCs/Corporate Companies, and demanding financial securities (G-Sec/T-
Bill/shares/bonds/commercial paper etc.) as collateral. What do those terms mean? Ans. Ref the
table given in topic Operation Twist.

12.16⚡CURRENT REPO VS [NEUTRAL OR TERMINAL] REPO RATE

u
Term Meaning

yo
�Current repo whatever is the present Repo rate e.g. 6.50% on 5/Sept/2023
rate वतर्मान रेपो दर
Neutral or - % repo rate at which inflation is under control, and full employment

lp
Terminal repo achieved. RBI Will not increase the repo rate beyond this point ELSE it’ll
rate damage consumer demand & GDP growth.

he
तटस्थ रेपो दर - This is a theoretical concepts, RBI has not officially declared any number
/ target for it. (यिद इस नं बर से ज्यादा रेपो दर को बढ़ाया तो िफर पिब्लक लोन कम लेगी और
अथर्तंत्र को किठनाई होगी बेरोजगारी बढ़ जाएगी.)
NAIRU
ill
Non-Accelerating Inflation Rate of Unemployment. This term is related with
w
Unemployment. It is not loan interest rate. (We’ll study it in: Pillar#4C:
Unemployment) (यह बेरोजगारी दर है. ब्याज दर नहीं. िखचड़ी मत करो)
12.17👻👻🐯🐯📢📢📈📈 REPO → SPECIAL WINDOWS UNDER ATMA NIRBHAR
d

‘Atma-Nirbhar’ is a set of reforms by RBI and govt to revive Indian economy after Corono-2020
go

12.17.1 👻👻🐯🐯📢📢📈📈 REPO → TLTRO, SLTRO, On-Tap Windows

rs
he
ot
p
el
H

Figure 2: कोरोना पश्चात लोन में ज़्यादा पैसा घुमाके अथर्तंत्र को वापस खड़ा करने के िलए िरज़वर् बैंक ने ये नई िखड़िकयाँ खोली है

#In above chart, All Banks doesn’t include Payment Banks. PB can’t give loans (Ref:📑📑Pillar#1B1)

(Batch: PCB10-RATFAAR) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 67

KING R & QUEEN P Help others god will help you

 Tools Changes in Corona-2020 upto 2022-Feb
Repo RBI's short term loan interest rate to clients while using non-SLR-quota G-
Sec as collateral. Repo Interest ⏬from 5.15 to 4.00% = 1.15% = 115 basis
points cut= Cheaper loans to revive economy
LTRO Long Term Repo Operations (LTROs: दीधर् अविध के रेपो ऋण) for 1 year to 3
years. MORE PHD NOT REQ For 2023.

u
TLTRO Targeted Long Term Repo Operations (TLTRO): Up to 3 years

yo
loans@Repo% to Banks with condition that they must invest x% of it in
NBFC companies’ Bonds etc.
Special LTRO RBI loan for 3 years @Repo% to ONLY Small Finance Banks (SFB) →
Window (SLTRO)

lp
Loans to A) Micro and small industries (सूक्ष्म और लघु उद्योग) B) Unorganized
sector entities (असं गिठत क्षेत्र)

he
💊💊💉💉 On-Tap RBI loan for 3 years @Repo% to Banker → loans to Hospitals, vaccine
Liquidity Windows manufacturer, vaccine importers, medical device makers, oxygen suppliers
for Healthcare etc (अस्पताल, टीका उत्पादक, आयात करने वाले िचिकत्सा साधन बनाने वाले इत्यािद)
🍸🍸⛱ On-Tap
Liquidity Windows ill
RBI loan for 3 years @Repo% to Banker → Hotels, Restaurants, Tour
Operators, Bus Operator, Car Repair Service, Beauty Parlours/Spa/Saloons,
w
for Contact- Event/Conference Organisers बैंकर ने ये पैसा स्पशर्-सं वेदनशील उद्योग क्षेत्र जैसे प्रवासन
Intensive Sectors उड्डयन इत्यािद को कज़र् में देना होगा
d
AIFI RBI loaned large amount of money to All India Financial Institutions
go

(AIFI) i.e., NABARD, NHB, SIDBI, EXIM, NaBFID (Ref: 📑📑Pillar#1B1)

12.17.2 🚩🚩🚩RBI’s Special Windows: Useless Doubts by flag-carrying Babushonas
1. 🚩🚩🚩FAQ: Why would bank borrow ₹₹ in TLTRO / On-Tap windows, when many conditions
rs

are imposed on it? Ans. maybe the bank feels it will earn profit from such loan/investment. (बैंकर
को जरूरत होगी तो लेंग,े वरना नहीं लेंग.े िरज़वर् बैंक के गवनर्र उसको बं दू क िदखाकर ज़बरदस्ती नहीं दे रहे)
he

2. 🚩🚩🚩FAQ: Why would bank borrow ₹₹ in REPO rate (Short term) when LTRO offering long
term loans? Ans. depends on the requirement of the bank. RBI not point gun on them. And
ot

further more, longer term loan means you have to pay interest rate for more number of times.
3. 🚩🚩🚩FAQ: How does LTRO/TLTRO involve “flight of foreign investors & its impact on
exchange rate & bond yield” etc.? Ans. Such long-winded-financial-cause-effect = no
p

importance in UPSC, even though private mock-test-walla design useless MCQs from it. इतनी दू र
el

की बीरबल की िखचड़ी अपने को पकाने की जरूरत नहीं है!

4. 🚩🚩🚩FAQ: I want to do PHD on this until Saif son Taimur grows up & gets married. Ans.
H

Good luck to you! But, I’m finished teaching this topic here. शुभकामनाएँ , आप लेके बैठे रहो.

(Batch: PCB10-RATFAAR) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 68

KING R & QUEEN P Help others god will help you

 12.17.3 (2020) 🐯🐯🐯🐯Reverse Repo Rate cut

Figure 3: sir, जब तक आप loan के िलए हाँ नही कं हेंगे, हम आपको telemarketing spam-calls करते रहेंगे!
Corona led Economic Slowdown → Loan demand ⏬ → banks parking their excess funds in RBI to

u
earn interest in the form of reverse repo rate. (कोरोना महामारी के दौरान बैंक वाले अपना अितिरक्त धन िरज़वर् बैंक में

yo
डाल के बैठे िबठाये व्याज कमा रहे थे. ग्राहकों में लोन का पैसा घुमाने की मेहनत नहीं कर रहे थे.)

⇒ By 2020-March: banks parked ₹~3 lakh crores in RBI in Reverse Repo.

⇒ So, RBI has drastically reduced ⏬the reverse repo rate to 3.35% to discourage such laziness of

lp
banks. (बैंको के इस आलसीपन को दू र करने के िलए िरज़वर् बैंक ने िरवसर् रेपो रेट में कटौती की)

he
⇒ Benefit of reverse repo reduction?
 IF SBI offers 5.9% Fixed deposit interest rate to depositors, and parks it in the RBI
reverse repo rate (3.35%) then SBI will actually make losses.

ill
 So, RBI hopes SBI will now be ‘forced’ to give loans in a proactive manner (through
SMS-spam, email-spam and unwanted telemarketing calls etc)
w
Although as per 📔📔📔📔ES21, Banks still continued to park their surplus funds in Reverse repo
because there were not enough loan takers due to Corona slowdown. (हालांिक कु छ खास फायदा नहीं हुआ ऐसा
d
आिर्थक सवेर्क्षण का कहना है)
go

12.17.4 🐯🐯📢📢💸💸 MonPolicy → Quant Tools → Variable Rate Reverse Repo (VRRR)
Outdated/technical for 2024-exam cycle, so removing from latest handout.
rs

12.17.5 🐯🐯🐯🐯 🎛🎛 Enhanced Reverse Repo Rate for Hardworking Bankers

Outdated/technical for 2024-exam cycle, so removing from latest handout.
he

12.17.6 🐯🐯📢📢💸💸 MonPolicy → Quant Tools → Rates → MSF (2011)

- Marginal Standing Facility (MSF: सीमांत स्थायी सुिवधा) is the Interest rate at which RBI lends short-
ot

term loans to Scheduled Commercial Banks (SCB) & Regional Rural Banks (RRB) with their
SLR-quota G-Sec as collaterals. (ऐसी खास िखड़की है जहाँ से िरज़वर् बैंक द्वारा अनुसूिचत वािणिज्यक बैंको तथा क्षेत्रीय
ग्रामीण बैंकों को, उन बैंको के एसएलआर कोटा की प्रितभूितयों को िगरवी लेकर िरजवर् बैंक उन्हें लघु अविध के कजर् देता है)
p

- MSF higher than Repo Rate. MSF = Repo% + 0.25%

el

- What is the difference/meaning of SCB/RRB/SFB/UCB etc? Ans: (📑📑Ref: HDT-Pillar#1B1:)

H

🚩🚩🚩FAQ:Which types of banks can access MSF facility? ✅Ans. It is given in above note itself.

(Batch: PCB10-RATFAAR) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 69

KING R & QUEEN P Help others god will help you

 12.17.7 🐯🐯📢📢💸💸 MonPolicy → Quant Tools → Rates → Bank rate (बेंक दर):
Bank Rate MSF Repo Rate
Introduced in RBI Act, 1934** 2011 2000
What is the % Since 2012: Monetary Policy
MSF = Repo% + “x”%
rate? Bank Rate% = MSF% Committee decides
Who can All clients of RBI:

u
borrow from Only banks bank, non-bank,
the RBI?

yo
Union & State Govt
Collateral Bank can pledge securities Yes, G-Sec/T-bill. But
**Yes and No
required? from its SLR quota not from SLR
Loan duration Longer than repo Short term usually overnight to 14 days

lp
Emergency borrowing by
Nowadays mainly

he
Primary bank, using their securities Short term borrowing
for deciding penalty
Utility? from SLR quota subject to by all clients of RBI.
on errant banks
certain limits.
-

ill
**RBI Act, 1934: “Bank rate is the standard rate at which RBI buys or rediscounts first class
securities, bills of exchange or other commercial papers.(-NCERT)” rediscounting basically
w
means the “repo-walla game= RBI buys @x price, re-sells@y price where y>x”
- But, since the introduction of the Repo rate in the 2000s, the Bank rate has become a dormant
d
tool (िनिष्क्रय उपकरण) =not frequently used by RBI for lending or by banks for borrowing).
go

- So, reference books/websites differ in its present operational status e.g. some of them would say:
- Bank rate requires no collateral and is meant for long term loans.
- Bank rate accepts collateral which can be both GSec/T-bill as well as private companies’
rs

securities.
🚩🚩🚩🚩✋So, in the real exam, it depends on which book/web source the examiner has copied the
he

statement(s) and accordingly you’ve to take a judgement call in ticking the answer. (िविभन्न और िकताबों
और वेब साइटों पर बैंक दर की व्याख्या/अथर् गठन अलग अलग है इसिलए असल परीक्षा में जो पूछा जाए तो िस्थती/िववेक के िहसाब से
आपने जवाब tick करना है.)
ot

12.17.8 🐯🐯📢📢💸💸 Quanti. Tools → SDF (=Reverse Repo walla game Without Collaterals)
p

⇒ 2013: Urjit Patel Committee on Monetary policy proposed standing deposit facility (SDF)
⇒ SDF = Clients park/deposit their extra money in RBI. RBI pays them interest. RBI doesn’t give
el

any collateral (unlike in REVERSE REPO). (स्थायी जमा/िडपॉिज़ट सुिवधा = िरज़वर् बैंक के ग्राहक अपना अितिरक्त
H

पैसा िरज़वर् बैंक में जमा करेगा. िरज़वर् बैंक ग्राहकों को िडपॉिज़ट के िलए ब्याज देगा. िरज़वर् बैंक ग्राहक के पास िगरवी कु छ नहीं रखेगा.)
⇒ 🤩🤩Benefit of SDF: To combat inflation → RBI can suck extra money supply via SDF window.
RBI will not have to pledge G-Sec as collateral to clients. (महँ गाई से लड़ने वास्ते बाज़ार में से पैसों की अितिरक्त
आपूिर्त को चूसने/हटाने/कम करने के िलए िरज़वर् बैंक एसडीएफ़ का इस्तेमाल कर सकता है- िबना कु छ िगरवी रखे।)
⇒ 2018: RBI act amended to add SDF facility. (िरज़वर् बैंक क़ानून में सुधार िकया गया).

(Batch: PCB10-RATFAAR) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 70

KING R & QUEEN P Help others god will help you

 ⇒ 2022-April: RBI started/launched SDF. RBI also made changes in Policy corridor. <REF: NEXT
SECTION>

🚩🚩🚩FAQ: SDF is launched so does it mean Reverse Repo discontinued?

> Reverse Repo rate not discontinued. Reverse Repo will remain as part of RBI’s toolkit. RBI will

u
continue to use it at its discretion from time to time. Presently Reverse Repo is 3.35%

yo
🚩🚩🚩FAQ: what is the deposit time duration of SDF and Reverse Repo?

> Sufficient to know these are for short-term. Now what exactly is short-term? Is it 1 day, 7 day, 14
day? = Not important for exam. Why overburden the memory card of the brain with unnecessary

lp
information?

he
🚩🚩🚩FAQ: IF SDF and Reverse Repo both present, then why would Bankers go for SDF where no
collateral given?

> The time period and interest rate offered on SDF and Reverse Repo are different. So, it depends on

ill
bankers’ business-requirement, cash-flow management. RBI is not pointing in gun their head to use
w
it. (बैंकर को ज़रूरत होगी तो इस्तेमाल करेगा. िरज़वर् बैंक उसकी कनपटी पर िपस्तौल नहीं रखा है.)

12.17.9 ⛓ MSF Repo vs Reverse Repo vs SDF

d

Tool MSF Repo Reverse Repo SDF

go

Present rate 6.75% 6.50 3.35% Fixed 6.25

(2023-Feb) Reverse Repo
Rate (FRRR)
rs

Lender RBI RBI Banks+some Banks+some

NBFCs NBFCs
he

Borrower ONLY Scheduled Banks+some RBI RBI

Commercial Banks NBFCs
ot

(SCB) & RRB

Borrower need to Yes Yes Yes Not required.
give Collateral?
p

##Facility Client (SCB) RBI RBI Client

el

available at (Banks+Some
Discretion of NBFC)
H

⇒ ## Discretion = here means suppose a client (Bank/NBFC) comes for Reverse Repo= It's not
compulsory for RBI to entertain him. (िरज़वर् बैंक की मज़ीर् की बात है िक उसको सेवा देगा या नहीं देगा.)
⇒ But, If client (Banker) comes for MSF = RBI will not say "NO" to him. RBI will help him.
⇒ What is SCB? Ans. Refer Pillar1B1: Classification of Banks

(Batch: PCB10-RATFAAR) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 71

KING R & QUEEN P Help others god will help you

 12.17.10 🚧🚧 Policy Corridor / LAF Corridor

u
yo
lp
he
⇒ Policy Corridor also known as Liquidity Adjustment Facility (LAF) corridor. (नीित गिलयारा / तरलता
सुिवधा गिलयारा)
⇒ BEFORE 2022-April: Policy Corridor = total width between: MSF <—> REPO <—> Reverse
Repo. (इन तीनों उपकरणों के बीच की कु ल चौड़ाई)
ill
⇒ After 2022-April: Policy Corridor = MSF (Repo+0.25%) <—> REPO <—> SDF (Repo-0.25%)
w
⇒ Thus total width is 0.25+0.25= 0.50%
Upper end of Center Lower end of Corridor Total width
d

Corridor / Floor (फ़शर्)

go

/ Ceiling (छत/ऊपरी
सीमा)
Tool? MSF REPO Before: Reverse Repo. (RR)
rs

After: SDF
Before MSF= R+25 bps R% RR = Repo-25 bps 25+25=50bps
he

Corona
In Corona MSF= R+25 bps R% RR = Repo - 65bps 25+65=90bps
ot

2020-21
2022-Apr MSF = Repo + 25bps R% SDF = Repo-25bps 25+25=50bps
Note: 100 base point system (BPS) = 1% So 25 bps = 0.25%. 50 bps = 0.50%
p

⇒ SDF has replaced the Reverse Repo Rate as the floor of the Policy corridor.
el

⇒ However, Reverse Repo was not discontinued.

H

⇒ Reverse Repo will remain as part of RBI’s toolkit

⇒ Reverse Repo will be used as per the mood/discretions of the RBI from time to time

12.17.11 �⚖� Tri-Party Repo (ित्र-पक्षीय पुन: क्रय-अनुबंध):

- Outdated topic. I find it not important for exam anymore. So DELETED from handout.

(Batch: PCB10-RATFAAR) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 72

KING R & QUEEN P Help others god will help you

 - Sufficient to know this is not a tool of Monetary Policy. It is a method to meant to help
companies to borrow money from the market.(ये मौिद्रक नीती का िहस्सा नहीं है. )

12.17.12 🐯🐯🐰🐰 BPLR, MCLR, External Benchmarks, etc:

Terms related to how individual banks decide their loan rates. Ref: End section of present handout.

12.18🏪🏪OPEN MARKET OPERATIONS- TWO TYPES

u
OMO Types Meaning

yo
repo-OMO already learned in previous section. RBI buys/sells G-Sec with promise of
repurchase. (e.g. Repo and Reverse Repo)
outright- RBI buys/sells G-Sec WITHOUT any promise to buy them back.

lp
OMO

he
�FAQ: does it mean Repo is sub-type of OMO? Ans. Theoretically yes as per NCERT. But as far as
MCQ ticking is concerned it depends on CONTEXT/Tone of the question. So far after observing the
PYQ, UPSC examiner treats them as two separate tools, without MIXING up. For the purpose of my
NOTES- consider OMO= secondary market mein RBI’s buying-selling.

ill
w
12.18.1 🐯🐯📢📢📁📁 Market Operations (OMO): (Inflation → Sell G-Sec, Deflation → Buy)
d
go

Figure 4: Aloo Lelo, Pyaaz Lelo, G-Sec Lelo...

I. Open Market Operations (खुले बाजार की िक्रयाए): RBI buys and sells Union & State Govts’ securities
to control money supply.
rs

o RBI buying= Money supply ⏫increased/liquidity injected in the market.

he

o RBI selling = Money supply ⏬decreased/liquidity absorbed from the market.

II. Market Stabilization Scheme (बाजार िस्थरीकरण योजना): RBI sells special type of G-sec, T-Bill & Cash
Management Bills (CMB) to suck excess liquidity. ✋How it works? How is it similar or
ot

different than OMO? Ans. NOTIMP. Very low profile thing for scope of UPSC.
III. Sterilization / Forex Swap: Their primary objective is to control the currency exchange rate
p

volatility (e.g. $1=₹65,70,80… मुद्रा िविनमय दर की िस्थरता के साथ जुड़ा हुआ मामला). <More in 📑📑Pillar#3 >
IV. Operation Twist (2019): a special type of OMO. Explained in next segment.
el
H

12.19🐯🐯📢📢🗃🗃🧬🧬MONPOLICY: QUANTI TOOLS: OMO → OPERATION TWIST

Before that, you’ve to be aware of some many basic concepts:

12.19.1 🐯🐯🗃🗃: Security → Debt → G-Sec & Bonds (ऋण के िलए जारी की गई प्रितभूितयां)
A ‘Security’ means a certificate/document indicating that its holder is eligible to receive a certain
amount of money at a particular time. This could be a…

(Batch: PCB10-RATFAAR) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 73

KING R & QUEEN P Help others god will help you

 Table 3: प्रितभूितयों के िविभन्न प्रकार
Borrower 🦁🦁Govt 🤵🤵Corporate (िनगम)
Short term Treasury bills, Cash Bill of Exchange, Commercial Papers,
(less than 1 year) Management bills Promissory Notes.
→
Long term G-Sec, Sovereign Bonds Bonds / Debentures
(1 year/>) →

u
Usually lower than Corporates’ Depends on following factors →

yo
Interest rate
because risk is low
12.19.2 🛒🛒 (🐯🐯🗃🗃: 🧔🧔🧔) Deepening of G-Sec market- Retail investors’ RDAG @RBI
- RBI launched “Retail Direct Scheme” in 2021.

lp
- Under this scheme, RBI permits “Retail Direct Gilt (RDG) account” for retail investors on its E-
Kuber online platform. (आम िनवेशक िरज़वर् बैंक में आरडीजी नामक खाता खोल पाएं गे)

he
- Both Resident Indians & non-resident Indians (NRIs) can open this account. (गैर िनवासी भारतीय भी)
- Then Retail investors can directly buy Treasury Bills (T-Bill), G-Secs (of Union Government),
State Development Loans (SDL are ‘G-secs’ of State Govts) and Sovereign Gold Bonds, from RBI

ill
directly. (आम िनवेशक सीधा िरज़वर् बैंक से इन प्रितभूितयों को खरीद सकता है.)
w
- Application fees to open the account = ₹ ZERO
− 🤩🤩Benefit? 1) Earlier retail investors bought G-sec “indirectly” through mutual funds wherein
d
mutual fund manager (MF) charged commission/fees. Now retail investor can buy directly so
does not have to pay such commission/fees to MF managers. (िबचौिलयों को दलाली/कमीशन नहीं देना होगा)
go

− (More in 📑📑Pillar#1C- SEBI Share market, DEMAT account etc)

rs

12.19.3 🐯🐯🗃🗃:🤵🤵Corporate Bonds: factors that determine its interest rate

If companies want to borrow money, they may issue bonds to investors. e.g. “Whoever buys this
he

Reliance Bond worth ₹1000, we will pay him 9.40% interest rate per year and return the principal after
15 years.” Usually the interest rate offered on such bonds depends on
Factor (कारक) How it determines corporate bond interest rate?
ot

(Risk) Credit rating Lower credit rating (e.g. CCC or D) → higher interest rate needs to be
of company offered because risk of default is high. जब िदवािलयेपन का जोिखम ज्यादा हो
p

Inflation If Bond is not offering more % than the level of inflation% then investors
el

may not come. (महंगाई दर से अिधक ब्याज दर नहीं देगा तो लोग नहीं जुड़ेंगे)
why/how: Ans. Ref: 📑📑Pillar1C → Inflation Indexed Bonds
H

Bank deposit interest Higher the (Bank) deposit interest rate, higher bond interest rate needs to
rates be offered to attract households to shift money from bank savings/FD to
corporate bonds. (अगर बैंक जमाकतार्ओ ं को अच्छा ब्याज दे रहा है तो कं पनी ने ज्यादा ब्याज
ऑफर करना होगा)

(Batch: PCB10-RATFAAR) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 74

KING R & QUEEN P Help others god will help you

 Factor (कारक) How it determines corporate bond interest rate?
Yield on G-Sec If G-Sec yield ⏫, then corporate will have to offer even higher bond
interest rate to attract the investors from G-Sec investment towards
Corporate/company-Bond investment.
12.19.4 🐯🐯🗃🗃: 🤑🤑 Bond Yield (बांड में िनवेश करने पर होने वाली आय या मुनाफा)

u
yo
lp
he
ill
w
d
go

⇒ Bond yield is the profit an investor earns on a bond investment.

rs

12.19.5 🐯🐯🗃🗃: 🤑🤑 Bond Yield ∝ 1/Price (सस्ते में खरीदा= तो मुनाफा ज्यादा)
⇒ Bhide bought @100, his yield is 8%; Jethalal bought @90, his yield is 20%.
he

⇒ Thus, Bond yield is inversely related to the current selling price of the bond in the secondary
market.
⇒ If a bond’s demand ⏫ → its selling price will ⏫ → bond yield ⏬ (Because of inverse
ot

relation)
12.19.6 🐯🐯🗃🗃: 🤑🤑 Bond yield: other factors affecting it (अन्य कारक)
p

⇒ If the economy is booming (तेजी), companies are making great profit, investors may sell bonds at
el

lower prices in a hurry to unlock their money to invest it in shares of companies, because they
think it’ll get them more dividend. Then bond’s current selling price in the secondary market
H

⏬ → yield ⏫.
⇒ If the economy is facing recession (Continuous decline in growth rate: मं दी) → companies will
NOT make great profit → investors sell shares, and prefer to buy bonds hoping they’ll get
secured fixed interest. Then bond’s demand ⏫ in the secondary market → selling price ⏫ →
yield ⏬.

(Batch: PCB10-RATFAAR) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 75

KING R & QUEEN P Help others god will help you

 ⇒ Inflation. (How? Explained in video).
⇒ Political instability. (Self-explanatory from SriLanka example.)
⇒ Actions of the central bank. (Explained below).

12.19.7 🐯🐯📢📢🗃🗃🧬🧬Operation Twist: why?

⇒ Commercial banks were reluctant to lend money to private sector companies because of the

u
problem of Bad Loans /Non-Performing assets (NPA: More in 📑📑Pillar1B2). िदवािलयेपन की घटनाओं

yo
के चलते, बैंकवाले िनजी क्षेत्र की कं पिनयों को कजर् देने से डर रहे थे। आिर्थक वृिद्ध और रोजगार सृजन के िलए यह अच्छी बात नहीं थी.
⇒ If such companies could borrow money by issuing corporate bonds (at cheaper interest rate) →
more factories, more jobs, more production, more GDP.

lp
⇒ RBI decided to attack the third factor: “If the yield on long term G-Sec decreased, then

he
automatically Corporate Bond interest rates could also decrease.”

ill
w
d
go

Figure 5: figures are only for illustration. ✋No need to memorize numbers.
rs

12.19.8 🐯🐯📢📢🗃🗃🧬🧬RBI’s Operation Twist: methodology (2019-Dec)

he

Since RBI’s existing monetary policy tools had failed to make loans cheaper for corporates / boost the
economy. So in 2019-Dec, RBI started a “special OMO” wherein:
⇒ Since RBI started buying long-term G-Sec, their demand will ⏫ → price will ⏫ → yield is ⏬.
ot

The 10YearGSec’s yield lowered from 6.75% to 6.60%

⇒ And we’ve already learned, Corporate bonds are priced (benchmarked) keeping G-sec yields in
p

mind.
el

So, Op Twist → Lower G-Sec yield means →

 Cheaper borrowing for Private sector Companies. Because
H

o They can borrow money by issuing their (long term) Corporate-Bonds at much cheaper
interest rate than before. (िनजी क्षेत्र की कं पिनयों के िलए बॉन्ड जारी कर- ऋण लेना हुआ सस्ता🤩🤩)
o When a private company meets a bank manager to borrow money, it can negotiate the
loan price, “If your bank does not lend me money at this cheaper interest% then I will

(Batch: PCB10-RATFAAR) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 76

KING R & QUEEN P Help others god will help you

 issue my own corporate bonds.” → Even the bank lending rates for corporate loans could
be reduced.
 Cheaper borrowing for Government. For reasons similar to above. (How? Explained in Video)
 Investor of long term G-Sec will feel discouraged to hold the G-Sec till maturity (10-14 years),
He will try to sell it to another party/RBI and pull out his money, then he may park ₹₹ it a
Corporate Bond / Bungalow / car / Goa-vacation etc. Thus, it helps boost the consumption →

u
economy grows.

yo
समज में आ गया हो तो बिढ़या है, नहीं तो रट्टा मारो िजदं ाबाद (if not understood then memorize by Rot-learning)
1. 1961: "Operation Twist" was first used by the US Federal Reserve.
2. 2019: RBI used also done it. Officially called “Special Open Market Operation (OMO) wherein

lp
the Central bank simultaneously buys and sells G-sec of varying maturities to adjust their yields.

he
Which helps reduce interest rates on corporate bonds/debentures → easier to mobilize
investment → factory expansion → jobs, GDP growth. (यह एक खास िकस्म की खुले बाजार की िक्रया है, जहाँ
अगल अलग िमयादी की सरकारी प्रितभूितयाँ खरीद-व-बेच कर िरजवर् बेंक उनकी उपज को कम करता है, तािक कॉपोर्रेट कं पिनया
सस्ते ब्याज मे पैसा बाजार से हािसल कर सके , तािक रोजगार और आिर्थक वृिद्ध मे मदद िमले)
3. Objectives of Op-Twist=
ill
w
a. To make borrowing cheaper for Companies and Govt. कं पनीओ/िनगमों और सरकार के िलए कजर्
सस्ता करवाना (HOW? Ans. Explained in Video).
d
b. It was NOT MEANT For fighting inflation. महंगाई से लड़ना इसका उद्देश्य नहीं है
4. It ensures better Monetary Policy transmission for economic growth. (because, earlier, simply
go

reducing the repo rate has not helped much in making loans cheaper, for corporates. इससे पहले रेपो
दर कम करने पर भी बाजार में लोन सस्ते नहीं हो रहे थे, तो िरज़वर् बैंक ने सोचा ये ऑपरेशन िट्वस्ट नामक नया साधन आजमाते हैं)
✋🎓🎓 🚫🚫 Beyond this, further PHD on what/why/how = poor cost:benefit for MCQs.
rs

12.19.9 ✋🎓🎓 🐯🐯🗃🗃: 🤑🤑 Bond Yield & Inverted Yield Curve: poor benefit for exam
he

1. Inverted Yield curve = ✋🎓🎓 इस मुददे को पढने में हम वक्त बबार्द नहीं करेंगे
2. Negative Bond Yield = ✋🎓🎓 इस मुददे को पढने में हम वक्त बबार्द नहीं करेंगे
ot

3. Chinese Bond Yield ki News, Italian Bond Market crisis = ✋🎓🎓NOT IMP.
🔠🔠❓MCQ. India Government Bond Yields are influenced by which of the following? (Pre-2021)
p

1. Actions of the United States Federal Reserve [अमेिरकी फे डरल िरजवर् की िक्रयाओं द्वारा]
el

2. Actions of the Reserve Bank of India. [िरजवर् बैंक की िक्रयाओं द्वारा]

3. Inflation and short-term interest rates [महंगाई और लघु अविध के ब्याज दर]
H

Answer Code: a) 1 and 2 Only b) 2 Only c) 3 Only d) 1, 2 and 3

🔠🔠❓ MCQ. 'Open Market Operations' refers to: (Prelims-2013)
a) borrowing by banks from the RBI b) lending by commercial banks to industry and trade
c) purchase and sale of government securities by the RBI d) None of the above

(Batch: PCB10-RATFAAR) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 77

KING R & QUEEN P Help others god will help you

 🔠🔠❓ MCQ. Which would result in an increase in money supply in economy? (Prelims-2012)
1. Purchase of G-Sec from the public by the Central Bank.
2. Deposit of currency in commercial banks by the public.
3. Borrowing by the government from the Central Bank.
4. Sale of government securities to the public by the Central Bank.
Answer Codes: (a) 1 only (b) 2 and 4 only (c) 1 and 3 (d) 2, 3 and 4

u
🔠🔠❓ MCQ. Which of them is/are part of Monetary Policy? (Prelims-2015)

yo
1) Bank rate 2) Open market operations 3) Public debt 4) Public Revenue
Answer Codes: (a) 1 only (b) 2, 3 and 4 (c) 1 and 2 (d) 1, 3 and 4

lp
he
ill
w
d
go

12.20🐯🐯📢📢🗃🗃: 📅📅 MONPOLICY: QUANTI TOOLS: OMO → G-SAP

⇒ Full form: (Secondary Market) G-sec acquisition programme
rs

⇒ Mechanism: RBI to buy G-Sec from Secondary market on specified timetable. एक िनिश्चत समय तािलका
के िहसाब से िरज़वर् बैंक िद्वतीय बाज़ार से सरकारी प्रितभूितयां ख़रीदेगा.
he

G-SAP During these months Total

G-SAP 1.0 (पहला चरण) → 1st Quarter of 2021-22 =April to Jun 2021 (पहली ितमाही) ₹1.0 Lakh cr
ot

G-SAP 2.0 (िद्वतीय चरण) → 2 Quarter of 2021-22 = July to Sept 2021 (दू सरी ितमाही)
nd
₹1.2 Lakh cr

12.20.1 🐯🐯📢📢🗃🗃:📅📅 OMO → G-SAP : 🤩🤩Benefit?

p

⇒ ⏫ Money supply in the economy. (अथर्तंत्र में मुद्रा आपूिर्त बढेगी)

el

⇒ Investors, who sold G-Sec to RBI= those investors got ₹₹ →They may 1) do shopping and/or 2)
invest in other companies shares/bonds→ 1+2=economic growth. मुद्रा आपूिर्त में बढ़ोतरी के चलते िनवेशकों
H

के हाथ में पैसा आएगा तो वे बाज़ार से ख़रीदारी करेंग,े अन्य कम्पिनयों में िनवेश करेंगे→ देश की आिर्थक वृिद्ध में मदद िमलेगी
😤😤FAQ/Moral Outrage: Why G-SAP? Why not achieve this via ⏬ reducing REPO ? Ans.

(Batch: PCB10-RATFAAR) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 78

KING R & QUEEN P Help others god will help you

 ⇒ Every person may not be interested in taking new bank loans. Some investors may be interested
in selling their previous investments in G-Sec to unlock the money. (हर व्यिक्त बैंक से कज़र् लेगा ये ज़रूरी
नहीं है। कु छ िनवेशक अपना पुराना G-sec िनवेश बेचकर पैसा बटोरना चाहते हो तो जी-सेप में आ सकते है)
⇒ if RBI ⏬decreases the repo rate too much→ it can result in A) inflation and B) ⏬decrease in
the deposit interest rates offered by the bankers on savings account → middle-class and
pensioners affected negatively. (रेपो दर में बहुत ज़्यादा कटौती हुई तो नई समस्याए खड़ी होंगी)

u
Table 4: To Sum up, OMO, GSAP, OP-TWIST (कु ल िमलाकर बात ये है िक)

yo
G-SAP ⇒ RBI is buying G-Sec to increase money supply → Post-corona revival.
⇒ Money amount, date&time/calendar/timetable is transparently & systematically
announced in advance before starting.

lp
⇒ इसमें पैसों की मात्रा, समय-तािलका सब कु छ पारदशीर् और व्यविस्थत रूप से, ख़रीदारी शुरुआत करने से पहले
िरज़वर् बैंक प्रकािशत कर देता है।

he
OMO ⇒ RBI is selling G-Sec to control inflation.
⇒ RBI is buying G-Sec to fight deflation. मुद्रास्फीित(मं हगाई)/अपस्फीित(सस्ताई) से लड़ने के िलए
िरज़वर् बैंक सरकारी प्रितभूितयों को बेचेगी/खरीदेगी

ill
⇒ Its timetable NOT announced in advance, in detailed manner, unlike G-SAP.
w
िरज़वर् बैंक के िववेक/मनमज़ीर् पर अिनयिमत समय पर ये िक्रया होती थी। समय से पूवर्, िवस्तृत रूप से इसकी
समय तािलका प्रकािशत नहीं की जाती थी।
d
⇒ OMO window is NOT discontinued. It’ll continue to function as per discretion
of RBI. इस िखड़की को बं द नहीं िकया गया। िरज़वर् बैंक के िववेकानुसार भिवष्य में भी जारी रहेगा.
go

Op.Twist ⇒ RBI is Buying and Selling of G-Sec of varying maturities

⇒ To reduce G-Sec yield → so future borrowing becomes cheaper for Government
and Companies. (िरज़वर् बैंक द्वारा िभन्न िभन्न अविध/िमयादी की सरकारी प्रितभूितयों को खरीदना और
rs

बेचना तािक यील्ड कम हो सके तािक भिवष्य में सरकार तथा कं पिनयों के िलए कजार् लेना सस्ता हो सके । )
he

12.21🐯🐯📢📢🌽🌽 MONETARY POLICY: QUALITATIVE TOOLS (गुणात्मक साधन)

Quantitative tools (SLR,CRR,Repo etc.) control ‘volume’ of loans. मात्रात्मक साधन कजेर् की मात्रा तय करते हैं
ot

⇒ Whereas, qualitative tools (PSL,LTV etc.) control “distribution” of loans to a particular sector of
economy. गुणात्मक साधन कजेर् के िवतरण को तय करते हैं
- e.g. how much loan to a particular sector e.g. agriculture, renewable energy.
p

- how much loan to a particular segment of society (e.g. farmers, women, SC/ST).
el

- So, qualitative tools also known as SELECTIVE (चयनात्मक) or DIRECT (प्रत्यक्ष) Tools.
H

(Batch: PCB10-RATFAAR) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 79

KING R & QUEEN P Help others god will help you

 12.21.1 � Moral Suasion (नैितक दबाव / सलाह) & Publicity (प्रचार)

Figure 6: “मैंने तो अपनी repo-दर कम कर दी लेिकन ये लालची बेंक वाले अपने loan-दर कम नही कर रहे , कम से कम मेरा िलहाज/सम्मान रखने के िलए भी उन्हे थोड़ा तो सस्ता
करना चािहए।“ - RBI Governor
- Moral suasion meaning applying “Persuasion” without applying punitive measures. RBI

u
governor tries this tactic via conferences, informal meetings, letters, seminars etc

yo
- E.g. RBI-Governor asking banks to transmit repo-rate cuts, open new branches in rural areas,
spread financial literacy, give loans to farmers beyond PSL quota etc.
- E.g. RBI Governor requesting CM or Finance Minister to control fiscal deficit & subsidy leakage

lp
to enhance the efficacy (प्रभावकािरता) of RBI’s monetary policy.
-

he
Publicity: RBI governor could give media statement, speech during university convocation (दीक्षांत
पदवीदान समारोह), memorial lectures… “Look I reduced repo rate but banks are not passing the
benefit to customers…and xyz”. By doing so, he can create an effective public opinion which also
pressurizes the banks to stop their thuggery.

ill
w
12.21.2 �🚯🚯 Direct Action (सीधी कायर्वाही: क्योिक लातो के भुत बातो से नहीं मानते)
- RBI can punish banks (and even non-banks) for not complying with its directives under RBI Act,
d

Banking Regulation Act, Payment and Settlement Systems Act, Prevention of Money Laundering
go

Act (PMLA), Foreign Exchange Management Act (FEMA). िरजवर् बैंक के िदशा िनदेर्शों का पालन न करने पर
िविभन्न कानूनों में सजा/दंड
- 2019: RBI ordered the banks to have a “Clawback” provision in their CEO & Top executives’
rs

salaries. E.g. If the CEO did any scam/fraud, he’ll have to return his previously paid salary /
bonus, even if he had retired/left the job afterwards. (िकसी बैंक का सीईओ कांड में पकड़ा गया तो उस सीईओने
he

पुरानी तनख्वाह भी लौटानी होगी.)

12.21.3 💍💍 Margin Requirements / Loan to Value (LTV) (सीमा अिनवायर्ता)
ot
p

Figure 7: जब घर मे पड़ा है सोना, िफर काहे को रोना?

el

- RBI can mandate Loan to Value (LTV) for a gold-loan, home loan, auto loan or business loan
etc. so a Bank/NBFC can’t lend more than x% of the value of the collaterals. RBI can change this
H

x% to boost / curb demand. (िगरवे रखी चीज के मूल्य के सामने बेंक या गैर-बेंक सं स्थान व्यिक्त को िकतना कजर् दे सकते
है? िरजवर् बेंक उसके मानदंड में बदलाव द्वारा, बाजार में चीज-वस्तुओ की मांग को बढ़ा या कम कर सकता है)
LTV reforms in 2020-Aug Before After
Gold Loan 75% value of gold/gold- 90%
jewellary

(Batch: PCB10-RATFAAR) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 80

KING R & QUEEN P Help others god will help you

 🤩🤩Benefit? More quantity of loan by pledging same qty of gold → 😷😷 post-corona-biz-revival.

12.21.4 Selective Credit Control (चयनात्मक ऋण िनयं त्रण)

😰😰In a negative / restrictive direction (नकारात्मक) 🤩🤩In a positive direction
(सकारात्मक िदशा में)
- Credit Rationing System: English (in 18th century) - 🚗🚗 Consumer credit control e.g.

u
and USSR (till 1990s)– their central bank will not During deflation / recession, RBI

yo
give more than “X” amount as loan to individual can relax the down payment / EMI
banks. And an individual can’t get more than installment norms for durables
prescribed amount of loans for each category like Vehicles, TV, Fridge etc. to

lp
(housing, education, business). (एक व्यिक्त को इससे ज्यादा boost consumption and demand.
कजार् नहीं िमलेगा) - Priority Sector Lending <see

he
- 1960s: Credit Authorization Scheme (CAS) in India: below> प्राथिमक क्षेत्र के ऋण मानक
all commercial banks had to obtain prior approval of
the RBI before loaning ₹ 1 crore/> to a single

-
borrower.
1970s: RBI imposed quantitative ceiling on non-food ill
w
loans to boost green revolution, food inflation.
😰😰But such measures failed due to lax monitoring and
d
loopholes. (िशिथल िनगरानी के चलते, बेअसर रहे ये साधन)
go

12.22 🐯🐯📢📢🌽🌽 PRIORITY SECTOR LENDING (PSL: प्राथिमकता क्षेत्र के िलए ऋण मानक)
rs
he

Figure 8: थोड़ा लोन हमको भी िदलवा दो Governor-sahib, हम बहोत गरीब है!

ot

- 1968: First time RBI used the word “priority sector”: Banks must give 40% of their loans to 3
priority sectors 1) agriculture 2) small industries 3) exporters by 1985. (कृ िष छोटे उद्योग और िनयार्तक)
- Over the years, more sectors were included in it. (समय के साथ साथ और भी क्षेत्रों को इसमें शािमल िकया गया)
p

- 2015: some reforms in PSL. → 2019: RBI's UK Sinha Committee on MSME loan reforms
el

suggested some more reforms in the PSL. →2020-Sept: RBI reformed PSL guidelines as
following: (िनम्न सुधार िकए गए)
H

Priority Sector Loans norms → minimum quota after 2020-Sept Reforms BEFORE AFTER
� Weaker Sections (कु ल लोन का कम से कम 12% जाना चािहए कमजोर वगर् को): 10 % ⏫12%*
⇒ SC, ST, Women, PH, Minorities, Manual scavengers, Artisans,
⇒ PM-Jan DhanYojana Overdrafts upto Rs.10,000

(Batch: PCB10-RATFAAR) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 81

KING R & QUEEN P Help others god will help you

 Priority Sector Loans norms → minimum quota after 2020-Sept Reforms BEFORE AFTER
⇒ Beneficiaries of Govt's National Rural/Urban Livelihood Mission
Schemes (NRLM/NULM: More in 📑📑Pill#6: HRD →Poverty Removal
Schemes)
🌽🌽 Agriculture (कृ िष) (all farmers: small and big) 10% 8%
🌽🌽 Agriculture: सीमांत िकसान और छोटे िकसान 8% ⏫10%*

u
⇒ Marginal Farmer (owns upto 1hectre land) सीमांत िकसान
⇒ Small farmer (>1 upto 2ht) छोटे िकसान

yo
🧵🧵 Micro Enterprises (अित लघु उद्योग), Khadi-Village industries 7.50% 7.50%
Above categories (Weaker section, agriculture, micro-enterprise ) 4.50% 2.50%

lp
plus, other categories such as
⇒ Small & Medium Enterprises, Affordable housing loans to beneficiaries

he
under Pradhan Mantri Awas Yojana
⇒ food processing companies, Vermi compost, biofertilizer, seed
production,
⇒ Exporters, Student-Education loans (upto Rs.10lakh),
⇒ Social Infrastructure (schools,drinking water, sanitation facilities,
ill
w
health care, COVID related hospitals/labs etc);
⇒ Renewable Energy Projects (wind mills, biomass generators, solar
d
street light, micro-hydel plants etc.) etc. (नवीकरणीय ऊजार् पिरयोजनाएं )
Total PSL for Indian Scheduled Commercial Banks and 40% 40%
go

(Foreign Banks with 20 or more branches).

* Above quota reforms to be implemented in Phase-Wise by 2023-24. (क्रिमक रूप से नए सुधार होंगे)
rs

🤩🤩Benefit? It will ⏫ loan-availability for the weaker section and small farmers thus helping in the
United Nations' Sustainable Development Goals related to poverty removal. (📑📑Ref: HDT-Pillar#6)
he

कमजोर वगर् और छोटे िकसानों को ज्यादा मात्रा में कजार् िमल पाएगा. गरीबी िनवारण, सं युक्त राष्ट्र के सतत िवकास लक्ष्यों की प्रािप्त में मदद.
- PSL quotas are ‘minimum (न्यूनतम/कम से कम)’ & not maximum. So, if bank wishes, it can EVEN
ot

give even 60% of its loans to weaker sections, instead of just 12% “minimum quota” meant for
weaker section.
- Bank’s Loans given to Non-Banking Financial Company (NBFC) who are lending to above PSL
p

categories = such ‘indirect loan’ to PSL sectors will also be counted for bank’s quota. (बैंकर द्वारा
el

गेरबेंक िवत्तीय कं पनी को िदया गया कजार् यिद परोक्ष रूप से प्राथिमक क्षेत्र को जाता है तो वह रािश भी कवोटा-सफलता में िगन ली
जाती है। )
H

- Bank + NBFC’s joint lending / co-lending/ co-origination loans – what does it mean? #PHD-
NOT-IMP. (बेंक और गेर-बेंक का साथ मे िमलकर पीएसएल क्षेत्र को कजर् िदया, तो उसमे बेंक ने िदया कजर् इस क्वोटे में िगन िलया
जाता है, कु छ शतोर्ं के आधीन)
- NOTE: PSL Norms donot apply to NBFCs. PSL Norms apply ONLY to Bankers.

(Batch: PCB10-RATFAAR) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 82

KING R & QUEEN P Help others god will help you

 12.22.1 🐯🐯📢📢🌽🌽 PSL Reforms-2020: on RRB/SFB/UCB?
What is the difference/meaning of SCB/RRB/SFB/UCB etc? Ans: (📑📑Ref: HDT-Pillar#1B1:
classification)
Table 5: need not memorize for IAS Exam, but Memorize for RBI /Bank Exams

Type of Bank & PSL Reforms-2020: Before After

Indian Scheduled Commercial Banks (SCB: अनुसूिचत वािणिज्यक बैंक) and 40% same 40%

u
Foreign Banks in India with 20 or more branches

yo
Foreign Bank in India with <20 branches (िवदेशी बेंक) 40% same 40%
Regional Rural Banks (RRB: क्षेत्रीय ग्रामीण बेंक) 75% same 75%
Small Finance Banks (SFB: लघु िवत्त बेंक) 75% same 75%

lp
Urban Cooperative Banks (UCB: शहरी सहकारी बेंक)* 40% ⏫75%
Rural Cooperative Banks (ग्रामीण सहकारी बेंक) N/A N/A

he
⇒ These quotas implemented in a gradual/phase-wise manner by 2025-26.(Separate Deadline for
different-different types of bank. Exact dates NOT.IMP.)
⇒ Internal quotas may be different for these Banks e.g. RRBs: Weaker section =15%. But, poor cost-
benefit in chasing all that information. #⏳📚📚थोड़ा-पढ़ो-आगे-बढ़ो
ill
w
12.22.2 🐯🐯📢📢🌽🌽 PSL Reforms-2020: Startups, Renewable Energy and Healthcare
d

Outdated/technical for 2024-exam cycle, so removing from latest handout.

go

12.22.3 🐯🐯📢📢🌽🌽 PSL Reforms-2020: Weightage to poor districts (गरीब/िपछड़े िजलों को भारांक)
RBI will classify the districts based on previous PSL loans given by all banks:
Type of district if Axis bank gives ₹100 PSL loan in this district →
rs

RBI will count Axis’s quota-fulfillment as _ _ .

he

Low Credit penetration e.g. Tawang, ₹125 (आरबीआई ने एक ऐसी भारांक प्रणाली बनाइ है िजसमे बैंक
Dantewada etc. जहां भूतकाल में बैंक-कजर् की पहुँ च िपछड़े िजलों में लोन देकर बहुत आसानी से अपना पीएसएल लक्ष्यं क
कम रही है हािसल कर सकती है।)
ot

High Credit penetration e.g. Ahmedabad, ₹90 (तािक बैंक जो पहले से सम्पन्न िजले है, उसे ज्यादा सम्पन्न बनाने
Pune etc. जहाँ पहले से ही काफी कजार् िदया जा चूका है की जगह िपछड़े िजले पर ध्यान दे)
p

Thus, RBI’s PSL weightage system will passively discourage banks from giving more PSL-loans to the
developed districts and it will encourage banks to give PSL-loans to backward districts. This will help
el

in more balanced regional development. (क्षेत्रीय रूप से सं तुिलत िवकास में यह कदम फायदेमंद होगा.)
H

🔠🔠❓ MCQ. Priority Sector Lending by banks in India constitutes loans to _ _ _ _ . (Pre-2013)
a) Agriculture b) Micro and Small Enterprises c) Weaker Sections d) All of the above

(Batch: PCB10-RATFAAR) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 83

KING R & QUEEN P Help others god will help you

 12.22.4 🐯🐯�🏗🏗PSL Shortfalls: RIDF and UIDF

u
yo
⇒ If a bank can’t fullfill its PSL-quotas then such Underachiever bank will have to deposit PSL-

lp
shortfall money to NABARD’s Rural Infrastructure Development Fund (RIDF), or other funds
under SIDBI, National Housing Bank (NHB), MUDRA Ltd. etc as per the norms decided by RBI

he
from time to time. (लक्ष्यं कों को हािसल नहीं कर पाने वाली बैंक ने आरबीआई द्वारा िचिन्हत अलग-अलग सं स्थाओं में पैसा
िनवेश करना पड़ेगा)
⇒ Underachiever bank will earn interest from such deposited money, but it’ll be (usually) linked

ill
with Bank-Rate & their money will be locked-in a long-term project. ( पैसा लं बे समय तक अटक जाएगा)
⇒ �Budget-2023: announced setting up one more such fund called UIDF, to receive money from
w
PSL-shortfalls.
Rural Infrastructure Development Urban Infrastructure Development Fund
d
Fund (RIDF) (UIDF: शहरी बुिनयादी अवसं रचना िवकास िनिध)
go

When? 1995–96 2023-Budget

Where? under NABARD- National Bank for under National Housing Bank (NHB)
Agriculture and Rural Development.
for for Agriculture, Social sector and Rural for urban infra projects especially in
rs

What? connectivity projects.  Tier-2 cities (population from 50,000 to

99,999) and
he

 Tier-3 cities (population from 20,000 to

49,999).
ot

12.22.5 🐯🐯📢📢🌽🌽:📜📜 Priority Sector Lending Certificates (PSLC) from 2016 onwards
p
el
H

Figure 9: भाई आिमर/Rancho हमने अपना assignment नही िकया, तू अपना "EXTRA-walla" हमे बेच दे! (img source-3 idiots movie)
- In this arrangement, the overachieving Banks can sell their excess PSL in form of ‘certificates’ to
underachieving banks. (लक्ष्यं कों से ज्यादा उपलिब्ध हांसील करने वाली बैंक, अन्य जरूरतमं द बेंक को सिर्टिफके ट बेचती)

(Batch: PCB10-RATFAAR) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 84

KING R & QUEEN P Help others god will help you

 - If an underachiever bank can’t fulfil its PSL-quota through PSL-certificates purchase then
ultimately, it’ll have to deposit PSL-shortfall money to RIDF, UIDF etc funds, as explained in the
previous section.

🔠🔠❓ Which of the following is not an instrument of Selective Credit Control? (Pre-1995)
a) Regulation of consumer credit b) Rationing of credit

u
c) Margin requirements d) Cash reserve ratio

yo
🔠🔠❓ An increase in the Bank Rate generally indicates that _ _ _ (Pre-2013)
a) Market rate of interest is likely to fall.
b) Central Bank is no longer making loans to commercial banks.

lp
c) Central Bank is following an easy money policy.
d) Central Bank is following a tight money policy.

he
🔠🔠❓ If RBI adopts an expansionist monetary policy, which would it not do ? (Pre-2020)
1. Cut and optimize the Statutory Liquidity Ratio
2. Increase the Marginal Standing Facility Rate
3. Cut the Bank Rate and Repo Rate
ill
w
Answer Codes: [a) 1 and 2 only [b) 2 only [c) 1 and 3 only [d) 1, 2 and 3
🔠🔠❓MCQ. Find Correct Statements: (Prelims-2022)
1. If the inflation is too high, Reserve Bank of India (RBI) is likely to buy government securities.
d

2. If the rupee is rapidly depreciating, RBI is likely to sell dollars in the market.
go

3. If interest rates in the USA or European Union were to fall, that is likely to induce RBI to buy
dollars.
Codes: (a) 1 and 2 only (b) 2 and 3 only (c) 1 and 3 only (d) 1, 2 and 3
rs
he
ot
p
el
H

(Batch: PCB10-RATFAAR) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 85

KING R & QUEEN P Help others god will help you

 12.23📢📢 � MONETARY POLICY TOOLS: A READY RECKONER TABLE
Table 6: समज में आ गया हो तो बिढ़या है, नहीं तो रट्टा मारो िजदं ाबाद (If understood then well & good, else memorize by Rot-Learning)

Tools & Strategy? <2%CPI= Fight deflation (अपस्फीित) >6%CPI= Fight Inflation (मुद्रास्फीित)
- Deflation: ↑ money Easy, Cheap, Dovish, Expansionary Tight, Dear, Hawkish,

supply, inject liquidity=> policy. Contractionary

आसान-सस्ता व्याजदरे, िवस्तारवादी तं ग- मँ हगी व्याजदरे, सं कु चनवादी
make loans cheaper, ↑

u
consumption

yo
- Inflation: Do reverse
Reserves: CRR, SLR ↓ (Decrease) ↑ (increase)
Key Rates ↓ (Decrease) ↑ (increase) महंगाई से लड़ना है तो

lp
(Repo, MSF, Bank रेपो दर बढ़ा दो
Rate)

he
↓ (Decrease) – so banks feel less ↑ (increase) : so banks feel
Quantitative

motivation to park ₹ in RBI & more motivation to park ₹ in

Reverse Repo, they become more proactive to RBI → ⏬loanable funds to
SDF give loans to people →
ill people → ⏫loan interest rate
w
⏫demand → deflation fought → ⏬demand → inflation
fought
d
Market Ops OMO: RBI Buys G-Sec from OMO: RBI Sells G-Sec
(OMO) market.
go

Moral Suasion / Nudge / Force the banks to Enforce the Hawkish policy
Direct Action enforce Dovish Policy
rs

Margin Requirement Increase e.g. Do reverse of left cell.

/ Loan to Value (LTV) Gold-LTV: 60% → 90%
he
Qualitative Tools

↑ loan-flow to sectors that can - ↓the loan-flow to sectors

generate employment e.g. textile where speculative
→workers buying more investment is leading to
ot

Selective Credit
→demand /consumption demand-side inflation e.g.
Control / Priority
increased →deflation fought. लोन real estate & housing.
Sector Lending (PSL)
p

का बहाव कु छ ऐसे क्षेत्रो में करो िक रोजगार - ↑loan-flow to sectors

el

िनमार्ण हो और वह सब मजदू र खरीदारी करें where loans can ↑supply

तािक अथर्तंत्र में मांग बढे e.g. onion farmers.
H

** MCQs usually confined to how can CRR,SLR,Repo & OMO be used for inflation /
deflation control. For rest of the tools you need not waste time thinking 500-jaat-ke-
combinations and Birbal-Khichdi.✋

(Batch: PCB10-RATFAAR) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 86

KING R & QUEEN P Help others god will help you

 12.24📢📢 MONETARY POLICY IN PRESENT-DAY INDIA
There are 3 strategies / ways of making a monetary policy: (तीन तरीके से मौिद्रक नीती बनाई जा सकती है)
1. 💸💸 Exchange rate stability (िविनमय दर िस्थरता): Singapore & other export-oriented economies use
this. They try to keep their local currency at certain rate against US-dollar to boost exports.
(How?Ans📑📑Pillar#3)
2. 🎳🎳 Multiple Indicators (एकािधक सं के तक): Central Bank tries to focus on Economic Growth,

u
Employment, Inflation Control and Exchange rate stabilization. India's RBI followed this

yo
strategy upto 2016.
3. 🧄🧄 Flexible Inflation Targeting (FIT) / Price Stability (मुद्रास्फीित लक्ष्यीकरण): Central Bank only
aims to keep inflation controlled, THEN other indicators (growth, employment, exchange rate)

lp
will automatically fall in line. Model successful in Western nations → RBI’s Urjit Patel
Committee Report (2013-14) recommended it for India → adopted from 2016-October, by

he
amending RBI Act Section 45. (2016 में िरज़वर् बैंक के कानून में सं शोधन कर भारत ने यह रणनीित/तरीका अपनाया है)

ill
w
d
go
rs
he
ot

12.24.1 📢📢 Monetary Policy Making under RBI Act since 2016

p
el
H

Figure 10: जाने क्या होगा रामा रे..... सोचना है क्या? जो होना है होगा, चल पड़े है िफ़क्र यारो….

(Batch: PCB10-RATFAAR) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 87

KING R & QUEEN P Help others god will help you

 Table 7: composition of the ⚖� statutory Monetary Policy Committee (MPC: वैधािनक मौिद्रक नीित सिमित):
🐯🐯 RBI side (3 members) 🦁🦁 Govt. Side (3 members)
1. RBI Governor, as the Ex-officio Chairman. 1. Dr. Shashanka Bhide from National
2. Dy.Governor responsible for Monetary Council for Applied Economic Research
Policy. Michael Patra (from 2020-Jan). (NCAER, Delhi)
Earlier Viral Acharya. 2. Dr. Ashima Goyal from Indira Gandhi

u
3. One person nominated by RBI Central Board: Institute of Development Research
Mridul Saggar (Executive Director, RBI). (Mumbai)

yo
3. Dr. Jayanth R Varma from IIM-A
Their tenure tied with their ex-officio job tenure Tenure: 4 years, no re-appointment. (4 साल का
(पदेन कायर्काल) E.g. Shaktikanta’s shakti (powers) कायर्काल और उसके बाद पुन:िनयुिक्त असं भव)

lp
will be gone after his 3-years tenure as RBI-
Governor expires, unless he is reappointed.

he
(Note: Shaktikanta is reappointed till Dec-2024.)
RBI Governor & Dy.Gov are selected by Financial They’re selected by Search-cum-Selection
Sector Regulatory Appointment Search Committee headed by Cabinet Secretary
Committee (FSRASC) is headed by Cabinet (IAS)
ill
w
Secretary (IAS)
- Meeting quorum 4 persons, incl. Governor. (कायर्साधक सं ख्या: कम से कम चार लोगों की हाजरी जरूरी)
d
- Legally required to hold minimum four meetings in a year. (सालाना कम से कम 4 बार िमलना जरूरी)
- In practice, they meet every two months to decide bi-monthly monetary policy updates.
go

(Although during 😷😷Corona-lockdown met more frequently).

- Repo rate=Policy rate= benchmark interest rate: decided by Majority vote. (मौिद्रक नीित दर बहुमत से
तय)
rs

- When they vote for the first time, all members, including the Governor, will vote. If tie →
he

Governor can vote again for second time as casting vote (यिद मतों में बराबरी हुई, तो गुत्थी सुलझाने के िलए
िनणार्यक मत गवनर्र देंग)े .
- To ensure transparency / accountability (पारदिर्शता / जवाबदेही):
ot

- Govt can send message only in writing. (सरकार के वल िलिखत में सं देश भेज सकती है)
- Committee must publish its minutes of the meeting on the 14th day, and “Monetary Policy
p

report” at every 6 months.(िनयत समय पर कु छ दस्तावेज प्रकािशत करने होंग)े

el

- 🎯🎯 Inflation target decided by Union Government, after consulting with RBI Governor. (गवनर्र से
H

िवमशर् करने के बाद महंगाई िनयं त्रण का लक्ष्य सरकार तय करेगी)

- 🎯🎯 Present target: Keep Consumer Price Index (CPI:All India) within 2-6%.[alternate way of
saying= 4% +/- spread of 2%] (More about CPI/Inflation in 📑📑Pillar#4C)

(Batch: PCB10-RATFAAR) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 88

KING R & QUEEN P Help others god will help you

 - 📅📅 Target was Valid for: Originally from 2016-2020 (ending at 31/03/2021). Now same target
extended till 31/3/2026.
- 😰😰Target fail: if inflation not kept in this 2-6% zone for 3 consecutive quarters (=9 months)
then Committee must send report to Govt with reasons and remedies (यिद सतत नौ महीनों तक महंगाई
इन सीमाओं के बाहर रही तो सिमित की असफलता मानी जाएगी → असफलता के कारण-उपचार की िरपोटर् िरज़वर् बैंक ने सरकार को
भेजनी होगी).

u
- 2022-Nov: the inflation has remained more than 6% for more than 9 months continuously so

yo
now the MPC committee drafting a report to Govt. But it is not released public domain yet. We
will learn about it in Win23 FREE Series in 2023-Feb, depending on observations of Eco Survey.

lp
🔠🔠❓ MCQ. With reference to inflation in India, find correct statement: (Prelims-2015)
a) Controlling the inflation in India is the responsibility of the Government of India only

he
b) The Reserve Bank of India has no role in controlling the inflation
c) Decreased money circulation helps in controlling the inflation
d) Increased money circulation helps in controlling the inflation

ill
🔠🔠❓ MCQ. Find correct statements about Monetary Policy Committee: (Prelims-2017)
w
1) It decides RBI’s benchmark interest rates.
2) It is a 12-member body including the Governor of RBI and is reconstituted every year.
d
3) It functions under the chairmanship of the Union Finance Minister.
Codes: (a) 1 only (b) 1 and 2 only (c) 3 only (d) 2 and 3 only
go

🔠🔠❓MCQ. Who is responsible for maintaining price stability by controlling inflation ? (Pre-
2022)
(a) Department of Consumer Affairs (b) Expenditure Management Commission
rs

(c) Financial Stability and Development Council (d) Reserve Bank of India
🔠🔠❓MCQ. Statement I: In India, Central Government determines the inflation target, in
he

consultation with RBI, in terms of Consumer Price Index once in five years. (EPFO-2023)
Statement II: At present, the Monetary Policy framework in India is operated by Central
ot

Government.
- Both I and II are correct and statement II in the correct explanation for statement I
-
p

Both I and II are correct and statement II is not the correct explanation for statement I
- Statement I is correct but statement II is incorrect
el

- Statement I is incorrect but statement II is correct

H

(Batch: PCB10-RATFAAR) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 89

KING R & QUEEN P Help others god will help you

 12.25📢📢 REVIEW OF BI-MONTHLY MONETARY POLICIES

u
yo
As of 11th Sep 2023, Repo is still unchanged @6.50%. So I’ve not updated above graph.

lp
12.25.1 🚕🚕🚕🚕 Stance: Calibrated Tightening / Neutral / Accommodative

he
After every meeting, RBI MPC will announce its stance i.e. What they’ll do with Repo Rate in the
next Meeting. (भिवष्य की मीिटगं में रेपो दर के साथ क्या िकया जाएगा, इसका इशारा/ सं के त िदया जाता है)

Stance= what RBI will do Will they Will they Will they hold/keep
in next meeting hike/increase
ill
cut/decrease repo unchanged?
w
⏫repo? ⏬Repo?
Calibrated Tightening ✅ Possible ✋No they’ll not cut ✅ Possible
d
Neutral ✅ Possible ✅ Possible ✅ Possible
go

Accommodative ✋No they’ll not ✅ Possible ✅ Possible

hike
⇒ This provides guidance to the investors/borrowers/bankers about future action of RBI.
rs

⇒ However, RBI MPC is not legally bound to follow the stance. E.g. Dec-2018 Governor Urjit-Patel
led MPC announced Calibrated Tightening, yet in next meeting Feb-2019 Governor Shaktikanta
he

led MPC decreased⏬ repo rate, because they felt it was necessary to combat deflation. (कानून रूप
से बाध्य नहीं. कभी कभी सिमित इसका उल्लं घन भी कर देती है)
ot

⇒ 2022-May-June: Even though MPC said Accommodative Stance, still they kept increasing the
Repo Rate to fight inflation.
p
el
H

(Batch: PCB10-RATFAAR) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 90

KING R & QUEEN P Help others god will help you

 12.26🐯🐯🐯🐯📢📢RBI’S MONETARY POLICIES: BEFORE 2020-CORONA
📢📢 Policy Decisions & Regulatory Announcements
[We will study in appropriate pillars/sections, so DONOT LOSE SLEEP YET]
2018 -era ⇒ Inflation was high/rising ⏫ so, Governor Urjit Patel led MPC kept ⏫Repo in
pattern the range of 6-6.50% (मुद्रास्फीित/महंगाई बढ़ रही थी इसिलए रेपो दरों को ऊंचा रखा गया था)
- Stance: Calibrated Tightening.

u
2019-era ⇒ Inflation was falling below 2%⏬ so, Governor Shaktikanta Das led MPC kept

yo
pattern decreasing Repo from 6.##% to 5.##% to boost economy (अपस्फीित/सस्ताई बढ़ रही थी
इसिलए िरपो दरों में कटौती)
- Stance: Accommodative.

lp
2020-2021 ⇒ Corona lockdown = supply chain disruption = inflation was rising. in such
Corona Era

he
situation, making a loan is expensive, will not fix the problem. (आपूिर्त श्रृंखला प्रबं धन
में समस्या के चलते खाद्य महंगाई बढ़ी थी- तो िरपो दरों में बदलाव द्वारा उस महंगाई का समाधान असं भव)
⇒ So, instead, RBI decreased Repo to 4% and CRR to 3% boost demand/shopping
in the corona slowdown. (कोरोना के बाद अथर्तन्त्र को वापस खड़ा करने के िलए सस्ते लोन अिनवायर्)
⇒ Stance: Accommodative.
ill
w
12.27🐯🐯🐯🐯📢📢RBI’S MONETARY POLICIES: CORONA 2020
d
⇒ By default, RBI’s MPC Committee supposed to meet every 2-2 months. So, After February’s
go

meeting, they should hold next meetings in April.

⇒ But in Corona crisis economic slowdown they met more frequently in March to May. (कोरोना
महामारी के चलते आए आिर्थक सं कट से िनपटने के िलए सिमित ने तय समय से पहेले एकािधक मीिटगं का आयोजन िकया)
rs

⇒ The gist of above March-April-May announcements are as following (and they’re considered to
be part of 👻👻ATMANIRBHAR BHARAT initiative to revive Indian Economy after Corona.
he

We’ll learn more about it in Pillar#2D and #4C):

👻👻ATMANIRBHAR → Reforms by RBI 2020-2021 We’ll learn in 📑📑Pillar#
ot

Reduced CRR to 3% and Repo to 4% Present handout

Opened new loan windows such as TLTRO, On-Tap Present handout
Window etc.
p

Gold Loan LTV: Before 75% → AFTER 90%. �benefit? Present handout
el

More quantity of loan can be taken by pledging same

quantity of gold → post-corona economic-revival.
H

🐯🐯🐯🐯🐯🐯✋ Loan/EMI/NPA relief / Moratorium (ऋण 📑📑1B2: NPA

अदायगी पर अस्थाई रूप से रोक)

(Batch: PCB10-RATFAAR) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 91

KING R & QUEEN P Help others god will help you

 🐯🐯🐯🐯🐯🐯🐯🐯 Special Refinance Facility for AIFI (All India 📑📑1B1: classification of Banks →
Financial Institutions). खास िकस्म की पुनिर्वत योजना, अिखल भारतीय AIFI (NABARD, SIDBI, EXIM,
िवत्तीय सं स्थानो के िलए NHB)
RBI Committee under KV Kamath submitted report on how 📑📑1B2: BASEL norms
to restructure loans impacted by the Covid 19 pandemic.
RBI assured we’ll implement that report.

u
RBI defers BASEL Norms, IndAS accounting Norms, orders 📑📑1B2: BASEL norms
bank to pause/halt the Dividend Distribution (िनयमों को स्थिगत

yo
िकया गया)
🐯🐯🐯🐯🐯👨👨: RBI reforms Ways and Means advances 📑📑1C: SEBI/Sharemarket: Short

lp
(WMA) and Consolidated Sinking Fund (CSF) term Debt instruments
RBI reforms attracting foreign investment: 📑📑3A: Balance of Payment (BoP):

he
⇒ Voluntary Retention Route (VRR: स्वैिच्छक अवधारण मागर्) FDI, FPI
⇒ Fully Accessible Route (FAR: सम्पूणर्त: सुगम्य मागर्)

12.28🐯🐯🐯🐯📢📢RBI MONETARY POLICIES: APRIL-2022 ONWARDS

ill
w
12.28.1 🐯🐯🐯🐯📢📢Monetary Policy: April-2022 (SDF)
⇒ No changes in key rates or Stance. Repo unchanged @4% so Automatically MSF@4.25 and
d

RR@3.35%. Stance: Accommodative

go

⇒ Introduced Standing Deposit Facility (SDF: स्थायी िडपॉिज़ट सुिवधा).

⇒ BEFORE 2022-April: Policy Corridor = MSF <—> REPO <—> Reverse Repo
⇒ After 2022-April: Policy Corridor = MSF (Repo+0.25%) <—> REPO <—> SDF (Repo-0.25%)
rs

12.28.2 🐯🐯🐯🐯📢📢Monetary Policy: May-2022 Repo⏫

he

⇒ RBI required to control inflation in 2-6% CPI and RBI MPC usually meets every 2-2- months.
⇒ but inflation crossed 7% (Because Russia Ukraine crisis → imported fertiliser & crude oil prices
increased etc.)
ot

⇒ so emergency MPC meeting held → outcome → (वैसे तो हर दो महीने िमलना था लेिकन महँ गाई हद से ज़्यादा बढ़
गयी तो आपातकालीन मीिटंग बुलायी)
p

⇒ Repo increased from 4% to 4.40% to combat inflation.

el

⇒ Automatically, as per the formula: MSF = 4.40% + 0.25% = 4.65%

⇒ Automatically, as per the formula: SDF = 4.40% - 0.25% = 4.15%
H

⇒ Reverse Repo Unchanged at 3.35%

⇒ Separately, RBI Governor announced to increase CRR from 4% to 4.50%. This will reduce the
loanable funds to by more than ₹85,000 crore. ⏬loanable funds→ ⏫ loan interest rate →
⏬demand/shopping → ⏬inflation. (NOTE: MPC can’t decide CRR. Only RBI Governor
alone can decide CRR.)

(Batch: PCB10-RATFAAR) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 92

KING R & QUEEN P Help others god will help you

 ⇒ Stance: Accommodative but in future we will ‘withdraw’ this stance.

🚩🚩🚩FAQ: Isn't this repo-increase a violation of the Accommodative stance announced earlier?
Ans. MPC has no legal obligation for accommodative stance. MPC has only 1 legal obligation-
control inflation in 2-6% range. (अकोमोडेिटव-रवैये के िहसाब से ही काम करना होगा ऐसा क़ानूनन रूप से अिनवायर् नहीं है।)

u
12.28.3 🐯🐯🐯🐯📢📢Monetary Policy: 2022 so far upto 2023-Sept

yo
Month Repo Addl. Comments if any
2022-April 4% Learned in previous section
2022-May 4.40%

lp
2022-June 4.90% Repo increased to fight inflation
2022-Aug 5.40%

he
2022-Sept 5.90% Traditionally, committee meets every 2-2 months, but this Emergency
meeting because inflation not under control.
2022-Dec 6.25% Repo increased to combat inflation.
2023-Feb 6.50%
ill
Repo increased to combat inflation. Consequently,
- SDF = Repo minus 0.25% = 6.25%
w
- MSF = Repo PLUS 0.25% = 6.75%
- Reverse Repo Unchanged at 3.35%
d

2023-Apr 6.50% No change

go

2023-June 6.50% No change

2023-Oct Presently CELL is empty because today is 11_Sep_23. This Oct policy,
and more updates to be covered in Free Win24 series in Feb’24.
rs

12.29🐯🐯🐯🐯📢📢MONETARY POLICY: GOVERNORS OTHER REGULATORY ANNOUNCEMENTS

he

- Monetary Policy Committee decides only Repo rate. Other decisions, such as CRR-SLR cut, PSL
norms, banning magnetic-chip cards etc are decided separately alone by RBI Governor.
ot

However, after the meeting, he’ll make above type of announcements, in the Press conference.

🔠🔠❓ MCQ. RBI recent directives relating to ‘Storage of Payment System Data’, popularly known
p

as data diktat command the payment system providers that : (Prelims-2019)

el

1) They shall ensure entire data relating to their payment systems are stored in a system only in
India.
H

2) They shall ensure that the systems are owned and operated by public sector enterprises.
3) They shall submit the consolidated system audit report to the comptroller and Auditor General
of India by the end of the calendar year.
Find Correct Statement(s): codes: (a) 1 only (b)1 and 2 only (c) 3 only (d) 1,2 and 3 only

(Batch: PCB10-RATFAAR) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 93

KING R & QUEEN P Help others god will help you

 Ans. After April-2018’s monetary policy RBI governor announced certain regulatory reforms. One of
them was :- Payment System data must be stored in India within next 6 months, to ensure its safety
against misuse / Russian-Chinese-hackers. So, for Prelims-2019, this was D-1 year current affairs. Now
we are targeting 2024, so need not put so much efforts behind 2018’s current affairs.
12.30🐯🐯🔪🏠🏠🏠🏠 BANKS’ LENDING RATES % (बैंक ऋण की व्याज दरें)

u
yo
lp
he
ill
w
d
go

RBI’s 6-member statutory MPC decides policy rate (=repo rate) to keep inflation within 2-6%CPI
(All India) but who decides lending rates of individual banks, & how? Ans:
rs

Govt began nationalization of private banks, and ‘administered interest rates’ (प्रशािसत ब्याज
he

1969 दरें) on them i.e. Govt would decide how much loan interest rate the banks should charge on
borrowers?
M.Narsimham suggested deregulation: Govt should not dictate / administer individual
ot

1991 banks’ interest rates. RBI should only give methodology to banks. (सरकार ने अपने मनमाने ब्याज
दर थोपने नहीं चािहए)
2003 RBI introduced Benchmark Prime Lending Rate (BPLR) system
p

- RBI introduced formula “BASE Rate + formula = bank’s loan interest rate”;
el

- update frequency on individual banks’ discretion (अपनी मजीर्/ िववेकाधीन). So, it did not
H

2010 help transmission of monetary policy much.

- So, Even If RBI reduced repo rate, the banks would not update their formula figures
regularly. िरजवर् बैंक ने अपनी िरपो दर कम करी िकंतु बैंकोने लोन सस्ते नहीं िकए😰😰
⇒ RBI introduced formula “Marginal Cost of Funds based Lending Rate (MCLR) +
2016
Spread” system. (how exactly it worked? Outdated info. NOT IMP)

(Batch: PCB10-RATFAAR) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 94

KING R & QUEEN P Help others god will help you

 ⇒ 😰😰Limitation? From January to Oct 2019, RBI ⏬ repo rate by 1.35% but banks
reduced their loan interest rates by merely 0.40%.
⇒ Thus, even though RBI reduced its repo rate, banks are not quickly reducing their loan
interest rates. So MCLR system was ineffective. (िरजवर् बैंक ने अपनी िरपो दर कम करी िकंतु बैंकोने
लोन सस्ते नहीं िकए, इसिलए ये प्रणाली प्रभावी नहीं)

u
12.31🐯🐯🔪🏠🏠🏠🏠 BANK’S LOAN INTEREST RATE: EXTERNAL BENCHMARK (बाहरी बेंचमाकर् )

yo
MCLR’s #EPIC-FAIL ultimately forced RBI to order external benchmark formula from 1st Oct 2019.

External Benchmark + Spread(Profit) + Risk premium = Bank’s Loan interest rate.

lp
12.31.1 🐯🐯🔪🏠🏠🏠🏠 External Benchmark: Formula Components:

he
Individual bank free to pick any one External Benchmark such as

1) RBI repo rate or

2) 91-day T-bill yield or
3) 182-day T-bill yield or
ill
w
4) any other benchmarks by an organization named Financial Benchmarks India Ltd.
⇒ Banks must feed the latest data of external benchmark in above formula, atleast once every three
d
months. (हर 3 महीनों पर फामूर्ला में नए आंकड़े डालने होंगे)
⇒ So both fresh and old/existing borrowers will benefit (e.g.if repo rate decreased).. तो मान लीिजए रेपो
go

दर सस्ती हुई होगी → नए और पुराने लोन ग्राहकों को उस सस्ते ब्याजदर का फायदा िमल जाएगा)

12.31.2 🔪🏠🏠🏠🏠External Benchmark system: Which borrowers eligible?

rs

1. Personal loans (taken for any sudden emergency expenditure)

2. Retails loans (home, vehicle, electronics etc)
he

3. Loans to micro & small enterprises

4. Loans medium enterprises (this 4th category is to be added from 1/April/2020).
ot

5. It is applicable to old/previous loans in above categories, if borrower fills the application form.
🤩🤩🤩🤩External Benchmark Benefits? = Better/faster transmission of Monetary Policy; transparency
& accountability to borrowers. (मौिद्रक नीित का प्रभावी प्रसार में, लोन ग्राहकों के प्रित पारदिर्शता और जवाब देही)
p
el

12.31.3 🔪🏠🏠🏠🏠:🚩🚩🚩External Benchmark system: FAQ

⇒ 🚩🚩🚩FAQ: Can existing existing/old borrowers benefit? Answer is within the handout if you
H

read it carefully.
⇒ 🚩🚩🚩FAQ: Can bank change external benchmark indicator after giving loan? Ans. Watch
Video
⇒ 🚩🚩🚩FAQ: Can bank change the spread(Profit) in the formula after giving loan to a client?Ans.
Not allowed to change. (and this is not imp for exam)

(Batch: PCB10-RATFAAR) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 95

KING R & QUEEN P Help others god will help you

 ⇒ 🚩🚩🚩FAQ: Can bank change the “Risk Premium” in the formula after giving loan to a client?
Ans. Yes e.g. Govt employee thrown out of job after getting loan, then banker may ⏫ the risk
premium on him because now he’s jobless so the risk probability of his loan default ⏫. (and
this is not imp for exam)

12.31.4 🚗🚗📈📈Interest Rate Reset of EMI based Floating Interest Loans

u
yo
lp
he
- Between 2020 to 2023, the repo rate increased from 4% to 6.50% - consequently the EMI burden
increased for the external benchmark rate based loans.
ill
w
So, RBI wants bankers to give option to borrower after every change in such floating interest loans:

- A) Ability to RESET i.e. switch from floating (external) rate to fixed rate loans.
d
- B) Foreclosure of loan. Meaning, full repayment of your remaining loan amount in one single
go

payment instead of paying multiple EMIs. Benefit? LESS burden of compound interest (byaaj-
pe-byaaj) in monthly instalments.
�FAQ: Will this not be misused by the borrower IF he RESETS his fixed/floating loan every
rs

time it becomes unfavourable to him after change in REPO?

Ans. There will be ceiling/limits on how many times ‘reset’ can be done throughout the loan period.
he

RBI yet to issue guidelines. Further, real-life Phd not important.

12.31.5 Banks’ Lending Rates % → Fixed vs Floating interest loans, teaser loans, NPA etc.
ot

Refer to 📑📑Pillar1B-2: burning issues → NPA

p
el
H

(Batch: PCB10-RATFAAR) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 96

KING R & QUEEN P Help others god will help you

 12.32🐯🐯🔇🔇 LIMITATIONS OF MONETARY POLICY IN INDIA (मौिद्रक नीती की मयार्दाए)

u
yo
lp
Figure 11: मै काम तो कर रहा हूँ , लेिकन उसकी सकारात्मक असर, अथर्व्यवस्था पर िदख नही रही। 😢😢
Even though monetary policy updated is every 2 months, its efficacy in controlling inflation &

he
boosting growth is restricted by following factors: (मौिद्रक-नीित मं हगाई-िनयं त्रण और आिर्थक वृध्धीमे असरकारकता
नही िदखा पायी क्योंिक:)
1) 😰😰Western countries’ households → consumerist lifestyle → don’t save large amount of

ill
money in Banks. So their banks borrow more quantum of money from US Federal reserve and
European Central Bank respectively. Whereas in India, Repo is not major source of funds for
w
Indian banks, due to higher level of savings & deposits. (पाश्चात्य देशो मे उपभोक्तावादी जीवनशैली. जबिक
भारतीयो मे बेंक-बचत की भावना के चलते हमारे बेंकों के िलए आरबीआई के रेपों लोन, पैसो का मुख्यय स्त्रोत नहीं है। अंत: िरपो दर
d
सस्ते होने पर भारतीय बेंको को खास फकर् नहीं पड़ता। )
go

2) 😰😰Before the External Benchmark System: Indian Banks did not immediately pass on the RBI
rate cuts to customers, citing NPA/Bad loans / profitability problem. According to RBI’s own
research, it took minimum 6-12 months for repo rate cut to benefit end-customers and it took
rs

about 24 months for repo rate changes to impact inflation. (बाहरी-बेंचमाकर् से पहेले के समय मे,भारतीय बेंक
तुरंत अपने ब्याजदर कम नही करते थे।)
he

3) 😰😰Poor management in Public Sector Banks (PSB), scams in the private sector banks, large level
of Non-Performing Assets (NPA) also stymie the impact of monetary policy. (सावर्जिनक क्षेत्र के बैंकों में
ot

बेअसर प्रबं धन, िनजी क्षेत्र के बैंकों में घोटाले, अनजर्क पिरसं पित्तया) 📑📑 More in Pill1B2
4) 😰😰Supply Side Issues: El-Nino/Poor monsoon hurting crop production → food inflation; Wars
& Geopolitical issues ⏫ global crude oil & raw material prices, protectionism by China-US
p

denting our exports. RBI can’t control them. (कम बािरश + मध्यपूवर् की भूराजनीितक तनाव= भारत मे कच्चे माल
el

की आपूिर्त को असर करते है, चीन-अमरीका का सं रक्षणवाद भारतीय िनयार्तमे बाधा डालता है। इन्हे िनयं त्रण मे रखना आरबीआई के
िलए मुिश्कल।) 📑📑Refer Pill3&4A
H

5) 😰😰While cheap loans can boost consumption, investment and growth but because of poor-
monsoon-fear and oil-price fear, RBI (during Raghuram Rajan and Urjit Patel’s governorships)
was usually apprehensive of inflation and more inclined to keep repo rate high. Then RBI was get
criticized for not facilitating cheap loans & economic growth because of its ‘Hawkish policy’.
(महंगाई-िनयं त्रण के चक्कर मे कभी कभी खुद िरजवर् के मं हगे िरपो-ब्याजदारों ने अथर्तन्त्र को आगे बढ्ने से रोका है।)

(Batch: PCB10-RATFAAR) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 97

KING R & QUEEN P Help others god will help you

 6) 😰😰Government Side Issues: Fiscal deficit, Subsidy leakage, Populist Loan-waivers etc. (राजकोषीय
खाध, सबिसडी का िरसाव, लोकलुभावन के िलए िकसानो की ऋण-माफी) 📑📑 Pill#2D → FRBM Act
7) 😰😰Structural Issues in Economy: lack of Ease of Doing Biz, electricity-road infrastructure =
production /supply affecting inflation trends. (व्यापारमे सुगमता की कमी, िबजली-सड़क की अवसं रचना आिद
बुिनयादी मसलो के चलते उत्पादन/आपूिर्त की कमी। िरजवर् बैंक जादू की छड़ी चलाकर इसे दरुु स्त नहीं कर सकता) 📑📑More in
Pill4B&5

u
8) 😰😰Presence of Informal moneylenders in rural areas who circulate black money at exorbitant

yo
interest rates. Poor penetration of banking sector, lack of financial inclusion, cash-intensive rural
economy etc. (ब्याजखोर/साहूकार जो कालाधन ऊंचे ब्याज पर घुमाते है, सभी गरीबो के िवत्तीय समोवेशन की कमी, नगदी मुद्रा
पर ज्यादा आधीन है हमारी ग्रामीण अथर्व्यवस्था। िरजवर् बैंक अपनी रेपो दर कम भी करें, इधर कु छ फकर् नहीं पड़ता) 📑📑More in

lp
Pill1D

he
12.32.1 🐯🐯🔇🔇 Monitory policy: liquidity deficit in banking system
As of now, I don’t find it imp for exam. Because, textbook, budget, economic survey, RBI etc not
loudly talk about it. ONLY Indianexpress wrote about it to fill pages. But u can satisfy your

ill
intellectual curiosity from this video: https://youtu.be/4q8Xk1cJUCg?t=1099 Timestamp: 18:19
w
12.32.2 🐯🐯🔇🔇 Monetary policy limitations: Cheap loans causing inflation?
⇒ MPC member Prof. Jayanth Varma believes that Covid-19 is becoming like tuberculosis which
d
kills a very large number of people every year without inflicting major damage to the economy.
And there is a possibility that Covid-19 will haunt us for the next 3-5 years. (क्षय रोग /टीबी मैं भी
go

सालाना कई लोग मरते हैं लेिकन उससे अथर्तंत्र को कोई नुकसान नहीं होता। भिवष्य में कोरोना भी एसा हो जाएगा। इसिलए कोरोना के
डर से पूरी िजदं गी हम लोन सस्ते नहीं रख सकते.)
⇒ But we can't continue to keep cheap loans (4% repo) for so long, else it'll cause asset price
rs

inflation. (e.g. suppose rich men buying 3-3 bungalows using cheap loans for 'investment'
he

→ demand for bungalows increased → home prices increased = inflation in asset prices.
Similar problem in Sharemarket Ref#1C). (वरना यही सस्ते लोन भिवष्य में मकान, शेयर इत्यािद सं पित्तयों में महंगाई
का कारण बन सकते हैं)
ot

⇒ This could also result in Stagflation= Persistent high inflation, high unemployment and low
growth. (अंततः उच्च महंगाई दर, उच्च बेरोजगारी दर हो सकती है और आिर्थक वृिद्ध दर में िगरावट हो सकती है)
p
el
H

(Batch: PCB10-RATFAAR) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 98

KING R & QUEEN P Help others god will help you

 12.32.3 🐯🐯📢📢📈📈USA Quantitative Easing (QE) & Fed Tapering : Impact on India

u
yo
lp
he
ill
w
d
go
rs
he
ot

FAQ: What does above chart mean? Ans. Explained in the Video lecture.
p

12.32.4 🐯🐯🔇🔇 Monetary policy limitations: Black Swan Events

el

⇒ A Black Swan Event means an unprecedented unexpected extreme risk event e.g. 2007’s USA
sub-prime crisis, 2020’s Corona. (ऐसी अप्रत्यािशत घटना िजससे अथर्तंत्र को बहुत नुक़सान हो जाता है)
H

⇒ RBI report says next black swan event → FPI may pullout $100 billion from Indian market →
it’ll create problems similar to previous section.
⇒ Black Swan Theory given by author Nassim Nicholas Taleb in book– The Black Swan.

(Batch: PCB10-RATFAAR) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 99

KING R & QUEEN P Help others god will help you

 🚩🚩🚩FAQ: Can we say “Fed Tapering” is a black swan event? Ans. No. Because it was not
‘unexpected’ event. It was expected by economists. (वो अप्रत्यािशत निह था, पहेले से सब िवशेषज्ञों को अनुमान था।)

12.33🐯🐯📈📈MONETARY POLICY OBSERVATIONS BY 📙📙ES23

u
yo
lp
he
More about inflation in Pillar4E: macroeconomic indicators - inflation.

12.33.1 🐯🐯📈📈🦅🦅Rate hikes: RBI vs Other Central banks

ill
w
Nation / Central Bank Repo Hike since 2022-April to Dec
�US Federal Reserve 4.25%
d
European Central Bank (ECB) 3%
go

Bank of England 2.50%

�India’s RBI 2.25%
 Tight monetary policy is being pursued in all major countries, and not just in India.
 RBI has not increased the loan rates as much as some other big countries e.g. USA, because RBI
rs

wants to do ‘soft landing’ and not ‘hard landing’.

he

िसफर् भारत में नहीं सभी बड़े देशों में, कें द्रीय बैंक महंगाई से लड़ने वास्ते, सं कुचन वादी मौिद्रक नीित अपना रहे हैं। हालांिक अन्य देशों के
मुकाबले भारतीय िरजवर् बैंक ने दे दनादन लोन को बहुत महंगा नहीं, तािक भारत की आिर्थक वृिद्ध में हाडर् लैंिडंग/भारी िगरावट न आ जाए.
ot
p
el
H

(Batch: PCB10-RATFAAR) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 100

KING R & QUEEN P Help others god will help you

 12.33.2 🐯🐯🛬🛬Monetary Policy: Soft landing vs Hard Landing

u
yo
lp
he
�What does above chart mean? Ans. Explained in the video lecture�.
12.33.3 🐯🐯🔇🔇 Monetary policy limitations: Cantillon Effect
ill
w
⇒ Concept given by the 18th century
French economist Richard
d
Cantillon.
⇒ When the money supply is
go

increased, the purchasing power of

people who first receive the freshly-
created money is increased at the
rs

cost of the rest of people. (लोन जब

सस्ता होता है तो अमीर लोग ही ज्यादा लोन अपने
he

कब्जे में लेके कोठी बं गलो के दाम बढ़ा देते हैं)

⇒ What does it mean? Ans. Watch
ot

video lecture.
p
el

12.33.4 💦💦🕸🕸Liquidity Trap (तरलता जाल)

H

- Term was first used by economist John Maynard Keynes.

Concept explained through the comix given below. For more details, watch lecture.

(Batch: PCB10-RATFAAR) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 101

KING R & QUEEN P Help others god will help you

 u
yo
lp
he
This results into

ill
w
d
go
rs
he

Finally
ot
p
el
H

12.33.5 ✍Mains Related Content

I’ve made separate course for it. �NEXT HDT: Pillar1B1- Classification of Banks and NBFCs

(Batch: PCB10-RATFAAR) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 102

KING R & QUEEN P Help others god will help you

 Pillar#1B-1: Classification of Financial Intermediaries: Bank & NBFC
🚩🚩🚩FAQ: This handout is very lengthy, contains lot of Banking GK😰😰!!.
✅Ans. I’ve such Banking-GK for helping UPSC aspirants trying for Bank-exam as backup/Plan-B.
Which GK is imp/notimp for UPSC = Watch lecture, you’ll get idea.
Table of Contents

13 � Financial Intermediaries → Banks .................................................................................... 104

u
yo
13.11 �� ₹ � Banks → Reserve Bank of India (RBI): भारतीय िरजवर् बैंक .............................................. 105
13.11.1 � ₹ � RBI Governor & Dy Governor .................................................................................................. 106
13.11.2 � ₹ � RBI Offices & Departments ....................................................................................................... 107

lp
13.11.3 � ₹ � RBI: Functions of ........................................................................................................................ 107

13.12 �Agency Banks of RBI ........................................................................................................... 108

he
13.13 �: �RBI’s notable portals ................................................................................................. 108
R�
13.13.1 �: � UDGAM Portal: Unclaimed Bank Deposits (2023) ................................................................. 108
13.13.2 �: � PRAVAAH Portal for license from RBI (2023)......................................................................... 108
13.13.3
ill
�: � Daksh Web Portal for supervision (2022) ................................................................................. 109
w
13.13.4 �: � E-Kuber Portal .............................................................................................................................. 109

13.14 � � Scheduled Banks (अनुसूिचत बैंक) ............................................................................................. 109

d
13.15 � �FI⇒ Commercial Banks⇒ Pre-Independence ................................................................ 111
go

13.15.1 � → � Nationalization of Banks After Independence (आजादी के बाद िनजी बैंकों का राष्ट्रीयकरण) ...................... 112

13.16 � � �Consolidation of PSBs [एकत्रीकरण] ................................................................................. 113

13.16.1 �Consolidation of PSBs → A) Merger (िवलीनीकरण).................................................................................. 113
rs

13.16.2 �Consolidation of PSBs → B) Privatization (िनजीकरण) ........................................................................... 115

13.16.3 PSB Privatization: Banking Investment Company (BIC-बैंिकंग िनवेश कं पनी) ................................................... 115
he

13.17 � �Commercial Banks ⇒ Pvt. Sector Banks (PvB) िनजी-क्षेत्र के बैंक ............................................. 115
13.17.1 � � �� ‘On-Tap’ License to open Private Sector Banks (जब मन चाहे तब अजीर् डाल दो) ......................... 116
ot

13.18 �� � �� Allowing NBFC/Large Corporate to setup Banks .................................... 117

13.19 � � � Commercial Banks ⇒ Foreign Banks (िवदेशी बैंक) ........................................................ 117

p

13.20 � � ��Commercial Banks ⇒ Differential Banks ........................................................... 118

el

13.20.1 � � �� Commercial Banks ⇒ Differential Banks⇒ RRB and LAB ....................................... 118
13.20.2 � � �� RRB’s Shareholding pattern / IPO ................................................................................. 119
H

13.20.3 � � ��Commercial Banks ⇒ Differential Banks ⇒ SFB & PB ............................................... 119

13.20.4 � � ���� On-Tap Licenses for starting SFB (मन चाहे तब अजीर् डालो) .......................................... 121
13.20.5 Commercial Banks → �India Post Payment Bank (IPPB).................................................................. 121
13.20.6 � (Yearbook) Dept of Post: POSB vs IPPB ............................................................................................ 122
13.20.7 � � (Proposed) Wholesale & Long Term Finance Banks (WLTF) ................................................. 123
13.20.8 ��: Digital Payments- (Proposed) Digital Banks by NITI Aayog (2021) ..................................... 123

(Batch:PCB10- RATFAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1B1: Bank-NBFC Classification → Page 103

KING R & QUEEN P Help others god will help you

 13.20.9 ��: Digital Banking Units in Budget 2022 ....................................................................................... 124
13.20.10 ��: Digital Payments- NeoBanks / full-stack digital banks ............................................................ 124
13.20.11 ��FAQ : DIFFERENCE between digital banking unit vs Neobank ............................................... 124

13.21 � �FI ⇒ Banks ⇒ Cooperative Banks (सहकारी बैंक) .............................................................. 124

13.21.1 � �� Cooperative Banks: Negative News (2019): PMC Bank (कांड हो गया) ...................................... 126
13.21.2 ��������Banking Regulation (Amendment) Ordinance/Act, 2020.................... 127

u
13.22 ��� Formal FI ⇒ Non-Banking Financial Institutions ................................................... 128

yo
13.22.1 Development Finance Institutions (DFI: िवकास िवत्त सं स्थान) ............................................................................ 128
13.22.2 ���What is Bad Bank- NARCL-IDRCL? ..................................................................................... 128
13.22.3 ���Non Bank ⇒ All India Financial Institutions (AIFI): .......................................................... 129
13.22.4 NABFID, the 5th AIFI (2022-Mar) ............................................................................................................ 130

lp
13.22.5 ���FI ⇒ Non-Bank ⇒ Primary Dealers (PD)- (प्राथिमक िवक्रेता) ...................................................... 131
���FI ⇒ NBFCs (गेर-बैंिकंग िवत्तीय कं पिनया) ............................................................................................... 131

he
13.22.6

13.23 ��� NBFCs Regulated by RBI � (िनयं त्रण/देखरेख) ............................................................. 133

13.24 FinTech Companies ................................................................................................................. 135

13.24.1
13.24.2
ill
Fintech regulated by RBI ............................................................................................................................. 135
Fintech regulated by NON-RBI org (e.g SEBI, IRDAI) ........................................................................... 136
w
13.24.3 ���Digital Lenders .......................................................................................................................... 136
13.24.4 ���Credit Information Companies (CIC) versus Credit Rating Agencies (CRA) .................. 136
d
13.25 ��� NBFCs Regulated by SEBI � (�
�More in Pillar#1C) ........................................ 137
go

13.26 ��� NBFCs Regulated by Others � ............................................................................ 138

13.27 �(�
��): NBFC: Shadow Banking (आभासी / प्रितछाया बैंिकंग प्रणाली) ............................................... 139
rs

13.28 �NBFC-not allowed in India: Islamic Banking .................................................................... 139

13.29 ����� Informal Financial Intermediaries (अनौपचािरक िवत्तीय मध्यस्थ/ब्याजख़ोर) .................. 140
he

13.29.1 � Mains Answer Writing ......................................................................................................................... 140

ot

13 🏛🏛 FINANCIAL INTERMEDIARIES → BANKS

- A Financial Intermediary (FI: िवत्तीय मध्यस्थ) is an entity that acts as the middleman between two
p

parties in a financial transaction- between lenders vs. borrowers, investors vs. entrepreneurs,
el

households vs business firms.

- Such FI can be subdivided into (1) Formal (औपचािरक) (2) Informal (अनौपचािरक). But presently
H

we’ll focus on Formal Financial intermediaries, given in following chart:

(Batch:PCB10- RATFAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1B1: Bank-NBFC Classification → Page 104

KING R & QUEEN P Help others god will help you

 u
yo
lp
he
ill
w
13.11🐯🐯🏦🏦 ₹ 🖨🖨 BANKS → RESERVE BANK OF INDIA (RBI): भारतीय िरजवर् बैंक
d
go
rs

1913 Commercial banks were required to register under the Companies Act, but monitoring
he

was lax. No CRR, SLR, BASEL Norms. (उन पर पहले िनयम सख्त नहीं थे)
1926 Royal Commission on Indian Currency Hilton Young Commission) recommends setting
up a central bank named 'Reserve Bank of India'. (एक िब्रिटश आयोग ने िसफािरश की िनगरानी के िलए िरज़वर्
ot

बैंक बने)
1929 Great Depression in USA leads to collapse of 450+ banks in India. So British Indian Govt
p

becomes serious about setting up RBI. अमेिरकी महामं दी के बाद कें द्रीय बैंक की स्थापना की आवश्यकता महसूस हुई
el

1934 Reserve Bank of India Act was enacted. (इसकी स्थापना के िलए कानून बनाया गया)
1935, RBI becomes operational from 1st April, with 1st Governor Sir RBI Gov: Osborne Smith.
H

April India’s Viceroy: Willingdon. Government ownership was ~4.4% only.

1935, Commercial Banks fulfilling certain conditions were listed in the 2nd Schedule of RBI Act,
July & such “Scheduled Banks” were required to keep CRR with RBI.
1943- C.D. Deshmukh 2nd FM of India becomes the first INDIAN Governor of RBI. He had also
49 participated in the Bretton Woods Conference, USA (1944).

(Batch:PCB10- RATFAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1B1: Bank-NBFC Classification → Page 105

KING R & QUEEN P Help others god will help you

 1948- All private investors’ shares transferred to Govt of India under the RBI transfer of
49 ownership act 1948. Therefore, RBI governor answerable to Parliament, has to pay
dividend to Govt from its profits. (िरज़वर् बैंक अपने मुनाफे मे से सरकार को लाभांश िवतरण करता है)
1949

u
yo
lp
Banking Regulation Act (बैंिकंग िविनयमन अिधिनयम) empowered the RBI to

he
⇒ Give license to companies to open banks,
⇒ Give permission banks to open new branches.
⇒ Prescribe auditing norms, liquidity norms for Banks such as SLR.

ill
⇒ Protect interest of depositors. Force elimination / merger of weak banks.
⇒ Related Topic: banking regulation ordinance 2020 → Pillar#1B2: Bad loans & other
w
burning issues in the banking sector.
🔠🔠❓Which was the earliest event to take place? (UPSC Prelims-2009)
d

A) Nationalization of insurance companies B) Nationalization of State Bank of India

go

C) Enactment of Banking Regulation Act D) Introduction of first Five year plan

Table 1: RBI Central Board Composition
(Non-Official Directors) (Official Directors)
- 2 Government officials - RBI Governor
rs

- 10 directors nominated by Government. - 4 Dy. Governors

he

- 4 directors from RBI’s local boards @West, East, North, South

13.11.1 🏦🏦 ₹ 🖨🖨 RBI Governor & Dy Governor
- RBI Act (Section 8) provides for “NOT MORE than 4” Dy. Governors.
ot

- They’re selected by Financial sector regulatory appointment search committee (FSRASC)

headed by the Cabinet Secretary (IAS) → successful candidates’ names sent to
p

Appointments Committee of the Cabinet headed by the Prime Minister for final approval.
el

- Governor and Dy.Govs’ tenure usually (not always) 3 years. Re-appointment is possible.
कायर्काल
H

- 2018-Dec: Shaktikanta Das appointed as Governor for 3 years, he replaced Urjit Patel. 2021:
Modi Govt renewed his tenure for three years till Dec- 2024, thus giving him a total tenure of
six years (िरज़वर् बैंक के गवनर्र के रूप में पुनः िनयुिक्त)
- Shaktikanta Das is Retd. IAS, Former finance secretary, Member of 15th Finance
Commission.

(Batch:PCB10- RATFAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1B1: Bank-NBFC Classification → Page 106

KING R & QUEEN P Help others god will help you

 📑📑 Related Topics: RBI Autonomy, Dividend Controversy, Section 7, PCA/BASEL:
[Handout 1B2 → Burning Issues in Banking Sector]

13.11.2 🏦🏦 ₹ 🖨🖨 RBI Offices & Departments

- RBI 4 regions: Northern: Delhi, Eastern: Kolkata, Southern: Chennai, Western: Mumbai
- RBI has various dept after Banks, NBFCs, Payment Systems, Foreign Exchange Management etc.

u
13.11.3 🏦🏦 ₹ 🖨🖨 RBI: Functions of

yo
lp
he
Pillar#1A2) (मुद्रा आपूिर्त िनयं त्रक) ill
1) Controller of Money Supply: Issues M0 under RBI Act, Makes Monetary Policy. (�
�more in
w
2) Controller of Foreign Exchange: through FEMA Act. (िवदेशी मुद्रा का िनयं त्रक, �more in Pillar#3)
3) Banker to Union & State Governments & Public Debt Manager (सावर्जिनक ऋण प्रबं धक).
d
4) Banker’s Bank: Lender of Last resort, Advises in monetary matters.
go

5) Regulator of all “BANKS”: through BR Act’49, Payment Systems’07 (िनयामक)

6) Regulator of AIFI, NBFC-D (Deposit Taking NBFC) & others.
7) Promotional Roles (सं वधर्क भूिमका):
rs

a. Customer protection through Ombudsman (िशकायत िनवारण अिधकारी),

b. Financial Inclusion through PSL norms. Requires bank to open 25% of branches in rural
he

areas
8) Data Publication & awareness e.g. Annual Financial Stability Report (वािर्षक िवत्तीय िस्थरता िरपोटर्)
9) International Cooperation e.g. BASEL, IMF, G20’s Financial Stability Board etc.
ot

a. E.g. 2021: RBI became member of “Network For Greening The Financial System
(NGFS)”. NGFS is a group of central banks to contribute to the development of
p

environment. HQ: Paris, Foundation Year: 2017 (िवत्तीय प्रणाली की हिरयाली के िलए नेटवकर् - तािक
अक्षय ऊजार्, पयार्वरण आिद को मदद िमले)
el
H

🚩🚩🚩FAQ: Article 371-F of Constitution gives special status to Sikkim, as a result their State
Bank of Sikkim is outside RBI’s regulation!! Ans. Such JamesBond/obscure GK = poor cost benefit.

(Batch:PCB10- RATFAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1B1: Bank-NBFC Classification → Page 107

KING R & QUEEN P Help others god will help you

 13.12🪜🪜AGENCY BANKS OF RBI

u
yo
lp
he
-
ill
�FAQ1: What does this chart mean? Ans. Explained in the video lecture.
w
- �FAQ2: How can a bank collect the tax? isn’t it the work of the income tax officers? Ans. Yes,
it is the function of income tax Officer. But, Tax money is to be transferred from tax payers’ bank
d
account to government’s account. Agency banks deal with that aspect of money
go

collection/storage/transfer work.

13.13R🐯🐯: 🦋🦋RBI’S NOTABLE PORTALS

rs

13.13.1 🐯🐯: 🦋🦋 UDGAM Portal: Unclaimed Bank Deposits (2023)

he

- If deposits remain unclaimed for 10 years in a bank → banker need to transfer it to “Depositor
Education and Awareness FUND” (DEA) OF RBI.
- 2023: RBI setup UDGAM portal for it. (Unclaimed Deposits Gateway To Access inforMation)
ot

- Beneficiary can easily search unclaimed deposits across multiple banks at one place. (e.g. by
searching the Aadhaar card / PAN Card number of the dead parent etc.)
p

- How it works in real life? NOTIMP4EXAM. You can satisfy your curiosity by
visiting https://udgam.rbi.org.in/unclaimed-deposits/#/login
el

13.13.2 🐯🐯: 🦋🦋 PRAVAAH Portal for license from RBI (2023)

H

- Banks/NBFC/ Digital payment related companies need to obtain license from RBI.
- They can apply for such licenses using PRAVAAH Portal (Platform for Regulatory Application,
Validation And AutHorisation)

(Batch:PCB10- RATFAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1B1: Bank-NBFC Classification → Page 108

KING R & QUEEN P Help others god will help you

 - � Benefit? Ease of doing business. The entrepreneur does not have to visit RBI office offline
multiple times.

13.13.3 🐯🐯: 🦋🦋 Daksh Web Portal for supervision (2022)

- Web system wherein Banks, NBFC send their reports to RBI
- Then RBI can monitor them more effectively. E.g. how many credit card frauds this month, new
guidelines to prevent it etc.

u
yo
13.13.4 🐯🐯: 🦋🦋 E-Kuber Portal
- Core banking solution (CBS) portal of RBI.
- All bankers have current accounts here.

lp
- RBI handles NEFT/RTGS, Repo, OMO & other instruments from here.
- Retail Investors can buy G-Secs from here.

he
🔠🔠❓ RBI acts as a bankers’ bank. What does it mean? (UPSC-Pre-2012)
1) Other banks retain their deposits with the RBI.

ill
2) The RBI lends funds to the commercial banks in times of need.
w
3) The RBI advises the commercial banks on monetary matters.
Answer codes: (a) 2 & 3 only (b) 1 and 2 only (c) 1 and 3 only (d) 1, 2 and 3
d
🔠🔠❓ RBI regulates the commercial banks in matters of (Asked in UPSC-Pre-2013)
1) Liquidity of assets 2) Branch expansion 3) Merger of banks 4) Winding-up of banks
go

Answer Codes: (a) 1 & 4 only (b) 2, 3 & 4 only (c) 1, 2 & 3 only (d) 1, 2, 3 & 4
🔠🔠❓ In India, the central bank’s function as the ‘lender of last resort’ means what? (कें द्रीय बैंक को
अंितम उपाय का ऋणदाता कहा जाता है इस शब्द का मतलब क्या है) (Prelims-2021)
rs

1. Lending to trade and industry bodies when they fail to borrow from other sources. [व्यापार औद्योिगक
सं स्थाओं को जब कहीं और से कजर् नहीं िमले तो कें द्रीय बैंक कजर् देता है]
he

2. Providing liquidity to the banks having a temporary crisis.[अस्थाई सं कट के दौरान बैंकों को तरलता देता है]
3. Lending to governments to finance budgetary deficits [बजट घाटा पूरा करने के िलए सरकार को कजार् देता है]
ot

Codes: a) 1 and 2 b) 2 Only c) 2 and 3 d) 3 Only

13.14🏦🏦 � SCHEDULED BANKS (अनुसूिचत बैंक)

p

When RBI is satisfied with TWO conditions simultaneously (दो शतोर्ं का एक साथ पालन होना चािहए)
el

- #1: That a public sector or pvt sector bank has (Paid Up Capital + Reserves#1) = Min ₹5
Lakhs
H

- #2: Bank is not conducting business in a manner harmful to its depositors. (जमाकतार्ओ ं के िहतों का
नुक़सान न हो इस िहसाब से बैंक अपना कायर् कर रहा है)
then such bank is listed in the 2nd Schedule of RBI Act → then it is known as a Scheduled Bank.

(Batch:PCB10- RATFAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1B1: Bank-NBFC Classification → Page 109

KING R & QUEEN P Help others god will help you

 u
yo
lp
⇒ ��FAQ: What is paid up capital? Ans. Explained in the video.

he
⇒ ��FAQ#1: Which reserves are included in this ₹5 lakh formula? Ans. Routine books did not
bother to elaborate so I did not bother to do Google search. Such technical things not imp4exam.
⇒ ��FAQ: “₹5 lakh is very small!!! It should be ⏫ to ensure safety in bank”. Ans 1) neither

ill
economic survey, NITI Aayog, Court-PIL, nor any big columnists have demanded reform here.
So we need not apply our brain here. 2) Send your suggestion to PM to amend the British Era
w
provisions of ₹5 lakh from RBI Act. Until that happens, prepare the present facts.
⇒ 🚩🚩🚩FAQ: “nowadays every bank will easily have five lakh rupees of deposits so
d

automatically all bank will become schedule bank from DAY1!” Ans. No. Because, RBI will also
go

check condition#2. Usually RBI ticks condition#2 after observing bank for one year from its
birth. So the Scheduled status will not be given on DAY1. (धं धा चालू करने की एक साल तक तो िरज़वर् बैंक
उसका मुआयना करेगी की दू सरी शतर् का अनुपालन हो रहा है िक नहीं. पहले ही िदन से िरज़वर् बैंक उसको अनुसूिचत नहीं बना देगी।)
rs
he
ot
p

🐴🐴 Scheduled Bank (अनुसूिचत बैंक) 🐭🐭 Non-Scheduled Bank (गैर- अनुसूिचत)

el

Can be subdivided into two parts Many cooperative banks are non-Schedule. But
1) Scheduled Commercial Banks (SCB) e.g. we need not see their list at
H

SBI, Axis, ICICI Rbi.org.in/CommonPerson/English

2) Schedule Cooperative Banks like Haryana /scripts/banksinindia.aspx
Rajya Sahakari Bank, Tamil Nadu State
Apex Cooperative Bank

(Batch:PCB10- RATFAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1B1: Bank-NBFC Classification → Page 110

KING R & QUEEN P Help others god will help you

 🐴🐴 Scheduled Bank (अनुसूिचत बैंक) 🐭🐭 Non-Scheduled Bank (गैर- अनुसूिचत)
Need to deposit CRR money to RBI’s office Can maintain the CRR money with themselves
(CRR का पैसा ट्रक में भरके िरज़वर् बैंक में पहुँ चाना होगा) in their own office/vault. (खुद की ितजोरी में रख सकते हैं)
Eligible to borrow / deposit funds in RBI’s Depends on RBI’s discretion. (िववेकाधीन/िरज़वर् बैंक
window operations. E.g. LAF-Repo, MSF, etc. की मज़ीर् – आने भी दे सकता है, लात मार के भगा भी सकता है)
are required to protect the interests of Ofcourse, they also have to do it, else RBI can

u
depositors and abide to RBI norms. (जमाकतार्ओ के shut them down under Banking Regulation Act.

yo
िहतो की रक्षा करनी होगी, और िरजवर् बेंक के िनयमो का पालन करना
होगा)
Govt depts and big private sector companies are Less likely to happen. (ग़ैर अनुसूिचत बैंकों में सरकारी िवभाग
more likely to open their bank accounts/ या बड़ी कं पिनयों वाले अपने बेंक-खाते खोले इसकी सं भावना कम होती

lp
employees’ salary deposit accounts in it. है)

he
Bank becomes eligible to partner in the govt’s Usually not eligible. (िवत्तीय समावेशन की सरकारी
financial inclusion scheme e.g. PM Jan Dhan योजनाओं में ग़ैर अनुसूिचत बैंकों को सामान्यत: शािमल नहीं िकया जाता
Scheme for opening bank accounts of poor है. जैसे िक प्रधानमं त्री जनधन योजना में गरीबों का बैंक खाता इन बेंको
में नहीं खोला जा सकता.)
-
people. (Ref Pillar1D3: financial inclusion)

ill
Airtel Payments Bank and Paytm Payment Bank categorised as a scheduled bank in 2021-22.
w
🚩🚩🚩FAQ: “After getting scheduled status, Can Payment Banks give loans/credit cards or accept
Fixed Deposits?” Ans. No, they’re prohibited from such activities. Paytm doing such activities as
d
“an Agent” of a federal bank, IndusIndia bank etc but Paytm cannot do it as ‘its own Banking
go

business’.

13.15🏦🏦 �FI⇒ COMMERCIAL BANKS⇒ PRE-INDEPENDENCE

rs
he

Table 2: Before Independence (Exact Years Not-IMP.)

ot

1770 Bank of Hindustan, Calcutta (Europeans owned it. So it was not truly ‘Swadeshi’)
1806-42 - Three Presidency Banks at Bengal then Bombay then Madras.
p

- 1861: all three were given the right to issue currency.

el

- 1921: They were combined into Imperial Bank of India⇒ SBI (1955)
1865 Allahabad Bank (Europeans owned)
H

1894 PNB: Indian owned, Lala Lajpat Rai helped in foundation.

1908 Bank of Baroda by Maharaja Sayajirao Gaekwad III
1913-30s State Bank of Mysore, State Bank of Patiala, the rise and collapse of Banking
industry, then Birth of RBI (1935)

(Batch:PCB10- RATFAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1B1: Bank-NBFC Classification → Page 111

KING R & QUEEN P Help others god will help you

 1940s State bank of Bikaner, Jaipur, Hyderabad, Travancore by the respective princely
states / Nawabs. Post-Independence, these banks became ‘Associated Banks of SBI’,
and ultimately, merged in SBI (2017).
13.15.1 🦄🦄 → 🦁🦁 Nationalization of Banks After Independence (आजादी के बाद िनजी बैंकों का राष्ट्रीयकरण)

u
yo
lp
he
⇒ NEXUS between Banks and Industrialists: From 1950s to 60- only 188 elite people controlled
the economy by being in board of top 20 banks, 1452 companies.

ill
⇒ This led to reckless lending to directors and their firms. So, Banks failed frequently, RBI had to
w
close them. (रसूखदार लोग के कब्जे में थी बैंिकंग व्यवस्था. भाई भतीजावाद में अंधाधुन कजर् देते थे)
⇒ Private Banks unwilling to open in rural areas- this did not help in financial inclusion of poor,
d
farmers, MSME or achievement of Five Year Plan (FYP) targets or reducing regional imbalance.
go

(िवत्तीय समोवेशन, पं चवषीर्य योजनाओ के लक्ष्याक हािसल करने में िनजी क्षेत्र के बैंक मदद नहीं करते थे. क्षेत्रीय असमनाताए बढ़ी)
Table 3: Nationalization & Merger of Banks after Independence
1948 RBI Transfer of Ownership Act.
1948 1948: Op. Polo, Hyd. → 1951:1st FYP, → 1953: Air India nationalized from Tata
rs

1955 Imperial Bank nationalized and became SBI.

1955-56 LIC Act took over private life insurance cos.
he

57: 1st Communist Govt in Kerala

61: Operation Vijay for liberation of Goa, Daman and Diu.
ot

1963 State Bank of Jaipur and Bikaner merged together.

1969 ⇒ 'Banking Companies (Acquisition and Transfer of Undertakings) Ordinance,
1969: 14 Private banks with ₹ 50 cr/> deposits were nationalized e.g. Bank of
p

Baroda, PNB, Dena, Canara etc. (बड़ी जमा-रािश वाले िनजी बेंको का राष्ट्रीयकरण)
el

⇒ Catholic Syrian Bank (1920, Kerala), Ratnakar Bank, Dhanlaxmi Bank, etc., did
not have such large deposits, so they were not nationalized. So, they are called
H

“Old Private Banks”.

1972-73 GIC Act- took over private Non-Life (=General) insurance cos. Later GIC was re-
organized with 4 subsidiaries: National Insurance, New India Assurance, Oriental
Insurance and United India Insurance. More in 📑📑Pillar#1D

(Batch:PCB10- RATFAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1B1: Bank-NBFC Classification → Page 112

KING R & QUEEN P Help others god will help you

 1980 6 banks with ₹ 200 cr/> deposits were nationalized e.g. Corporation Bank, Vijaya
Bank, Oriental bank of Commerce etc.
2019 Previously, State Government of J&K owned 60% shares in J&K bank → Article
370 removal → Union Government took-over this shareholding. 🎓🎓✋Further
500 type historical-GK things NOTIMP.
Reform following Committees were made for reforms in banking sector

u
Committee M Narasimham-I (1991), M Narasimham-I (1997), Dr. Raghuram Rajan

yo
s Committee (2007) and P J Nayak Committee (2014)
Death 2021: Death of M Narasimham. He was ex-Governor of RBI and chairman various
देहांत Committees on Banking Sector Reforms, therefore known as “father of Indian

lp
banking system reforms” (एम नरिसहं म भारतीय बैंिकंग प्रणाली सुधार के िपतामह माने जाते है। )
🔠🔠❓(Prelims 2009) Q. In independent India's economy, which was earlier event to take place?

he
A) Nationalization of insurance companies B) Nationalization of State Bank Of India
C) Enactment Of Banking Regulation Act D) Introduction of first Five year plan
🔠🔠❓(Prelim-2018) Q. Consider the following events:

ill
1. The first democratically elected communist party government formed in a State in India.
2. India’s then largest bank, ‘Imperial Bank of India’, was renamed ‘State Bank of India’.
w
3. Air India was nationalised and became the national carrier.
4. Goa became a part of independent India.
d
Which of the following is the correct chronological sequence of the above events?
go

A) 4 – 1 – 2 – 3 B) 3 – 2 – 1 – 4 C) 4 – 2 – 1 – 3 D) 3 -1-2 -4
13.16🏦🏦 � 🔂🔂CONSOLIDATION OF PSBS [एकत्रीकरण]
PSB consolidation = made up of two types of reforms: A) Merger B) Privatization
rs
he
ot
p
el
H

13.16.1 🔂🔂Consolidation of PSBs → A) Merger (िवलीनीकरण)

Table 4: Notable PSB Mergers before 2019, April. ✋You need not memorize exact years/ HQ for IAS Exam
2008-10 State Bank of Saurashtra and State Bank of Indore merged into SBI.

(Batch:PCB10- RATFAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1B1: Bank-NBFC Classification → Page 113

KING R & QUEEN P Help others god will help you

 2013 - Bharatiya Mahila Bank setup as PSB, HQ Delhi, 100% ownership by Union
Government. (भारत सरकार ने स्वयं बनाया था)
- BMB’s Board of Directors: All women. Staff & Deposit Holders: both men and
women, Loans given predominantly to women- and that too without collaterals
2017 BMB & 5 Associated Banks of SBI viz. State Bank of Bikaner and Jaipur (SBBJ), State
Bank of Hyderabad (SBH), State Bank of Mysore (SBM), State Bank of Patiala (SBP)

u
and State Bank of Travancore (SBT), merged with SBI.
2017 -

yo
Alternative Mechanism Panel setup under the Finance Minister’s chairmanship.
- This panel examine the proposals for merger/consolidation of the Public Sector
Banks (PSBs) and forward to Cabinet for approval.

lp
- Department of Financial Services coordinates the filework.
2019, 1st Vijaya & Dena to be merged into Bank of Baroda.

he
April - Among these three oldest: BoB (1908) > Vijaya (1931)> Dena (1938)
Table 5: 2019, merger of 10 banks into 4 anchor banks (NOTIMP UNLESS preparing for IBPS)
Amalgamating Banks → → → Anchor Bank
(एकीकृ त / िवलीन होनेवाली)
− Oriental Bank of Commerce (1943, ill (सहारा देनेवाली)
1) PNB. (1984, HQ: Delhi, It’ll become the 2nd
w
HQ: Gurugram, Haryana), largest bank after SBI, in terms of business size
− United Bank of India (1950, Kolkata) and branch network)
d
Syndicate Bank (1925, HQ: Manipal, 2) Canara Bank (1906, HQ: Bengaluru,
go

Karnataka) → Karnataka)
− Andhra Bank (1923, Hyderabad) 3) Union Bank of India (1919, Mumbai)
− Corporation Bank (1906, Mangaluru)
rs

− Allahabad Bank (1865, Kolkata) → 4) Indian Bank (1907, Chennai)

After this process is over, we’ll be left with only 12 PSBs (+1 India Post Payment Bank).
he

- Benefit? Geographical & technological synergies in ATM, Branches, Security Staff, Servers cost
etc. (भौगोिलक और तकनीकी तालमेल)
ot

- More Argument in favour / against = Mains QEP handout. This is Prelims #RAFTAAR.
p
el
H

(Batch:PCB10- RATFAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1B1: Bank-NBFC Classification → Page 114

KING R & QUEEN P Help others god will help you

 13.16.2 🔂🔂Consolidation of PSBs → B) Privatization (िनजीकरण)
It involves Government selling 51% or larger shareholding to private parties. Then such Public
Sector Bank will convert into a private sector bank. For example, (i) Axis Bank (Earlier called UTI
Bank) and (ii) IDBI Bank.

13.16.3 PSB Privatization: Banking Investment Company (BIC-बैंिकंग िनवेश कं पनी)

Removed from handout because outdate/faded topic until Finance Ministry implements it.

u
13.17 🏦🏦 �COMMERCIAL BANKS ⇒ PVT. SECTOR BANKS (PVB) िनजी-क्षेत्र के बैंक

yo
lp
he
ill
w
d
go

While the nationalization of banks was done with the lofty objectives, but politicization in Public
Sector Banks (PSBs) created new set of problems:
- Govt administered loan interest rates for populism= Low profitability for PSBs. (मुनाफा कम)
rs

- Political Interference= Low recovery difficult (राजनीितक हस्तक्षेप के चलते दबं ग तत्वो से ऋण वसूली मुिश्कल)
- Employees Unions hampering innovation or customer delight. (नवाचार, ग्राहक सुिवधा कम)
he

- 1991: Balance of Payment crisis (BoP: भुगतान सं तुलन,More in Pill#3) finally forced Govt. to set up a
committee for Banking Sector Reforms under The former RBI Governor M.Narasimham. He
ot

suggested:
o Govt should ↓ its shareholding in Public Sector Banks. (सरकार अपनी शेयर िहस्सेदारी कम करे)
o RBI should ↓ CRR and SLR (सीआरआर, एसएलआर मे कटोती करे)
p

o Govt should not dictate interest rates to Banks. Liberalize the branch expansion policy
el

(बेंकों को लोनदर, शाखा िवस्तार नीित तय करने मे सरकार दखल न करे।)

o Allow entry of New Private Banks and New Foreign Banks. (िवदेशी बैंक और िनजी क्षेत्र के बैंकों को
H

अनुमित)
Table 6: Three rounds of bank licensing in India. Names not that IMP unless giving Banking-exams
Round-1 (1993-95) Round-2 (2001-04) Round 3 (2013-16)
1) ICICI 1) Kotak Mahindra Rajan invited applications,
2) HDFC Bimal Jalan Committee made

(Batch:PCB10- RATFAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1B1: Bank-NBFC Classification → Page 115

KING R & QUEEN P Help others god will help you

 Round-1 (1993-95) Round-2 (2001-04) Round 3 (2013-16)
3) IndusInd 2) Yes Bank (Founder Rana selections:
4) DCB Kapoor). Related Topic: 1. Bandhan (A Microfinance
5) #UTI → later Axis bank Yes bank scam/Crisis company based in
6) #IDBI → now owned by �Pillar#1B2: Bad loans W.Bengal)
LIC & other Burning issues in 2. IDFC (An infra finance

u
7) Global Trust Bank → Bank/NBFC sector NBFC based in
Merged with Oriental Bank Maharashtra). Later on,

yo
No. 8-9-10: Bank of Punjab, another NBFC “Capital
Centurian Bank, Times Bank First” merged so renamed
were merged into HDFC into IDFC-First

lp
Above banks are also known as new-generation private banks in India. (नयी पीढ़ी के िनजी क्षेत्र के बैंक)

he
🚩🚩🚩FAQ: In early 90s- UTI Bank & IDBI Bank were not private sector banks, then why have you
kept them here in table? Ans. Because presently, they’re private sector banks. I don’t have to submit

ill
this handout as evidence in the Supreme Court so I don’t care being so pedantic about everything.
You need to change your approach towards studies, to finish syllabus faster. #RAFTAAR
w
13.17.1 🏦🏦 � 🚗🚗🚗🚗 ‘On-Tap’ License to open Private Sector Banks (जब मन चाहे तब अजीर् डाल दो)
d
A private entity can open Bank only after getting license from RBI under Banking Regulation Act,
go

1949. Previously, one had to wait till RBI invited applications. But in the On-Tap system (from
2016), one can apply to RBI whenever he wishes (like a driving license), provided that he meets the
eligibility requirements e.g. min. 10 years’ XP in banking finance, minimum 500 crore capital etc.
rs
he
ot
p
el
H

(Batch:PCB10- RATFAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1B1: Bank-NBFC Classification → Page 116

KING R & QUEEN P Help others god will help you

 u
🚩🚩🚩FAQ: isn’t above Rs.500 cr capital conflicting with Scheduled Commercial Bank Definition?

yo
Ans. It works in step by step fashion. Observe above chart peacefully and watch video lecture.

lp
13.18🚫🚫🏦🏦 � 🚗🚗🚗🚗 ALLOWING NBFC/LARGE CORPORATE TO SETUP BANKS
This controversy shifted to Mains-QEP Handout. Because this Handout deals ONLY with

he
PRELIMS. #RAFTAAR

13.19🏦🏦 � 🈶🈶 COMMERCIAL BANKS ⇒ FOREIGN BANKS (िवदेशी बैंक)

ill
In Nehruvian Socialist Economy there was disdain & apprehensions about Foreign Banks. So, only a
handful of them were allowed to open branches. But, Post-1991-Reforms: system liberalized. (नेहरू-
w
समाजवादी िवचारधारा के नीित िनमार्ताओं में िवदेशी ताकतों के प्रित घृणा और डर → बहुत कम िवदेशी बैंकों को अनुमित दी थी)
d
go

- They’re Incorporated abroad (i.e. registered under the Companies Act of a

rs

foreign nation) & opening branch / subsidiary in India e.g. Citibank, Bank of
America, HSBC. (उन्होंने िकसी अन्य देश के कं पनी कानून में पं जीकरण करवाया है और िफर भारत
he

आकर शाखाएं खुली है)

🤠🤠 Foreign - While CRR, SLR & other norms applicable, but PSL norms vary depending on
ot

Bank in India number of branches. [�

�Ref: Prev. Handout: PSL]
- RBI gives them ‘on-tap’ license on reciprocal basis. i.e. if foreign nation
p

allows Indian banks to operate in their country, THEN RBI allows that
nationa’s banks to operate in India.
el

- 2023: Axis bought/tookover Citibank’s Indian branches.

H

🧔🧔 Indian - Foreigners can invest max. 20% in its shareholding. E.g. BoB (15%), SBI
Public Sector (14%), PNB (13%) भारत की सावर्जिनक क्षेत्रों में िवदेशी िनवेश की सीमा
Bank

(Batch:PCB10- RATFAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1B1: Bank-NBFC Classification → Page 117

KING R & QUEEN P Help others god will help you

 - Foreigners can invest upto 49% (automatic-स्वचािलत तरीके ) and upto 74% by
🤵🤵 India approval of Government (सरकार की अनुमित लेकर). (More in �Pillar#3A: FDI)
Private - e.g. HDFC (73%), ICICI (59%) Axis Bank (52%) is owned by Foreigners.
Sector Bank - Although Govt thinking of � to 100% to help capital mobilization for
BASEL-III norms . [�
�More in Next Pillar#1B2: NPA handout]

u
13.20🏦🏦 � 🌎🌎🚫🚫COMMERCIAL BANKS ⇒ DIFFERENTIAL BANKS

yo
lp
Difference 🌎🌎Universal Bank (सावर्ित्रक बेंक) 🌎🌎🚫🚫Differential Bank (भेदकर बेंक)

he
Open Anywhere: example SBI, ICICI Geographical Restrictions on branch opening
Branches [*After opening 25% of branches in for Local Area Bank (LAB), Regional Rural
शाखाएं unbanked rural areas] Banks (RRB)

Accept
Both Time & Demand Deposits of
any amount.
ill
Payment Bank – Accept Max. 1 lakh deposit
only. In 2021- This limit increased to ₹2 lakh.
w
Give Loans Anyone [After 40% PSL] - SFB, RRB: 75% to PSL
to - �Payment Bank can’t give loans;
d
Chronology of differential banks: RRB(1976) → Local Area Bank (1996) → Small Finance Bank &
go

Payments bank(2015) → Wholesale banks (proposed)

13.20.1 🏦🏦 � 🌎🌎🚫🚫 Commercial Banks ⇒ Differential Banks⇒ RRB and LAB

rs

Regional Rural Banks (क्षेत्रीय ग्रामीण बैंक) Local Area Bank (स्थानीय क्षेत्र बैंक)
- Based on M.Narasimham’s Committee on - Based on Budget-1996 by Finance Minister
he

Financial Inclusion in 1970s# Manmohan Singh

- Setup under the provisions of RRB act - Unlike RRBs, they're not setup by Union or
- State govts or by any special act or
ot

e.g. Uttar Bihar Gramin Bank (Sponsor

bank- Central Bank of India) parliament. But by pvt entities simply
- Subjected to CRR, SLR norms but RBI applying to RBI under Banking Regulation
p

could prescribe separate norms. Act.

el

- PSL: 75%.(More in �Pillar#1A1) - Can open branches in Max. 3 districts

- Their loan interest rates can’t be more than sharing borders with each other. only 1
H

prevailing lending rates of Cooperative urban centre per district allowed.

Banks in the area. Remaining branches need to be opened in
rural areas of that district.
- Restricted to few districts. E.g. Baroda
Gramin Bank branches confined to
Gujarat’s southern districts.

(Batch:PCB10- RATFAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1B1: Bank-NBFC Classification → Page 118

KING R & QUEEN P Help others god will help you

 Regional Rural Banks (क्षेत्रीय ग्रामीण बैंक) Local Area Bank (स्थानीय क्षेत्र बैंक)
- Ultimate regulator: RBI but immediate - They’re Non-Sch. Banks so while CRR,
regulator NABARD. SLR, PSL etc very apply but every norm
may be different, decided by RBI.
- E.g. Subhadhra Local Area Bank, Kolhapur

13.20.2 🏦🏦 � 🌎🌎🚫🚫 RRB’s Shareholding pattern / IPO

u
RRB Act 1976 Amendment in 2015

yo
Shareholding: Union 50% + State 15% + ⇒ Shareholding: (Union+State+Sponser
Sponsor Bank 35% = 100% bank) 51% + others (pvt investors) 49%.
⇒ Benefit? RRB can issues new / fresh shares

lp
in market to acquire more capital from

he
private investors. #
# Govt has Issued guidelines related to RRB’s IPO (Initial public offer) in sharemarket. But technical-
stuff notIMP for IAS Exam. More about IPOs in Pillar#1C.

ill
w
🚩🚩🚩FAQ#: M.Narasimham committee was made in 1990s so how can he be in 1970s? Ans. Same
gentleman was chairman of many committees ✅(1) Financial inclusion (1970s) ✅(2) banking
d
reforms-I (1990s) ✅(3) banking reforms-II (1990s).
🚩🚩🚩FAQ: I’ve 500 jaat-ke Doubts about Local Area Banks. Ans. Not Important for UPSC. I’ve
go

only given short-note of LAB for helping UPSC aspirants trying for Bank-exam as backup/Plan-B.
rs
he

13.20.3 🏦🏦 � 🌎🌎🚫🚫Commercial Banks ⇒ Differential Banks ⇒ SFB & PB

On Nachiket Mor Committee’s recommendations (2013-14), Governor Raghuram Rajan approved
ot

these new types of banks for (1) financial inclusion (2) competition & innovation among players.
Table 7: Need not memorize all the FACTs, UNLESS Preparing for Banking Exams as PLAN-B
p

Parameters Small Finance Banks लघु िवत्त बैंक Payment banks भुगतान बैंक
Examples Capital Small Finance Bank (Punjab), 6 at present: Airtel, India Post, FINO,
el

Ujjivan (Karnataka), Utkarsh (UP): Paytm, Jio, NSDL. (Total 11 were

H

Total 10 list at selected; but AdityaBirla-Idea & other

rbi.org.in/scripts/banklinks.aspx withdrew later)
Eligibility Min.100cr. capital-walla Resident Min.100cr. capital-walla resident
during 1st Indian, Local Area Bank, NBFC, Indians, NBFCs, PPI-wallets (pre-paid
payment instrument), mobile telephone

(Batch:PCB10- RATFAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1B1: Bank-NBFC Classification → Page 119

KING R & QUEEN P Help others god will help you

 Parameters Small Finance Banks लघु िवत्त बैंक Payment banks भुगतान बैंक
round of Micro-finance, with 10 years exp. in companies, super-market chains,
licensing banking / finance cooperatives & companies controlled by
resident Indians
📌📌Area RBI Committee gave selection Anywhere
preference North East & Central

u
India clusters where Universal Banks’
penetration is poor

yo
CRR, SLR, Same as Indian private banks Same as Indian Private Banks, but
Repo, FDI? special terms & condition in SLR.
Rural Must have 25% branches in unbanked No need but 25% access points must be

lp
Penetration rural areas in rural areas like Kiraana Stores

he
🛒🛒Target Unserved Underserved Farmers, Promoting Small savings
Consumers Micro, Small industries: िकसान, सूक्ष्म, लघु Remittance of migrant labors, low
उद्योग income households, unorganized sector,
small business.
💰💰Accept Yes, without any restrictions
ill
✋No NRI deposits, ✋No Fixed
w
Deposits िडपॉिजट स्वीकार करने में कोई पाबं दी नहीं है deposit**
- Can accept only Demand Deposits
d
and Max. balance Rs.1 lakh per
go

customer. (In 2021- limit increased

to ₹2 lakhs)
Debit cards 💳💳 YES can give. 💳💳 YES can give.
rs

Credit cards 💳💳 YES can give. ✋No (because can’t give “loan”)
Loans - Yes, but 75% in PSL, - Can’t loan, So no PSL.
he

- 50% of loan portfolio of Rs. 25 - They’re required to invest all

lakhs/< loans. deposits in G-sec, T-Bill and in other
ot

SCBs. �How much% notimp.

Evolve/ After 5 years can become Universal After 5 years can become Small Finance
future Commercial Bank, If RBI is satisfied. Bank, If RBI is satisfied with their record.
p

growth?
el

- BASEL-III norms applicable on both of SFB & PB. (More in �Pillar#1B2:BASEL Norms)
- Both SFB & PB can sell Mutual Fund (MF), Pension, Insurance policies with approvals of
H

respective regulators i.e. SEBI, IRDAI, PFRDA.

🚩🚩🚩FAQ: You wrote that Payment Banks can't accept FD or give loans or credit card but Paytm
is doing that!!?? Ans: Paytm doing FD/Credit Card/Loan activities as “an Agent” of a federal bank,

(Batch:PCB10- RATFAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1B1: Bank-NBFC Classification → Page 120

KING R & QUEEN P Help others god will help you

 IndusIndia bank etc. Similarly, Although India Post Payments Bank (IPPB) cannot give loans
because it is a payment bank but signed a deal with HDFC Bank to give home loans as an ‘Agent’.

🚩🚩🚩FAQ: if payment banks cannot give loans, then what do they do with deposit money? Ans. It
is answered within the above table itself. Read properly. If you’re going to glance over this handout
casually & carelessly like a WhatsApp message then handout cannot help you in the UPSC exam.

u
13.20.4 🏦🏦 � 🌎🌎🚫🚫🚗🚗🚗🚗 On-Tap Licenses for starting SFB (मन चाहे तब अजीर् डालो)
-

yo
RBI reviewed & found SFBs have achieved their priority sector targets and helped in financial
inclusion. More competition and new players will help. (अिधक बैंकों को अनुमित देने से स्पधार् में बढ़ोतरी
िवत्तीय समावेशन में मदद)
-

lp
so 2019-June, RBI announced it’ll allow ‘On-Tap’ license for SFB soon. (i.e. no need to wait for
notification unlike IAS exam, apply whenever you wish like a driving license)

he
- Eligibility conditions to start SFB license ‘On Tap’: (�
�Exact norms NOT IMP for IAS Exam)

🔠🔠❓ Find correct Statement(s) about Payment Banks? (Prelims-2016)

ill
1) Mobile telephone companies and supermarket chains that are owned and controlled by residents
w
are eligible to be promoters of Payment Banks.
2) Payment Banks can issue both credit cards and debit cards.
3) Payment Banks cannot undertake lending activities.
d

Codes: (a) 1 and 2 only (b) 1 and 3 only (c) 2 only (d) 1, 2 and 3
go

🔠🔠❓ What is the purpose of setting up of Small Finance Banks (SFBs) in India? (Prelims-2017)
1. To supply credit to small business units
2. To supply credit to small and marginal farmers
rs

3. To encourage young entrepreneurs to set up business particularly in rural areas.

Codes: (a) 1 and 2 only (b) 2 and 3 only (c) 1 and 3 only (d) 1, 2 and 3
he

13.20.5 Commercial Banks → 📬📬India Post Payment Bank (IPPB)

ot

- Registered as a Public Limited Company under Companies Act, 100% owned by Department of
Posts (Ministry of Communication and Information Technology.) → Obtained RBI’s License
under Banking Regulation Act to start working as a Payment Bank.
p

- Airtel Payments Bank was first to launch operations in 2017. Later, IPPB launched in 2018.
el

- Largest customer reach with 1.55 lakh Post offices across India.
- Doorstep banking through Postmen.
H

- Bank Account Types: Safal, Sugam, Saral (internal differences not imp4UPSC).
- Account can be opened with zero balance, no minimum balance requirement.
- Minor Customer Aged 10 years or more can also open account. (नाबािलग का भी खाता खुलवा सकते हैं)

(Batch:PCB10- RATFAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1B1: Bank-NBFC Classification → Page 121

KING R & QUEEN P Help others god will help you

 - 2019: IPPB announced it desires to convert itself from Payment Bank into a Small Finance Bank
(SFB), so it can offer loans to customers. (But as per RBI guidelines, Payment bank need 5 years’
experience before upgrading their license to SFB. यािन की अभी मं िजल दू र है। )

13.20.6 📮📮 (Yearbook) Dept of Post: POSB vs IPPB

Don’t loose sleep unless preparing for Postal- Assistant etc. exams

u
Ministry of Communications two dept: 1) Depart of Telecommunications 2) Department of Posts →

yo
 Setup by Clive (1766), expanded by Warren Hastings (1774)
 1854: Dalhousie- Post Office Act; 1st postal stamp, rates by weight & not by distance.
 2008: Project Arrow for modernization.

lp
 2013: Telegram stopped by India Post, due to onset of SMS & email.
 Dept of Post sells

he
o Gangajal sourced from Rishikesh and Gangotri.
o UTI-Mutual funds and Sovereign Gold bonds.
 Post Shoppe = special outlet in big post offices for philately (stamp collection hobby)

ill
 RTI fees can be submitted by buying Indian Postal Orders (IPO). E-IPO = overseas Indians can
pay RTI fees online using this mechanism.
w
 Deen Dayal SPARSH Yojana: Students in class 6-9 given scholarship for philately.
 Dhai Akhar Letter Writing Competition-students asked to write letters to Mother Teresa,
d

Tagore etc.
go

 Officers’ training conducted at Rafi Ahmed Kidwai National Postal Academy at Ghaziabad, UP.
Kidwai was India's first Minister for Communications.
Table 8: ✋No need to loose sleep, UNLESS preparing for Post-Office staff exams.
rs

Dept of Post → Post Office Savings India Post Payments Bank (IPPB)
Bank (PoSB)
he

foundation Govt Savings Bank Act Companies act 2013 → Public ltd
1873 company registered in 2016
ot

Accept demand Savings account only 1. Current account

deposits? 2. Savings account
Accept time YES No, bcoz it is a payment bank
p

deposits?
el

Can keep more than YES No, bcoz it is a payment bank. But u can link
₹2 lakh balance? IPPB account with PoSB account to auto-
H

transfer (=SWEEP) excess balance to PoSB.

E-Banking and Not directly but you can yes , UPI, BHIM, NEFT, IMPS and BBPS
online bill payment do it by linking PoSB (Bharat Bill pay) available.
account with IPPB
account

(Batch:PCB10- RATFAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1B1: Bank-NBFC Classification → Page 122

KING R & QUEEN P Help others god will help you

 Dept of Post → Post Office Savings India Post Payments Bank (IPPB)
Bank (PoSB)
Sukanya Smriddhi Can be opened Not possible. Because time deposits are not
(daughter’s fixed allowed in Payment Banks.
deposit account)
loans to individual? No. ₹₹ goes to NSSF. Not until it becomes Small Finance Bank

u
More in Pillar2A.
Objective? Promote savings habits Remittance & digital payments

yo
among poor
- �Budget-2022: Post Office Savings Bank (POSB) will be connected with Core Banking System
(CBS). So, their depositors too can use E-banking/net-banking, mobile banking, ATMs etc.

lp
- Benefits? �1) Convenience for POSB depositors esp. villagers, farmers and senior citizens.

he
�2) interoperability= (ability to use POSB deposit money in above NEFT/ATM etc facilities)
- Interoperability is the ability of customers to transact across commercially and technically
independent payment platforms. व्यावसाियक और तकनीकी रूप से स्वतं त्र प्लेटफामोर्ं के बीच लेन-देन करने की सुिवधा

ill
🔠🔠❓ MCQ. Find correct about India Post Payments Bank (IPPB)? [Asked in UPSC-CDS-2018-1]
w
1) It has been incorporated as a Public Limited Company.
2) It started its operation by establishing two pilot branches at Hyderabad and Varanasi.
d
Answer codes: (a) 1 only (b) 2 only (c) Both 1 and 2 (d) Neither 1 nor 2
go

13.20.7 🚐🚐 ⏳ (Proposed) Wholesale & Long Term Finance Banks (WLTF)

- 2017: RBI proposed WLTF Bank. दीघर्कािलक थोक िवत्त बैंक.
rs

- NOT Yet made. Topic Outdated, not much in news, so removed from handout.

13.20.8 💸💸💸💸: 🏦🏦 Digital Payments- (Proposed) Digital Banks by NITI Aayog (2021)
he

⇒ 2021: NITI Aayog proposed setting up 'full-stack digital banks’.

⇒ This will be new type of banks under the Banking Regulation Act, 1949 (BR Act).
ot

⇒ Digital Banks will not have physical branches. They will rely on internet for delivering banking
services. �Benefit? financial inclusion of rural area. (नीित आयोग ने ऐसा प्रस्तािवत िकया है िक नए िक़स्म के
p

िडिजटल बैंक बनाए जाएं जो की भौितक भौगोिलक रूप से ब्रांच न हो िकन्तु इं टरनेट के ज़िरए बैंिकंग सुिवधा दे इसे गाँव गाँव तक
िवत्तीय समावेशन में मदद िमलेगी)
el

⇒ ��But since it’s not yet formed, so we need not loose sleep about how exactly it’ll work.
H

(Batch:PCB10- RATFAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1B1: Bank-NBFC Classification → Page 123

KING R & QUEEN P Help others god will help you

 13.20.9 💸💸💸💸: 🏦🏦 Digital Banking Units in Budget 2022

u
yo
⇒ Budget-2022 announced to setup 75 DBUs. Then RBI announced rules.
⇒ Basically commercial banks open fancy type of offices wherein every service provided digitally /
paper-less application forms with help of digital kiosks e.g. opening bank account, getting credit

lp
cards etc.

he
⇒ How is this similar or different than NITI Aayog's Digital Banks? NOT IMP.

13.20.10 💸💸💸💸: 🏦🏦 Digital Payments- NeoBanks / full-stack digital banks

- Neo-banks/full-stack digital banks= are completely online-based digital banking platforms. They
don’t have physical branches.
ill
w
- NITI Aayog proposed this to increase banking penetration in India. But RBI not keen to allow.
- RBI believes our existing banks are capable to deliver the banking services both online and thru
physical branches.
d

But this is “fancy term” (Neobank) comes in news every once in a while due to Startup-company ke
go

PR (public relations)/paid promo-articles in newspapers. . (िनवेशकों को आकिर्षत करने के िलए स्टाटर्अप कम्पनीओ
द्वारा िचकने चुपड़े शब्दों वाले समाचार प्लांट िकए जाते हैं. अपने को अभी से बहुत नींद खोने की ज़रूरत नहीं, क्योिक आरबीआई इसको
अनुमित देने की जल्दी में नहीं है।)
rs

13.20.11 🚩🚩🚩FAQ : DIFFERENCE between digital banking unit vs Neobank

he

Digital banking unit (DBU) Neobank

Do they’ve physical Yes. But Everything done via No physical branch.
branch automatic machines. Scroll up and Everything done online.
ot

see photograph.
Do they exist in reality? Yes. E.g. Axis bank DBU No. RBI yet to permit them.
p
el

13.21🏦🏦 �FI ⇒ BANKS ⇒ COOPERATIVE BANKS (सहकारी बैंक)

H

Type 🏦🏦 �Commercial 🏦🏦 �Cooperative Banks

Banks
Banking Reg. Applicable since 1949 Applicable since 1966.
Act
Regulator RBI Under RBI’s supervision:

(Batch:PCB10- RATFAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1B1: Bank-NBFC Classification → Page 124

KING R & QUEEN P Help others god will help you

 Type 🏦🏦 �Commercial 🏦🏦 �Cooperative Banks
Banks
- Multistate Cooperative Banks
- Urban Cooperative Banks
Under Dual supervision
- Other types of cooperative banks are under

u
dual supervision of RBI + respective State
govt’s registrar for cooperative society.

yo
CRR, SLR, Yes Yes, but, RBI could keep different slabs/ norms.
BASEL-III
Repo, MSF Eligible to borrow Yes, but only selected category of Cooperative

lp
Banks
PSL Lending Yes 40-75% Only urban cooperative banks

he
Who can Anyone First preference to members
borrow
Vote power Based on Shareholding, According to Cooperative Society norms,
like a Commercial
ill
members have vote power. So, 1 member = 1 vote
w
Company irrespective of how much capital contributed.
Profit Motive Yes, purely profit motive, Desire to help community. So, lending rates little
(मुनाफा करने की so lending rates may be lower than commercial bank
d
चाह?) higher than Coop.
go

Presence (कहा पाई All India & overseas Mainly in Gujarat, Maharashtra, Andhra,
जाती है?) branches. Tamilnadu.
😰😰Challenges: Politicization, casteism, poor recovery of loans, scams, money laundering.
rs

(राजनीितकरण , जाितवाद, कजार् वसूली में अिनयिमतता, घोटाले, धन-शोधन/ काले धन को वैध बनाना)
he
ot
p
el
H

(Batch:PCB10- RATFAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1B1: Bank-NBFC Classification → Page 125

KING R & QUEEN P Help others god will help you

 Table 9: Classification of Cooperative Banks
Urban Cooperative Banks (UCB: शहरी) Rural Cooperative Banks (ग्रामीण)
Further subcategories depending on 1) Notable State Cooperative Bank → District
- Scheduled / Non-Scheduled; OR Central Cooperative Bank (DCCB) →
- Single State / Multi State. Primary Agricultural Credit Societies
From 2018, RBI allowed them to voluntarily (PACS: प्राथिमक कृ िष ऋण सिमितयां)**
upgrade to Small Finance Banks, with certain 2) Misc Types: Land Banks, Cooperative

u
conditions. Agriculture & Rural Development Banks.

yo
(they give longer duration loans compared
to above banks. How long-duration?
NOTIMP)

lp
**PACS are not ‘banks’. They can’t issue
chequebooks. RBI doesn’t regulate them. Only

he
State registrar regulates them.

ill
w
d
go
rs
he
ot

🔠🔠❓ Find correct statement(s) (asked in UPSC-Prelims-2020)

1. In terms of short-term credit delivery to the agriculture sector, District Central Cooperative Banks
p

(DCCBs) deliver more credit in comparison to Scheduled Commercial Banks and Regional Rural Banks
el

2. One of the most important functions of DCCBs is to provide funds to the PACS.
Answer Codes: [a) 1 only [b) 2 only [c) Both 1 and 2 [d) Neither It nor 2
H

13.21.1 🏦🏦 �😥😥 Cooperative Banks: Negative News (2019): PMC Bank (कांड हो गया)
Outdated for 2023. So removed. Brief idea given in the video lecture.

🔠🔠❓ MCQ. Recently the RBI has imposed limitations, initially for a period of six months, on the
withdrawal of amount by account holders of this banks: (UPSC-CDS-i-2020) (a) IndusInd Bank

(Batch:PCB10- RATFAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1B1: Bank-NBFC Classification → Page 126

KING R & QUEEN P Help others god will help you

 (b) Dhanlaxmi Bank (c) Punjab and Maharashtra Cooperative Bank (d) South Indian Bank

13.21.2 ⚖🐯🐯🐯🐯🐯🐯🐯🐯🐯🐯🐯🐯🐯🐯Banking Regulation (Amendment) Ordinance/Act, 2020

- 2020-June: Ordinance issued to amend the Banking Regulation Act, 1949. 2020-Sept: Act passed
- Objective? protect depositors, prevent cooperative banks from falling into fraudulent activities.
Table 10:भूतकाल में दोहरे िनयं त्रण के चलते घोटाले/कांड के बाद कायर्वाही धीमी होती थी, इसिलए अब ज्यादातर सहकारी बेंको को िसफर् िरजवर् बेंक के दायरे मे लाया गया

u
Type of Bank 😰😰BEFORE: Regulator(s) 🤩🤩After:
Regulator(s)

yo
Commercial (SBI Axis) 🐯🐯RBI 🐯🐯RBI
Coop (Single State: rural) 🐯🐯RBI + �State Govt (=dual 🐯🐯RBI + �State

lp
regulation) Govt
Coop (Single State: urban) 🐯🐯RBI + �State Govt(=dual 🐯🐯RBI ONLY

he
regulation)
Coop (Multi State 🐯🐯RBI + 🧔🧔Union Govt(=dual 🐯🐯RBI ONLY
Cooperative) regulation)
Coop: Primary Agricultural �State Govt
ill �State Govt
w
Credit Societies ("PACS")
⇒ �State Government = State Govt’s Registrar for Coop Societies
d
⇒ �Union= Agro Ministry’s Registrar Multi-State Coop Societies
go

🔠🔠❓MCQ. Find correct Statements about ‘Urban Cooperative Banks’ in India (Pre-21)
1. They are supervised and regulated by local boards set up by the State Governments. [राज्य सरकार
उनकी िनगरानी और िनयं त्रण करता है]
rs

2. They can issue equity shares and preference shares. [वे इिक्वटी शेयर और वरीयता शेयर जारी कर सकते हैं।]
3. They were brought under the purview of Banking Regulation Act, 1949 through an Amendment
he

in 1966. [उन्हें 1966 में एक सं शोधन के माध्यम से बैंिकंग िविनयमन अिधिनयम, 1949 के दायरे में लाया गया था।]
Codes: a) 1 only b) 2 and 3 only c) 1 and 3 only d) 1, 2 and 3’
ot

Related topics: Refer to

DICGC, UCB’s Supervisory Action Framework Pillar##1B2: Bad loans & other burning issues
p

(SAF), UCB 4 tier regulation→ refer to in Banking Sector

el

Jan Dhan Yojana, Lead Bank Scheme etc → Pillar##1D: Financial Inclusion
H

(Batch:PCB10- RATFAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1B1: Bank-NBFC Classification → Page 127

KING R & QUEEN P Help others god will help you

 13.22🚫🚫🏦🏦� FORMAL FI ⇒ NON-BANKING FINANCIAL INSTITUTIONS
13.22.1 Development Finance Institutions (DFI: िवकास िवत्त सं स्थान)

u
yo
lp
⇒ are meant for Medium to long term loans to industries, including support services like arranging

he
foreign currency, underwriting, technical / management consultancy, Bank guarantee etc.
⇒ They don't accept DEPOSITs from ordinary people.
⇒ Previously the financial intermediaries (िवत्तीय मध्यस्थ) were classified into three categories 1) Bank,
2) Non-Bank 3) DFI
ill
w
⇒ But M.Narasimham-II Committee on Banking sector reforms (1998): recommended only two
categories: Bank or non-bank. DFI were required to join either one category.
d
Table 11: Exact Years, Full Forms not very important but Chronology is important.
go

Industrial Finance Corporation of India (IFCI) owned by the Finance Ministry's

1948
Department of Financial Services.
National Small Industries Corporation (NSIC) under the Ministry of Micro, Small and
1955
Medium Enterprises (MSME).
rs

ICICI: Industrial credit and Investment Corporation of India Ltd was setup by GoI, World
1955
he

Bank etc. Later became a Private Sector Bank.

Industrial Development Bank Of India (IDBI) Act. 2004: Transformed into a Public Sector
1964
Bank. 2018: Government sold its majority shareholding to LIC.
ot

India Infrastructure Finance Company Ltd (IIFCL) owned by the Finance Ministry's
2006
Department of Financial Services.
p

National Bank for Financing Infrastructure and Development (NaBFID) Bill, 2021 (बुिनयादी
2021
अवसं रचना और िवकास के िवत्त पोषण के िलए राष्ट्रीय बैंक)
el

13.22.2 🚫🚫🏦🏦�What is Bad Bank- NARCL-IDRCL?

H

📑📑Ref: HDT-Pillar#1B2: Bad Loans

(Batch:PCB10- RATFAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1B1: Bank-NBFC Classification → Page 128

KING R & QUEEN P Help others god will help you

 13.22.3 🚫🚫🏦🏦�Non Bank ⇒ All India Financial Institutions (AIFI):

u
yo
lp
he
EXIM (Jan 1982) NABARD (Jul 1982) ill
अिखल भारतीय िवत्तीय सं स्थान were setup by respective acts of Parliament
NHB (1988) SIDBI (1990)
w
आयात िनयार्त के िलए कृ िष और गाँव िवकास के िलए गृह/आवास िनमार्ण छोटे उद्योगों के िवकास के िलए
Export-Import National Bank for National Housing Small Industries
d

Bank of India Agriculture and Bank Development

go

Rural Development Bank of India

Boss: Government Previously RBI had Original boss: Originally 100% owned by
of India (100%) minority-stakes in RBI (100%). But, IDBI. Later on shareholding
rs

NABARD but 2018: 2019: RBI sold transferred → SBI, LIC etc
100% Govt owned. 100% to Govt.
he

Promotes cross - Regulatory - Finance to - Operates Credit

border trade and supervision: Coop banks and Guarantee fund, Small
investment, helps + RRB NBFCs for Enterprises Development
ot

importers-exports - + Indirect housing Fund (SEDF).

with loans and refinance to projects. - Operates udyamimitra.in
p

foreign currency. farmers, artisans - RESIDEX for loans to small

el

- Operates Rural index to entrepreneurs via schemes

Infra. monitor like Mudra, Stand-up-
H

Development residential India. (�

�Ref: HDT-
fund (RIDF) real estate Pillar#1D: to know more
prices. abt these schemes)
⇒ AIFIs are not ‘banks’ because can’t accept direct deposits from the public.
⇒ RBI is the regulator over AIFI.

(Batch:PCB10- RATFAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1B1: Bank-NBFC Classification → Page 129

KING R & QUEEN P Help others god will help you

 ⇒ BASEL norms applicable but RBI can prescribe different / slabs norms / deadlines.
What/why/how?NotIMP.

🚩🚩🚩FAQ: Whether NABARD is 100% owned by govt or 100% owned by RBI- what difference
does it make? Ans. Shareholders select board of directors via Voting. Shareholders receive dividend
from the profit of the organization. So Govt or RBI gets benefits depending on who owns majority

u
shareholding.

yo
🚩🚩🚩FAQ: What is the difference between Owner and Regulator? Ans. Ans. Government owns
SBI. But Government doesn’t regulate SBI’s banking business. RBI regulates it using powers of
Banking regulation Act.

lp
🔠🔠❓ MCQ. Who grants direct credit assistance to rural households? (UPSC-Pre-2013)

he
1) RRB 2) NABARD 3) Land Development Banks
Answer Codes:(a) 1 and 2 only (b) 2 only (b) 1 and 3 only (d) 1, 2 and 3
🔠🔠❓Find Correct Statement(s) (Asked in UPSC-Prelims-2004)

ill
A) NHB, apex institution of housing finance in India, was setup as a wholly owned subsidiary of RBI
w
B) SIDBI was established as a wholly owned subsidiary of the Industrial development bank of India
C) Both A and B D) Neither A nor B
d
13.22.4 NABFID, the 5th AIFI (2022-Mar)
go
rs
he
ot
p
el

2021: NaBFID: National Bank for Financing Infrastructure and Development was setup by an
law/act of Parliament, with an initial capital of ₹20,000cr capital.
H

⇒ NaBFID will get funding from RBI, Govt, Financial institutions, World Bank etc. It’ll also issuing
bonds in market etc
⇒ NaBFID will give loans worth ₹5 lakh crore in 3 years. It’ll help in National Infrastructure
Pipeline (NIP) project.(�
�Ref: HDT-Pillar#5:Infrastructure)
⇒ Chairman: K.V. Kamath.

(Batch:PCB10- RATFAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1B1: Bank-NBFC Classification → Page 130

KING R & QUEEN P Help others god will help you

 ⇒ HQ: Mumbai (Presently it is working from the office of SIDBI in Mumbai)
⇒ Regulator? RBI.
⇒ 2022: RBI ordered that NaBFID will be treated as All India Financial Institution (AIFI).
⇒ Thus, NABFID is the fifth AIFI after EXIM Bank, NABARD, NHB and SIDBI.
सरकार ने क़ानून द्वारा बुिनयादी ढांचे और िवकास के िवत्तपोषण के िलए राष्ट्रीय बैंक बनाया था. और उसे िरज़वर् बैंक द्वारा अिखल भारतीय
िवत्तीय सं स्थान (एआईएफआई) का दजार् िदया गया है।

u
yo
13.22.5 🚫🚫🏦🏦�FI ⇒ Non-Bank ⇒ Primary Dealers (PD)- (प्राथिमक िवक्रेता)

lp
he
ill
w
d
- They deal in "primary" market i.e. directly buy fresh G-sec from RBI’s E-Kuber platform and
sell it in the secondary market. Total 20+ PD licensed by RBI: 14 of them are Banks. E.g.
go

Standard Chartered Bank, HSBC (HongKong), SBI, Kotak etc. (Numbers not important)
rs

Related Topic: Retail/Ordinary Investors also buy G-Sec directly from RBI by opening a ‘Retail
Direct Gilt Account’ (RDG Account). (More in 📑📑Pillar#1C: Deepening of Capital Market)
he

13.22.6 🚫🚫🏦🏦�FI ⇒ NBFCs (गेर-बैंिकंग िवत्तीय कं पिनया)

ot
p
el

Parameter Commercial Banks Non-Banking Financial Companies (NBFCs)

Registration Banking Regulation Act Companies Act
H

Supervision RBI Depends.Mutual funds-SEBI, Insurance Co:

IRDAI etc.
Entry Capital 500 Cr. Different-different norm depends on organization

(Batch:PCB10- RATFAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1B1: Bank-NBFC Classification → Page 131

KING R & QUEEN P Help others god will help you

 Parameter Commercial Banks Non-Banking Financial Companies (NBFCs)
Numbers 13 Public Sector (incl. Post Total 10,190. Out of them 108 deposit Taking,
Payment Bank), 56 RRBs, 39 remaining are non-deposit-taking (ND).
private sectors (including SFB, [figures not imp]
PB), 44 Foreign Banks.
[figures not imp]

u
Can accept - Can accept Time & Demand - Only NBFC-Deposit-Taking (NBFC-D) &
Deposits? deposits [also known as even they can accept only Time Deposits. E.g.

yo
chequable deposit]. Bajaj Finance.
- Payment banks- can’t accept - Deposits are not insured under DICGC Act.
time deposits e.g. Fixed

lp
� More in Pillar#1B1
Deposits.

he
- Their deposits are insured
under DICGC Act.
Can issue - Yes, Banker can issue these - Can’t issue their chequebook, debit/credit
Chequebook,
Credit Card,
instruments.
- ill
card.
��FAQ: Bajaj Finserv is issuing Credit
w
Debit Card? Cards!!?? Ans. Bajaj Finserv is giving you the
credit card of RBL-Bank. So Bajaj Finserv is
d
acting as an 'Agent' of the RBL Bank.
go

Prudential CRR, SLR, applicable - SLR applicable ONLY on NBFC-D. but RBI
Norms सावधानी can prescribe different slabs / formulas than
के मानदंड banks.
rs

- CRR not applicable on any type of NBFC.

BASEL Yes, Applicable. - Applicable on 108 NBFC-D and
he

norms 📑📑 More in Pillar#1B2 - Applicable on 276 NBFCs – ND – SI (non-

deposit taking Systematically Important with
assets over ₹ 500 crores)
ot

- e.g. L&T Finance, Cholamandalam etc.

But RBI can prescribe different slabs / norms
p

/deadlines.
el

Investment They can keep depositor’s money Can invest clients’ money in share market. E.g.
ग्राहक का पैसा in RBI approved securities. But Mutual Funds, Insurance Companies.
H

िकधर िनवेश करते can’t invest in share market,

directly.

(Batch:PCB10- RATFAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1B1: Bank-NBFC Classification → Page 132

KING R & QUEEN P Help others god will help you

 Parameter Commercial Banks Non-Banking Financial Companies (NBFCs)
Loan Interest Decided as per RBI’s methodology Varies & depends on nature of biz.
Rate ब्याज दर from time to time (BPLR, MCLR,
External Benchmark etc.) Ref:
Pillar#1A1
Recovery Loan recovery powers under - Housing Finance Companies have SARFAESI

u
बकाया रािश की SARFAESI Act. powers. But, all types of NBFCs don’t have it.
वसूली 📑📑 More in Pillar#1B2

yo
(More in �Pillar#1B2)
Consumer RBI’s Ombudsman, Bank’s RBI’s separate Ombudsman for NBFCs starting
Complaints Internal Ombudsman ** िशकायत the NBFC-D since 2018**.

lp
िनवारण
**More about these Ombudsman in 📑📑Pillar#1D: Insurance handout

he
🔠🔠❓ Find correct Statement(s) about NBFCs in India [Asked in UPSC-Prelims-2010]
A) They cannot engage in the acquisition of securities issued by government.
B) They cannot accept demand deposits like savings account.
C) Both A and B D) Neither A nor B
ill
🔠🔠❓ The main functioning of the banking system is to [Asked in UPSC-CDS-2013-II]
w
(a) accept deposits and provide credit (b) accept deposits and subsidies
(c) provide credit and subsidies (d) accept deposits, give credit and subsidies
d
go
rs
he
ot

13.23🚫🚫🏦🏦� NBFCS REGULATED BY RBI 🐯🐯 (िनयं त्रण/देखरेख)

Table 12: 🎓🎓✋no need to remember examples, just observe pattern
Investment and They mainly help buying ‘assets/machinery’ like tractor, bulldozer, etc
p

Credit Company E.g. SREI Equipment Finance, Limited

el

Consumer Durable - Help buying TV, Fridge, Mobile, AC etc. with Buy now Pay later
Loan Finance /BNPL (BNPL) / Equated Monthly Instalment (EMI) model. (How they’re
H

similar or different = PHD not required. हर चीज़ का िविकपीिडया बनना जरूरी

नहीं है. पुराने पेपर देख लो)
- Eg. Bajaj Finserv, Flexpay, Zestpay etc.

(Batch:PCB10- RATFAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1B1: Bank-NBFC Classification → Page 133

KING R & QUEEN P Help others god will help you

 Core Investment - They do long term investment in Companies. E.g. Tata Capital,
Company (CIC) Reliance Capital, Infrastructure Leasing & Financial Services Limited
(IL&FS)
- IL&FS in controversy because couldn’t repay interest to lenders. �
More in next NPA handout.
Infrastructure Internal difference notimp for UPSC. Basically, they give loan for infra.

u
Finance Company Projects like highway, airport, powerplants. ( बुिनयादी अवसं रचना के िलए दीघर् अविध के

yo
(IFC) लोन)
Infrastructure Debt - E.g. Rural Electrification Company ltd. (REC)
Fund (IDF) - L&T IDF, Kotak IDF, IDFC IDF (“IDFC First” has separate license

lp
for Private Sector Bank).
Asset Reconstruction They buy bad loans / NPA from Banks & other NBFCs, and try to salvage

he
Companies (ARC) value from the underlying assets. E.g Anil Ambani’s Reliance ARC.
Factoring They lend short term money to client against his invoices / accounts
Companies receivable. E.g. IFCI Factors, Siemens Factoring. (What is Factoring?

Gold Loan
Ans. 📑📑Pillar#1C)
ill
e.g. Muthoot gold loan, Mannapuram Gold.
w
Companies RBI decides their Loan to Value ratio (LTV) (More in 📑📑Pillar#1A2).
� Home Loan - such as DHFL, Muthoot Housing finance etc. Housing Finance
d

Companies Companies.
go

- RBI regulates them since 2019. [Before 2019, National Housing Bank /
NHB regulated them. Some very old PYQ asked about it. so I gave this
historical info, Otherwise donot loose Blood Pressure over this.]
rs

Micro Finance - 2010: RBI’s Y. H. Malegam Committee → RBI created a new NBFC
Institutions category called Micro Finance Institution (MFI)
he

(MFI: सूक्ष्म िवत्त सं स्थान) - They give small loans to poor without collateral, flexible EMI.
- eg:Bandhan (W.Bengal, separately got PvB license), Disha (A'Bad:
ot

separately got SFB license), SKS (Andhra), Cashpor (UP), Ujjivan

(Karnataka).
- Who regulates them? RBI. Plus some regulation also done by
p

Ministry of Corporate Affairs. (What/HOW? NOTIMP)

el

- Who can borrow from MFI? Ans. Household whose annual income is
not more than ₹ 1.25 lakh (rural) or ₹ 2 lakhs (urban).
H

- How much can one person borrow from an MFI? Ans. Not More than
₹ 1.25 lakh.
MUDRA (2015) - A non-deposit taking NBFC owned by SIDBI. It gives indirect loans to
Micro enterprises through PM Mudra Yojana.
- � More in Pillar1D- Financial Inclusion.

(Batch:PCB10- RATFAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1B1: Bank-NBFC Classification → Page 134

KING R & QUEEN P Help others god will help you

 Money Changers/ - They help the clients buy/sell foreign currencies e.g. Rupee to Dollars
Authorised dealers - They have to obtain license from RBI under FEMA (Foreign
(AD) for foreign Exchange Management Act, 1999)
currency - Both banks & NBFC can get this license from RBI.
Residuary (अविशष्ट) - Any NBFC not regulated by any other regulator (e.g. SEBI, IRDAI,
PFRDA)- falls under RBI’s purview.

u
yo
13.24🤖🤖💳💳 FINTECH COMPANIES
FinTech Companies provide innovative solutions for money/financial transaction/loan/sharemarket
etc using digital technology.

lp
13.24.1 🐯🐯Fintech regulated by RBI

he
P2P Lenders - It is like Olx-Quickr connecting sellers of second hand goods with buyers.
the P2P lending websites connect borrowers and lenders. E.g.
Faircent.com, Cashkumar.com, CRED Mint etc.
-
ill
2021- CRED Mint launched. Newspapers gone crazy so Babushonas are
demanding that I should teach them PHD thesis on its business model.
w
�Bhai, I’ll not teach it. Look @PYQ in this Handout
Account - They manage information of a customer’s financial assets & display it to
d

Aggregators him or to third party (like loan giver, credit rating company & Apps). 2018:
go

(AA) RBI gave license to 5 cos- NeSL,Cookiejar etc.

Loan E.g. Loanadda.com, Moneytap.com, Loanbazaar, Paisabazaar etc. portals
Aggregators - �Challenges? Often these digital platforms that act as outsourced agents
rs

(ऋण समूहन) of banks/NBFCs to sell loans.

- But, customers face difficulty in complaint/grievance redressal.
he

- Now even Google Pay app developing features for loans. So RBI has
expressed its displeasure and is presently working on rules to fix this.
ot

Payment - They help sellers to accept payment from buyer by providing technological
Aggregators solutions
- E.g. Razerpay. Seller opens account on Razerpay website-> embeds the
p

code/link in his own website-> can accept payment through credit card,
el

debit card, netbanking, UPI JioMoney, Mobikwik, Airtel Money

- Further subtypes: Online Payment Aggregators Vs Offline Payment
H

Aggregators but internal difference not imp. for IAS exam.

Mobile Wallet - PhonePe, MobiKwik, Paytm etc many apps/services.
App - Learned enough about them in Pillar1A1 subtopic digital payments.

(Batch:PCB10- RATFAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1B1: Bank-NBFC Classification → Page 135

KING R & QUEEN P Help others god will help you

 13.24.2 🐯🐯Fintech regulated by NON-RBI org (e.g SEBI, IRDAI)
Type Examples Regulator
Discount brokers e.g.Zerodha, Upstox, 5paisa, Groww. They help the clients SEBI
buy/sell shares/bonds etc online via mobile apps / webportals.
Insurance Web e.g Policybazaar.com. Help client find & compare the insurance IRDAI
Aggregator policies of various companies.

u
�FAQ: Tell me about Fintech pension companies regulated PFRDA? Ans. Nothing

yo
newsworthy/important in that category YET- to deserve our time / energy.

13.24.3 🔪🔪💸💸🔪🔪Digital Lenders

RBI classified them into 3 groups

lp
Sr Organization Examples �Regulator

he
1 giving loans online and regulated by Banks, P2P lenders RBI itself
RBI
2 Giving loans online but NOT regulated Venture Capital Funds (VCF) SEBI

3
RBI but some other regulator e.g. SEBI
ill
Giving loans online but not regulated
w
unauthorized digital lenders : Nobody /
by anyone = their App will be shut goonda/mafia ke online mobile illegal.
down. Legal action will be taken. app for giving online loans.
d

Note: RBI keeps releasing guidelines for digital lending. But daily-commentary not important.
go

Sufficient to know that such guidelines mostly deal with customer protection.

13.24.4 🚫🚫🏦🏦�Credit Information Companies (CIC) versus Credit Rating Agencies (CRA)
rs
he
ot
p
el

Credit Information Credit Rating Agencies (CRA)

H

Companies (CIC)
�Regulator RBI regulates them SEBI regulates them

(Batch:PCB10- RATFAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1B1: Bank-NBFC Classification → Page 136

KING R & QUEEN P Help others god will help you

 Credit Information Credit Rating Agencies (CRA)
Companies (CIC)
EXAMPLES CIBIL TransUnion, CRIF ⇒ Standards and Poor's, Moody’s,
High Mark, Equifax and CRISIL, CARE, ICRA, FITCH
Experian. Ratings India Pvt. Ltd, SMERA.
⇒ Brickwork Ratings India = SEBI

u
ordered it to shut office due to
malpractices.

yo
They check the credit “Individual Persons” (एकल companies, NBFCs, governments, local
worthiness/ loan व्यिक्त के कजर् वापस चुकाने की औकात है bodies, non-profit organizations.
repayment capacity of िक नहीं उसका मूल्यांकन करते हैं) They do not check it for individual

lp
persons. ( सं स्थानों की कजार् वापस चुकाने की औकात

he
का मूल्यांकन करते हैं. एक एक इं सान के िलए नहीं करते)
Rating numerical scores. e.g. alphabetical symbols e.g. AAA, AA-, D-
CIBIL Score between 300- etc.
900.
Utility? Better the score →
ill similar to the left cell.
w
🤩🤩1) loan application will
be passed more easily
d
🤩🤩2) You'll have to pay
go

lower interest rate.

🔠🔠❓MCQ. Find Correct about credit rating agencies (CRA) in India? (Prelims-2022)
1. They are regulated by the Reserve Bank of India.
rs

2. The rating agency popularly known as ICRA is a public limited company.

3. Brickwork Ratings is an Indian credit rating agency.
he

Which of the statements given above are correct ?

(a) 1 and 2 only (b) 2 and 3 only (c) 1 and 3 only (d) 1, 2 and 3
ot

13.25🚫🚫🏦🏦� NBFCS REGULATED BY SEBI 🐱🐱 (📑📑MORE IN PILLAR#1C)

p
el
H

- They help clients buy-sell Shares/Bonds depending on his instructions

Stock Broker E.g. Motilal Oswal, Sherkhan, Indiabulls, , Karvy etc.
- Karvy did a fraud/scam → SEBI banned Karvy for 7 years from 2023.
- e.g.Zerodha, Upstox, 5paisa, Groww. They help the clients buy/sell
Discount Broker
shares/bonds etc online through mobile apps. Discount-brokers’

(Batch:PCB10- RATFAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1B1: Bank-NBFC Classification → Page 137

KING R & QUEEN P Help others god will help you

 operational costs are lowers, as they do not keep large number of sales-
agents or physical offices.
- Therefore, discount-brokers charge less commission than traditional
Stock brokers such as Motilal Oswal or Sherkhan.
- They pool clients’ money and MF-manager invests it in shares/bonds
using his own discretion & expertise.

u
Mutual Funds (MF) - E.g. SBI's Shariah Equity Mutual Fund: clients' money invested in

yo
Sharia compliant Cos. That don’t deal with alcohol, pork, debt, tobacco
or weapons.
- Pool & invest money in real estate / infra projects e.g. IRB. <�
�More
REITs / InvITs

lp
in Pillar#1C: SEBI Handout>
⇒ Underwriting, Merger & Acquisition, Wealth Management of rich

he
Investment Banks: people:
(USA term) & ⇒ E.g. Kotak Mahindra, Citigroup, Bank of America, DSP Merrill Lynch,
Merchant Banking Morgan Stanley, SBI capital
Companies:
(UK term) ill
⇒ 2021: SEBI allowed payments banks to act as investment bankers (after
fulfilling the rules/regulations of SEBI). सेबी से अनुमित लेकर भुगतान बैंक ये कर
w
सकते हैं
Venture Capital VCF Help startup companies to arrange capital e.g. IFCI-VCF, IDG-VCF
d

Fund (VCF)
go

3 sub-types (Ref: Pillar#1C for more)

- 1) Stock exchanges (BSE/NSE etc) - help buyer/seller connect in
secondary market
Market
rs

- 2) Depositories (NSDL/CDSL etc): help clients store shares, bonds etc

Infrastructure
DIGITALLY in the demat account.
Institutions (MII)
he

- 3) Clearing houses/Central Counter-Parties (e.g. CCIL): help settling

the trade by transferring money to seller and transferring shares to
ot

buyer.

13.26🚫🚫🏦🏦� NBFCS REGULATED BY OTHERS 🦊🦊

p
el
H

Regulator Example NBFC Companies

IRDAI Insurance Regulatory and Development Authority (IRDAI) regulates:
(📑📑More in - 1) Life Insurance companies e.g. LIC, HDFC Standard Life Insurance
Pill1D) - 2) Non-Life (=General) insurance e.g. IFFCO-Tokyo General Insurance.

(Batch:PCB10- RATFAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1B1: Bank-NBFC Classification → Page 138

KING R & QUEEN P Help others god will help you

 - 3) Policy aggregator web-platforms such Policybazaar.com
PFRDA Pension Fund Regulatory and Development Authority (PFRDA) regulates all
(📑📑More in Pill1D) Pension Funds, except EPFO & other statutory funds.
1. NIDHI Companies: Mutual benefit club, only members can borrow. e.g.
Ministry of South Madras Benefit Fund ltd, Maben Nidhi Ltd (of Mannapuram group)
Corporate 2. Microfinance Companies: learned in previous section. Microfinance

u
Affairs Companies’ some regulation by RBI. and some of the regulation done by
Corporate Affairs Ministry. (Why/How=NOTIMP. थोड़ा-पढ़ो-आगे-बढ़ो.)

yo
It regulates ‘Chit funds’. e.g. Shriram Chit fund. It is a type of collective
State Registrar
investment scheme with monthly contributions & borrowing by contributing
of Chit Funds

lp
members Chits. (Ref 📑📑Pillar#1D)

he
13.27🐯🐯(🚫🚫🏦🏦): NBFC: SHADOW BANKING (आभासी / प्रितछाया बैंिकंग प्रणाली)
⇒ ��ES20 observed: Shadow banking is a set of activities and institutions. They operate
partially (or fully) outside the traditional commercial banking sector. They are not fully regulated

ill
by the RBI. ये सं स्थाए पारंपिरक बैंिकंग िनयमो के दायरे से बाहर काम करती है.
w
⇒ They mobilize funds by borrowing from banks, issuing Commercial Papers (CP) and Bonds
(=Non-convertible debentures)
Table 13: Three important segments of the shadow banking system in India
d
HFCs Housing Finance Companies. E.g. Dewan Housing Finance Limited (DHFL)
go

LDMFs - Liquid Debt Mutual Funds invest clients money into short term debt instruments
such as T-bill (of Govt) and Commercial Papers (of companies).
- e.g. certain schemes by UTI, Kotak, L&T, Tata mutual funds
rs

Retail- Retail Non-Banking Financial Companies such As Gold Loan Companies, Asset
NBFCs Finance Companies etc.
he

Shadow banking system’s assets are risky. Sometimes they can’t honour their obligations/bond
repayments. It results into severe crisis, as seen in the ILFS crisis (2019). (उनकी सं पितया जोिखमपूणर् होती है)
ot

(More in 📑📑Pillar#1B2: Burning issues in Banking Sector)

13.28🧕🧕NBFC-NOT ALLOWED IN INDIA: ISLAMIC BANKING

p

- Interest (Riba) is prohibited (Haram) in Islam. So, Islamic Banking operates through Ijara,
el

Murbaha, Musharaka mechanisms- in which depositors’ money is invested in borrower’s

property / business and returns are shared in form of rent / profit but not in the form of Interest.
H

- Some committees said give permission to Islamic Banks in India, but RBI is opposed (2017).
- 2017: Kerala Govt allowed opening of a Islamic Bank by registering it as “co-operative society”,
so as to avoid the RBI’s ban. But further, legal controversy notimp. ��
- �Pro-Arguments? Financial inclusion of Minorities/Muslims. अल्पसं ख्यकों का िवत्तीय समावेशन

(Batch:PCB10- RATFAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1B1: Bank-NBFC Classification → Page 139

KING R & QUEEN P Help others god will help you

 👎👎Anti-Arguments against allowing Islamic Banking in India?
- Specialized Manpower required. Secular India’s PM-Jan-Dhan Yojana & Post Office Payment
bank efforts are sufficient. (भारत में बैंक-बचत की सेक्यूलर/धमर्िनरपेक्ष सेवाएं उपलब्ध. अलग से एक धमर् िवशेष के िलए
िवत्तीय सेवा देने की कोई ज़रूरत नहीं)
- USA Govt alleges their involvement in terror finance & money laundering. (अमरीकी सरकार का आरोप
है िक ये सं स्थाएँ आतं कीओ को पैसा पहुँ चाना, और काले धन को वैध/सफ़े द बनाने जैसे ग़ैर-क़ानूनी काम करती है।)

u
13.29🧔🧔🧔🔪🔪💵💵😱😱 INFORMAL FINANCIAL INTERMEDIARIES (अनौपचािरक िवत्तीय

yo
मध्यस्थ/ब्याजख़ोर)
- Unlike banks/NBFCs, they provide loans without formal application procedure, etc but require
Property/Vehicle/Home/Goods/Crop/Gold etc. as collaterals/pawn. (सं पित्त िगरवी रखवा के कजर्)

lp
- They charge very high compound interest rates & use muscle power for recovery (ऊंचे ब्याजदर,
वसूली के िलए धमकाना-बलप्रयोग करना.)

he
- For every Rs.100 borrowed by a rural household, 33% from informal money lenders, remining
from banks, friends-family etc. (2012 data)
- They don’t fall under RBI purview, but State Govts have individual laws to regulate them e.g.

ill
Bombay Moneylenders Act 1947, Kerala (1958), Gujarat (2011). These laws require such
w
informal lenders to register, impose ceiling on the interest rate & prohibit strong-arm tactics.
(िरजवर् बैंक की िनगरानी में नहीं िकंतु राज्य सरकारों ने िनयं त्रण के िलए कानून बनाएं - पं जीकरण, ब्याज की महत्तम सीमा िनधार्िरत
करना, बलप्रयोग/जबरन वसूली पर रोक)
d

Table 14: Following Examples/Differentiation not imp for IAS Exam but Banking Exams
go

Types → Indigenous Banker (देशी बैंकर) Moneylender / Brokers

Shroff, Shikarpuri, Chettiar, Kabuli Pathan, Quistwala, Arhatia,
Medieval time
Marwari, Aiyar, Rastogi Village Bania, Soni, Mahajan & Seth,
rs

known as →
Pawnbrokers, Financial Brokers
he

They used to mobilize money They use their own savings-money

Money
from Public via: 1) Hundi: bill of (or sometimes some villain’s black
mobilization →
exchange; money- स्वयं का पैसा कजेर् पर देते या िकसी भ्रष्ट नेता
ot

पैसा कहां से लाते हैं

2) Commercial bills अफसर का काला धन कजेर् पर घुमाते)

13.29.1 ✍ Mains Answer Writing

p

- From this particular topic, the Mains angles are centred around – problems of
el

PSBs/nationalization, is privatization of banks a panacea? importance of bank-NBFC in

economic growth and human development ? etc.
H

- This Raftaar-courses deals purely with Prelims and NOT with Mains. There is separate course
for Mains. Go to my profile page.

�Next HDT: 🔥🔥 1B2: Burning Issues in Banking: Bad Loans, NPA, IBC, SARFAESI, BASEL etc.

(Batch:PCB10- RATFAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1B1: Bank-NBFC Classification → Page 140

KING R & QUEEN P Help others god will help you

 Pillar#1B-2: Bad loans & other Burning issues in Banking sector
Table of Contents

14 �� Bad Loans & Other Burning Issues in Banking ............................................................ 143

14.11 �Loan types depending on guarantee / Collateral ................................................................ 143

14.12 �Types of loans: Based on Interest Rate ............................................................................... 144

u
14.13 �Types of loans: Based on Borrowers ................................................................................... 144

yo
14.13.1 ��-�
�-�
�-�
�NPA / TBS Problem: Three Stages of .................................................................... 144

14.14 ��Non-Performing Assets (अनजर्क पिरसं पित्तयां) ........................................................................ 145

14.14.1 ��NPA related definitions in Banking Sector................................................................................... 145

lp
14.15 ���� ATMANIRABHAR → Loan/EMI/NPA relief / Moratorium ......................... 147

he
14.16 ��� RBI “3R” Framework for Revitalizing Stressed Assets (2015-19) ........................ 147
14.16.1 � �RBI’s Prudential Framework for stressed assets (2019) ............................................................. 147
14.16.2 � �Resolution Framework 1.0 and 2.0 (2020-21) ............................................................................. 147

14.17
14.17.1
ill
�� SARFAESI Act 2002: Origin, Objective & Limitations ............................................... 148
���� Which lenders have SARFAESI powers? ........................................................................ 148
w
14.17.2 ��Legal Rights of Loan Defaulter in SARFAESI Act ....................................................................... 148
14.17.3 ��: �Limitations of SARFAESI Act (मयार्दाए).................................................................................... 149
d
14.18 ��� Insolvency and Bankruptcy (I&B) Code 2016 ....................................................... 149
14.18.1 ��� IBC Code: Appeal Structure .................................................................................................... 149
go

14.18.2 ��� IBC: Process for resolution...................................................................................................... 150

14.18.3 ��� Statutory bodies related to IBC ............................................................................................... 150

14.19 ��|Insolvent vs Wilful Defaulter ....................................................................................... 151

rs

14.19.1 � Wilful Defaulter Data ........................................................................................................................... 151

14.19.2 � Declare wilful defaulters within 6 months of NPA- says RBI Proposal .......................................... 151
he

14.19.3 �Wilful Defaulters can do compromise settlement – RBI (2023) ...................................................... 151
14.19.4 � Guarantor (ज़मानतदार) ............................................................................................................................... 152
14.19.5 ��� Insolvency and Bankruptcy Code Amendments in 2018-2019 .......................................... 152
ot

14.19.6 ���:�
� IBC Pre-Packs (पदेर् के पीछे जल्दी से के स सुलटा लेते है!) ....................................................................... 152
14.19.7 ���: � IBBI directive on Avoidance Transaction and 500 other technical things ................ 153
14.19.8 ���) ATMANIRBHAR → IBC Ordinance/Act 2020 to suspend new cases .............. 153
�� (�
p

14.19.9 �(�
���) Insolvency and Bankruptcy Board of India (IBBI) ..................................................... 154
el

14.19.10 � �IBBI → Information Utility ......................................................................................................... 154

14.19.11 ���)Insolvency → Misc. Org: Indian Institute of Corporate Affairs ................................ 154
�(�
H

14.19.12 � Project Sashakt by Finance Ministry (2018) ...................................................................................... 155

14.19.13 ��� ATMA-NIRBHAR → Insolvency → Micro,Small,Medium Enterprises ........................ 155
14.19.14 (�
���)�
�� Cross-border Insolvency (सीमा-पार का िदवािलयापन) .......................................................... 155

14.20 ���) Voluntary Liquidation of Companies ................................................................. 156

(�

14.21 ���)�
(� � � Economic survey on IBC/NPA: reforms (आिर्थक सवेर्क्षण)............................. 157

(Batch: PCB10 - RAFTAAR-Only-Prelims) Mrunal’s Economy Pillar#1B2: Burning Issues in Banking → Page 141

KING R & QUEEN P Help others god will help you

 14.22 👁👁👁🗨🗨🗨🗨🗨🗨- � Credit Rating / Monitoring- various org/initiatives ...................................... 157
14.22.1 👁👁👁🗨🗨🗨🗨🗨🗨- � National Financial Information Registry (NFIR) in �Budget-2023 ....................... 157
14.22.2 �RBI’s Public-Tech Platform for Frictionless Credit (2023)............................................................... 157
14.22.3 👁👁👁🗨🗨🗨🗨🗨🗨- � Legal Entity Identifier (LEI) Number: (कानूनी इकाई पहचान सं ख्यांक) ........................................ 158

14.23 ����- � Fugitive Economic Offenders Act, 2018 .................................................. 158

14.24 � � �� DICGC Act: Objective & Limitations ............................................................. 159

u
14.24.1 �� �� : Proposal: DICGC should cover PPIs/Mobile Wallets?............................................... 160

yo
14.24.2 � � ��- � Limitation of DICGC (मयार्दाएँ ) .................................................................................. 160

14.25 �(�
� ��) Bad Bank (NARCL, IDRCL-2021): Intro ..................................................... 160
14.25.1 �(�
� ��): � Bad Bank Structure ................................................................................................ 161
� ��) Bad Bank: 🗃🗃 functioning ............................................................................................. 162

lp
14.25.2 �(�
14.25.3 �(�
� ��) Bad Bank: Benefits & Challenges? .............................................................................. 162

he
14.25.4 �(�
� ��) Bad Bank: �Conclusion (िनष्कषर्) .................................................................................. 163

14.26 ������ Prompt Corrective Action (PCA) Framework .................................... 163

14.26.1 ������ RBI’s Prompt Corrective Action (PCA) for NBFCs.......................................... 163
14.26.2 ������ RBI ‘s Supervisory Action Framework for Urban Co-operative Banks .......... 164
14.26.3
ill
RBI’4-tiered regulatory framework for urban cooperative banks (2022-Dec)...................................... 164
w
14.26.4 �: �Regulations Review Authority (RRA 2.0)- for Ease of implementing RBI rules .................... 164
14.26.5 �: �RBI supervision: Utkarsh-2022” roadmap ................................................................................. 164
14.26.6 Digital lending norms by RBI (2022-Nov) ................................................................................................ 165
d
14.26.7 Digital lending → FIRST LOSS DEFAULT GUARANTEE (FLDG) norm by RBI............................. 166
go

14.27 �� FinTech- Self-regulatory organisation (SRO) ............................................................. 166

14.27.1 � FinTech SRO-Benefits? ........................................................................................................................ 166

14.28 � BASEL-III Norms (बेसेल-3 मानदंड) ..................................................................................... 167

��
rs

14.28.1 � � BASEL-III norms: Capital Tiers ............................................................................................ 168

��
14.28.2 ���Additional Tier 1 (AT1) Bonds ............................................................................................... 168
he

14.28.3 ���Zero Coupon Bonds.................................................................................................................. 169

14.28.4 � D-SIB: Domestic Systematic Important Banks ........................................................................... 169
��

14.29 ��: BASEL Norms deferred / Suspended in Corona......................................................... 169

ot

14.30 ��� Banks’ Balance sheet / Audit Norms (तुलन पत्र लेखा परीक्षण) ........................................... 170
14.30.1 ��� IndAS Accounting Norms deferred (लेखा मानदंड स्थिगत/टाल िदये) .................................................... 170
p

14.31 �� Recapitalization of PSBs: [सावर्जिनक क्षेत्र के बेंको का पुन:पूंजीकरण] ........................................... 170

��
el

14.32 �Banking Sector: Governance / Administrative Reforms .................................................... 171

14.32.1 �Gyan-Sangam-I, 2015, Pune ................................................................................................................. 171
H

14.32.2 � Personnel Selection → Bank Board Bureau (BBB), 2016 ................................................................. 171
14.32.3 � Personnel Selection → FSIB replaces BBB (2022) ............................................................................ 171
14.32.4 �PSB Banking Personnel Reforms→ ES20 suggestions ...................................................................... 172
14.32.5 �Customer Service: Enhanced Access and Service Excellence (EASE) Agenda 2018 ...................... 172
14.32.6 ��:🛡🛡Staff Accountability Framework for PSB-NPA ...................................................................... 172
14.32.7 �Customer Service: RBI’s B.P.Kanungo committee (2022) ................................................................ 173

(Batch: PCB10 - RAFTAAR-Only-Prelims) Mrunal’s Economy Pillar#1B2: Burning Issues in Banking → Page 142

KING R & QUEEN P Help others god will help you

 14.33 ��: �(�
��) NEGATIVE News: ILFS & Shadow Banking......................................... 173
14.33.1 �(�
��) NBFC: Shadow Banking (आभासी / प्रितछाया बैंिकंग प्रणाली) ................................................................ 173
14.33.2 ��) Shadow Banks → IL&FS & NBFC Liquidity Crisis........................................................... 174
�(�
14.33.3 � ATMANIRBHAR → �: �(�
��) RBI Helping NBFCs/ Shadow Banks ............................ 174
14.33.4 ��) �� Shadow Banking → Remedies by RBI .................................................................. 174
�(�
14.33.5 � ATMANIRBHAR → ���� Partial Credit Guarantee Scheme (PCGS) 2.0.................... 175
14.33.6 � ATMANIRBHAR → ���� Special Liquidity Scheme for NBFC/HFC .......................... 175

u
14.33.7 Shadow Banking: More reform points by Government and SEBI .......................................................... 175

yo
14.34 ��� Negative News: PNB, LoU, SWIFT, & Nirav Modi ............................................... 175

14.35 � Negative News: International Level Banking Sector ................................................... 175

��
14.35.1 � Intl. Banking Crisis: Silicon Valley bank crisis (SVB), USA 2023 ............................................. 175
��

lp
14.35.2 � Credit Suisse Bank, Switzerland (2023) ....................................................................................... 176
��

14.36 �� RBI Dividend, Reserves, Economic Capital Framework ............................................. 176

he
14.36.1 �� RBI’s Bimal Jalan panel (2018) ..................................................................................................... 177
14.36.2 � RBI’s Financial / Accounting Year (िवत्तीय वषर् में बदलाव) ............................................................................ 177
14.36.3 ��Section-7 Directive & Urjit Patel’s Resignation (इस्तीफा) ............................................................... 177
14.36.4

ill
� Mains Answer Writing ......................................................................................................................... 178
w
14 🔥🔥🔥🔥 BAD LOANS & OTHER BURNING ISSUES IN BANKING
d

14.11🔥🔥LOAN TYPES DEPENDING ON GUARANTEE / COLLATERAL

go

Secured Loans Unsecured Loans (collateral free loans)

where borrower has to pledge an asset as boravar does not pledge asset as collateral. e.g.
security while borrowing from the lender. Overdraft, Credit Card, Personal loans for
rs

e.g. home loans, gold loans, automobile wedding/travel, student loans, farmer loans etc.
loans. Biz Loans by pledging fix deposit
he

certificates, shares, bonds, factory etc.

Banker’s risk is lower. So loan interest rates Higher risk. Higher interest rate.
may be lower. Exception: in education loans, Micro enterprise
ot

loans, farmer loans etc. Union government provides

credit guarantee against the losses of the bank. So
p

such loans may be ‘unsecured’, YET cheap interest

rate. (Ref: Pillar#1D for more.)
el

Amount of loan given is usually higher lower. क्योिक आप कु छ िगरवी नहीं रख रहे तो बैंक कोई आपको
than unsecured loan. (मोटी मात्रा का लोन िमलता अरबों रुपये तो देगा नहीं।
H

है)
Longer tenure of repayment e.g. 15–20 Shorter. (because the banker would want to recover
years (लं बी अविध का लोन िमलता है) the money as fast as he can)

(Batch: PCB10 - RAFTAAR-Only-Prelims) Mrunal’s Economy Pillar#1B2: Burning Issues in Banking → Page 143

KING R & QUEEN P Help others god will help you

 14.12🔥🔥TYPES OF LOANS: BASED ON INTEREST RATE
Table 1: Type of Loans based on Lending Rates
Fixed Interest Loan (िनिश्चत ब्याजदर का ऋण) 🎈🎈 Floating Interest Loan (चलायमान)
e.g. Short-term crop loans upto ₹3 lakh for e.g. (External Benchmark) + spread + risk
farmers at fixed Interest 7%. premium. (Ref#1A2-MonPolicy).
This interest rate will not be changed But benchmark is regularly updated. So
throughout the loan tenure. resultant interest rate may increase or decrease

u
throughout the tenure of loan.

yo
टीजर लोन यानी िक ऐसे लुभावने लोन जहाँ शुरुआती वषोर्ं में ब्याज Teaser Loan: A sub-type of Floating interest
दर बहुत कम रहे लेिकन बाद के वषोर्ं में ग्राहक पर बड़ा ब्याज दर rate loan, wherein initial years have low
थोप िदया जाए. अमेिरका में सबप्राइम सं कट के पीछे इसे कारण interest, but afterwards- higher interest rate.

lp
माना जाता था While RBI has not banned Teaser loans but has
put stricter regulations on them from 2011.

he
14.13🔥🔥TYPES OF LOANS: BASED ON BORROWERS
Table 2: Type of Borrowers
🤵🤵 Prime Borrower He has the capacity to repay loans. (वो कजार् वापस चुकाने की क्षमता रखता है)
� Subprime
Borrower ill
Such person doesn’t have the capacity to repay loan. Giving teaser rate
home loans to them caused Sub-prime Crisis in USA (2007-08),
w
(Individual) ultimately led to Global Financial Crisis (GFC). (More in 📑📑Pillar#3).
🧔🧔 Overleveraged Such company has borrowed too much money than its ability to pay it
d
Borrower back. An Overleveraged company has high ratio of Debt (Bonds/loans)
to Equity (Shares). वापस करने की क्षमता से भी अिधक कजर् ले िलया है
go

(Company)
When a weak bank keeps giving new loans to a subprime / overleveraged
� Zombie Lending
borrower. कमजोर बैंक, कमजोर कजर्दार को लोन देता रहे है
🔠🔠❓Why is the offering of "teaser loans" by commercial banks a cause of economic concern? (Pre-2011)
rs

1. The teaser loans are considered to be an aspect of sub-prime lending and banks may be exposed
to the risk of defaulters in future.
he

2. In India, the teaser loans are mostly given to inexperienced entrepreneurs to set up
manufacturing or export units. (िबनअनुभवी नौसीिखए उद्यिमयों को िविनमार्ण और िनयार्त इकाइयों बनाने के िलए टीजर
लोन िदए जाते हैं)
ot

Answer Codes: (a) 1 only (b) 2 only (c) Both 1 and 2 (d) Neither 1 or 2
14.13.1 🔥🔥🔪🔪-🤑🤑-😕😕-😭😭NPA / TBS Problem: Three Stages of
p

1. 🤑🤑Till mid-2000s: Boom period in global economy. Indian Corporates were taking large
el

amount of loans & became overleveraged. (भुगतान की क्षमता से बड़ा लोन लेना)
2. 😟😟From 2007-08: Subprime & Global Financial Crisis (GFC: वैिश्वक आिर्थक सं कट): Indian exports
H

⏬. UPA govt’s policy paralysis & judicial activism, environment activism (नीितगत पक्षाघात और
न्याियक सिक्रयता, पयार्वरण सिक्रयता) ⇒ projects delayed. Companies began facing difficulties finishing
projects & repaying loans.

(Batch: PCB10 - RAFTAAR-Only-Prelims) Mrunal’s Economy Pillar#1B2: Burning Issues in Banking → Page 144

KING R & QUEEN P Help others god will help you

 3. 😰😰By 2013: ~1/3rd of the bank loans were owned by “IC1 companies” i.e. companies with
interest coverage ratio less than 1, meaning they were not generating enough revenue even to
repay the loan interest. (IC>1 is good and IC <1 is bad.)
Thus, balance-sheets of (1) some Large Corporates Companies & (2) Public Sector Banks (PSB)
became weak. It is called “Twin balance sheet syndrome (TBS)” [दोहरे तुलनपत्र की समस्या] by Economic
Survey 2015-16.

u
yo
lp
he
ill
🔠🔠❓What is the importance of “Interest Coverage Ratio” of a firm in India? (Prelims-2020)
1. It helps in understanding the present risk of a firm that a bank is going to give a loan to.
w
2. It helps in evaluating the emerging risk of a firm that a bank is going to give a loan to.
3. The higher a borrowing firm’s level of ICR, the worse is its ability to service its debt.
d
Answer Code: (a) 1 and 2 only (b) 2 only (c) 1 and 3 only (d) 1, 2 and 3
go

14.14🔥🔥🔪🔪NON-PERFORMING ASSETS (अनजर्क पिरसं पित्तयां)

- If loan principal or interest is not paid for more than 90 days from its due date, then such loan
account is classified as Non-Performing Asset (NPA). िकश्त जमा करने की िनयत ितिथ/तारीख के ऊपर भी 90
rs

िदनों से अिधक हो चुके हो िकन्तु िकश्त जमा नहीं की गयी तो….

- For farm loans, NPA is not counted on number of days but on number of cropping seasons. कृ िष
he

ऋण में महीनों के िहसाब से नहीं फसल की मौसम/ऋतु के िहसाब से होता है

- NPA as a % of total loans given by SCB = 11% (2017), 7% (2021), 5% (2022)
Year
ot

2020-Mar 2021-Mar 2022-Mar

Total NPA in SCBs** Rs. 8.8 lakh cr Rs. 8.3 lakh cr Rs. 7.4 lakh cr
**SCBs = scheduled commercial banks. (अनुसूिचत वािणिज्यक बैंक)
p
el

14.14.1 🔥🔥🔪🔪NPA related definitions in Banking Sector

Loan account where borrower is repaying the principal and interest in timely
Std. Assets
H

fashion. (आदशर् परीसं पितया= िनयिमत ब्याज मुद्दल/ मूलधन िमला)

If loan principal or interest unpaid for 1-30 days from its due date, then such
SMA-0
loan account is classified as Special Mention Account-0.
SMA-1 31-60 days
SMA-2 61-90 days

(Batch: PCB10 - RAFTAAR-Only-Prelims) Mrunal’s Economy Pillar#1B2: Burning Issues in Banking → Page 145

KING R & QUEEN P Help others god will help you

 Provisioning As per RBI norms, banks must set aside funds to cover losses against their NPA.
प्रावधानीकरण Such ‘provisioning of funds’ ⏬decrease profitability of the Bank.
Gross NPA - Gross non-performing assets = grand total of all NPA loans(कु ल योग)
(GNPA: सकल
एनपीए)
NET NPA (शुद्ध एनपीए) = GNPA Minus Provisioning
NET NPA

u
🎓🎓✋WHATITMEANSNOTIMP
Substandard When loan account remains in the NPA classification for 12 months or more/>

yo
asset (रद्दी/घिटया परीसं पितया- जब कोई लोन खाता 12 महीना या उससे ज्यादा एनपीए श्रेणी में रहे)
Doubtful Asset When loan account in substandard classification for 12 months or more />
When a bank, its auditor or RBI declares that given doubtful asset has little / no
Loss Asset

lp
salvageable value. (नीलामी करके भी नुकसान भरपाई असं भव)

he
ill
w
d

- Loan write off= banker removes a loan amount from the ‘asset-side’ of the
go

bank balance sheet, to save corporation tax (How? = we-are-not-here-for-

CA-exam).
- Loan write-off doesn’t waive bank’s right to recover that bad loan, it’s
merely an accounting exercise for tax-benefits. (कराधान में कु छ िरयायतों के िलए
rs

Loan write-off िहसाबी प्रिक्रया की जाती है। हालांिक ऐसा करने के बावजूद भी बैंकर कजर्दार से पैसा वापस तो मांग ही
सकता है)
he

- Loan write-off⏬ reduces the NPA% of the Bank (Because amount is

written-off/cancelled from balance sheet)
ot

- 2022-Dec: Government replied in Parliament that Banks write off loans

worth Rs 11.17 lakh crore in last six years
Restructured When principal / interest rate / tenure of the loan is modified. Banks may do it
p

loan when borrower facing difficulty in repaying loans. (पुनगर्िठत कजर् / ऋण)
el

Stressed Asset NPA + Loans Written-Off + Restructured Loans = Stressed Assets (तनावपूणर् सं पित्त)
For example, If bank allows the borrower to pay 60% of dues & forgoes 40% as
OTS with
H

loss, then bank has offered “One time Settlement (OTS) with 40% haircut”
Haircut
कजर् का कु छ िहस्सा बैंक खुद ही नुकसानी समझकर माफ कर दे।
Evergreening When a borrower taking a new loan to pay off his old loan.
of loans पुराना कजर् चुकाने के िलए नया कजर् िदया जाए।

(Batch: PCB10 - RAFTAAR-Only-Prelims) Mrunal’s Economy Pillar#1B2: Burning Issues in Banking → Page 146

KING R & QUEEN P Help others god will help you

 14.15👻👻🤧🤧🔥🔥✋ ATMANIRABHAR → LOAN/EMI/NPA RELIEF / MORATORIUM
⇒ IF a loan is outstanding as of THEN 2020-March: RBI allowed (optional)
moratorium/suspension of loan repayment for 6 months for March, April, May, June, July, Aug.
⇒ So, If a borrower’s income ⏬ due to Corona, he gets relief from Equated Monthly Instalments
(EMIs) for “X” months. (ऋण अदायगी पर 6 महीने के िलए अस्थायी रूप से मुिक्त/रोक)
⇒ It WAS NOT compulsory to skip EMI. Borrower MAY repay loan regularly, if his financial

u
situation was strong. (इन महीनों में िकस्ते भरना वैकिल्पक होगा. वो आिर्थक रूप से सशक्त हो तो भर सकता है)
⇒ Loan was not ‘removed/waived’. It was only temporarily suspended. (ये कज़ार् माफ़ी नहीं था. के वल कु छ

yo
महीने के िलए िकश्तें भरने में छु ट्टी दी गई थी- िक बाद में धीरे धीरे पूरा भर देना। उसने िजतना उधार िलए, वो सारा अंत में तो पूरा
चुकाना ही होगा।)

lp
💡💡Note: In last handout, I had kept a very big short note here discussing how some banks
demanded compound interest rate for 6 months / matter went to SC / Govt gave subsidy to those

he
banks. But for 2023-24 exam-cycle all that microscopic details are outdated / faded/not grabbing
headlines anymore. so I am deleting.

14.16🐯🐯🔥🔥🐯🐯 RBI “3R” FRAMEWORK FOR REVITALIZING STRESSED ASSETS (2015-19)

ill
w
Shifted to Mains-QEP handout.

🔠🔠❓ ‘Scheme for Sustainable Structuring of Stressed Assets (S4A)’ is related to: (Prelim-2017)
d

a) procedure for ecological costs of developmental schemes.

go

b) ✅scheme of RBI for reworking the financial structure of big corporates with genuine
difficulties.
c) disinvestment plan for Central Public Sector Undertakings.
rs

d) Provision in ‘The Insolvency and Bankruptcy Code’.

Answer is B. But we’ll not study topic, scheme is discontinued, and topic outdated for 2023.
he

14.16.1 🦁🦁 🔥🔥RBI’s Prudential Framework for stressed assets (2019)

This is outdated topic so removed from Handout.
ot

14.16.2 🦁🦁 🔥🔥Resolution Framework 1.0 and 2.0 (2020-21)

p

Based on the recommendations of the KV Kamath committee, RBI issued a set of guidelines for
el

Bank/NBFCs for dealing with the bad loans after Corona.

Resolution Framework Applicable to borrowers who are
H

1.0 Large companies

2.0 Individual persons and small companies
What exactly is written in above frameworks? Ans. 1) Giving extra loans to genuine cases 2)
Extending the loan tenure 3) reducing loan interest rate etc.. We’ll NOT PHD. #🕰🕰थोड़ा-पढ़ो-आगे-बढ़ो

(Batch: PCB10 - RAFTAAR-Only-Prelims) Mrunal’s Economy Pillar#1B2: Burning Issues in Banking → Page 147

KING R & QUEEN P Help others god will help you

 14.17⚖🔥🔥 SARFAESI ACT 2002: ORIGIN, OBJECTIVE & LIMITATIONS
कजर् नहीं चुकाया तो सं पित्त की जब्ती और नीलामी करने के िलए कानून
⇒ 1991: Narsimham-I Committee on banking sector reforms observed that borrowers obtain stay
orders from ordinary courts = banks have difficulty recovering NPA. So, Debt Recovery
Tribunals (DRT: ऋण वसूली न्यायािधकरण) were set up (1993)= ordinary courts can’t interfere in the
loan recovery process.

u
⇒ 1998: Narsimhan-II Committee observed that DRTs need to be strengthened with a law, so,
Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest

yo
(SARFAESI) Act enacted in 2002. [प्रितभूतीकरण और िवत्तीय आिस्तयों का पुनगर्ठन और प्रितभूित िहत को प्रभावी करने
का अिधिनयम 2002]
⇒ Under SARFAESI act, lenders can attach the mortgaged assets when loan is not repaid. They can

lp
change board of directors in such companies, can auction such assets, can also sell such assets to
Asset Reconstruction Companies (ARC, NBFC: पिरसं पित्त पुनिर्नमार्ण कं पनी). [2021: RBI setup

he
Sudarshan Sen Committee to suggest reforms for ARCs]
⇒ SARFAESI not applicable on farm loans. (कृ िष ऋण पर ये कानून लागू नहीं होता)
⇒ If loan-defaulter wants to obtain a stay order, he cannot go to ordinary courts. He will have to

ill
approach for DRT. If DRT doesn’t help then ⇒ higher appeal to Debt Recovery Appellate
Tribunal (DRAT: ऋण वसूली अपीलीय न्यायािधकरण), but DRAT will require him to deposit minimum
w
50% of the loan dues (to discourage frivolous appeals). ⇒ higher appeal to high court.
d
14.17.1 ⚖🔥🔥�💪💪 Which lenders have SARFAESI powers?
go

 All types of Banks- commercial and cooperative (सभी प्रकार के बैंको को इस कानून के अंतगर्त िमलकत जब्ती करने
की सत्ताएँ है)
 Housing Finance Companies (HFCs) e.g. DHFL.
 if an NBFC fulfills two conditions SIMULTANEOUSLY: (गैर बैंक िवत्तीय कं पिनयों को भी यह सत्ता है यिद)
rs

o 1) The NBFC having asset size of ₹100 cr or more, AND

o 2) loan given is at least ₹20 lakhs.
he

 For example Bajaj Finserv, Reliance Capital, Muthoot Finance, IL&FS.

14.17.2 ⚖💪💪Legal Rights of Loan Defaulter in SARFAESI Act

ot

We’ll not prepare Hindi term bcoz not imp for Mains.
Right Description (You = owner/defaulter)
p

Right to ample After account becomes NPA → Lenders must give you 60 days notice
notice before starting auction.
el

Right to be heard You can make a representation/appeal to the lender/bank manager during
the notice period.
H

Right to ensure fair e.g. if bungalow’s fair market value is ₹5cr, then lender can’t start auction
value at ₹2cr.
Right to balance e.g. if bungalow auction fetched ₹6cr and loan due was 5 cr only. THEN
proceeds lender must return ₹1cr to you.

(Batch: PCB10 - RAFTAAR-Only-Prelims) Mrunal’s Economy Pillar#1B2: Burning Issues in Banking → Page 148

KING R & QUEEN P Help others god will help you

 Right Description (You = owner/defaulter)
Right to humane Recovery Agents cannot harass you or your family members. They can
treatment only contact you between 7am and 7pm.

14.17.3 ⚖🔥🔥: �Limitations of SARFAESI Act (मयार्दाए)

⇒ 😰😰The DRTs & DRATs are understaffed. 1 lakh+ cases pending (2016), so, case will go on for
years, borrower remained in possession of asset. (जजों की कमी के चलते के स िनपटान की प्रिक्रया बहुत धीमी है)

u
⇒ 😰😰This leads to erosion of asset-value (machinery, vehicles) even when DRT allows auction at a

yo
later time. (गाडी/ मशीन की जल्दी नीलामी नहीं होगी तो उसके मूल्य में िगरावट आती है- िजतनी पुरानी गाड़ी, उतना कम दाम।)
⇒ In some businesses, auction or liquidation may not yield the best returns for the banks e.g. hotel
resort in remote area, where no other hoteliers are keen to invest. (हर प्रकार की सं पित्त की नीलामी में अच्छी

lp
बोली लगाने वाली िमल जाए यह जरूरी नहीं। कु छ बार मध्यम मागीर् समाधान बेहतर होता है)
⇒ In such cases, if the loans were restructured (i.e. reducing % interest rate, extending tenure,

he
finding new partners), then banks could salvage more value. (इसिलए नीलामी की जगह अगर कु छ आपसी
समझौता / बीच का रास्ता/ मांडवाली िकया जाए तो बेहतर)
⇒ But, SARFAESI act doesn’t facilitate such arbitration So, Govt. came up with a new law: IBC.

14.18 ⚖🔥🔥🤝🤝 INSOLVENCY AND BANKRUPTCY (I&B) CODE 2016 ill

w
शोधन-अक्षमता एवं िदवािलयापन सं िहता 2016: कजर्दार का लेनदार के साथ समझौता/मांडवली करवाने के िलए
IBC code classifies creditors into two categories
d
A) Financial Creditors (FC) = B) Operational Creditors (OC) =
go

banks, NBFC, bond & other debt security Suppliers, contractors, salaried employees etc.
holders, + Home buyers. (िवत्तीय लेनदार). (कायर्संबं धी लेनदार : िजन्होंने कं पनी को कु छ वस्तु/सेवा मुहैया
कराई थी लेिकन उस पर पैसा बकाया है)
They can complaint under IBC code for They can complaint under IBC code for
rs

recovery of due amount. recovery of due amount.

They can sit in the committee of creditors They can’t sit.
he

(CoC) for IBC proceedings.

ot

14.18.1 ⚖🔥🔥🤝🤝 IBC Code: Appeal Structure

Borrower individual person or partnership firm Company
p

Their Biz is various laws like Shops and Companies Act, 2013
registered under Establishments Act, Indian Partnership
el

Act, 1932 etc.

Adjudicating Debt Recovery Tribunal (DRT) dealing National Company Law
H

Authority (AA) / with SARFAESI Act Tribunal (NCLT) from

first level ki courts Companies Act
Appellate National Company Law Appellate National Company Law
Authority Tribunal (NCLAT) from Companies Act Appellate Tribunal (NCLAT)
from Companies Act

(Batch: PCB10 - RAFTAAR-Only-Prelims) Mrunal’s Economy Pillar#1B2: Burning Issues in Banking → Page 149

KING R & QUEEN P Help others god will help you

 Borrower individual person or partnership firm Company
NEXT Appeal Supreme Court (SC) SC
Note: different websites give different interpretation. I have made the table from IBBI Manual

14.18.2 ⚖🔥🔥🤝🤝 IBC: Process for resolution

u
yo
lp
he
ill
w
⇒ An Insolvency Professional (IP: शोधन-अक्षमता सं बंधी पेशवे र) will make a resolution plan e.g. ⏬ loan
interest, extend loan tenure, or IP could even find another investor to finance the pending
project etc. (पेशेवर लोन-पुनगर्ठन की कोशीश करेगा िक जैसे ब्याज दर कमी, समयाविध में बढ़ोतरी, नया भागीदार ढूँ ढना)
d

⇒ IP will present the plan to Committee of Creditors (CoC: लेनदारों की सिमित) madeup of the Financial
go

Creditors (FC). In this Committee. FCs’ voting power is based on amt of loans given by lender.
⇒ If x% of the FCs agree with such resolution plan, then it will be set in motion, otherwise, IP will
liquidate the assets to recover the loan. (यिद िवत्तीय कजर्दाताओं की सिमित बहुमित से पुनगर्ठन प्रस्ताव पािरत न करे तो
rs

नीलामी/ पिरसमापन)

14.18.3 ⚖🔥🔥🤝🤝 Statutory bodies related to IBC

he

Org Founded under Law HQ

National Company Law Tribunal (NCLT) Companies Act, 2013 Delhi. With benches in
ot

many cities.
National Company Law Appellate Companies Act, 2013 Delhi
Tribunal (NCLAT)
p

Insolvency and Bankruptcy Board of India Insolvency and Delhi

(IBBI) Bankruptcy Code, 2016
el
H

(Batch: PCB10 - RAFTAAR-Only-Prelims) Mrunal’s Economy Pillar#1B2: Burning Issues in Banking → Page 150

KING R & QUEEN P Help others god will help you

 14.19🔥🔥🔪🔪|😤😤INSOLVENT VS WILFUL DEFAULTER
Criteria Insolvent /incapable defaulter (िदवािलया/ �Wilful Defaulter (इरादतन कजर् न
असमथर् बकाएदार) चुकानेवाला)
Definition A person /company incapable to pay off A person/company has capacity to
loans due to shortage of money. repay the loans BUT not repaying
the loans

u
Eligible for Loan Yes. But, IF his loan account is in NPA NOT eligible. His assets will be
Restructuring? for more than a year, and he has no auctioned under SARFAESI Act.

yo
IBC कानून में लोन capacity to repay even partial loan
पुनगर्ठन का लाभ amount, then no resolution will be
िमलेगा? done. His assets will be auctioned under

lp
SARFAESI Act.
Can contest Not allowed. Constitution silent about this^^.

he
election / get
Govt job/
become a judge?

ill
^^Bankers’ Association has requested the Election Commission that wilful defaulters should not be
allowed to contest election. (However, EC yet to take decision.)
w
14.19.1 🔥🔥😤😤 Wilful Defaulter Data
Time Period December 2020 December 2022
d

Number of Wilful Defaulters 12,911 15,778

go

Total Sum (in ₹ crore) ₹2,45,888 crore ₹3,40,570 crore

14.19.2 🔥🔥😤😤 Declare wilful defaulters within 6 months of NPA- says RBI Proposal
- 2012: Vijay Mallya stopped paying loans to banks. YET SBI didn't declare him wilful defaulter
rs

until 2017. (Meaning five years gone in paperwork / bureaucratic-laziness.).

- 2023: RBI proposal says banks shouldnot take so long time. Do this exercise within 6 months
he

AFTER accounts become NPA. (लोन खाता एनपीए की श्रेणी के अंदर आने के बाद भी यिद 6 महीने तक व्यिक्त के पास
पैसा है िकंतु वह कजार् नहीं चुका रहा है. तो बैंकर ने उसे “इरादतन िदवािलया” घोिषत करना होगा)
ot

14.19.3 🔥🔥😤😤Wilful Defaulters can do compromise settlement – RBI (2023)

p
el
H

(Batch: PCB10 - RAFTAAR-Only-Prelims) Mrunal’s Economy Pillar#1B2: Burning Issues in Banking → Page 151

KING R & QUEEN P Help others god will help you

 14.19.4 🔥🔥 Guarantor (ज़मानतदार)
- friend, relative, business associate etc who takes legal responsibility for a borrower’s debt ke ‘I

u
will repay the loan, If this loan-applicant does not repay the loan.”

yo
- Every Bank loan doesn’t require Guarantor. They're usually required in big size loan and/or
borrower’s credit score is not good enough

lp
� Legal consequences for Guarantor, IF borrower fails to repay
- Guarantor as liable as loan defaulter.

he
- Bank can take action against Guarantor for loan-recovery of principal + interest
- Bank may confiscate/attach the bank accounts of Guarantor, his property etc. depending on case.
- if Guarantor fails to repay the loan, then it will downgrade his credit score/credit-rating also.
- **Note:** there is internal legal difference between the two words Guarantor vs Co-Signer, but
we will not do PHD for MCQ
ill
w
14.19.5 ⚖🔥🔥🤝🤝 Insolvency and Bankruptcy Code Amendments in 2018-2019
Outdated for exam. so removed.
d
go

14.19.6 ⚖🔥🔥🤝🤝:🤫🤫 IBC Pre-Packs (पदेर् के पीछे जल्दी से के स सुलटा लेते है!)
rs
he
ot
p
el

Figure 1: इज्ज़त की इतनी परवाह थी, तो आप टाइम पे ही लोन चुका देते, भाई!
H

⇒ Pre-Pack System is found in United Kingdom and the United States

⇒ IBC 2021 Ordinance (and later Amendment Bill) aim to enable this in India for MSMEs.

(Batch: PCB10 - RAFTAAR-Only-Prelims) Mrunal’s Economy Pillar#1B2: Burning Issues in Banking → Page 152

KING R & QUEEN P Help others god will help you

 Corporate Insolvency Pre-packaged Insolvency Resolution Process (PIRP)
Resolution Process (CIRP)
IBC's Formal process: lenders - Pre-packaging = Borrower company informally
file complaint to NCLT → (discreetly) negotiates a resolution plan with its lenders /
Insolvency professional buyer-parties who may be interested in its action, before
appointed → Loan approaching IBC/NCLT process. (प्री पैिकंग = िविधवत रूप से
restructuring proposal → If कोटर्/कानूनी प्रिक्रया शुरू होने से पहले ही अनौपचािरक रूप से कजर्दार कं पनी

u
NOT approved by lenders → अपने कजर्दाता तथा भिवष्य की नीलामी में रुिच रखने वाले खरीदारों से पदेर् के

yo
Auctioning. (औपचािरक प्रिक्रया कु छ पीछे /बं द दरवाजे में चुपचाप समझौता कर कर ले.)
इस तरह से होती है) - e.g. Anil proposes, “I’m unable to repay loan but I’m
getting new partner/investor Mahindra. Together we’ll
revive the biz & repay 80% loan.”

lp
- If this is agreeable to lenders, they’ll send letter to NCLT,
“We’ve internally agreed for this plan. Plz give judicial

he
approval to it.”
Time limit: upto 330 days Time limit = 120 days = faster than CIRP (जल्द िनपटान)
More number of days = more - 🤩🤩Benefit? a quick (speedy) and discreet (confidential)
negative headlines in newspaper
ill
way of completing the insolvency resolution process. त्विरत
w
= ⏬confidence of customers & और गुप्त रूप से मसले को समेट िलया जाए
investors (e.g. Customer may - 🤩🤩Prevents the stigma/bad publicity/damage to brand
not buy Videocon refrigerator, if image associated with formal IBC proceedings. else in
d
he continuously sees negative future difficult to get investors/customers/clients. मामला
go

news & starts to fear that औपचािरक रूप से कोटर् तक नहीं पहुंचेगा= अखबारों में/जनमानस मैं कं पनी
company will shut down, he’ll बदनाम/कलं िकत ना हो वरना भिवष्य में िनवेशकों/ग्राहकों को आकिर्षत करना
not get warranty/repair service मुिश्कल हो जाता है.
after 3-5 years) - least disruptive to the businesses. Cost-effective. Helps in
rs

workers’ job preservation (compared to a scenario where

company is shut down)
he

CIRP applicable to all small and Only available to micro, small and medium enterprises
big enterprises. (MSMEs) as per 2021’s IBC Ordinance / Amendment Bill.
ot

(के वल चुिनदं ा श्रेणी के िलए है)

14.19.7 ⚖🔥🔥🤝🤝: 🥱🥱 IBBI directive on Avoidance Transaction and 500 other technical things
✋Such technical topics not important for the scope of the exam. If any teacher teaching it / private
p

quizmaster is asking MCQ on it then please ask them to first go through previous years official
el

papers and ask him to prove where's the pattern of such questions being asked in real
exam?#🕰🕰थोड़ा-पढ़ो-आगे-बढ़ो
H

14.19.8 👻👻� (⚖🔥🔥🤝🤝) ATMANIRBHAR → IBC Ordinance/Act 2020 to suspend new cases
⇒ 2020: Govt issues ordinance to amend IBC Code. (अध्यादेश)
⇒ Corona = business is down, difficult to work out any resolution plan. So, No fresh case will be
registered in IBC code for next “X” months Because Corona (नए के सों के दािखले को स्थिगत िकया गया.)

(Batch: PCB10 - RAFTAAR-Only-Prelims) Mrunal’s Economy Pillar#1B2: Burning Issues in Banking → Page 153

KING R & QUEEN P Help others god will help you

 ⇒ “X” = 24 March 2021 ✋Exact dates notIMP
IBC Ordinance / Act 2020 Case can start if loan default of minimum _ _ amount
BEFORE Minimum ₹1 lakh/>.
AFTER Minimum ₹1 crore/>**
**So even after suspension is lifted, most of the small businessmen will be spared from IBC
proceedings. (रोक हटाने के बाद भी नए के स दजर् िकए जाएं गे, तो िसफर् बड़े लोन के िलए के स दजर् िकए जाएं गे)

u
14.19.9 �(⚖🔥🔥🤝🤝) Insolvency and Bankruptcy Board of India (IBBI)

yo
lp
he
⇒ भारतीय शोधन-अक्षमता एवं िदवािलयापन बोडर् - वैधािनक सं स्था
⇒
ill
IBBI is the statutory body that monitors and implements I&B Code 2016.
w
⇒ IBBI’s administrative control rests with Ministry of Corporate Affairs (कॉपोर्रेट मामलों का मं त्रालय).
⇒ It has 1 Chairman, 1 nominated member from RBI, 8 from Govt’s side = total 10 people.
d
⇒ 1st chairman of IBBI: M.S.Sahoo. Present Chairman: Ravi Mittal (2022). (अध्यक्ष)
⇒ Chairman has 5 years / 65 age tenure. Also eligible for reappointment (पुन:िनयुिक्त सं भव).
go

⇒ IBBI selects Insolvency Professionals Agencies (IPAs). These IPAs enroll and supervise the
members practicing as Insolvency Professionals (IPs). Presently, 3 organizations given “IPA”
status viz. 1) ICAI (Chartered Accounts) 2) ICSI (Company Secretaries) and 3) Institute of Cost
rs

Accountants.
he

14.19.10 � 📡📡IBBI → Information Utility

IBBI also selects Information Utility (IU: सूचना उपयोिगता सं स्था) organization to maintain database of
borrowers. In 2017, NeSL: National E-Governance Services Ltd (owned by consortium of SBI, LIC
ot

etc.) was the first to get the IU status from IBBI. It is compulsory for lenders to share data with IU.
😍😍IU helps lenders in two ways:
p

1. 😍😍by looking @borrowers’ credit history, lenders can make informed decisions about whether
to give loan or not, and how much interest to charge? कजर्दाता को जानकारी उपलब्ध कराता है िक लोन-
el

अज़ीर्कतार् िवजय माल्या का इितहास/िवत्तीय चिरत्र के सा है, क्या वो लोन देने लायक़ भरोसेमंद व्यिक्त है की निह?
2. 😍😍 This database helps establishing documentary proofs during NCLT / DRT / judicial /
H

liquidation proceedings. कानूनी प्रिक्रया में दस्तावेजी सबूत मुहयै ा/उपलब्ध कराता है

14.19.11 �(⚖🔥🔥🤝🤝)Insolvency → Misc. Org: Indian Institute of Corporate Affairs

- IICA an autonomous body under Ministry of Corporate Affairs. (स्वायत्त सं स्था)
- It has launched a two-year Graduate Insolvency Programme (GIP). स्नातक कायर्क्रम शुरू िकया

(Batch: PCB10 - RAFTAAR-Only-Prelims) Mrunal’s Economy Pillar#1B2: Burning Issues in Banking → Page 154

KING R & QUEEN P Help others god will help you

 - The student passing this program can register as IP, without the mandatory 10 years' experience.

14.19.12 💪💪 Project Sashakt by Finance Ministry (2018)

u
yo
2018-Jul: Finmin’s Project Sashakt for PSB-NPA on report by Sunil Mehta (PNB CEO).
Gave guidelines to resolve the NPA problem in a timebound manner in Public Sector Banks.
What were those guidelines? Too outdated. So, I’m removing it from latest handout.

lp
🔠🔠❓What was the purpose of the Inter-Creditor Agreement signed by Indian banks and

he
financial institutions under Project Shashakt? (UPSC-Prelims-2019)
a) To lessen the Government of India’s perennial burden of fiscal deficit and current account deficit
b) To support the infrastructure projects of Central and State Governments
c) To act as independent regulator in case of applications for loans of ₹ 50 crore or more

ill
d) ✅To aim at faster resolution of stressed assets of ₹ 50 cr or more which are under consortium
w
lending.
Answer to Above MCQ is Option D. but now it is outdated current affairs. so we will not study the
d
exact matter.
go

14.19.13 👻👻🔥🔥👻 ATMA-NIRBHAR → Insolvency → Micro,Small,Medium Enterprises

- 📑📑Ref Pillar#1D: Financial Inclusion → Mudra and other loans schemes
rs

14.19.14 (⚖🔥🔥🤝🤝)🈶🈶🈶🈶 Cross-border Insolvency (सीमा-पार का िदवािलयापन)

he
ot
p
el
H

(Batch: PCB10 - RAFTAAR-Only-Prelims) Mrunal’s Economy Pillar#1B2: Burning Issues in Banking → Page 155

KING R & QUEEN P Help others god will help you

 - Cross-border insolvency has two facets: [1) foreign creditors should be able to recover money
lent to Indian corporates & VICE VERSA. [2) During Indian company's insolvency in India, the
Indian lenders should be able to recover money from Indian company's foreign assets easily,
AND VICE VERSA.
- IBC sections 234 & 235 have provisions for it, BUT they are not notified yet, so they are not
enforced.
- This leads to uncertainty of outcomes for creditors and debtors.

u
2018: Corporate Affairs Ministry's Insolvency Law (reforms) Committee under Injeti Srinivas

yo
recommended
- We should create a separate law for Cross-border Insolvency. अलग से कानून बने
- More than 40 nations use United Nations Commission on International Trade Law
(UNCITRAL)'s Model Law of Cross Border Insolvency (1997) So, we can use it as a template

lp
while making our own law → 📙📙📙📙ES22 also recommended the same.

he
- 👜👜👜👜Budget-2022: - We will amend IBC Code to facilitate cross border insolvency resolution.

14.20(⚖🔥🔥🤝🤝)👋👋👋👋 VOLUNTARY LIQUIDATION OF COMPANIES

ill
w
d
go
rs

Image source: Movie Gangajal

he

Liquidation is the process of shutting down a company. Two type of liquidations (पिरसमापन दो िक़स्म) →
 1) �Involuntary Liquidation: Due to loan default → it can be conducted either through I) IBC
code or II) SARFAESI Act depending on the case. (अनैिच्छक पिरसमापन- जब कं पनी कज़र् में िदवािलयापन िदखा
ot

दे)
 2) �Voluntary Liquidation: when the owner has not committed any loan default but wants to
p

shut down the business. Voluntary liquidation can be done through

 A) sending application to the registrar of companies under Companies Act, 2013
el

 B) sending application under the insolvency bankruptcy code.

 However Method-A is more popular than B at present. (स्वैिच्छक पिरसमापन. कं पनी ने अभी तक कज़र् में
H

िदवािलयापन नहीं िदखाया लेिकन उसके धं धे/व्यापार में अच्छा भिवष्य निह िदख रहा इसिलए कम्पनी का मािलक ख़ुद की कं पनी स्वयं
बं द करना चाहता है.)
 👜👜👜👜Budget-2022: we’ll setup a Centre for Processing Accelerated Corporate Exit (C-PACE)-
to faster voluntary liquidation / winding-up of the companies.

(Batch: PCB10 - RAFTAAR-Only-Prelims) Mrunal’s Economy Pillar#1B2: Burning Issues in Banking → Page 156

KING R & QUEEN P Help others god will help you

 14.21(⚖🔥🔥🤝🤝)📘📘 📘📘 ECONOMIC SURVEY ON IBC/NPA: REFORMS (आिर्थक सवेर्क्षण)
Shifted to Mains Handout.

14.22👁👁👁🗨🗨🗨🗨🗨🗨- 🐯🐯 CREDIT RATING / MONITORING- VARIOUS ORG/INITIATIVES

Following portals are meant to collect the information related to borrowers
Portal Description

u
CIC and CRA Learned in the previous section the previous session.

yo
Information Utility (IU). Created by Insolvency and bankruptcy board of India (IBBI) with
help of National e-governance services Ltd (NeSL)
CRILC RBI has setup “Central Repository of Information on Large Credits
(CRILC)” for Loans above Rs 5 cr.

lp
Banks & NBFCs have to submit weekly updates in this portal.
Public Credit Registry Proposed by RBI’s Yeshwant M. Deosthalee Committee. RBI yet to

he
(PCR) set it up. (ऋण की सावर्जिनक रिजस्ट्री)
NFIR Proposed in the Budget 2023. <Next section>

ill
14.22.1 👁👁👁🗨🗨🗨🗨🗨🗨- 🐯🐯 National Financial Information Registry (NFIR) in 👛👛Budget-2023
w
⇒ NFIR will be designed with help of RBI.
⇒ NFIR will contain info on both individual borrower and company borrowers.
d
⇒ NFIR will contain info on all the loans taken by them through banks,NBFCs,bonds, etc.
go

⇒ Thus, NFIR Will provide 360 degree information about a loan applicant’s creditworthiness.
⇒ will help the lenders process the loan application in a more faster and accurate manner

राष्टी्र य िवत्तीय सूचना रिजस्ट्री बनाएं गे िजसमें व्यिक्तयों और कं पिनयों द्वारा िविभन्न सं स्थानों से िलए गए कजेर् की सं पूणर् जानकारी होगी। तािक
rs

भिवष्य में जब वह वापस लोन के िलए अजीर् डाले, तो िवत्तीय सं स्थान आसानी से और ज्यादा सटीकता से उनकी अिर्जयों का िनपटान कर सकें
- ऐसा बजट 2023 ने कहा
he

14.22.2 🐅🐅RBI’s Public-Tech Platform for Frictionless Credit (2023)

ot
p
el
H

- This portal will collect data from Central and State governments, account aggregators (Ref1B1),
CRA-CICs (Ref1B1) and other organisations.

(Batch: PCB10 - RAFTAAR-Only-Prelims) Mrunal’s Economy Pillar#1B2: Burning Issues in Banking → Page 157

KING R & QUEEN P Help others god will help you

 - This will make loan application approval/rejection faster for the lender.[घषर्ण रिहत ऋण के िलए सावर्जिनक-
तकनीकी मं च]

�FAQ: how is it similar or different than the past projects such as public credit registry or
government’s NFIR? Ans. NOTIMP. Because this is not fully launched yet this is in the pilot study
stage.

u
14.22.3 👁👁👁🗨🗨🗨🗨🗨🗨- 🈶🈶 Legal Entity Identifier (LEI) Number: (कानूनी इकाई पहचान सं ख्यांक)

yo
lp
Figure 2: िवदेश मे नयी कं पनी बनाकर िवदेशो की बेंकों को चुना लगाएं गे तो क्या उखाड़ लोगे?

he
- Objective? Even if a company is blacklisted by Indian banks, it could apply for loans overseas,
and those overseas bankers may not be aware of company’s history.
- So, there should be a global “Aadhar card” number for companies, and they must be forced to

-
quote that number during every financial transaction.

ill
After USA’s Sub-Prime Crisis and Global Financial Crisis (GFC), the G20 and its Financial
w
Stability Board (FSB: िवत्तीय िस्थरता बोडर्) came up this LEI concept- a 20-digit alphanumeric code.
- LEI’s Global Boss: Global Legal Entity Identifier Foundation (GLEIF), Frankfurt, Germany. LEI’s
d
Indian agent: Clearing Corporation of India.
- From 1/10/2022 RBI has ordered all companies undertaking crossborder transactions of Rs 50
go

crore or more to quote this number in financial transaction.

- RBI has power to issue such directives under: Payment and Settlement Systems Act, 2007 &
Banking Regulation Act 1949. (िवत्तीय लेन देन के दौरान कं पनी ने अिनवायर् रूप से ये नं बर िलखना होगा)
rs

14.23🔥🔥🈶🈶🈶🈶🈶🈶- ⚖ FUGITIVE ECONOMIC OFFENDERS ACT, 2018

he
ot

Figure 3: देश छोड़ के भाग जाऊं गा, 9 लाख का लेधर जेकेट पहेनके लं डन की गिलयो मे घूमँ गू ा, तो क्या उखाड़ लोगे मेरा?
भगोड़ा आिथक र् अपराधी अिधिनयम: This act targets economic offenders accused of cheque dishonor, loan /
p

investment / chit-fund scam, money laundering etc. worth ₹ 100 crores /> & left India to avoid
facing prosecution / arrest.
el

- Special courts under the PMLA (Prevention of Money-laundering Act, 2002) will order the
H

villain to appear within 6 weeks, if not then he is declared “Fugitive Economic Offender”⇒ His
Indian & Overseas & Benami properties will be attached (भगोडे आिर्थक अपराधी की भारतीय तथा िवदेशी
सं पित्तयों को जप्त िकया जाएगा).
- Once property attached- the Union Govt will oversee its administration / liquidation
(नीलामी/पिरसमापन).

(Batch: PCB10 - RAFTAAR-Only-Prelims) Mrunal’s Economy Pillar#1B2: Burning Issues in Banking → Page 158

KING R & QUEEN P Help others god will help you

 - No ordinary civil court / tribunal can give stay order. Villain can make appeal only in High Court
and Supreme Court. (भगोड़ा आिर्थक अपराधी के वल उच्च न्यायालय और सवोर्च्च न्यायालय में जाकर मदद मांग सकता है).
If Borrowers don’t repay, SARFAESI auctions give little recovery, CRR-SLR insufficient
to repay deposits then bank collapse imminent. Then, how to protect the depositors? →

14.24� 🏦🏦 💸💸💸💸 DICGC ACT: OBJECTIVE & LIMITATIONS

u
yo
Figure 4: बेंक तो घोटाले मे बं ध हो गया। कोन करेगा हमारा पैसा वापस?

lp
he
-
ill
1961: Deposit Insurance and Credit Guarantee Corporation Act - mandates that all types of
w
banks must buy insurance on their deposit accounts from DICGC. Banks have to pay premium
for this insurance. (िनक्षेप बीमा और प्रत्यय गारंटी िनगम: प्रत्येक बैंक ने अिनवायर् रूप से अपनी जमाकतार्ओ की िडपोिजत को
d
बीमें द्वारा सुरिक्षत करना होगा)
- DICGC is 100% owned by RBI. RBI Dy. Governor acts as chairman of DICGC. HQ: Mumbai.
go

- When a bank shuts down, DICGC will pay upto ₹ 1 lakh insurance to every deposit holder for
his principal and interest. (यिद बैंक बं द हो गया तो जमाकतार् के नुकसान की भरपाई यहां से होगी)
- 💼💼Budget-2020: announced ⏫the insurance coverage to ₹ 5 lakhs (नुकसान भरपाई की रािश में बढ़ोतरी)
rs

- 2021: Government introduces Deposit Insurance & Credit Guarantee Corporation

(Amendment) Bill →
he

BEFORE (सुधार/सं शोधन िवधेयक से पहले) AFTER REFORM (सुधार पश्चात)

Upto ₹1 lakh deposit insured Protection increased upto Rs 5 lakh
When will depositors get back above amount? When RBI imposes (withdrawal) moratorium
ot

No clear timelines. Often they had to wait for on a weak bank → within 90 days of that event,
many years (पैसा/मुआवजा कब आएगा उसकी समय सीमा DICGC will pay depositors. (िरज़वर् बैंक जब कमजोर
p

तय नहीं थी) बैंक में से ग्राहकों के पैसे उठाने पर रोक लगाए उसके 90 िदनों के
भीतर ही मुआवजा िमल जाएगा)
el

Banks had to pay premium/fees to DICGC at DICGC can ⏫increase the premium fees to
the rate of ₹10 paise to insure every ₹100 worth ₹12-₹15 paise (i.e. 20%-50% more than the
H

of deposits. (बैंको ने हर ₹100 के िडपॉिजट का बीमे के िलए original fees) ✋Exact figures NOTIMP. (बीमा
10 पैसे की बीमा िकस्त/फीस देनी होती थी) िकस्त में बढ़ोतरी की गई)
All types of Banks covered Same as left cell. (सभी प्रकार के बैंक के ग्राहकों को सुरिक्षत
·
But NBFCs not covered. करता है, िकंतु ग़ैर बैंक िवत्तीय सं स्थान के ग्राहकों को सुरिक्षत नहीं
करता.)

(Batch: PCB10 - RAFTAAR-Only-Prelims) Mrunal’s Economy Pillar#1B2: Burning Issues in Banking → Page 159

KING R & QUEEN P Help others god will help you

 - Previously, DICGC provided guarantee cover to bank on the loans granted to Priority Sector
Borrowers.
- E.g. if Micro enterprise owner did not repay PSL-loans → DICGC would cover losses of the
banks, hence its name contains the word ‘Credit Guarantee Corporation’.
- But, with formation of SIDBI (1990), National Credit Guarantee Trustee Company Ltd.
[NCGTC, 2016] etc, this credit guarantee work divided among many organizations
(REF:📑📑Pillar#1D), but we need not PHD over it.#🕰🕰थोड़ा-पढ़ो-आगे-बढ़ो

u
yo
14.24.1 �🏦🏦 💸💸💸💸 : 📲📲Proposal: DICGC should cover PPIs/Mobile Wallets?

lp
he
RBI’s B.P.Kanungo committee on customer services (2022) suggested this. RBI NOT YET taken

ill
final decision. So we will not waste time with further PHD on what/why/how.
w
14.24.2 � 🏦🏦 💸💸💸💸- 👎👎 Limitation of DICGC (मयार्दाएँ )
- 😰😰If a customer deposited more than ₹5 lakh in a single commercial / cooperative bank, then he
d
gets only ₹5 lakh from DICGC. And for the remaining amount he must wait till RBI /
go

Cooperative Registrar liquidates the bank. (📑📑Ref 1B1: Banking Regulation Ordinance 2020)
- 😰😰DICGC doesn’t cover PACS and NBFCs. Those victims may have to approach courts.
- 2002: UTI (a Govt owned mutual fund company) made big losses. DICGC not liable to protect
UTI-clients because it is NOT A BANK. So, Govt had to pay ₹14,500 crores (of tax payer’s
rs

money) to customers of UTI-Mutual Fund.

- So, Financial Sector Legislative Reform Commission (FSLRC: िवत्तीय क्षेत्र िवधायी सुधार आयोग) under
he

Justice B.N. Srikrishna (2011-13) recommended a new org called Resolution Corporation (RC)
via -Financial Resolution and Deposit Insurance (FRDI) Bill/law. (DIGCG को बं ध कर एक नयी सं स्था
बनाने का सूजाव)
ot

- Govt had proposed the FRDI bill in 2017, but too much opposition in media & public, so
withdrew it in 2018. It’s a defunct topic. We’ll not WASTE TIME learning its salient features.
p

#🕰🕰थोड़ा-पढ़ो-आगे-बढ़ो
el

14.25�(🏦🏦 🔥🔥🔪🔪) BAD BANK (NARCL, IDRCL-2021): INTRO

H

⇒ (DATA) 📙📙📙📙ES2016-17 had found that total ₹ 2 lakh crore of bank money is stuck in large
sized NPA-accounts. Each of this loan account having ₹500cr or more. (बैंकों का क़रीब 2,00,000 करोड़
रुपया ऐसे लोन खातों में अटका है िजनमे एक-एक की मात्रा 500 करोड़ या उससे अिधक है)
⇒ (Origin) Sometimes, the resolution of large sized NPA accounts is difficult under IBC Code (e.g.
Vijay Mallya being a wilful defaulter so he is not eligible for IBC).

(Batch: PCB10 - RAFTAAR-Only-Prelims) Mrunal’s Economy Pillar#1B2: Burning Issues in Banking → Page 160

KING R & QUEEN P Help others god will help you

 ⇒ Under SARFAESI act such assets could be auctioned off but sometimes bidders and ARCs (e.g
Anil Ambani’s ARC) do not have enough financial capacity to purchase such big assets (worth
₹500-500 crores!). (इस प्रकार के बड़े लोन खातों का समाधान आईबीसी/सरफ़ाएसी क़ानून में करते वक़्त समस्याएं आ रही है)
⇒ Therefore, Economic Survey 2016-17 had suggested to setup a BAD BANK named “Public
Sector Asset Rehabilitation Agency” (PARA). To buy bad loans from, try to get the maximum
value from loan-restructuring / liquidation-auction and absorb the losses. (इसिलए आिर्थक सवेर्क्षण ने
सुझाव िदया एक बेड-बैंक बनाया जाए जो िक बैंकों के खराब लोन पेपर/ अनअजर्क पिरसं पित्तयों को खरीदेगा.)

u
⇒ Then, 💼💼Budget-2021 announced set up an Asset Reconstruction Company (ARC) and Asset

yo
Management Company (AMC) to take over the bad loans from banks. (बजट 2021 ने अमल िकया).
⇒ Govt will not have any shareholding in ARC/AMC. Banks will set these organization(s) up with
their own funds. (सरकार इसमें शेयर धारक नहीं बनेंगी. बैंकवाले खुद से शेयर पूंजी देकर इसको बनाएं ग)े

lp
⇒ Examples of such bad banks in other countries- Danaharta in Malaysia, UKAR in UK.

he
14.25.1 �(🏦🏦 🔥🔥🔪🔪): 🧬🧬 Bad Bank Structure

ill
w
d
go
rs

NARCL-ARC (founded in 2021) IDRCL-AMC (founded in 2021)

he

Type Asset Reconstruction Company (ARC) Asset Management Company

पिरसं पित्त पुनगर्ठन कं पनी (AMC)
पिरसं पित्त प्रबं धन कं पनी
ot

Full Form National Asset Reconstruction Company India Debt Resolution Company Ltd.
Limited (NARCL) (IDRCL) =
p

Type Registered company under companies Registered company under

act. (So not a statutory/constitutional companies Act. (कं पनी क़ानून में पं जीकृ त
el

body) कं पिनयां है. ये कोई वैधािनक या सं वधै ािनक सं स्थाएं

Given license by RBI for ARC. नहीं है)^^
H

Function To purchase bad loan assets from banks. To manage/value addition/ auction
(यह बैंकों से अनजर्क पिरसम्पित्तयां ख़रीदेगा) those bad loan assets which were
purchased by NARCL. (e.g. factory,
airplanes, bulldozer). (ख़रीदी हुई सं पित्तयों
का प्रबं धन, मूल्य वधर्न, नीलामी करेगा)

(Batch: PCB10 - RAFTAAR-Only-Prelims) Mrunal’s Economy Pillar#1B2: Burning Issues in Banking → Page 161

KING R & QUEEN P Help others god will help you

 NARCL-ARC (founded in 2021) IDRCL-AMC (founded in 2021)
Ownership/ ⇒ 51% PSBs like SBI, BoB, PNB** ⇒ 49% (Public Sector Banks,
Shareholding ⇒ 49% by Pvt banks and NBFCs# NBFCs)
⇒ 51% (private sector bank,
NBFCs).#
Tenure This organization will exist for five years. Same as left cell
** NARCL Ownership 51% shareholding/ownership among 8 public sector banks (PSB) viz. SBI

u
(13.17%), Punjab National Bank (12%), Bank of Baroda, Canara Bank, Bank of Maharashtra, Union

yo
Bank of India, Indian Bank, Bank of India. (Note: Future Some of these PSBs may get merged so the
% may change.)
🚩🚩🚩FAQs:

lp
⇒ what are their names? Ans. Not explicitly mentioned in Pressnote. #🕰🕰थोड़ा-पढ़ो-आगे-बढ़ो
#

⇒ ^^AMC got license from RBI or SEBI? Ans. Same as above

he
⇒ Bad Bank means “ONLY NARCL” or (NARCL+IDRCL) Ans. Same as above. But from how
📙📙📙📙ES17 had given the vision of Bad bank, it should be the combined work of
(NARCL+IDRCL)= Bad Bank.

14.25.2 �(🏦🏦 🔥🔥🔪🔪) Bad Bank: 🗃🗃 functioning

ill
w
बैड बैंक नीलामी में बैंकों की अनजर्क पिरसं पित्तयां ख़रीदेगा, और वह भुगतान की रक़म: 15%मुद्रा और 85% सुरक्षा रसीदों के रूप में बेंकर
को चुकाएगा। ऐसी Rs.30,600 cr करोड़ की सुरक्षा रसीदों के पीछे भारत सरकार ने अपनी सं प्रभु गारंटी अगले पाँच वषोर्ं के िलए दी है।
d
⇒ Suppose Axis Bank has a bad loan account worth ₹200. Axis may conduct an (Swiss Challenge)
Auction. Bad Bank offers ₹100, Anil Ambani’s ARC offers ₹95, Mahindra offers ₹92.
go

⇒ Then Axis will sell to Bad Bank for ₹100 (because its the highest bidder)
⇒ BadBank will pay Axis ₹100= Partially in currency (₹15) + partially in Security receipts (SR
worth ₹85).
rs

⇒ Security receipts (SR) is a piece of paper issued by BadBank promising to pay the remaining
dues/amount (₹85) to banker in 5 years.
he

⇒ Security receipts (SR) is a legally valid instrument under the Sarfaesi Act.
⇒ If the Axis banker very urgently requiring money then he may resell the SR at discount (e.g. at
ot

₹80) to another Bank, Insurance/Pension Company, AIFI (e.g. SIDBI, NABARD) etc.
⇒ Then those new SR-holders will receive the money (₹85) from Bad Bank in future.
⇒ IF Bad Bank faces problems in honoring the SR payment deadlines→ then, Union Govt has
p

given sovereign guarantee of Rs.30,600 cr to Security Receipts (SR). This sovereign guarantee
el

valid for 5 years.

14.25.3 �(🏦🏦 🔥🔥🔪🔪) Bad Bank: 🤩🤩😰😰 Benefits & Challenges?

H

⇒ 😍😍 Faster resolution of large sized NPA. (तेज िनपटान)

⇒ 😍😍 Individual Bank’s Bad loan size⬇ = BASEL-III Capital requirement ⬇ (बैंको की अनजर्क
पिरसं पित्तयां कम होगी तो उन्होंने बासेल मानदंड के िलए कम पूंजी प्रावधान करना होगा)
⇒ Further benefits = RE-Paste the points given in Intro & Conclusion. (पिरचय और िनष्कषर् में जो मुददे िलखे
हैं उसकी वापस पीपूड़ी बजाओ)

(Batch: PCB10 - RAFTAAR-Only-Prelims) Mrunal’s Economy Pillar#1B2: Burning Issues in Banking → Page 162

KING R & QUEEN P Help others god will help you

 ⇒ 😥😥Ultimately the losses caused by Vijay Mallyas are paid by depositors/investors (of the
Banks/NBFCs who own NARCL & IDRCL) and Taxpayers (using whose money Govt’s is giving
sovereign guarantee to Security receipts). (अंत में तो परोक्ष रूप से इस नुकसान की भरपाई जमाकतार् िनवेशक और
करदाताओं द्वारा ही हो रही है)

14.25.4 �(🏦🏦 🔥🔥🔪🔪) Bad Bank: ✍Conclusion (िनष्कषर्)

NARCL aims to resolve stressed loan accounts above ₹500 crore each. Total about ₹ 2 lakh crore

u
stuck in such loan accounts. Thus, individual banks will be relieved from not having to waste time

yo
haggling with NPA-borrower. Bankers will be able to focus energy on business expansion, financial
inclusion. Thus, Govt taken an appreciable step, it will help in a long way in re-invigorating Indian
banking sector. (दो लाख करोड़ की अनजर्क-पिरसं पित्तयों का िनपटान होगा। बैंकर अपनी समय और ऊजार् पुराने बकायदारों से लोन
पुनगर्ठन की माथापच्ची करने की जगह, अपने बैंक के व्यापार िवस्तारण तथा िवत्तीय समावेशन में लगा पाएगा। सरकार ने प्रशं सनीय क़दम

lp
उठाया है, िजससे भारतीय बैंिकंग क्षेत्र मैं नवऊजार् का सं चार होगा.)

he
14.26🐯🐯💉💉👹👹👹👹👹👹� PROMPT CORRECTIVE ACTION (PCA) FRAMEWORK
Under PCA framework, RBI classifies the scheduled commercial banks (SCB) into Risk threshold #1,
#2, #3 based on its capital, loan-asset quality etc. Higher the number, higher the risk. Then,
accordingly, RBI will take corrective actions such as: (जोिखम के िहसाब से बैंकों को वगीर्कृत करता है)

ill
⇒ RBI giving strict warning, conducting deeper audit & supervision. (ज्यादा कड़ी िनगरानी)
w
⇒ Restricting bank’s directors’ salaries and dividend distribution to its investors. (वेतन, लाभांश िवतरण
पर रोक)
⇒ Restricting bank’s branch expansion & lending operations. (शाखा िवस्तार और ऋण देने पर रोक लगाना)
d

⇒ Forcing merger / shutdown (under Banking regulation Act 1949). (कमजोर बेंक को बं ध करना)
go

If a PCA-listed bank wants to get ‘whitelisted’, it’ll have to ⏬its NPA, obtain additional capital,
⏫its profitability. (इस सूची से बाहर िनकलना है तो अनजर्क सं पित्तयों को कम करना होगा, ज्यादा पूंजी बटोरनी होगी, ज्यादा
rs

मुनाफा लाना होगा)

⇒ PCA is “Monetary Policy → Qualitative / Selective Tool → Direct Action”. (मौिद्रक नीित →
he

गुणात्मक → सीधी कायर्वाही का यह एक साधन है)

⇒ As of 2020-Feb: 4 PSBs in this list viz. Indian Overseas Bank (IOB), Central Bank of India, UCO
ot

Bank and United Bank of India. ✋Dynamically changing info so we need not remember / loose
sleep for MCQs.
p

14.26.1 🐯🐯💉💉👹👹👹👹👹👹� RBI’s Prompt Corrective Action (PCA) for NBFCs

(ग़ैर बेंक िवत्तीय कं पनीयो के लीए त्विरत सुधारात्मक कारर्वाई)
el

⇒ From 1/10/2022- RBI to monitor NBFCs using 3 indicators/parameters: - 1) Non-Performing

Assets, - 2) BASEL-capital adequacy ratio - 3) BASEL- Tier 1 capital. (What do they mean?
H

NOTIMP। इन पैमानो पर िनगरानी)

⇒ Accordingly, RBI to classify the NBFCs in risk category#1-2-3. (जोिखम के िहसाब से वगीर्करण)
⇒ Higher risk → higher restrictions e.g. ✋1) restriction on branch expansion ✋2) halt on
dividend distribution, ✋3) NBFC owners will be asked to infuse capital in NBFC etc. etc (ग़ैर बेंक
िवत्तीय कं पनी में िजतना ज़्यादा जोिखम → तो उतनी ज़्यादा पाबं िदया िरज़वर् बेंक उसपे डालेगी)

(Batch: PCB10 - RAFTAAR-Only-Prelims) Mrunal’s Economy Pillar#1B2: Burning Issues in Banking → Page 163

KING R & QUEEN P Help others god will help you

 ⇒ This NBFC-PCA-norms applicable on ✅ deposit-taking-NBFCs (e.g BajajFinServ).
⇒ But ✋Not Applicable on govt owned NBFCs (e.g UTI Mutual Fund), primary dealers, housing
finance companies (HFC), non-deposit taking NBFCs (e.g. ILFS). However, in future, RBI may
add more categories of NBFC in this list.

14.26.2 😼😼💉💉👹👹👹👹👹👹� RBI ‘s Supervisory Action Framework for Urban Co-operative Banks

u
Outdated topic. Deleted from handout.

yo
14.26.3 RBI’4-tiered regulatory framework for urban cooperative banks (2022-Dec)

lp
he
Tier Deposit Range
1
2
Up to ₹100 crore
₹100 crore - ₹1000 crore ill
w
3 ₹1000 crore - ₹10,000 crore
4 Above ₹10,000 crore
d
Higher the tier e.g. 3-> 4 = stricter RBI norms under BASEL-III. What/HOW exactly? NOT IMP.
go

(शहरी सहकारी बैंकों के िलए 4-स्तरीय िनयामक ढांचा)

14.26.4 🐯🐯: 🦋🦋Regulations Review Authority (RRA 2.0)- for Ease of implementing RBI rules
rs

- RBI has setup RRA 1.0 (in 1999, for one year) and RRA 2.0 (in 2021, for one year)
- Chairman: RBI’s Dy. Governor M Rajeshwar Rao. Who are other members? NOTIMP.
he

- Objective: To give suggestions to RBI to simplify its rules/regulations so Bank/NBFCs have ease
of doing business. (िनयं त्रण समीक्षा प्रािधकरण जो िक िरज़वर् बैंक को सुझाव देगा िक कै से िरज़वर् बैंक के िनयमों में सरलीकरण
िकया जाए तािक उनके अनुपालन मे बेंक और एनबीफ़सी को आसानी रहे।)
ot

14.26.5 🐯🐯: 🦋🦋RBI supervision: Utkarsh-2022” roadmap

p

⇒ 2019 July: Dy. Gov Viral Acharya Committee → RBI board approved 3 year medium term
el

framework to improve RBI regulation & supervision, based on global best practices = “Utkarsh-
2022” roadmap. (वैिश्वक मानदंडों का अनुसरण करते हुए िरजवर् बैंक की िनयं त्रण और िनगरानी करने की प्रणािलयों में अगले 3
H

सालों में सुधार करने के िलए उत्कषर् कायर्क्रम )

(Batch: PCB10 - RAFTAAR-Only-Prelims) Mrunal’s Economy Pillar#1B2: Burning Issues in Banking → Page 164

KING R & QUEEN P Help others god will help you

 u
yo
14.26.6 Digital lending norms by RBI (2022-Nov)

lp
he
ill
w
d
go

⇒ A lending/Loan Service Provider (LSP) is financial technology (Fintech) company that connects
borrowers with lender (Banks & NBFCs). e.g. Lazypay, Bank Bazaar, Paisa Bazaar
rs

⇒ LSP helps the customer get the loan digitally.

⇒ RBI has issued guidelines to regulate this ‘digital lending’ market.
he

Exact guidelines are not important. Sufficient to know that RBI requires
⇒ 1) exorbitant interest cannot be charged.
⇒ 2) Such organisations have to appoint grievance redressal officers & clear the complaint within
ot

stipulated time limit.

p

कु छ िवत्तीय प्रौद्योिगकी (िफन-टेक) कं पिनयां एक तरफ़ कज़र् लेने वालों को, और दू सरी तरफ़ बैंक- एनबीएफसी के साथ िडिजटल माध्यम
से जोड़ती है। इस िडिजटल कज़र् प्रणाली पर िरज़वर् बैंक कु छ सिख़्तया कर रही है।
el
H

(Batch: PCB10 - RAFTAAR-Only-Prelims) Mrunal’s Economy Pillar#1B2: Burning Issues in Banking → Page 165

KING R & QUEEN P Help others god will help you

 14.26.7 Digital lending → FIRST LOSS DEFAULT GUARANTEE (FLDG) norm by RBI

u
yo
lp
Basically requires FinTech companies to cover some of the loss of the banker, IF borrower defaults

he
on the loan.

14.27�👭👭 FINTECH- SELF-REGULATORY ORGANISATION (SRO)

ill
w
d
• An SRO is a non-governmental organisation that regulates a particular industry. (गैर सरकारी सं स्था जो
go

िकसी औद्योिगक क्षेत्र का स्व-िनयं त्रण करती है)

• Objective? To enforce transparency, fair competition, ethical practices , protect consumer &
workers, dispute resolution among the companies, training and skill development programs for
workers. (पारदिर्शता, न्यायोिचत स्पधार्, नैितक आचरण, ग्राहक सुरक्षा, िववाद िनपटान, तालीम कौशल वधर्न)
rs

Example from News Industry

News Type Printed Newspapers Digital News Channel (e.g Lallantop, Firstpost),
he

Private TV News Channels (e.g AajTak)

Regulator? Press Council of India News Broadcasters & Digital Association (NBDA)
ot

Type? Statutory body/regulator Self-regulatory organisation (SRO) created by the

setup by Parliament’s law in private sector players. NBDA is not a government
1978 body, statutory body, constitutional body.
p

2023: RBI governor has suggested the Fintech companies to create a self-regulatory organisation
el

(SRO) for themselves. What are Fintech companies? (Ref: Pillar#1B1-classification)

H

14.27.1 😍😍 FinTech SRO-Benefits?

• �1) Reduce RBI’s workload in supervision.
• �2) Establish a proper link between RBI and the fintech companies.
• �3) setup rules/standards for data-privacy, cyber security, mis-selling, ethical conduct,
complaint/grievance redressal for consumers.

(Batch: PCB10 - RAFTAAR-Only-Prelims) Mrunal’s Economy Pillar#1B2: Burning Issues in Banking → Page 166

KING R & QUEEN P Help others god will help you

 14.28🈶🈶🌐 BASEL-III NORMS (बेसेल-3 मानदंड)
Bank for International Settlements (BIS) is an international institution made up of 60 countries’
Central Banks. HQ @ BASEL, Switzerland. Its committee on banking supervision set norms in 1988
(I), 2004 (II), 2011(III) to ensure global financial stability. (वैिश्वक िवत्तीय िस्थरता के िलए मानदंड बनाए हैं इस
सिमित ने)

u
yo
- From 1/4/2013, RBI began phased implementation of BASEL-III norms in India:
- First, a bank needs to calculate its Risk-Weighted Assets (RWA: जोिखमपूणर् सं पित्त).
- Against these RWA, (Universal) Scheduled Commercial Banks (SCB) must keep:

lp
o “Minimum Capital to Risk Weighted Assets Ratio” (CRAR) at 9% or higher from
31/3/2019.

he
o “a%” Capital Conversation Buffer (CCB) from XX date..
o “b%” Counter Cyclic Capital Buffer (CCCB): whenever RBI notifies.
- “c%” Leverage ratio (LR)
- “d”% Net Stable Funding Ratio (NSFR)
- “e%” High quality liquid assets (HQLA)
ill
w
- “f%” Liquidity Coverage Ratio (LCR)
- and so on…many things.
d
go
rs
he
ot
p
el
H

Figure 5: We need not bother with Tier-1 Tier-2 Capital etc, #थोड़ा-पढ़ो-आगे-बढ़ो

✋FAQ. How exactly do CCB, CCCB, LR, NSFR, HQLA, LCR etc work? Ans. Not
important for exam, beyond the basic ‘word-association’ that they’re related to BASEL
Norms. #🕰🕰थोड़ा-पढ़ो-आगे-बढ़ो

(Batch: PCB10 - RAFTAAR-Only-Prelims) Mrunal’s Economy Pillar#1B2: Burning Issues in Banking → Page 167

KING R & QUEEN P Help others god will help you

 ⇒ Each member country’s Central Bank can prescribe different %, ratios depending on their
country’s situation. (हर देश की कें द्रीय बैंक अलग-अलग िदशा िनदेर्श जारी कर सकती है)
⇒ As Bad loans (NPA) ⏫ = bank’s asset quality degrades ⏬= its Risk-weighted assets (RWA)
⏫ → bank must arrange more capital to comply with these ratios, norms and buffers.
⇒ If a bank can’t comply with BASEL norms → RBI puts it in PCA list. In worst case, bank will
have to merge/ sell off its business to another bank or shut down. (इन मानदंडों को नहीं माना तो अंत में बैंक

u
बं द हो सकता है)
⇒ BASEL Norms also apply on Differential Commercial Banks (LAB, RRB,

yo
SFB, PyB), Cooperative Banks, AIFI (EXIM, NABARD, NHB, SIDBI) and certain category of
NBFCs, but RBI can prescribe separate norms / limits / deadlines for them. (िविभन्न प्रकार की िवत्तीय
मध्यस्थ ऊपर सं स्थाओं पर इन मानदंडों की सीमा अलग-अलग हैं)

lp
14.28.1 🈶🈶🏦🏦 � BASEL-III norms: Capital Tiers

he
BASEL-III norms require banks to keep capital against their risk weighted asset ratio. This capital is
subdivided into:

ill
w
d
go
rs
he
ot
p
el
H

14.28.2 🔥🔥🔪🔪🔪Additional Tier 1 (AT1) Bonds

They have no maturity date (i.e. bank has to pay interest for infinite time / perpetuity and principal
will not be returned). However, bank may ‘buyback’ them after certain years.

(Batch: PCB10 - RAFTAAR-Only-Prelims) Mrunal’s Economy Pillar#1B2: Burning Issues in Banking → Page 168

KING R & QUEEN P Help others god will help you

 If / when a bank makes huge losses → AT1 Bonds’ liability may be
A. written off (खािरज कर देना) OR
B. converted into shares (process called ‘Bail-In’).
AT1 Bonds are in news due to loan-scam in Yes-Bank. What exactly is that scam? =NOT-IMP.

14.28.3 🔥🔥🔪🔪🔪Zero Coupon Bonds

⇒ Ref: Pillar1C- Sharemarket.

u
yo
🔠🔠❓ What is the objective of BASEL-III norms? (UPSC-Prelim-2016)
a) Develop national strategies for biological diversity.
b) reduce the GHG emissions but places a heavier burden on developed countries.
c) transfer technology from developed Countries to poor countries to replace chlorofluorocarbons

lp
in refrigeration.

he
d) improve banking sector’s ability to deal with financial and economic stress and improve risk
management.
🔠🔠❓ Basel Convention provides: (UPSC-IES-2020)
(a) Indian standards for pollution measurement and prevention

ill
(b) International guidelines to control the transboundary movements of hazardous wastes between
w
different countries
(c) Indian standards for the disposal of municipal and industrial wastes
(d) International standards to categorize pollution in air and wastewater
d
go

14.28.4 🈶🈶🌐 D-SIB: Domestic Systematic Important Banks

rs
he

⇒ In 2010, G-20’s brainchild Financial Stability board (HQ: BASEL) asked countries to identify
Systematically Important Financial institutions and put framework to reduce risk in them. [Side
note: Same parents responsible for birth of Legal Entity Identifier (LEI)]
ot

⇒ Each year, RBI identifies banks that ‘too big to fail’ (=if they fail, it’ll severely hurt the economy)’
and labels them as Domestic Systematic Important Banks (D-SIB), & orders them keep
additional equity capital against their Risk Weight Assets (RWA) & other technical norms.
p

⇒ Presently, 3 D-SIBs in India: SBI, ICICI, HDFC (Latest Entry).

el
H

14.29🐯🐯🤧🤧: BASEL NORMS DEFERRED / SUSPENDED IN CORONA

self-explanatory from the topic-title itself. (कु छ मानदंडों की अितम ितिथ को टाल िदया गया।)
We need not loose sleep over new deadlines, as they may again get extended. So, dynamic
information = dangers of answerkey becoming invalid, so, smart examiners usually avoid it.#🕰🕰थोड़ा-
पढ़ो-आगे-बढ़ो

(Batch: PCB10 - RAFTAAR-Only-Prelims) Mrunal’s Economy Pillar#1B2: Burning Issues in Banking → Page 169

KING R & QUEEN P Help others god will help you

 14.30🐯🐯🐯🐯🐯🐯 BANKS’ BALANCE SHEET / AUDIT NORMS (तुलन पत्र लेखा परीक्षण)
14.30.1 🐯🐯🐯🐯🐯🐯 IndAS Accounting Norms deferred (लेखा मानदंड स्थिगत/टाल िदये)
⇒ Ministry of Corporate Affairs (MCA) ordered all the companies to keep their balancesheet as per
the format prescribed in the Indian Accounting Standards (IndAS).
⇒ 🤩🤩Benefit? IndAS accounting format makes it easier for the local and global investors and
regulators to compare, analyze and understand a company’s financial position from its

u
balancesheet. (इस िरपोटर् को देखकर िनवेशक को आसानी से कं पनी की िवत्तीय क्षमता का अंदाज़ा लग जाता है.)
⇒ IndAS is not part of BASEL norm. But, since commercial banks are basically ‘companies doing

yo
banking activity’, so they also have to comply to IndAS norms. But, only RBI has the power to
notify its implementation deadline on banks. (बैंकों के ऊपर भी इन्ही िनयमों को लागू करना है.)
⇒ 2020- Critics demanded RBI should implement it. What is the deadline? NOTIMP.

lp
he
14.31🈶🈶🌐💸💸 RECAPITALIZATION OF PSBS: [सावर्जिनक क्षेत्र के बेंको का पुन:पूंजीकरण]
If a bank doesn’t have enough capital to comply with BASEL-III norms it can issue debt (bonds) and
equities (shares) to gather new capital. (बािसल मानदंडो का अनुपालन करने के िलए बैंक ने पूंजी जमा करनी होती है)
- 2015: Estimation that Public Sector Banks (PSBs) will require ₹ 1.8 lakh crore additional capital
by 31/3/19 to comply with BASEL-III norms.
ill
w
- So, Finance Ministry’s Dept. of Financial Services up with Indradhanush PLAN for phased-
recapitalization of PSBs with ₹ 70,000 crores from 2015 to 2018. Individual PSB will get funding
based on outcomes / performance. (इं द्रधनुष प्लान के अंतगर्त िवत्त मं त्रालय सरकारी बैंको में पूंजी दे रहा था-बािसल
d
मानदंड के अनुपालन के िलए)
go

- 2017: It became clear ₹70,000 crores was insufficient for BASEL-III compliance. So, Modi Govt.
announced more amount. (हालांिक बाद में पता चला की वो रकम पयार्प्त नहीं थी और ज्यादा रकम चािहए होगा)
- To arrange ₹₹ for this, Govt began to issue Bank Recapitalization Bonds (RcB) in the market with
following features: These bonds will have interest rate of ~7%, mature@ 2028-2033. Non-
rs

transferable to third party, Non-convertible into shares. (तो ज्यादा रकम बटोरने के िलए सरकार ने बाजार में
बॉन्ड जारी िकये)
he

- Govt instructed PSBs to mobilize equity (share) capital from private investors. However,
investors shy away from smaller banks with weak balancesheets, so BMB & 5 Associated Banks
ot

merged with SBI (2017). Vijaya & Dena to be merged with BoB (2019, 1st April) etc. (More in
📑📑Pillar#1B1)
- 💼💼 Budget-2020: FM said we’ve given ₹3.50 lakh cr in the last years years.
p

- 💼💼Budget-2021: ₹20,000 crores for PSB recapitalization in Financial Year 2021-22.

el

- 💼💼Budget-2022: No money given for this. Govt’s rationale is that PSBs profitability improving
so PSBs can take care of their capitalization problems by themselves by issuing shares/bonds in
H

market. (सरकार ने नए बजट में पुनः पं जीकरण के िलए कोई पैसा नहीं िदया. सरकारी बैंको अब तुम खुद अपना देख लो!)

🔠🔠❓MCQ. Find Correct Statement(s) abt Governance in PSBs:( UPSC-Pre-2018)

1. Capital infusion into PSBs by the Govt of India has steadily increased in the last decade.

(Batch: PCB10 - RAFTAAR-Only-Prelims) Mrunal’s Economy Pillar#1B2: Burning Issues in Banking → Page 170

KING R & QUEEN P Help others god will help you

 2. To put the public sector banks in order, the merger of associate banks with the parent State Bank
of India has been affected.
Answer Codes: (a) 1 only (b) 2 only (c) Both 1 and 2(d) Neither 1 nor 2.

14.32�BANKING SECTOR: GOVERNANCE / ADMINISTRATIVE REFORMS

14.32.1 �Gyan-Sangam-I, 2015, Pune
FinMin’s Dept of Financial Services (िवत्तीय सेवा िवभाग) organized a workshop of financial regulators,

u
Public Sector Bank, Insurance Companies etc. It resulted in 3 outcomes:

yo
1) PSBs’ CMD post bifurcated into 1) separate chairman and 2) separate MD&CEO so that banks
can function in more professional and accountable manner.
2) Indradhanush plan for bank recapitalization (₹ 70,000 crores)

lp
3) Finance Ministry setting up an autonomous body- Bank Board Bureau (BBB). →

he
14.32.2 � Personnel Selection → Bank Board Bureau (BBB), 2016

ill
w
Figure 6: यूपीएससी की तरह हम लेंगे नोकरी का इं टरव्यू
- It is non-constitutional, non-statutory body (यह सं स्थान न तो सं वध
ै ािनक है न तो वैधािनक)
- It interviews & selects top officials (MD, CEO, Chairman and full-time Directors) for PSBs,
d

public sector insurance companies, and other public sector financial institutions (e.g. NABARD,
go

SIDBI etc.).
- Actual appointment done by FinMin’s Department of Financial Services. (Just like UPSC selects
candidates suitable for IAS but DoPT notifies appointment.)
rs

- BBB also helps the banks in governance reforms, raising capital for BASEL-III etc.
- BBB has 1 Chairman (usually a retired IAS) and some members.
he

🔠🔠❓MCQ. Chairman of public sector banks are selected by the _ _? (Prelims-2019)

(a) Banks Board Bureau (b) RBI (c) Ministry of Finance (d) Management of concerned bank
ot

🔠🔠❓MCQ. Find Correct about ‘Banks Board Bureau (BBB)’ (Prelims-2022)

1. The Governor of RBI is the Chairman of BBB.
p

2. BBB recommends for the selection of heads for Public Sector Banks.
el

3. BBB helps the Public Sector Banks in developing strategies and capital raising plans.
Codes: (a) 1 and 2 only (b) 2 and 3 only (c) 1 and 3 only (d) 1, 2 and 3
H

14.32.3 � Personnel Selection → FSIB replaces BBB (2022)

⇒ 2022: Delhi High Court ruled, “BBB cannot select public sector (govt owned) insurance
companies because of conflict with the other laws related to public sector insurance companies.
⇒ 2022: Then Govt replaced BBB with new body named “Financial Services Institutions Bureau
(FSIB)” to comply with court order.

(Batch: PCB10 - RAFTAAR-Only-Prelims) Mrunal’s Economy Pillar#1B2: Burning Issues in Banking → Page 171

KING R & QUEEN P Help others god will help you

 ⇒ Every thing else (function, feature etc) about FSIB is same as BBB.

🚩🚩🚩FAQ: is this not unethical / big-joke to subvert court order?

Ans. Court has not banned FSIB yet. Govt did not bother to justify loudly in news headlines.
Columnist did not bother to loudly criticise. So, I did not bother to PHD.#🕰🕰थोड़ा-पढ़ो-आगे-बढ़ो

14.32.4 �PSB Banking Personnel Reforms→ 📔📔📔📔ES20 suggestions

u
Shifted to Mains.

yo
14.32.5 �Customer Service: Enhanced Access and Service Excellence (EASE) Agenda 2018

lp
he
ill
w
2018: FinMin’s Dept of Financial Services released EASE framework (बढ़ी पहुंच और सेवा उत्कृ ष्टता) with 6
pillars to make PSBs more Responsive and Responsible viz.
1. Customer Responsiveness. (ग्राहको के प्रित जवाबदेही)
d

2. Responsible Banking: Reduce NPA, prevent frauds. (धोखाधड़ी पर अंकुश)

go

3. Credit Off Take: Try to reach out to potential borrowers for home, auto, education, loans. (स्वयम
बेंक ही उधारकतार्ओ को खोज िनकाले)
4. Help MSME entrepreneurs via SIDBI’s Udyamimitra.com portal. Approve/reject loans in not
rs

more than 15 days. (लघुउधोगों की मदद)

5. Deepening Financial Inclusion & Digitalization. (िवत्तीय समोवेशन)
he

6. Employees’ Human Resource Management (HRM: मानव सं साधन प्रबं धन): improve with training,
performance linked promotion-salaries-posting-transfers etc.
Implementation? Each whole-time director of a PSB will be entrusted with one pillar of the EASE-
ot

framework. Their performance will be checked by the PSB’s board of directors. An independent
agency will be tasked to check public perception. Finally PSB banks will be ranked: E.g. 2018: PNB#1.
Year Framework Theme/focus area
p

2020-21 Ease 3.0 Tech-Enabled Banking

el

2021-22 Ease 4.0 clean and smart banking.

2022-23 Ease 5.0 Common reforms agenda e.g. digital customer experience, supporting
H

small businesses and agriculture etc.

14.32.6 �👮👮:🛡🛡Staff Accountability Framework for PSB-NPA

⇒ Finance Ministry’s issued this for NPA accounts up to Rs 50 crore in PSBs from 1/4/2022.
⇒ If PSB Banker took bonafide business decisions to approve loan application but it turned NPA
then banker will be protected from undue inquiries/harassment by 3Cs — CBI (Central Bureau

(Batch: PCB10 - RAFTAAR-Only-Prelims) Mrunal’s Economy Pillar#1B2: Burning Issues in Banking → Page 172

KING R & QUEEN P Help others god will help you

 of Investigation), CVC (Central Vigilance Commission) and CAG (Comptroller and Auditor
General).
⇒ Previously the fear of 3C was discouraging the public sector bank managers from sanctioning big
loans (in the aftermath of TBS, Mallya, Nirav Modi).

(सरकारी बैंक और लोन पास करने से डरते हैं क्योंिक उन्हें तो CBI, CVC, CAG की कारर्वाई का डर लगता है तो अब िवत् मं त्रालय ने
कु छ नए “सावर्जिनक बेंक कमीर् जवाबदेही ढांचा” िदशािनदेर्श जारी िकए हैं तािक ईमानदारी से िलए गए फै सलों में अगर लोन का पैसा

u
वापस न आए तो सरकारी बेंक के ईमानदार बैंकर पर अनावश्यक रूप से कोई कारर्वाई न हो)

yo
14.32.7 �Customer Service: RBI’s B.P.Kanungo committee (2022)
He suggested various reforms against bullying/harassment for loan recovery agents, etc.

lp
Term Explain
Bancassurance when banker sells insurance product to a customer to earn commission. e.g.

he
IDBI managers selling LIC policy. This NOT illegal. This is allowed.
Cross-selling when banker sells additional services to customer e.g. credit card, Insurance
policy, mutual fund investment etc. . This NOT illegal. This is allowed.
Mis-selling
ill
when customer is misled about a product. e.g. Bank manager says our Credit
card are given for FREE! (but it is free only for 1st year and then starts charging
w
annual fees of ₹1999/-) . This NOT illegal/unethical.
d
14.33🧹🧹🧹🧹: 👹👹(🚫🚫🏦🏦) NEGATIVE NEWS: ILFS & SHADOW BANKING
go
rs

14.33.1 👹👹(🚫🚫🏦🏦) NBFC: Shadow Banking (आभासी / प्रितछाया बैंिकंग प्रणाली)

he

📔📔📔📔ES20 Vo1 Chapter 08 on ‘NBFC’s Financial Fragility’ (िवत्तीय भं गुरता) observed

⇒ Shadow banking is a set of activities and institutions. They operate partially (or fully) outside the
traditional commercial banking sector. They are not fully regulated by the RBI. ये सं स्थाए पारंपिरक
ot

बैंिकंग िनयमो के दायरे से बाहर काम करती है.

⇒ They mobilize funds by borrowing from banks, issuing Commercial Papers (CP) and Bonds
p

(Non-convertible debentures)
Table 3: Three important segments of the shadow banking system in India
el

HFCs Housing Finance Companies. E.g. Dewan Housing Finance Limited (DHFL)
LDMFs - Liquid Debt Mutual Funds invest clients money into short term debt instruments
H

such as T-bill (of Govt) and Commercial Papers (of companies).

- e.g. certain schemes by UTI, Kotak, L&T, Tata mutual funds
- 2019: Some of these LDMFs had invested clients money in IL&FS and DHFL, but
failed to get the money back. Nearly ₹4000 crore of investors’ money is stuck,
triggering the NBFC crisis in India.

(Batch: PCB10 - RAFTAAR-Only-Prelims) Mrunal’s Economy Pillar#1B2: Burning Issues in Banking → Page 173

KING R & QUEEN P Help others god will help you

 Retail- Retail Non-Banking Financial Companies such as Gold loan companies, asset finance
NBFCs companies etc.
Shadow banking system’s assets are risky and illiquid. If there is a ‘bank run’ like situation
(depositors / investors demanding the money bank) these shadow banks can’t honour the
obligations. As seen in the ILFS crisis (2019) →
14.33.2 👹👹(🚫🚫🏦🏦) Shadow Banks → IL&FS & NBFC Liquidity Crisis

u
yo
lp
he
ill
w
- Infrastructure Leasing & Financial Services (IL&FS) is a Systemically Important Non Deposit
Taking Non - Banking Finance Company (NBFC - ND – SI: प्रणालीगत रूप से महत्वपूणर्- िडपॉिज़ट न
d

लेनेवाली- गैर-बैंिकंग िवत्त कं पनी) Setup in 1987 HQ@Mumbai.

go

- Shareholders: LIC > Japan’s Orix group > Abu Dhabi’s group > Central Bank of India > SBI.
- Challenge? 1-2-3 of above diagram. + loans given to unworthy borrowers with forged
documents, bribes were paid to IL&FS board directors & auditors.
rs

14.33.3 👻👻 ATMANIRBHAR → 🐯🐯: 👹👹(🚫🚫🏦🏦) RBI Helping NBFCs/ Shadow Banks

he

- RBI has launched 1) TLTRO and 2) special liquidity window. (Ref 📑📑1A2 Monetary Policy)
- Govt has announced following 1) Partial credit guarantee 2) Sp. Liquidity scheme 3) Credit
Guarantee Enhancement Corporation (this corporation not yet made, so we’ll not PHD)
ot

14.33.4 👹👹(🚫🚫🏦🏦) 🐯🐯🐯🐯 Shadow Banking → Remedies by RBI

p

⇒ RBI tightened norms of Asset-Liability Management (ALM) norms for NBFCs.

⇒ 2021: RBI proposes 4-tier structure for tighter regulation of NBFCs: NBFCs to be classified into
el

four categories BASE, MIDDLE, UPPER & TOP LAYER (most risky companies). Accordingly
H

tighter regulation on them. ✋Exact details notIMP, Until they actually implemented. (चार श्रेिणयों
में जोिखम के िहसाब से बांटा जाएगा सबसे उच्च श्रेणी में सबसे ज्यादा जोिखम पूणर् कं पिनयों को रखा जाएगा और उन पर िरजवर् बैंक की
िनगरानी सबसे ज्यादा सख्त होगी.)

(Batch: PCB10 - RAFTAAR-Only-Prelims) Mrunal’s Economy Pillar#1B2: Burning Issues in Banking → Page 174

KING R & QUEEN P Help others god will help you

 14.33.5 👻👻 ATMANIRBHAR → 🧔🧔🔥🔥🏦🏦🧹🧹 Partial Credit Guarantee Scheme (PCGS) 2.0
- Budget 2019: If NBFCs/ MFCs/Micro Finance Institutions (MFIs) borrowed money by issuing
debt securities (Bonds or Commercial Papers) → Public sector banks (PSB) invested in it → but
borrower default then the government pays 20% of loss to PSB. (सावर्जिनक बैंकों को आंिशक क्रेिडट गारंटी)

14.33.6 👻👻 ATMANIRBHAR → 🧔🧔🔥🔥🏦🏦🧹🧹 Special Liquidity Scheme for NBFC/HFC

Outdated Current. Deleted from Handout. Sufficient to know it helps NBFCs.

u
yo
14.33.7 Shadow Banking: More reform points by Government and SEBI
Shifted to Mains Handout.

🔠🔠❓In September 2019, which one of the following travel giants declared itself bankrupt? (CDS-

lp
i-2020) (a) Expedia (b) Cox & Kings (c) SOTC (d) ANS: Thomas Cook

he
14.34🧹🧹🧹🧹💍💍 NEGATIVE NEWS: PNB, LOU, SWIFT, & NIRAV MODI

ill
w
PNB (Mumbai Branch): Give foreign currency loan to our client Nirav Modi for purchase of goods (diamonds,
d
airplanes, whatever), if he doesn’t pay, we’ll pay.
- If such bank guarantee given to another bank in a foreign country, it’s called Letter of
go

Undertaking/ Letter of Credit/ Letter of Comfort: internal difference not important.

- Bank earns commission / fees from client for issuing such letters / guarantees.
- Thus, Nirav got loans in dollars currency from foreign banks, to buy diamonds in HongKong.
rs

- PNB Scam: PNB-Mumbai’s corrupt manager kept issuing LoUs to diamond merchants Nirav
Modi & Mehul Chowkasi without due-diligence or collaterals for 7 years, worth ~₹12,000 crores.
he

And 2018-January: Nirav & Mehul left India.

- PNB officials couldn’t detect scam because LoUs were generated through SWIFT platform,
which was not integrated with their Core Banking Solution (CBS) server. (What is SWIFT? Ans.
ot

Ref pillar1A1: digital payment)

Afterwards, ⚾📻📻⚾🎓🎓✋ball by ball commentary on Nirav Modi case =NOTIMP

p
el

14.35🈶🈶🌐🌐 NEGATIVE NEWS: INTERNATIONAL LEVEL BANKING SECTOR

H

Sometimes UPSC asks 1 liner MCQs about global bank/NBFC negative news esp. in NON-IAS
exams like CDS/CAPF/IES. So we will prepare basic idea without forensic analysis.

14.35.1 🈶🈶🌐🌐 Intl. Banking Crisis: Silicon Valley bank crisis (SVB), USA 2023
- USA Fed Tapering → USA Central bank increased loan interest rates to fight inflation → SVB’s
loan customers decreased (due to expensive loans).

(Batch: PCB10 - RAFTAAR-Only-Prelims) Mrunal’s Economy Pillar#1B2: Burning Issues in Banking → Page 175

KING R & QUEEN P Help others god will help you

 - SVB had invested money in government securities, but made losses due to yield change.
- negative media coverage made the depositors panicked to withdraw their money, including some
Indian start-up founders who had parked their money in the bank.
- �Outcome? Federal Deposit Insurance Corporation (FDIC- America’s DICGC type
organization) has shut down SVB. FDIC will sell SVB’s assets to return money to depositors.

14.35.2 🈶🈶🌐🌐 Credit Suisse Bank, Switzerland (2023)

u
- This bank suffered losses due to an instrument called ‘Credit Default Swaps (CDS: more in

yo
pillar1C)’.
- More problems due to Post-Corona, Post-Ukraine general slowdown in the banking industry.
- Data leak revealed this bank helps criminals/druglords hide their money → investigations/court-
cases started → share-price fell.

lp
�Outcome?

he
- 1) Bank had to write-off/delete $17 billion worth of AT-1 Bonds to cover losses. The move has
angered AT1 bondholders as their investments have been reduced to zero.
- 2) Another Swiz Bank UBS has bought Credit Suisse Bank.

14.36��🐯🐯 RBI DIVIDEND, RESERVES, ECONOMIC CAPITAL FRAMEWORK

ill
w
d
go
rs
he
ot

RBI’s income sources include � From its income, RBI allocates funds to�
1. Interest on G-Sec that are not sold in Open 1. Staff retirement fund, provisions for bad
p

Market Ops. loans, depreciation in assets…

el

2. Interest on Foreign G-Sec / Sovereign 2. Reserves for contingency (emergency): ~₹

Bonds. 2.5 Lcr. आपातकाल के िलए आरिक्षत भं डार
H

3. Interest on Loans given to other Banks / 3. Reserves for Exchange Rate Stability
NBFCs. कजर् पर िमलने वाला ब्याज (Technically called “Currency & Gold
4. Revaluation of foreign currency and gold in Revaluation Reserve: ~₹7 lakh cr िविनमय दर में
RBI reserves. िवदेशी मुद्रा और स्वणर् भं डारों के मूल्य में िस्थरता के िलए आरिक्षत भं डार)
बढ़ोतरी After making these allocations, profit is shared
with Union Govt. in form of ‘Dividend’ (RBI

(Batch: PCB10 - RAFTAAR-Only-Prelims) Mrunal’s Economy Pillar#1B2: Burning Issues in Banking → Page 176

KING R & QUEEN P Help others god will help you

 RBI’s income sources include � From its income, RBI allocates funds to�
5. Seigniorage: profits from printing money- Act Section 47). िरज़वर् बैंक के मुनाफे में से ये भं डार/ िनिध में
because face value > intrinsic value. पैसा रखने के बाद यिद कोई रािश बची तो वह सरकार को लाभांश
HOW?NOTIMP के रूप में देनी होगी
6. Penalties imposed on errant banks.
14.36.1 ��🐯🐯 RBI’s Bimal Jalan panel (2018)

u
- 2017: RBI Governor Urjit Patel gave ₹50,000 crore dividend to Govt but Govt wanted ₹3.6 lakh
crore dividend. Then, (गवनर्र उिर्जत पटेल िजतना दे रहा था उससे कई गुना ज़्यादा िडिवडेंड सरकार चाहती थी)

yo
- RBI setup Bimal Jalan panel to decide the principles for dividend transfer to Govt. (आिर्थक पूंजी
सं रचना तथा लाभांश िवतरण के िसद्धांत)
- 2019- August: RBI board approved Bimal Jalan report.

lp
- It updated norms in such manner that RBI will be able to transfer more dividend / surplus to the
Government. (तकनीकी मानदंडों में सुधार तािक िरजवर् बैंक अपने मुनाफे में से भारत सरकार को अिधक लाभांश दे सकें . )

he
14.36.2 🐯🐯📆📆 RBI’s Financial / Accounting Year (िवत्तीय वषर् में बदलाव)

2019: Bimal Jalan panel recommended �reform → RBI’s central board accepted it
� Before
RBI’s financial year ill� After
- From 1 April, 2021, RBI will switch to
st
w
- 1934 onwards: January to December annual April-March format.
- 1940 onwards: July to June
d
But Govt’s financial year is April-March so, RBI After this reform, no need for interim dividend
go

had to give interim dividend to govt until RBI’s (अंतिरम लाभांश िवतरण नही देना होगा।)
final balancesheet was prepared, then another
(full) dividend was given.
rs

14.36.3 🐯🐯�Section-7 Directive & Urjit Patel’s Resignation (इस्तीफा)

⇒ Section 7(1) of the RBI Act empowers the Government to consult with RBI Governor in Public
he

Interest. (जनिहत के िलए, िरजवर् बेंक कानून की धारा नं बर 7 के अंतगर्त सरकार गवनर्र के साथ िवमशर् कर सकती है)
⇒ In, 2018-October, for the first time in the history of Independent India, Govt began a Section-
ot

7(1) consultation with RBI Governor Urjit Patel, on the issues of PCA norms, BASEL-III
deadline, higher dividend to Govt., Cheap Monetary Policy etc.
p
el
H

(Batch: PCB10 - RAFTAAR-Only-Prelims) Mrunal’s Economy Pillar#1B2: Burning Issues in Banking → Page 177

KING R & QUEEN P Help others god will help you

 ⇒ If RBI Governor doesn’t positively respond in such Section-7(1) consultation, then Section 7(2):
Government can issue binding direction / orders to RBI Central Board to implement its wishes.
(यिद गवनर्र, एसे िवमशर् मे, सरकार की बात नही सुनते तो, कें द्रीय बोडर् द्वारा सरकार अपनी बात को लागू करवा सकती है)
⇒ Although, fearing backlash from media & opposition parties, Govt did not issue any specific
directions to the RBI Board. But, 2018-Dec: Urjit Patel resigned before completing 3-year term.

🔠🔠❓MCQ. Find Correct statements about RBI: (UPSC Prelims-2021)

u
1. The Governor appointed by the Central Govt. (िरजवर् बैंक के गवनर्र की िनयुिक्त कें द्र सरकार करती है)

yo
2. Certain provisions in the Constitution of India give the Central Government the right to issue
directions to the RBI in public interest. ( कु छ सं वैधािनक प्रावधानों के अंतगर्त कें द्र सरकार जनिहत में िरजवर् बैंक को
िदशा िनदेर्श दे सकती है)

lp
3. The Governor draws his power from the RBI Act. (गवनर्र को आरबीआई कानून से शिक्तयां िमलती है)
Code: a) 1 and 2 only b) 2 and 3 only c) 1 and 3 only d) 1, 2 and 3

he
14.36.4 ✍ Mains Answer Writing
problems of bad loan-origin, present reforms, future reforms suggestion, IBC code success and
limitations, how to use technology to prevent / solve NPA, etc. This handout deals only with
PRELIMS#RAFTAAR
ill
w
Next Handout 📑📑Pillar#1C: SEBI SHAREMARKET
d
go
rs
he
ot
p
el
H

(Batch: PCB10 - RAFTAAR-Only-Prelims) Mrunal’s Economy Pillar#1B2: Burning Issues in Banking → Page 178

KING R & QUEEN P Help others god will help you

 Pillar#1C: SEBI-Share Market
Table of Contents

15 ���Pillar#1C: SEBI-Share Market ............................................................................ 183

15.11.1 �� Boycott Notice for PHD in Sharemarket handout ...................................................................... 183

15.12 Capital (पूंजी)- types Fixed vs Working ng ................................................................................. 183

15.12.1 Capital / Funding Arrangement: Types ..................................................................................................... 184

u
15.12.2 Capital Arrange → Trade Credit (Short Term)........................................................................................ 184
15.12.3 Account Receivable / Payable ..................................................................................................................... 184

yo
15.12.4 Capital Arrange → Lease Financing (Medium Term) ............................................................................ 185

15.1 🗃🗃Securities (प्रितभूित) ...................................................................................................................... 185

15.1.1 Capital Arrange → Retained Earnings (Long Term)............................................................................... 185

lp
15.2 🗃🗃 �Financial / Securities market: meaning and types ............................................................. 186

he
15.3 �� Debt Instruments (ऋण उपकरण) .......................................................................................... 187
15.3.1 ���Short term debt instruments (लघु अविध ऋण उपकरण ) .............................................................. 187
15.3.2 �Short term debt instruments → by Government .......................................................... 187
���:�

ill
15.3.3 ���: �� �� Short term debt instruments → by Govt → WMA ............................... 188
15.3.4 ��� Consolidated Sinking Fund (CSF) for State Govts’ repayment .......................................... 188
w
15.3.5 Short term debt: Certificate of Deposit (CD-instrument by Bankers)......................................................... 188
15.3.6 ���Short term debt instruments → more types ......................................................................... 189

���Debt → Short Term → Factoring & TREDS............................................................. 189

d
15.4
15.4.1 ���Factoring Regulation (Amendment) Act, 2021 ..................................................................... 190
go

15.4.2 ���: � TReDS platform to connect factoring-players. ............................................................. 190

15.5 ���Debt → Interest Rate Benchmarks: LIBOR, MIBOR, ................................................ 190

15.6 ��� Long Term Debt Instruments (दीधर्-अविध ऋण- उपकरण) ................................................ 192
rs

15.6.1 🕯🕯🗃🗃🕯🕯�
�Colonial era Govt. to borrow money ....................................................................................... 192
15.6.2 ����Modern day Government to borrow money ................................................................... 192
he

15.6.3 🗃🗃🕯🕯�
� Emerging Debt Market Bond Index- Indian G-Sec added ..................................................... 192
15.6.4 ���Bonds by Modern day Govt. to curb Gold Consumption .................................................... 193
ot

15.6.5 ���� Long term debt instruments by Companies ................................................................... 194

15.7 � Hybrid financing / Mezzanine Financing ............................................................................... 194

15.7.1 � Hybrid: OFCD: Sahara Refund portal (2023) .................................................................................... 195
p

15.7.2 � Hybrid: Foreign Currency Convertible Bonds (FCCBs): ................................................................. 195

el

15.7.3 � Hybrid: Contingent convertible bond (CoCo)/ enhanced capital note (ECN) ............................. 196
15.7.4 ���Long Term Debt Instruments: Other issuers ......................................................................... 196
H

15.7.5 ���Long Term Debt Instruments: Masala, Maharaja, Panda Bond .......................................... 197
15.7.6 ��� Long Term Debt Instruments: Special purpose: �� Surety Bonds ............................ 197
15.7.7 ��� Long Term Debt Instruments: Special purpose Bonds- Sovereign green bonds .............. 198
15.7.8 ��� Long Term Debt Instruments: Special purpose Bonds- Misc. ............................................ 198
15.7.9 🗳🗳(�
��)�
�Electoral bonds (चुनावी बांड, 2017 ) ..................................................................................... 200
15.7.10 ��: � Bond Yield, Yield Inversion, Negative Yield ....................................................................... 201

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1C: SEBI Share-market→ Page 179

KING R & QUEEN P Help others god will help you

 15.8 �🗃🗃 Equity Instruments (इिक्वटी).................................................................................................. 201
15.8.1 Share vs stock- what is the difference? NOTIMP..................................................................................... 202
15.8.2 � Share Types: Preference Shares vs ordinary shares ........................................................................... 202
15.8.3 � Shares for Employees / VIPs / Special investors : ESOP, Equity Warrents .................................... 203
15.8.4 � Share types depending on risk / quality.............................................................................................. 203
15.8.5 �🗃🗃 Share types: Floating vs Restricted Stocks ..................................................................................... 204

15.9 � Ratios / Numbers to compare the companies......................................................................... 204

u
15.9.1 Depending on Market Capitalization (Small Cap/Mid Cap/Large Cap) ............................................... 204

yo
15.9.2 � Valuation & Unicorn Startups............................................................................................................. 205
15.9.3 � Goodwill –while buying another company/brand ............................................................................ 205
15.9.4 � Price-to-Earnings (P/E) Ratio and EPS (Earnings per Share) ......................................................... 206
15.9.5 � Leverage Ratio, Debt to Equity Ratio, ROCE, etc .............................................................................. 206

lp
15.9.6 �Net Worth = Total Assets −(minus) Total Liabilities ........................................................................ 206
15.9.7 EBITDA, Depreciation, Amortization ....................................................................................................... 207

he
15.10 �🗃🗃 Methods of Issuing Shares ............................................................................................. 207
15.10.1 Share-selling: Offer for sale (OFS) and share pledging ............................................................................ 208
15.10.2 Share-selling: Open Offer ............................................................................................................................ 208
15.10.3
15.10.4
ill
�Share Selling: Equity dilution ............................................................................................................... 209
�Share Swaping and De-listing............................................................................................................... 209
w
15.10.5 �Bonus Shares .......................................................................................................................................... 209
15.10.6 �Share Splitting ........................................................................................................................................ 210
d
15.10.7 �Share buyback by the Company ........................................................................................................... 210
15.10.8 �🗃🗃 � IPO → Special Purpose Acquisition Company (SPAC)..................................................... 211
go

15.10.9 �🗃🗃 � ADR/GDR: DESHI Shares in Videshi soil .............................................................................. 211

15.10.10 🗃🗃 � Direct listing of Indian Companies in foreign stock exchanges (2023) .................................... 212
15.10.11 �� Initial Coin Offering (ICO) ........................................................................................................... 212
rs

15.11 � Stock Exchanges / Secondary Market: meaning & examples ............................................ 212
15.11.1 � Social Stock Exchange .......................................................................................................................... 213
he

15.11.2 � Social Stock Exchange: zero-coupon, zero-principal instrument ................................................... 213

15.11.3 � Secondary Market: Significance? (िद्वतीयक बाजार का महत्व) .......................................................................... 213
15.11.4 🗃🗃🗃🗃 DEMAT Account and Depositories................................................................................................. 213
ot

15.11.5 � (��:� �) DEMAT → ASBA Reforms ............................................................................................... 214

15.11.6 Central Counterparties (CCPs), Novation & ESMA controversy .......................................................... 214
15.11.7 CCP Examples in India................................................................................................................................ 215
p

15.11.8 CCP Regulation in India: Who regulates CCP in India? ......................................................................... 215
el

15.12 �� Investors ke Types......................................................................................................... 216

15.12.1 Types of Investors: Depending on Buying Capacity ................................................................................ 216
H

15.12.2 �� Types of Investors: Depending on Buying Behaviour ................................................................ 216

15.12.3 Style of Trading / Investing based on duration and risk .......................................................................... 217

15.13 � SENSEX & other Notable Indices (उल्लेखनीय सं के तक/ सूचकांक) ...................................................... 217
15.13.1 ��MSCI Emerging Market (EM) index............................................................................................. 218
15.13.2 🌬🌬🌬🌬:�
��� Force Majeure (अभेद्य शिक्त) ................................................................................................ 218

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1C: SEBI Share-market→ Page 180

KING R & QUEEN P Help others god will help you

 15.14 ��� Sharemarket: 2020- Impact of Corona................................................................... 218
15.14.1 ��Sharemarket- 2022: IPO Bubble Burst: Case of Paytm (फू ट गया ग़ुब्बारा) .......................................... 218
15.14.2 Sharemarket: 2021-22 observation by �ES23........................................................................................ 218
15.14.3 Proportion of money invested by retailers is falling- says �ES23 ....................................................... 219
15.14.4 Retail investors have decreased participation in the share market due to ............................................. 219

15.15 Efficient Market Hypothesis /theory (EMH) ............................................................................ 220

15.15.1 Beta Value to monitor price volatility or risk of an asset ......................................................................... 220

u
15.15.2 Alpha value to compare performance of Mutual Funds .......................................................................... 221

yo
15.15.3 �� FAQ: Alpha vs Beta similarity / correlation / difference ............................................................ 221
15.15.4 �Types of Analysis – fundamental vs Technical .................................................................................. 221
15.15.5 �DEMAT Portfolio: Meaning, Types, Portfolio Diversification......................................................... 221

15.16 🗃🗃🗃🗃Securities and Exchange Board of India (SEBI) .............................................................. 222

lp
15.16.1 🗃🗃�
��Securities Market Code .............................................................................................................. 223

he
15.17 🗃🗃🗃🗃 SEBI Investor charter (िनवेशक अिधकार पत्र) ............................................................................. 223
15.17.1 🗃🗃🗃🗃: � SEBI: why protect investors & �investors participation?.................................................. 224
15.17.2 ��: measures to � retail investors participation- 25% public holding in Govt Companies ..... 224
15.17.3 Tulip Mania (िकसी िनवेश के पीछे सामूिहक पागलपन) ....................................................................................................... 224
15.17.4
ill
� �Volatility / ViX (कीमतों में अिस्थरता) ....................................................................................................... 224
w
15.18 🗃🗃🗃🗃: � SEBI Reforms to boost investors’ confidence? ....................................................... 225
15.18.1 �Circuit breaker ....................................................................................................................................... 225
15.18.2 T+1 Settlement instead of T+2 ................................................................................................................... 225
d
15.18.3 T+1 hour settlement .................................................................................................................................... 225
go

15.18.4 � (�
�:�
�:) Illegal Trading: Dabba-trading, Insider Trading, Front Running ................................ 226
15.18.5 � (�
� :�
�) Algo Trading & Co-Location ........................................................................................... 226
15.18.6 �Investor Protection Fund (IPF) ............................................................................................................ 226
15.18.7 Adani Hindenburg controversy (2023) & Flash Crash ............................................................................ 227
rs

15.18.8 Short selling (make profit from falling share price) ................................................................................. 227
15.18.9 �Finfluencers: Bollywood star Arshad Warsi banned from Sharemarket ......................................... 228
he

15.18.10 Sharemarket- company related documents .............................................................................................. 228

15.19 � (�
��) Bond Market Reforms......................................................................................... 228
15.19.1 � (�
��: ��) G-Sec Trading- Retail investors’ RDG @RBI .................................................... 228
ot

15.20 � (�
��: ��) G-Sec Trading: RBI's NDS-OM, OTC ................................................. 228
15.20.1 �Bid-Ask Spread ...................................................................................................................................... 229
p

15.20.2 �Arbitrage: Making profit due to difference in to markets/location. ................................................. 229

el

15.21 ���� Commodity Market, FMC, SEBI merger ......................................................... 230

15.21.1 ����Commodity Market: Gold exchanges & �Budget-2021 ............................................. 230
H

15.21.2 ����Commodity Market: Electronic Gold Receipts (EGRs).................................................. 230

15.21.3 ����Commodity Market: India’s first bullion exchange (2022) ........................................... 230

15.22 � Related Bodies with similar sounding names .................................................................... 231

15.22.1 NISM- capacity building for financial market professionals - �Budget-2023................................... 232

15.23 � � � Investment Funds → Mutual fund (MF) for aam-aadmi .................................. 232

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1C: SEBI Share-market→ Page 181

KING R & QUEEN P Help others god will help you

 15.23.1 � � � Mutual fund → ESG, Shariya Mutual Funds ..................................................................... 232
15.23.2 � � � Mutual fund → SIP, ELSS, ULIP ......................................................................................... 233
15.23.3 � � � Mutual fund → 🎛🎛 Mutual fund risk-o-meter .................................................................... 233
15.23.4 � � � Mutual Fund: Backstop Entity- SEBI proposal for stressed MF ....................................... 233
15.23.5 � (�
��: ��) Bond Buying Institution in �Budget-2021 .................................................... 233

15.24 � � � Investment Funds → Hedge Fund (हेज फण्ड) for rich-aadmi .............................. 233
15.24.1 � � � Investment Funds: “Accredited Investor” .......................................................................... 233

u
15.24.2 � � � 🛩🛩 Investment Funds → REITs / InvITs: for rich-aadmi ................................................. 234

yo
15.24.3 � � � Investment Funds → Sovereign Wealth Fund (सं प्रभु धन कोष)................................................ 234

15.25 � 🏛🏛 Investment Funds → CPSE-Exchange Traded Funds (ETF: ईटीएफ) ............................ 234
15.25.1 (�
��)�
�: (🏛🏛🏛🏛🏛🏛) Bharat Bond (Debt) ETF (2019) ....................................................................... 235

lp
15.25.2 (�
��)�
�: (🏛🏛🏛🏛🏛🏛) CPSE-ETF vs Mutual Fund ............................................................................... 236

15.26 � Investment Funds → Alternative Investment Funds (AIF) ............................................ 236

he
15.26.1 (�
��):(🏗🏗�
�) Govt’s AIF for Real Estate Sector (2019) ................................................................... 236

15.27 🗃🗃 Forward / Future Contracts & Call / Put Option.............................................................. 237

15.28
15.28.1
ill
🗃🗃 � Derivatives & Swaps (व्युत्पन्न प्रितभूितयां और अदला-बदली) .............................................................. 237
🗃🗃🗃🗃: ��� Bilateral Netting of Qualified Financial Contracts Act 2020.................................... 237
w
15.29 ��� Participatory notes (P-Notes: पािर्टिसपेटरी नोट्स) ............................................................ 238
15.29.1 �(�
��) Credit Default Swap (CDS) .................................................................................................. 239
d

15.30 Tax on Investment / financial assets ........................................................................................ 240

go

15.30.1 Tax relief given on ....................................................................................................................................... 240

15.30.2 � Tax relief NOT given on ...................................................................................................................... 240

15.31 🏙🏙🏙🏙 Company types ................................................................................................................. 241

rs

15.31.1 �Company types based on incorporation ............................................................................................. 241

15.31.2 🏙🏙🏙🏙 Company types based on number of members .............................................................................. 242
🏙🏙🏙🏙 Company types based on Ownership .............................................................................................. 243
he

15.31.3
15.31.4 🏙🏙🏙🏙 Company Types: Misc. ...................................................................................................................... 243
15.31.5 🏙🏙🏙🏙 Corporate Governance → Small Companies given compliance relief ........................................ 243
ot

15.31.6 🏙🏙🏙🏙 Commercial Organizations: Other Types ....................................................................................... 244

15.31.7 ��� Corporate Governance → LLP settlement Scheme 2020 .................................................... 244

15.32 � Statutory bodies in Ministry of Corporate Affairs (MCA) ............................................... 244

p

15.32.1 � � Competition Commission of India (भारतीय प्रितस्पधार् आयोग) ......................................................... 244

el

15.32.2 Google pe Penalty by CCI ........................................................................................................................... 244

15.32.3 � � Insolvency and Bankruptcy Board of India (IBBI) .................................................................... 244
H

15.32.4 Unclaimed shares and dividends of IEPF & �Budget-2023 ................................................................ 245
15.32.5 �� Ministry of Corporate Affairs also associated with:.................................................................... 245
15.32.6 Companies Act: EoD- Central Data Processing Centre in �Budget-2023 ......................................... 246
15.32.7 �� Corporate Governance (कॉपोर्रेट शासन) ............................................................................................ 246
15.32.8 Corporate Social Responsibility.................................................................................................................. 247
15.32.9 NSE Prime regulation for corporate governance (2022) ......................................................................... 247

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1C: SEBI Share-market→ Page 182

KING R & QUEEN P Help others god will help you

 15.33 �� Takeover related terms ................................................................................................. 247
15.33.1 �� Leverage Buy-Out (LBO) ............................................................................................................... 247
15.33.2 ��� Poison Pill against Takeover by Twitter ................................................................................ 247
15.33.3 � De-Merger When a company subdivided into multiple companies. .............................................. 248
15.33.4 �� Mock Questions for Mains ............................................................................................................ 248

u
15 🐮🐮🐮🐮🐮🐮PILLAR#1C: SEBI-SHARE MARKET

yo
MCQs from SEBI/ Share market /Financial Market / Companies Act Topic in UPSC Prelims
Year 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
MCQs 1 MCQ 0 2 0 1 1 3 1 2 3

lp
These Qs mostly tested very basic foundation level understanding of share market. So, we are not here
to become Investment Bankers / Mutual Fund managers 🎓🎓✋#🕰🕰थोड़ा-पढ़ो-आगे-बढ़ो

he
15.11.1 🚩🚩🚩 Boycott Notice for PHD in Sharemarket handout
Since UPSC has recently started asking special types of MCQs from Sharemarket related so I’ve
increased the topic coverage in this handout = number of pages increased without any SHAME.
ill
w
d
go
rs

- I boycott faaltu-ki-PHD/real-life-gyan. We will only grab low hanging fruits / 1-liner-GK and
he

move. If something was worth knowing then I would have already covered in the handout. If I
have not covered it= that means I do not find it important for exam.
- I boycott unnecessary translation into Hindi for every term: because sharemarket-topic does not
ot

have much utility in the mains examinations. (मुख्य परीक्षा में शेयर बाजार के बारे में बहुत कम ही पूछा जाता है तो
जबरदस्ती हर चीज का िहदं ी करने नहीं बैठेंगे. वैसे भी शेयर बाजार की ज्यादातर terms अंग्रेजी में चलती है. जबरदस्ती िहदं ी करने
बैठे तो उसे समझना और याद रखना किलष्ट हो जाएगा)
p
el

15.12💰💰 CAPITAL (पूंजी)- TYPES FIXED VS WORKING NG

Capital required to meet financial needs of a company.
H

Fixed Capital (स्थायी) Working Capital (कायर्कारी)

Money needed for purchase of land, Money needed for purchase raw materials, salaries to
plant and machinery, furniture, and employees, rent of the office, advertising / marketing,
other fixed assets. other day-to-day operations, etc.

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1C: SEBI Share-market→ Page 183

KING R & QUEEN P Help others god will help you

 15.12.1 Capital / Funding Arrangement: Types

u
yo
lp
he
Source: NCERT Class12 Business Studies Ch.8 ill
w
Wait till we finish entire handout, then these terms will make sense to you.
d
15.12.2 Capital Arrange → Trade Credit (Short Term)
go
rs
he
ot

15.12.3 Account Receivable / Payable

p
el
H

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1C: SEBI Share-market→ Page 184

KING R & QUEEN P Help others god will help you

 15.12.4 Capital Arrange → Lease Financing (Medium Term)

u
yo
15.1 🗃🗃SECURITIES (प्रितभूित)

lp
A ‘Security’ means a certificate/document indicating that its holder is eligible to receive a certain

he
amount of money at a particular time. This could be a…
🤝🤝Equity: Share certificate 🔪🔪Debt (ऋण): Bond / Debenture
Holder gets dividend from the profits of the Holder gets interest & principal irrespective of
company. If no profit, then no dividend. whether company makes profit or not.
Company’s owners, proprietors (मािलक)
ill
creditors of the company (लेनदार).
w
Have last claim during liquidation. So, first claim.
Shareholders are ‘Residual Claimants’. नीलामी से िमलने वाली रकम पर पहला हक इनका
Attractive in boom period, since companies Attractive in slowdown period, since bonds
d

more likely to make profit so more chances of provides fixed interest to the investor
go

good dividend. Although during corona, many irrespective of profit of the company. िनवेशकों को
investors tried to buy shares cheap from मं दी के दौरान ज्यादा अच्छे लगते हैं, क्योंिक जोिखम कम
secondary market, with hopes of getting profit
rs

after corona-recovery.
��FAQ: Bond and Debenture are not same. They’re having internal technical differences.
he

Ans. UPSC not asking b.Com/M.Com pedantry here. Then why burden brain’s memory card?

15.1.1 Capital Arrange → Retained Earnings (Long Term)

ot

Company makes profit → ₹₹ goes into two channels.

1. Some of the money given to shareholders as dividend.
2. Remaining money is re-invested in the business = this is called “Retained Earnings”
p
el

�FAQ: who will decide how much money will be given as dividend/retained earning? Ans.
Company’s board of directors.
H

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1C: SEBI Share-market→ Page 185

KING R & QUEEN P Help others god will help you

 15.2 🗃🗃 🛒🛒FINANCIAL / SECURITIES MARKET: MEANING AND TYPES

u
yo
lp
he
Financial Market is the place where buying and selling of securities takes place. Market doesn’t
require physical location. Can be done online / telephone as well.
ill
w
Classifi. Market Subtypes
Tenure: 1. ⏰Money Market (<1 year maturity) मुद्रा बाजार
(अविध) 2. 🕯🕯Capital Market (1 year/> maturity) पूंजी बाजार
d

Freshness 1. Primary Market (where new securities are issued for the first time). Helps a
go

प्राथिमक company /govt to connect with the investor. It has no separate physical existence
एवं but classified like this, for economic analysis. (इस बाजार का अलग से भौितक स्थान नहीं होता
िद्वतीयक
िकंतु आिर्थक आकलन के िलए आंकड़ों में अलग से िदखाया जाता है)
rs

बाजार
2. Secondary Market (where the old securities are resold). It has physical existence
such as Bombay Stock Exchange (BSE) at Dalal Street, Mumbai.
he

Secondary Market provides liquidity & confidence to investors to buy new securities
in Primary Market. (compared to a scenario if there was no market to resale used cars-
ot

तो कम लोग नई कार खरीदने जाएं गे.)

Settlement 1. Future Market: Where parties write contract today to buy/sell something at
p

(िनपटान) specific price on a future date. भिवष्य की िकसी तारीख को खरीद/िबक्री के िलए वतर्मान में
सौदा/समझौता िकया जाए
el

2. Spot Market: if bought & sold for immediate delivery.

H

Asset - Depending on what asset is traded, market can be divided into Bond (Debt)
(पिरसं पित्त) market, Share (Equity) market, G-Sec Market, Foreign Currency Market,
Commodity Market etc.

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1C: SEBI Share-market→ Page 186

KING R & QUEEN P Help others god will help you

 Classifi. Market Subtypes
- if there was a supermall where all these products were available in one place it
will be called “Universal Exchange”. SEBI permitted BSE & NSE to launch such
thing (2018).

u
yo
lp
he
ill
w
d

15.3 🔪🔪🗃🗃 DEBT INSTRUMENTS (ऋण उपकरण)

go

Bond holders are creditors to company. First claim during liquidation. Assured interest irrespective
of profit of company. These debt instruments can be classified into short-term vs long term.
15.3.1 🔪🔪🔪🔪⏰Short term debt instruments (लघु अविध ऋण उपकरण )
rs
he
ot

- Tenure = less than 1 year. Usually ‘unsecured’ because not backed by any asset.
p

- Usually sold at discount and re-purchased at Face Value or Par Value. The difference between
el

these two prices is the interest earned by investor. सस्ते में बेचकर मूल भाव पर खरीदा जाता है
- Another synonym for this process: “rediscount the bills.”
H

- They’re traded at Money Market and are (usually) ‘negotiable & transferable’ in nature i.e.
lender can sell to 3rd party → 3rd party can demand money from borrower. (परक्राम्य और हस्तांतरणीय)
- They’re also called Near Money = Asset that is highly liquid = can be readily converted into cash.

15.3.2 🔪🔪🔪🔪⏰:🧔🧔Short term debt instruments → by Government

1. State govt’s treasury bills (T-bill). But stopped since 2001.

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1C: SEBI Share-market→ Page 187

KING R & QUEEN P Help others god will help you

 2. Union govt’s treasury bills (T-bill: 14, 91, 182 and 364 days) & Cash Management bills (CMB:
upto 90 days, started in 2009).
3. WMA (ways and means advances): given below

15.3.3 🔪🔪🔪🔪⏰: 🐯🐯🔪🔪 🧔🧔� Short term debt instruments → by Govt → WMA
⇒ When Govt faces short term mismatch in receipt (income) and payment (Expenditure)

u
⇒ RBI Lends money on short term (3 months). Not counted in fiscal deficit figure. (More in

yo
📑📑Pillar2D: FRBM)
⇒ Corona-crisis: ⬆mismatch in cashflow because सरकार की आमदनी और खचर् में अंतर बढ़ गया क्योंिक
o ⬇Govt Income: Sales ⬇ GST, Govt gave extension in tax payment deadlines

lp
o ⏫Expenses: free LPG, food, mask etc.
⇒ So, ATMANIRBHAR Bharat → RBI ⏫WMA limits by 60% than before to help the Union

he
(1.20lcr) and State Governments (₹51,560cr collectively).
⇒ If upto above amount of ₹₹ borrowed = its WMA: loan interest = repo%
⇒ If beyond above amount borrowed then called ‘Overdraft’: loan interest repo+2%

ill
🎓🎓✋^ above % or quantity or figures not imp for scope of exam
w
15.3.4 🐯🐯🔪🔪� Consolidated Sinking Fund (CSF) for State Govts’ repayment
d
go
rs
he

15.3.5 Short term debt: Certificate of Deposit (CD-instrument by Bankers)

⇒ Certificates of deposit (CDs) are unsecured, short-term, negotiable debt instruments issued by
commercial banks in the money market.
ot

⇒ 2023 sudden jump in the CD issued by bank.

⇒ Reason: Bankers received many loan applications, but don’t have enough money to loan because
p

o A) enough quantity of deposit is not coming and

o B) repo loans becoming very expensive.
el

⇒ So bankers borrowing money by issuing CDs in money market.

H

Word Meaning
NEGOTIABLE a signed document that promises money to a specified person at a
INSTRUMENTS specified time (एक दस्तखत/हस्ताक्षर िकया हुआ दस्तावेज िजसमें िकसी व्यिक्त को िकसी िदन
पैसा देने की कसम/प्रितज्ञा की गई है)
UNSECURED no collaterals/assets are pledged. (कु छ िगरवी नहीं रखा गया)
INSTRUMENTS

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1C: SEBI Share-market→ Page 188

KING R & QUEEN P Help others god will help you

 Word Meaning
SHORT-TERM less than 1 year
INSTRUMENTS

15.3.6 🔪🔪🔪🔪⏰Short term debt instruments → more types

Table 1: how does this work in real life? Ans. not important just remember 1-Word Association
Borrower 🔪🔪🔪🔪⏰ Short term debt instrument (लघु अविध के ऋण पत्र)

u
- Bill of Exchange, Hundi, Commercial Papers, Promissory Notes.

yo
- note: Currency Note is a ‘Promissory Note’ issued by RBI Governor
Company however, he’s not bound to pay any interest. He just promises to
exchange it with other currency notes & coins of equal face value.(More

lp
in 📑📑Pillar#1A1)
Merchant Commercial Bill.

he
It’s the interest rate when Financial Intermediaries (Banks/NonBanks)
Call Money
borrow for ONE DAY among themselves.
Notice Money Same as above but for 2 to 14 days.
Collateralized Borrowing and Lending Obligation.
CBLO
ill
Clearing Corporation of India Ltd (CCIL) helps Financial Intermediaries (FI)
w
to get short term loans through this instrument.
Inter Corporate Deposits are unsecured short-term loan made by a company
ICD
with another company.
d

Repo Repo and Reverse Repo= Ref: Pillar#1A2: Monetary Policy handout.
go

MCQ. [CSP23-SET-A-Q025] Consider the following markets :

1. Government Bond Market 2. Call Money Market 3. Treasury Bill Market 4. Stock Market
How many of the above are included in capital markets?
rs

(a) Only one (b) Only two (c) Only three (d) All four
he

15.4 🔪🔪🔪🔪⏰DEBT → SHORT TERM → FACTORING & TREDS

ot
p
el
H

⇒ Suppose an MSME seller has sold cardboard boxes for jiophones to Mukesh Ambani but Mukesh
Ambani says he will pay the bill next month. Presently this is an unpaid invoices.
⇒ MSME seller can pledge this invoice to a factor (bank/NBFC) to avail loans. (छोटी कं पिनयां बड़ी

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1C: SEBI Share-market→ Page 189

KING R & QUEEN P Help others god will help you

 कं पिनयों को सामान और सेवा बेचती है उसका जो बकाया पैसा है उसके िबल को िगरवी रख के लघु अविध का कजर् ले आये)
Bill Discounting Factoring
MSME seller collects the money from Buyer Factor (lender: bank/NBFC) directly collects
(Ambani) & delivers ₹ ₹ to the Factor the ₹₹ from unpaid invoices from Buyer
(bank/NBFC). (Ambani).

15.4.1 🔪🔪🗃🗃⏰Factoring Regulation (Amendment) Act, 2021

u
to amend the Factoring Regulation Act, 2011

yo
Before After
Banks and only “Factoring Companies Banks and all types of NBFCs allowed (After
(NBFC)” allowed to give loans under this registering with RBI). → So now more than
system. There were only seven NBFCs 9000 NBFCs in India can give loans → this will

lp
registered as Factoring Companies. increase the availability of loans for the MSME.
-- earlier it was less. RBI given more powers to regulate this

he
business.
-- earlier it was less. More legal clarity about TReDS system.
Earlier this was not clear and so MSME could Need to register the invoice-pledge-factoring-

the same invoice as collateral in multiple ill

commit fraud of “dual financing” i.e. Pledging loan transaction on A central registry set up
under the SARFAESI Act. This will prevent the
w
Bank/NBFCs. dual financing frauds.
d
15.4.2 🔪🔪🔪🔪⏰: 📡📡 TReDS platform to connect factoring-players.
⇒ Just like quickr/olx connect buyers with sellers, the Trade Receivables Electronic Discounting
go

System (TrEDS) online-platform Connect the factors (bank/NBFC) with the borrowers (MSME).
⇒ Examples of 3 TReDs platforms: M1xchange, RXIL, and A.TReDS. Have to register with RBI.
⇒ Most famous is RXIL - Owned by the Small Industries Development Bank of India (SIDBI) and
rs

the National Stock Exchange of India Limited (NSE), State Bank, ICICI and Yes Bank .
he

15.5 🔪🔪🔪🔪⏰DEBT → INTEREST RATE BENCHMARKS: LIBOR, MIBOR,

London Inter-bank Offered Rate (LIBOR) is the average interest rate at which banks in London give
ot

short term loans to each other.

In LIBOR definition, replace the word “London” → “Mumbai” and “Global” →
MIBOR
“Indian”, and you’ll know what MIBOR is!
p

⇒ Mumbai Interbank Forward Outright Rate (MIFOR)

MIFOR
el

⇒ Faded topic so deleting from handout.

H

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1C: SEBI Share-market→ Page 190

KING R & QUEEN P Help others god will help you

 u
yo
lp
he
🔠🔠❓Find Correct statements☹Asked in UPSC-Pre-2018) ill
w
1. The RBI manages and services Govt of India Securities, but not any State Govt Securities.
2. Treasury bills are issued by Govt of India and there are no treasury bills issued by State Govts.
d
3. Treasury bills offer are issued at a discount from the par value.
Ans Codes: (a) 1 and 2 only (b) 3 only (c) 2 and 3 only (d) 1, 2 and 3
go

🔠🔠❓Which of the following is /are example (s) of ‘Near Money’? [UPSC-CDS-2016-I]

1. Treasury Bill 2. Credit Card 3. Saving accounts 4. Money Market Instruments
Answer codes: (a) 1 only (b) 2 only (c) 1, 2 and 3 (d) 1, 3 and 4
rs

🔠🔠❓ In Indian economy, non-financial debt includes ___ ? (Prelims-2020 SetB- Q84)
1) Housing loans owed by households
he

2) Amounts outstanding on credit cards

3) Treasury bills
Codes: [a) 1 only [b) 1 and 2 only [c) 3 only [d) 1, 2 and 3
ot

🔠🔠❓ Which of the following phrases defines the nature of the ‘Hundi’ generally referred to in
the sources of the post-Harsha period? (UPSC-Prelims-2020)
p

[a) An advisory issued by the king to his subordinates

[b) A diary to be maintained for daily accounts
el

[c) A bill of exchange [d) An order from the feudal lord to his subordinates
H

🔠🔠❓Find correct statement(s) (UPSC-Prelims-2020)

1) ‘Commercial Paper’ is a short-term unsecured promissory note.
2) ‘Certificate of Deposit’ is a long-term instrument issued by the Reserve Bank of India to a
corporation.
3) ‘Call Money’ is a short-term finance used for interbank transactions.
4) ‘Zero-Coupon Bonds’ are the interest bearing short-term bonds issued by the Scheduled

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1C: SEBI Share-market→ Page 191

KING R & QUEEN P Help others god will help you

 Commercial Banks to corporations.
Codes: [a) 1 and 2 only [b) 4 only [c) 1 and 3 only [d) 2, 3 and 4 only

15.6 🔪🔪🗃🗃🕯🕯 LONG TERM DEBT INSTRUMENTS (दीधर्-अविध ऋण- उपकरण)

Tenure = 1 year/>. Further sub-division based on who is the Borrower?
15.6.1 🕯🕯🗃🗃🕯🕯🧔🧔Colonial era Govt. to borrow money
1. Coupon Bonds: Contain detachable coupons. Coupons are presented to the issuer to claim the

u
interest. Therefore, bond interest rate is also called ‘coupon rate’.

yo
2. Zero Coupon Bonds/ Zero Interest Debentures (ZID): Are sold on discount and repurchased at
face value, do not have any coupons. (separate topic: Zero-Coupon, Zero-Principal Bonds-
check ‘social stock exchange’ in this handout)

lp
3. Bearer Bonds: Not linked to a PAN card, Aadhar card or passport, voter card or social security
number. Anyone who presents it to the issuer, will get interest and principal. Usually issued

he
during the war time.

15.6.2 💡💡🗃🗃🕯🕯🧔🧔Modern day Government to borrow money

⇒ Government securities, Dated securities, Sovereign bonds (सं प्रभु बांड), Kisan Vikas Patra etc.
(more in 📑📑Pillar 1D: Financial inclusion lecture)
ill
w
⇒ Also called Gilt Edged securities (उच्च / अिग्रम दजेर् की प्रितभूितया) because repayment is assured by
Government. (But then, they give lower interest rate because of low risk to the investor).
d
⇒ Global Credit Rating Agencies gives ‘rating’ to sovereign bonds. “AAA” is the best🤩🤩 and
go

highest given to US Treasury Bonds. India’s rating is ~“BAA” = moderate risk of default😰😰.
⇒ World’s top three credit rating agencies- Fitch, Moody’s and Standard & Poor have pro-US/EU
allegiance. Critics allege these 3 agencies do not give adequate upgradation to the Govt bonds of
India, China, Russia despite the economic growth. भारत में अच्छी-खासी आिर्थक वृिद्ध के बावजूद भी यह पक्षपाती
rs

िवदेशी सं स्थान भारत को खराब रेिटगं देते हैं

he

15.6.3 🗃🗃🕯🕯🧔🧔🐮🐮 Emerging Debt Market Bond Index- Indian G-Sec added
− It is an index prepared by JP Morgan Chase (an investment bank)
ot

− It reviews/tracks bond prices of China, India, Brazil, South Africa, Russia etc.
− 2023: Indian government bonds also included in this index.
p

- � Benefits? More foreign investors will get interested to buy it. HOW/WHY? NOTIMP. But for
el

the sake of example- If KRK reviews a movie, then u’ll be attracted to watch it on OTT, even if u
don’t watch it in Cinema.
H

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1C: SEBI Share-market→ Page 192

KING R & QUEEN P Help others god will help you

 15.6.4 🥇🥇🔪🔪🥇🥇Bonds by Modern day Govt. to curb Gold Consumption

u
yo
⇒ Real Interest Rate (वास्तिवक ब्याज दर) = Nominal (नािमत) Interest minus Inflation.
⇒ When Real Interest is negative, purchasing power ⏬ despite ⏫ in money quantity in bank
account. Then people prefer to park money in gold/real estate- which is not very beneficial to

lp
economy. So..RBI launched inflation indexed bonds <see the NEXT section>

he
15.6.4.1 🍅🍅🔪🔪🔪🔪🥇🥇 Inflation Indexed Bonds (IIB-मुद्रास्फीित सूचकांिकत बांड)

ill
w
d
go
rs
he
ot
p
el
H

RBI launched IIB in 1997, 2013, 2018 to provide positive Real interest rate to household
��MCQ. Find correct about “Inflation-Indexed Bonds (IIBs)” in India (Prelims-2022)
1. Government can reduce the coupon rates on its borrowing by way of IIBs.
2. IIBs provide protection to the investors from uncertainty regarding inflation.
3. The interest received as well as capital gains on IIBs are not taxable.

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1C: SEBI Share-market→ Page 193

KING R & QUEEN P Help others god will help you

 Codes: (a) 1 and 2 only (b) 2 and 3 only (c) 1 and 3 only (d) 1, 2 and 3
��MCQ. Find correct statements about Convertible Bonds (Prelims-2022)
1. As there is an option to exchange bond for equity, Convertible Bonds pay a lower rate of interest.
2. The option to convert to equity affords the bondholder a degree of indexation to rising consumer prices.
Codes: (a) 1 only (b) 2 only (c) Both 1 and 2 (d) Neither 1 nor 2

15.6.4.2 🥇🥇🔪🔪🔪🔪🥇🥇 Sovereign Gold Bond (2015: सं प्रभु स्वणर् बांड)

u
RBI issues them on behalf of govt. Denomination: gold grams. But, RBI/Govt doesn’t ‘promise’ to
give you gold. They only promise to give you ₹₹ equivalent of latest gold price on maturity. इस बांड का

yo
मूल्य सोने के वजन के िचिन्हत होगा. िकन्तु पिरपक्वता समय पर आपको सोना नहीं, उस सोने के वजन के िहसाब से मूल्य िजतना रुपया देंगे।
- Annual interest 2.5-2.75% (depending on which year’s ‘batch’ you bought.)
- Tenure: after 8 years you get the amount equivalent to prevailing gold prices at that time. हर साल

lp
िनयत व्याज, पिरपक्वता समय पर बाजार में यिद सोने का दाम बड़ा होगा तो आपको मूलधन से भी ज्यादा ₹₹ वापस िदए जाएं गे.
- Eligible investor categories: Indian resident individuals, Hindu Undivided Families (HUFs),

he
trusts, universities and charitable institutions. िसफर् यह लोग या सं स्थान हीं खरीद सकते हैं
- How much can you buy? Minimum 1 gm to max upto 20kg depending on investor’s category.
- From where to buy? While RBI ‘sells’ it but customers buy it via following outlets: banks (only

ill
selected types of banks), post offices, selected stock exchanges (NSE and BSE) and a few other
institutions.
w
- 🤩🤩Benefit ? reduce the import-demand for physical gold and shift a part of the domestic
savings -- used for the purchase of gold -- into financial savings. (More in 📑📑Pillar#3A along
d
with Gold Monetization Scheme. )
go

15.6.5 🔪🔪🔪🔪🥇🥇� Long term debt instruments by Companies

1) Bonds (British Term), Debentures (American Term): Internal difference not important.
2) If the company has high risk of default on repayment, the Credit Rating Agencies will mark it as
rs

Junk Bonds (“BB to D” Grade) e.g. IL&FS. Such company will have to offer a very high interest
rate when issuing bonds next time. ज्यादा जोिखम पूणर् कं पनी ने िनवेशक को लुभाने के िलए ज्यादा ब्याज देना होगा
he

3) Redeemable Bonds (मोच्च): will repay regular interest and will return principal on maturity.
4) Irredeemable Bonds (अमोच्च): will pay only interest but no principal returned. Sometimes issued
by PSB to meet BASEL-capital requirements. Although in reality they offer ‘redemption’ after 5-
ot

10 years when holder has ‘option’ to redeem principal & exit. (Ref: Pillar1B2= AT1 Bonds)
5) Secured vs Unsecured. Secured = asset is pledged. Unsecured = not pledged.
p

6) Non-convertible Bond/Debenture = can’t be converted into shares.

7) Hybrid instruments: Issued as “Bond” but can be converted into Share. E.g. Optionally Fully
el

Convertible Debentures (OFCD).

H

15.7 🐸🐸 HYBRID FINANCING / MEZZANINE FINANCING

It has elements of both debt (loan) and equity (partnership).
Lender gets a right to convert the debt (bond) to an equity (share).
it is done via instruments such as Optionally fully convertible debentures (OFCD).
Venture Capitalists usually do it in the start-up companies.

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1C: SEBI Share-market→ Page 194

KING R & QUEEN P Help others god will help you

 Instrument Traditional Bonds / non- OFCD Share (Equity)
convertible debenture (NCD)
Interest/Return on Investment 12% 8% uncertain
(ROI)
Rights/Claim during liquidation first right middle last/residual
of company claim
^^ Numbers only for illustration that OFCD normally pay less interest than traditional

u
bonds(NCD).

yo
15.7.1 🐸🐸 Hybrid: OFCD: Sahara Refund portal (2023)

lp
he
ill
w
d
go
rs

Basic story explained in above chart: then

he

- Ministry of Cooperation → Central Registrar of Cooperative Societies (CRCS, a statutory body

under Multi-State Co-operative Societies Act 2002) → CRCS - SAHARA REFUND PORTAL
ot

setup.
- 2023: Each investors given ₹10,000 refund from this portal.
p

15.7.2 🐸🐸 Hybrid: Foreign Currency Convertible Bonds (FCCBs):

el

- FCCB investor has option to convert his bond Into shares at pre-determined exchange rate.
H

- The FCCB’s are issued in a foreign currency and carry a fixed interest rate
- e.g. 2010: Data Motors issued FCCB worth $1 billion. (Investors gave dollar currency)
Terms Matter
Face Value $1000 for one bond
Tenure 5 years
Interest 5% on face value in dollars = 50 dollars.

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1C: SEBI Share-market→ Page 195

KING R & QUEEN P Help others god will help you

 Conversion if INVESTOR wanted he could convert 1 Bond (of $1000 value) -into 2 shares
option of ₹500 face value each.
Usually, FCCB’s interest rate lower than non-convertible debentures (NCD). (because company is
giving you the lollipop of conversion. So you cannot eat Laddu both ways ke I want high interest rate
and also I want conversion option.)

15.7.3 🐸🐸 Hybrid: Contingent convertible bond (CoCo)/ enhanced capital note (ECN)

u
Its features are hybrid Mix of i) AT1 Bonds (Ref 1B2) and iii) OFCD.
we’ll pay u “A%” interest rate But

yo
- if Condition “B” happens, we’ll convert it into Shares
- If Condition “C” happens, we’ll write-off principal + Interest and will not even convert it into
share.

lp
�� FAQ by Zhande-walle Babushone: now I’ve 500 jaat ke doubts. Ans.NOTIMP. Accept 3–4

he
lines & move to new topic.

15.7.4 🔪🔪🔪🔪🥇🥇Long Term Debt Instruments: Other issuers

Issuer Objective? उद्देश्य?
-
ill
Urban Local Bodies Issue Municipal bonds to borrow money from public.
w
ULB - Ahmedabad was 1st to launch Municipal bonds (1998). 2020-Lucknow 9th city
in India & 1st in North India.
- 2014- BRICS Nations had setup the New Development Bank (NDB, HQ:
d

BRICS Bond Shanghai, China). Later it launched BRICS Bonds to mobilize money for its
go

infrastructure loans. Denomination: US Dollars

- 2018: launched world’s first Blockchain Offered New Debt Instrument called
World Bank Bond-i. Sold in Australia using Ethereum blockchain technology. Tenure: 2
rs

🌐🌐 years @~2% interest. Denomination: Australian Dollars, hence also called

“Kangaroo Bond”.
he

- Evergrande is a Chinese real estate developer company. Facing trouble

Evergrande
repaying its bonds. Foreign investors panicked, resulting in crisis in Chinese
Crisis
and global financial markets. HOW?NOTIMP.
ot
p
el
H

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1C: SEBI Share-market→ Page 196

KING R & QUEEN P Help others god will help you

 15.7.5 🔪🔪🔪🔪🥇🥇Long Term Debt Instruments: Masala, Maharaja, Panda Bond
🌶🌶 Masala Bonds: These rupee denominated bonds issued outside India, to borrow money for
Indian companies. World Bank’s sister agency International Financial Corporation (IFC) launched
‘Masala Bonds’ to help Indian public sector and pvt sector companies.
⇒ 2015: RBI allowed Indian entities to launch such Masala Bonds.
⇒ 2017: National Highways Authority of India (NHAI) also issued Masala Bonds in London Stock

u
Exchange to mobilize money for Indian Highway projects.

yo
⇒ 2019: Kerala became the first State of India to issue Masala Bonds. Its Kerala Infrastructure
Investment Fund Board (KIIFB) issued Masala Bond at the London Stock Exchange.
Denomination: ₹ ₹ Total Size: ₹ 21.5 billion. Tenure: 5 years. Masala Bonds are usually issued by

lp
institutions with AAA rating. Since KIIFB has BB rating, hence offered higher interest rate:
~9.7% (वरना कोई खरीदता नहीं)

he
Table 2: rapid revision table for Bond types based on currency
🤲🤲Issuer → 🌐🌐 Borrowing from 💸💸 In currency → 🔪🔪🔪🔪 Is called
→
Non-Chinese → China → Renminbi (=yuan)
Non-Australian Australia
ill
Australian dollar
🐼🐼 Panda Bonds
🦘🦘 Kangaroo Bonds
w
Non-Indian India Rupee � Maharaja Bonds
(Indian or Outside India Rupee 🌶🌶 Masala Bonds
d
a non-Indian on
behalf of Indians)
go

Non-Taiwanese Taiwan OTHER than Taiwan Formosa Bond

entity dollar (इसके अलावावाली
मुद्रा)
rs

15.7.6 🔪🔪🔪🔪🥇🥇 Long Term Debt Instruments: Special purpose: 🚦🚦🚦🚦 Surety Bonds
he
ot
p
el

⇒ What does above chart mean? Ans. Refer to Video lecture

⇒ 👜👜👜👜Budget-2022 said we’ll allow Surety Bonds. IRDAI will regulate this.
H

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1C: SEBI Share-market→ Page 197

KING R & QUEEN P Help others god will help you

 15.7.7 🔪🔪🔪🔪🥇🥇 Long Term Debt Instruments: Special purpose Bonds- Sovereign green bonds

u
yo
⇒ RBI sells them via E-Kuber platform to investors.
⇒ Money will goto Government’s Consolidated fund of India-CFI (what is it? Ans. Ref Pillar2A)

lp
⇒ From CFI → borrowed money will be used in following purposes

he
� Money will be used �Will not be used (यहां इस्तेमाल नहीं होगा)
Subsidies, Grants, Tax-Cuts For: ⇒ Nuclear power generation, landfill projects,
⇒ Renewable energy- solar, wind etc alcohol/weapons/tobacco/gaming/palm oil
⇒ Energy efficiency e.g. LED bulbs industries
⇒ Clean transportation e.g. Electric Vehicles
ill
⇒ hydropower plants larger than 25 MW
w
⇒ Water and waste management
⇒ Pollution control
d
⇒ Green buildings
Equity (share) investment in metro projects N/A
go

Above investment projects will be reviewed by Finance Ministry → Green Finance Working
Committee (GFWC) headed by the Chief Economic Advisor (CEA) (इनके द्वारा समीक्षा होगी).
15.7.8 🔪🔪🔪🔪🥇🥇 Long Term Debt Instruments: Special purpose Bonds- Misc.
rs

For renewable energy, pollution control, environment friendly projects.

- World’s first Green Bond launched by World Bank (2007)
he

- India’s first Green Bond launched by Yes Bank (2015)

- BRICS-New Development Bank issued Yuan- green Bonds (2016)
�Green bonds - Indian Renewable Energy Development Agency (IREDA) launched India’s
ot

(हिरत बांड) first Masala Green Bond at London Stock Exchange (2018).
पयार्वरण सं रक्षण और
- 2021: Ghaziabad Municipal Corporation (Uttar Pradesh), issued first-ever
स्वच्छ ऊजार् सं बं धी
p

Green Municipal bond in India. (भारत का सवर्प्रथम हिरत नगर िनगम बॉन्ड)
- 2021: India’s first ever euro currency- denominated green bonds by Power
el

Finance Corporation (PFC, an NBFC company under Power Ministry)

- 2022: Sovereign green bonds. Explained in previous section
H

A sub-type of green bond, where money borrowed for climate resilient water /
�Blue Bond
marine / fisheries projects. E.g. 2018- Seychelles issued world's first 'Blue Bond,' to
(नील बांड)
expand its marine protected areas and fisheries sector. (समुद्री सं रिक्षत क्षेत्र और मत्स्य क्षेत्र)

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1C: SEBI Share-market→ Page 198

KING R & QUEEN P Help others god will help you

 Money is invested in bonds of companies having good track record of
ESG Bonds Environment, Social and Governance (ESG) बॉण्ड िनवेश उन कं पिनयों में जो पयार्वरण, समाज
और शासन की मैं अच्छा काम कर रहे हैं
⇒ Govt / Insurance company issues such bond. Investor is promised with high
annual interest rate. But, if a natural disaster happens, his principal will not be
⛈Catastrophe returned.
Bond (आपदा) ⇒ If disaster doesn’t happen then principal will be returned.

u
अच्छा ब्याज देंगे िकंतु आपदा हुई तो मूलधन वापस नहीं करेंगे क्योंिक वह सारा मूलधन आपदा प्रबं धन में इस्तेमाल

yo
करेंगे
Oil Bonds Explained in �Pillar#2- along with taxes on petrol and diesel.
⇒ US Govt (1870s) and British Govt (1917) had issued Consol bond.

lp
⇒ Consol is short form for ‘consolidated annuities’.
���♾ ⇒ Consol bonds have no maturity date. They are perpetual bonds that paid 4-5%

he
(proposed) interest rate, for an infinite time period. In theory they don’t repay the
Consol Bonds principal amount back to investor. Thus, they’re Irredeemable Bonds (अमोच्च).
for Corona- ⇒ However, in reality, the Govt may redeem(/buyback) the bonds after certain
revival

ill
years, by paying principal to the investor. कु छ वषोर्ं बाद सरकार पुनः खरीद लेगी
⇒ Some economists suggesting Indian govt should issue Consol Bonds for Post-
w
corona economic revival. (अथर्व्यवस्था को पुनर्जीिवत करने के िलए)
⇒ 2019-May: Commerce ministry’s Dr. Surjit S. Bhalla Committee ‘to improve
d
� (Proposed) India’s share in global trade’ suggested ‘Elephant Bonds’. Tenure: 25-years.
go

Elephant Bonds ⇒ People declaring Black Money will be required to invest x%. → ₹ ₹ to be used
for black money only for infrastructure projects. िजनके पास काला धन िकन्तु सजा से बचना है तो वे इसमें िनवेश
करें और पैसा बुिनयादी अवसं रचना िनमार्ण में उपयोग होगा
2019: SIDBI issued ₹ 300 cr. worth Women’s Livelihood Bonds (मिहला आजीिवका बॉन्ड)
rs

with the help of World Bank, UN Women org etc.

- These bonds will be offered to High Net worth Individuals (HNI), Impact
he

� Social Investors (rich people interested in ‘indirect’ social service) etc. They’ll earn
Impact Bonds 3% annual interest rate for tenure of 5 years.
ot

(सामािजक प्रभाव - Money collected → SIDBI → Micro Finance Institutes (MFI) → loaned to
बांड) individual women entrepreneurs in food processing, agriculture, services etc.
2021: Skill Impact Bond: By National Skill Development Corporation (NSDC)
p

with help of global partners from UK, Dubai etc.

el

$14.4 million for skilling 50,000 Indian youth job.

H

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1C: SEBI Share-market→ Page 199

KING R & QUEEN P Help others god will help you

 Zero coupon
zero principal
issued by Not for Profit Organization (NPO), Non-governmental organization
instrument
(NGO) for social service. They repay NEITHER principal NOR interest.

u
🚩🚩🚩FAQ: Then why don't they simply accept it as 'donation'? Ans. May be PR /

yo
media exercise. May be there is tax-saving in it. Newspaper didn't bother to explain
so I didn't bother to google. #🕰🕰थोड़ा-पढ़ो-आगे-बढ़ो
It is a sharia-compliant bond instruments used in Islamic finance. Was in News

lp
�Sukuk because Pakistan Govt issued such bonds. How it works? In which currency is it
Bond/Islamic issued? How it’s different than ordinary bonds?

he
Bond
✋NOTIMP4Exam after looking at old papers.
🔠🔠❓ Find correct statement about ‘IFC Masala Bonds' (UPSC-Pre-2016)
1. The International Finance Corporation, which issues them, is an arm of the World Bank.

ill
2. They are rupee-denominated bonds and are a source of debt financing for public & private
sector.
w
Answer Code: (a) 1 only (b) 2 only (c) Both 1 and 2 (d) Neither1 nor 2
🔠🔠❓ Which one of the following is a viable alternative to term-loans for raising debt finance by
d
large publicly traded firms? (UPSC-IEnggS-2018)
go

(a) Shares (b) Debentures (c) Asset loans (d) Gold loans
15.7.9 🗳🗳(🔪🔪🔪🔪)⏳Electoral bonds (चुनावी बांड, 2017 )
rs
he
ot
p

⇒ Announce in Budget 2017 → Notified by Dept. of Economic Affairs, Finance Ministry (आिर्थक
el

मामलों का िवभाग). Only SBI can issue at present, and in multiples of Rs.1,000, Rs.10,000,
Rs.1,00,000, Rs.10,00,000 and Rs.1,00,00,000.
H

⇒ Controversy about the SBI’s commission, printing cost and GST on sale of electoral bonds. But
not much imp for exam. Enough to know Government pays [Commission + GST] to SBI for
selling these bonds.
⇒ When to buy? For ten days at the start of each quarter. (January, April, July and October).
However, during Lok Sabha election year, can sell for another 30 days.

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1C: SEBI Share-market→ Page 200

KING R & QUEEN P Help others god will help you

 ⇒ Who can buy? Only an Indian Citizen or Company registered in India → deposit money in
their bank account → use that ₹₹to buy Electoral Bond, after giving certain KYC-documents. So,
Electoral Bond can’t be bought anonymously or directly with cash.
⇒ Electoral Bonds can be donated only to a political party registered under Representation of the
People Act 1951 (RPA: लोक-प्रितिनिधत्व अिधिनयम) and which has secured 1% /> votes polled in last
Lok Sabha or Vidhan Sabha elections.

u
⇒ 🕯🕯Validity (वैधता अविध)? Only 15 days from date of purchase. Within that time, buyer must

yo
donate, and political party must deposit in its SBI (current) bank account. No interest payable.
⇒ Characteristics of electoral bonds? (िवशेषताएँ )
○ Paper / Physical format (not DEMAT / electronic format).

lp
○ Bearer instrument (Donor or Recipient’s name not mentioned),

he
○ Promissory Note (promises to transfer money in bank account)
○ Interest Free banking instrument (zero interest payable to anyone).
○ Can’t sell it to third party, can’t pledge it for loans. (िगरवी नहीं रख सकते)
⇒ 🤩🤩Benefits of electoral bonds?
ill
w
○ Transparency in political funding. (राजनीितक चं दे में पारदिर्शता)
○ Reducing influence of cash and black money in election, (काले धन का प्रभाव)
○ Confidentiality to donor- he can give to any political party without his wife, staff, CA,
d

Lawyers, journalists, local goons etc. knowing the name of recipient political party. (दाता
go

को गोपनीयता)
15.7.10 🔪🔪🔪🔪: 🤑🤑 Bond Yield, Yield Inversion, Negative Yield
Bond Yield (Finished in �Pillar#1A2: Operation Twist)
rs

Yield Inversion Not important but u can do PHD from this video:
youtube.com/watch?v=BDACRJAo-48
he

Negative Yield Not Important/outdated

15.8 ⚖🗃🗃 EQUITY INSTRUMENTS (इिक्वटी)
ot

⇒ Equity holders are called owners / proprietors of the company.

⇒ If company makes profit → they get dividend. They’ve last claim during liquidation.
p

Keywords Features
Venture Capital VCF are professional firms helping startup companies with seed capital.
el

Funds (could be debt / equity / hybrid) (स्टाटर्अप कं पिनयों को शुरुआती पूंजी िदलवाते हैं)
Rich person helping startup companies out of his hobby, passion, profit
H

Angel Investors motive or time pass. e.g Ratan Tata in Urban Ladder app. (could be debt /
ऐंजल िनवेशक equity / hybrid).
Related topic: 📑📑Pillar#2: Angel Tax in Budget/blackmoney
Corporate Invests in startup company with goal of acquiring the company or its
Strategic Investor technology at later date. स्टाटर्अप कं पनी में िनवेश करता है तािक भिवष्य में उसकी टेक्नोलॉजी पर

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1C: SEBI Share-market→ Page 201

KING R & QUEEN P Help others god will help you

 कब्जा कर सके
Rajiv Gandhi Equity Savings Scheme= Govt gives income tax benefit to
RGESS people who invest in the share market for the first time. Discontinued by
Started in 2012 Budget-2017
मध्यमवगर् का नया िनवेशक पहली बार शेयर बाजार में िनवेश करें तो आयकर में राहत

15.8.1 Share vs stock- what is the difference? NOTIMP

u
This academic-pedantry NOTIMP4EXAM�
���

yo
15.8.2 🐲🐲 Share Types: Preference Shares vs ordinary shares

lp
he
ill
w
d
go

e.g. Jio 10% fixed dividend Preference Share on face value of ₹100. That means person is entitled to a
rs

FIXED ₹10 dividend (if company makes profit.)

Parameter Preference Share Ordinary Share
he

अिधमान्य शेयर: साधारण शेयर:

Rate of dividend Dividend payout’s rate Dividend payout’s rate fluctuates
ot

is fixed e.g. NIRMA depending on how much money LEFT

10%. AFTER giving dividend to pref.share
holders
p

if company makes ZERO No. जब मुनाफा हुआ ही नहीं No.

profit, does this investor तो तं बुरे का िडिवडेंड िमलेगा!!?
el

have a right to get dividend? कु छ नहीं िमलेगा

H

Rights upon liquidation of they’ll get money they’ll get money AFTER
the company BEFORE ordinary pref.shareholders
shareholders
Voting rights Do not enjoy voting Yes have voting rights in company
rights. decisions.

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1C: SEBI Share-market→ Page 202

KING R & QUEEN P Help others god will help you

 Parameter Preference Share Ordinary Share
अिधमान्य शेयर: साधारण शेयर:
Convertibility Preferred stocks can be Equity stocks cannot be converted.
converted into
ordinary shares
Issuance It is not mandatory for A registered companies must issue
company to issue equity shares. (More Refer to Pillar1C2:

u
preference shares. Company Types)

yo
Risk to investor? lower higher
�NOTE: preference shares have many sub-types e.g. (cumulative vs non cumulative), (redeemable
vs non-redeemable) but we will not PHD.

lp
15.8.3 🐲🐲 Shares for Employees / VIPs / Special investors : ESOP, Equity Warrents

he
ill
w
d
go
rs

Note: In above chart- there are many finer aspects/differences between ESOP and Equity warrants.
he

But we’re doing only 1 liner GK.

Shares sold @discount to directors & employees for their value addition to company
Sweet [Amount is regulated under Companies Act]
ot

Equity �FAQ: How is Sweet Equity similar / different than ESOP/Equity Warrant
Ans. NOTIMP. 1 liner GK. थोड़ा-पढ़ो-आगे-बढ़ो.
p

🎓🎓✋ - 1)What is this? NOT IMPORTANT.

Sweat - 2) How different from Sweet Equity? NOT IMPORTANT.
el

Equity 🚩🚩🚩FAQ: I’m a commerce graduate / hot-shot MBA-walla and I’ve 500 jaat ke
इसका कु छ Counter arguments. Ans. Good. Plz Keep it with yourself. This course for teaching
H

काम नहीं some basic one liners for seeking MCQ. UPSC not asking b.Com/M.Com PHD stuff
परीक्षा में from here. Then why burden brain’s memory card with extra info?

15.8.4 🐲🐲 Share types depending on risk / quality

Penny stocks Shares whose market price remain excessively low compared to its face value. Such

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1C: SEBI Share-market→ Page 203

KING R & QUEEN P Help others god will help you

 फालतू कं पनी का pathetic companies give zero or little dividend.

🚩🚩🚩FAQ: I’m a commerce graduate / sharemarket ka hot-shot trader and I’ve

500 jaat ke Counter arguments. Ans. Good. Plz Keep it with yourself. This course
for teaching some basic one liners for seeking MCQ. बाक़ी आप अपना देख लो। UPSC
not asking b.Com/M.Com PHD stuff from here. Then why burden brain’s
memory card with extra info?

u
Blue Chip Shares of a nationally recognized, well-established and financially sound company

yo
stocks with a history of generating good return for the investor. E.g. Reliance, TCS,
दमदार कं पनी का
Multi- When company’s share price climbs rapidly of time. e.g. IRCTC (2021) from ₹300

lp
bagger Share to ₹1000 = 233% return on investment (ROI) within January to October 2021
Cyclical / When price of a company’s shares depend on the particular business cycle. e.g.

he
Seasonal automobile shares will generally rise during Navratri till Diwali shopping season.
Shares
🚩🚩🚩FAQ: tell me Similarity and difference between Blue chip vs Multibagger? ANS. Notimp.

15.8.5 ⚖🗃🗃 Share types: Floating vs Restricted Stocks

ill
w
Q. are the shares available for buying/selling in secondary market?
d
go
rs
he
ot

15.9 🐾🐾 RATIOS / NUMBERS TO COMPARE THE COMPANIES

Note: If I’ve not covered a particular ratio e.g. Price to Book Ratio (PB) = means I'm not finding it
p

useful for exam. तो िफर झं डा लेकर पूछते मत आ जाना िक क्यों नहीं पढ़ाया? भाई मेरे को काम का नहीं लगा, तो मैंने नहीं पढ़ाया.
el

15.9.1 Depending on Market Capitalization (Small Cap/Mid Cap/Large Cap)

Market capitalisation = {Total number of share multiplied with current price of every share.}
H

Market cap can change every day, depending on the price movement in sharemarket.
Apple Company (A) Total No. Of Shares (B) Price of 1 share Market Cap = A x B
2023-Jan 15.63 billion units $125 $1.9 trillion
2023-Sept 15.63 billion units $171 $2.6 trillion
In India, shares are classified based on market capitalization as follows:

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1C: SEBI Share-market→ Page 204

KING R & QUEEN P Help others god will help you

 Type Small Cap Mid Cap Large Cap
Market Capitalisation^^ less than ₹5000 cr between 5k- more than 20,000 cr
(General understanding) 20k cr
Market Capitalisation (exact below 250 rank 101–250 top-100 companies based
SEBI Rule) rank on Market cap
Examples VIP Suitcase Castrol Reliance, Infosys, TCS
etc giants

u
Risk to shareholder High Medium Low

yo
Liquidity of shares (how easy to Low. Difficult to medium high. Easily u can re-sell
re-sell & Exit) find buyer to exit.
^^ Note: This crores rupee number varies from year to year depending on how much share prices

lp
changed. We’ll not waste time memorising EXACT number.

15.9.2 🐾🐾 Valuation & Unicorn Startups

he
Term Market Capitalization Valuation
Meaning It is the total value of a It is the process of estimating the total value of a
company’s shares. company.
Formula Current share price (X multiply
with) total number of shares. ill
Complex formula involving company’s financial
performance, its assets and liabilities, and its future
w
growth potential.
Example See Apple Company in Byjus @ $22 Billion (2022-Oct)
d
previous section @$12 Billion (2023-Aug)
go

Unicorn Startup = has valuation of 1 billion U.S. dollars or more. e.g. Unacademy, Byjus, etc.

15.9.3 🐾🐾 Goodwill –while buying another company/brand

rs

Item Price in Million $ (Not real. Just e.g.)

Company Whitehat’s assets (building, machine, software 250
he

copyrights etc.
Byjus buys Whitehat at price 300
Difference = Goodwill acquired by Byjus = 50
ot

- Goodwill is an ‘intangible asset’ for the buyer company (Byjus in above example.)
- Goodwill represents Whitehat's reputation, customer base, brand, or other intangible factors- for
p

which Byjus paid 50 million extra, BEYOND the fair-market value of Whitehat’s assets.
el
H

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1C: SEBI Share-market→ Page 205

KING R & QUEEN P Help others god will help you

 15.9.4 🐾🐾 Price-to-Earnings (P/E) Ratio and EPS (Earnings per Share)

u
yo
lp
he
Note: real formulas/ real interpretations are more complex. this is for basic understanding for MCQ.

15.9.5 🐾🐾 Leverage Ratio, Debt to Equity Ratio, ROCE, etc

ill
w
d
go
rs
he

Year 2022 Tata Motors Maruti

ot

Debt:Equity 2 (means Tata borrowed 2x times more money than the 0 (debt-free
ratio amount of share capital it has) company)
Note: real formulas/ real interpretations are more complex. this is for basic understanding for MCQ.
p

15.9.6 🐾🐾Net Worth = Total Assets −(minus) Total Liabilities

el

Amount Mukesh Bhai’s Reliance Anil Ambani’s Reliance Capital Ltd. Company
H

Total Assets (A) ₹16 Trillion ₹63,000 crore

Total Liabilities (L) ₹ 6 Trillion ₹83,000 crore
NET Worth = A - 16-6=10 POSITIVE NEGATIVE 20,000 cr. Case going on in IBC
L code

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1C: SEBI Share-market→ Page 206

KING R & QUEEN P Help others god will help you

 �FAQ: can we say NET-worth represents profit/loss of the company? Ans. It is more refined than
that. Because company may be profitable for present year. But IF its liabilities are too big then it may
have NEGATIVE net-worth. But we’ll not do PHD. थोड़ा-पढ़ो-आगे-बढ़ो.

15.9.7 EBITDA, Depreciation, Amortization

EBITDA It shows Company’s Earnings Before loan Interest repayment, Taxes payment,
Depreciation, and Amortization. Higher number is better.

u
Depreciation Represents wear and tear, repairs, or decrease in the value of physical assets like
machinery and buildings. भौितक सं पित्तयों का िघसाव

yo
Amortisation Represents decrease in the value of intangible assets like patents and copyrights.
अमूतर् सं पित्तयों का िघसाव
15.10 ⚖🗃🗃 METHODS OF ISSUING SHARES

lp
Share have printed price on the certificate called Face Value or Par Value (सममूल्य). If they’re sold at

he
higher price than face value, it’s called “Premium Value”- that usually happens when investor is
confident of getting high dividend/return on his investment.
Related keyword: Price Earnings Ratio (P/E Ratio)- what it means NOTIMP.

ill
w
d
go
rs
he
ot
p
el
H

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1C: SEBI Share-market→ Page 207

KING R & QUEEN P Help others god will help you

 �FAQ: When FPO is issued, is it primary market or secondary market? Ans. It is ultimately a
Petipack/brand new share = primary market. However, this pedantry NOTIMP4EXAM.

IPO and FPO ⇒ Explained in video using above chart.

Rights issue Company issues additional shares (FPO) but gives first right to existing

u
(अिधकार िनगर्म): shareholders to buy them, if they refuse then offered to outsiders.
Qualified Institutional Placement (QIP): When company issues the shares

yo
QIP only to qualified institutional buyers (QIBs) e.g. mutual funds, pension funds,
insurance companies etc

lp
Private If Zee offers to sell its shares only to Ambani. But not to others retail investors.
Placement

he
15.10.1 Share-selling: Offer for sale (OFS) and share pledging

ill
w
d
go

�FAQ: How is OFS different than IPO/FPO? Ans. Motives are different. IPO/FPO is when owner
wants money for the company by selling fresh shares. OFS is when owner wants money for himself
rs

by selling his own shares. But this pedantry is NOTIMP.

he

15.10.2 Share-selling: Open Offer

ot
p
el
H

�FAQ: now I'm confused between OFS vs Open offer? Ans. Khichdi mtt karo. Their objectives are
different. Observe the photos carefully. If you lack basic intellect to even to understand this much,
then better try some lower level exams instead of UPSC.

🔠🔠❓ What does ‘Venture Capital’ mean? (Asked in UPSC-Pre-2014)

A. A short-term capital provided to industries

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1C: SEBI Share-market→ Page 208

KING R & QUEEN P Help others god will help you

 B. A long-term start-up capital provided to new entrepreneurs
C. Funds provided to industries at times of incurring losses
D. Funds provided for replacement and renovation of industries
🔠🔠❓ An individual investor who invests in the e-project usually during an early stage is (UPSC-
IES-2020) A) corporate strategic investor B) founder capital C) angel investor D) venture capital

15.10.3 🍃🍃Share Selling: Equity dilution

u
yo
lp
he
15.10.4 🍃🍃Share Swaping and De-listing ill
w
Terms in news after HDFC (NBFC) got merged into HDFC (Bank), in 2023.
d
go
rs
he
ot

15.10.5 🍃🍃Bonus Shares

p
el
H

Total Qty Price Total Value in ur DEMAT account

Before 1 Share ₹3000 x 1 No. ₹ 3000.00
After Bonus Share 2 Shares ₹3000 x 2 No. ₹ 6000.00

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1C: SEBI Share-market→ Page 209

KING R & QUEEN P Help others god will help you

 15.10.6 🍃🍃Share Splitting

u
yo
lp
he
Before
Qty
1 Share
Price
₹3000 x 1 No.
ill
Total Value in ur DEMAT
₹ 3000.00
w
After Share split (1:2) 2 share ₹1500 x 2 No. ₹ 3000.00 (Total Value of Asset
NOT increased. It’s unchanged.)
d
Note: Share splitting depends on marzi/ discretion of company’s board of directors. It is not done on
1-1 investor’s complaint/request. I have given an example only for illustration.
go

15.10.7 🍃🍃Share buyback by the Company

rs
he
ot
p

Total Share liabilities of TCS BEFORE AFTER Share buyback

el

Amount ₹ 12 lakh crores 12,00,000 - 18,000 = ₹11.82 lakh cr

H

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1C: SEBI Share-market→ Page 210

KING R & QUEEN P Help others god will help you

 15.10.8 ⚖🗃🗃 🤵🤵 IPO → Special Purpose Acquisition Company (SPAC)
Faded topic. Removing from handout.

15.10.9 ⚖🗃🗃 🌐🌐 ADR/GDR: DESHI Shares in Videshi soil

u
yo
lp
he
Figure 1: िबना अमरीकी SEBI मे पं जीकरण िकए, उनके शेयरबाजार से पैसा उठाऊँ , तो कै से?
-
ill
A non-American company wants to mobilize money from American share market but does not
w
want to go through the lengthy & complex process of registration with the American
sharemarket regulator.
- Then such non-American company gives its shares to an American bank.
d

- Based on those (non-American) shares, the American bank will issue American Depositary
go

Receipts (ADR: अमरीकी िनपेक्षागार रसीद) & sell them to American investors. Denomination: USD.
- Global Depositary Receipt (GDR): Same as above, but when single bank issues receipts for
investors in multiple countries. Denomination: usually USD or Euro.
rs

Share issuing company → Deposits his company’s shares That bank issues -- in local
market in – currency
he

in a bank of →
Non-American company American Bank → Issues ADR (in $) in American
→ Sharemarket
ot

Non-Indian company → Indian Bank → Issues Bharat / Indian depositary

receipt (IDR) (in ₹) in Indian
p

Sharemarket
el
H

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1C: SEBI Share-market→ Page 211

KING R & QUEEN P Help others god will help you

 15.10.10 🗃🗃 🌐🌐 Direct listing of Indian Companies in foreign stock exchanges (2023)

u
yo
lp
Note:
- This topic is still developing. It is allowed via Gift-City (Gujarat). (Ref: Pillar#3A)

he
- So, we’ll revisit it after /IF some concrete things happen, probably in Feb-2024’s Budget.
- So presently just prepare 1 liner and move to next TOPIC. Ke yes it’ll help Indian companies to
get money from foreign stock exchanges more easily.

15.10.11 🔗🔗🔗🔗 Initial Coin Offering (ICO)

ill
w
d
go

Figure 2: Cryptocurrency मे पागल हुई पिब्लक को िफरसे बेवकू फ बनाऊ, तो कै से?

⇒ Company wants investors’ money for launching new cryptocurrency, or service/app related to
rs

an existing cryptocurrency.
⇒ Then, it’ll issue Initial Coin Offering (ICO) → Investor subscribes to it, and receives ‘tokens’
he

(and not SHARES). Investors can use the ‘tokens’ to buy companies coins/services or may sell it
to a third party.
⇒ RBI has cautioned Indians not to invest in such instruments, because of the dangers which we
ot

already learned in the Handout Pillar#1A-1: Bitcoins.

p

15.11🐮🐮 STOCK EXCHANGES / SECONDARY MARKET: MEANING & EXAMPLES

el
H

Shares are issued through IPO @Primary market. Then, they can be resold at secondary market,
commonly known as Share market or Stock Exchange or Bourses.

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1C: SEBI Share-market→ Page 212

KING R & QUEEN P Help others god will help you

 ⇒ World’s Oldest: Amsterdam Stock exchange, Netherlands (1602)
⇒ Asia’s Oldest: Bombay Stock Exchange (BSE: 1875)
⇒ India’s stock exchanges chronology: BSE → A’bad → Kolkata → NSE (early 90s)
⇒ Just like Banks have Core Banking Solutions for e-banking, Stock exchanges have their electronic
platforms for trading. E.g. BOLT (BSE's On-line Trading System), NEAT (National Exchange for
Automated Trading). They communicate using VSAT (Very Small Aperture Terminal) Satellite.

u
yo
15.11.1 🐮🐮 🌈🌈Social Stock Exchange
⇒ It is a market for buying/selling shares/bonds/mutual fund for projects/organizations related to
hunger/malnutrition, poverty, gender equality, LGBT welfare, rural sports, Slum Area

lp
Development, affordable housing. Etc.
⇒ Budget-2019: we’ll set up a Social Stock Exchange under SEBI’s regulation. It’ll help social

he
enterprises and voluntary organizations to raise capital as share/bond/mutual funds for
eradicating hunger, malnutrition, poverty, gender equality,LGBTQIA+ communities, rural
sports, slum area development, affordable housing

ill
⇒ Then SEBI setup Ishaat Hussain panel to study it. Then SEBI setup Harsh Bhanwala panel to
study is further. They’ve given recommendations but NOTIMP
w
15.11.2 🐮🐮 🌈🌈Social Stock Exchange: zero-coupon, zero-principal instrument
d
⇒ Refer to “debt instrument” section of the handout.
go

15.11.3 🐮🐮🤩🤩 Secondary Market: Significance? (िद्वतीयक बाजार का महत्व)

⇒ ⏬ Cost of Transactions . You don't have to search around for buyers/sellers manually. सब लोग
rs

एक जगह पे िमल जाते है। एक दू सरे को ढू ंढने मे िरक्शा का खचार्/लागत बच जाता है।
⇒ Providing Liquidity to Financial Assets. तरलता बढती है क्योिक खरीदार िमल जाता है।
he

⇒ Facilitating Price Discovery of shares / bonds. औकात पता चल जाती है कं पनी की।
⇒ Investor sells securities in secondary market→ ₹₹ could be re-invested to a new company’s IPO
in primary market → Contributes to Economic Growth. (पुरानी घिटया कं पनी में से िनवेश की रकम िनकाल
ot

कर नई और बहेतर कं पनी में िनवेश हो सकता है )

15.11.4 🗃🗃🗃🗃 DEMAT Account and Depositories
p
el
H

Figure 3: कागजी शेयसर् को चोरी/आग से बचाऊँ , तो कै से?

⇒ If shares and bonds are traded in paper-form, then transactions are slow & prone to the risk of
theft, forgery and fire. कागजी स्वरूप में शेर से रखे जाएं तो चोरी होने का जालसाजी का आग लगने का डर😰😰

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1C: SEBI Share-market→ Page 213

KING R & QUEEN P Help others god will help you

 ⇒ Depositary is an organization that holds the securities (like shares/bonds etc.) in electronic
(=DEMATERIALIZED) form. Then facilitates its trading online.
⇒ Upon client’s request, Depository can ‘rematerialize’ it as well (i.e. giving physical/hard copy of
share/bond etc) to client.
⇒ Customer must open a “Demat” account in a depository-partner (DP) which can be a bank or an
NBFC.

u
⇒ SEBI regulates them under the Depositories Act 1996. Notable examples:

yo
- Central Depository services Limited (CDSL: owned by BSE, HDFC, Canara Bank etc.)
- National Securities Depository Limited (NSDL: owned by SBI, IDBI, UTI, NSE etc.)
NSDL also has RBI license to operate Payment Bank

lp
he
Time New DEMAT Accounts created (in lakhs)
2021: April-Nov 220.7
ill
w
2022: April-Nov 171.5

15.11.5 🛒🛒 (💻💻:�) DEMAT → ASBA Reforms

d

⇒ Scamster Rupal Panchal (2005) opened multiple fake DEMAT accounts to increase the chances
go

of getting share allocations in IPO. Then she’d sell such shares in stock-exchange for higher
prices.
⇒ Subsequently, SEBI made PAN Card (issued by Income Tax Dept) compulsory for opening
rs

DEMAT Accounts. SEBI also introduced ASBA (Application Supported by Blocked Amount)- it
allows the underwriter to block the amount in IPO-investor-applicant’s bank account, but only
he

IF shares allotted to the applicant, his bank money will be deducted. ASBA-Benefits:
o only serious investors with sufficient bank balance can apply.
o investor continues to earn bank interest on his blocked amount until the process of IPO-
ot

share allotment is over.

15.11.5.1 🗃🗃🔢🔢 ISIN Number

p

⇒ International Securities Identification Number (ISIN) is a Unique 12 characters, consisting of

el

both letters and numbers. प्रितभूितयों का अंतरराष्टी्र य पहचान सं ख्यांक

⇒ It’s a serial code to identify securities e.g. Reliance Industries Limited Shares ISIN:
H

INE002A01018; Infosys Shares: INE009A01021.

15.11.6 🤝🤝Central Counterparties (CCPs), Novation & ESMA controversy

Problem

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1C: SEBI Share-market→ Page 214

KING R & QUEEN P Help others god will help you

 Solution

u
yo
lp
he
-
ill
CENTRAL COUNTERPARTIES (CCPS) act as intermediary between the buyers and sellers in
w
financial market. E.g. G-Sec, T-bill, shares, bonds, derivatives, forex, commodities (what are
these things? Ref: Pillar#1C)
- They act as a central counter-party to every trade i.e. CCP becomes seller to the buyer, and
d

simultaneously CCP becomes buyer to the seller. This process is called “novation”. (HOW? Ans.
go

Observe the chart carefully.)

- so, if one of the party does not honour the agreement → CCP will take care of it. Thus, CCP
prevents system failure
rs

- 😭😭Controversy? Indian CCPs also deal with international financial trades e.g. in Europe. But,
European Securities and Markets Authority (ESMA) is planning to cancel their license/
he

registration/ entry. What exactly is the matter? NOTIMP4Exam. Enough to know in 1 line ke
Indian CCPs facing some problem in Europe.
ot

�FAQ: how exactly do they work in real life? How exactly when they cover the losses. ANS.
NOTIMP4EXAM.
p

15.11.7 🤝🤝CCP Examples in India

el

The Clearing Corporation of India (CCIL), Indian Clearing Corporation Ltd (ICCL), NSE Clearing
Ltd (NSCCL), Multi Commodity Exchange Clearing (MCXCCL), India International Clearing
H

Corporation (IFSC) and NSE IFSC Clearing Corporation Ltd (NICCL).

15.11.8 🤝🤝🐅🐅CCP Regulation in India: Who regulates CCP in India?

Matter Regulator
Money transfer between buyer RBI using powers of Payment and Settlement Systems Act, 2007
and seller

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1C: SEBI Share-market→ Page 215

KING R & QUEEN P Help others god will help you

 Foreign currency transactions RBI using powers of Foreign Exchange Management Act, 1999
Shares, Bonds, Commodities SEBI using powers of SEBI Act, 1992 and Securities Contract
(Regulation) Act, 1956 (SCRA)
�FAQ: I have counter arguments and faultu ke PHD/real-life questions about these laws. Ans.
🙏🙏NOTIMP4EXAM. Plz spare me from it. Ask chatGPT.मेरेको माफ करो और बख्श दो

u
15.12�🛒🛒 INVESTORS KE TYPES

yo
15.12.1 Types of Investors: Depending on Buying Capacity

lp
he
1. � Qualified Institutional Buyers (QIB अहर्ता प्राप्त सं स्थागत िनवेशक): Investors with expertise and

ill
financial muscle to make large investments in capital markets. E.g. Mutual Funds, Insurance
Company, Foreign Venture Capital Funds etc. SEBI has separate registration norms for them.
w
a. Anchor investors: They’re sub-type of QIBs who are offered shares before IPO-launch.
This gives confidence to other investors to subscribe the given IPO.
d
2. �Retail investor: An individual investor who is not a QIB. (आम/खुदरा िनवेशक)
go

Underwriter will keep quota for each category of investors, as per SEBI norms.

15.12.2 �🛒🛒 Types of Investors: Depending on Buying Behaviour

rs
he
ot

1. Jobbers (आढ़ती): Full time engaged in buying / selling securities using money from their own
pockets. (Whereas brokers / commission agents buy/sell using money/shares of their clients).
2. STAG (Male Deer): He buys newly issued securities from primary market & sells them in
p

secondary market for quick profit. प्राथिमक बाजार से खरीद के िद्वतीयक बाजार में मोटे मुनाफे पर बेचने की इच्छा रखता
el

3. 🐮🐮Bull (तेजिड़या ): Optimistic speculator who hopes share prices will rise⏫, so purchases (to sell
them later at much higher price). Just like a bull tends to throw his victim up in the air, the bull
H

speculator stimulates the price to rise.

4. 🐮🐮Bear (मं दिड़या ) – A pessimistic speculator who fears prices will fall ⏬ so, he sells. A bear
usually presses its victim down to ground. Similarly, bear speculator tends to force down the
prices of securities.

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1C: SEBI Share-market→ Page 216

KING R & QUEEN P Help others god will help you

 15.12.3 Style of Trading / Investing based on duration and risk
Margin Trading when a person is buying more shares, than he can afford to. usually done by
borrowing money from the broker. Risky because is the investment fails
then person will get into huge debt.
Day trading / Individuals buy and sell shares over the Internet over a period of a single
Intra-day trading day's trading, with the speculative intention of profiting from small price
fluctuations.

u
Swing Trader He’s buying a share for just few days or weeks then sells it for profit.

yo
Long term investor He’s buying for himself and he holds the share for more than 1 year.
Block Deal When large value order placed e.g. ₹5cr or more. This is usually done by
institutional investors such as Mutual Fund, Insurance companies etc.

lp
Contra Trading / - investor will do opposite of what everyone else is going. - e.g. in Corona-

he
investing lockdown, if everyone is buying Pharma shares and ignoring PVR-cinema
shares → then contra trader will begin investing in PVR-cinema shares
(with the hope that after Corona unlock down → cinema industry will

ill
boom and contra-investor will make great profit)
Further subtypes with various animal / bird names can be found on Investopedia but with poor cost :
w
benefit in exam. #🕰🕰थोड़ा-पढ़ो-आगे-बढ़ो
d

15.13🐮🐮 SENSEX & OTHER NOTABLE INDICES (उल्लेखनीय सं के तक/ सूचकांक)

go

⇒ SENSEX?: Sensitive Index/ सं वेदी सूचकांक. It’s the weighted average of Free Float Market
Capitalization (FFMC) of 30 companies, selected by Bombay Stock Exchange (BSE)’s officials
rs

⇒ NIFTY? National Stock Exchange (NSE)’s index of 50 companies.

⇒ Nikkei? Tokyo Stock Exchange index of 225 companies.
he

🐮🐮 SENSEX – when does it go up 📉📉 Goes down when

💦💦 RBI’s soft /easy monetary policy → cheap 💧💧 Tight monetary policy (More in
ot

loan & credit cards → consumers to spend 📑📑Pillar#1A2)

more → more profit to company → more सं कु चन वादी मौिद्रक नीित के दौरान सेंसेक्स नीचे िगरेगा
dividend : investor thinks “better I buy more
p

shares to get more dividend”: Bullish

el

Peace, Economic boom / prosperity, Political ⚔ War, recession, political instability →

Stability (शांित, आिर्थक समृिद्ध, राजनीितक िस्थरता) Bearish market. (युद्ध, मं दी, राजनीितक अिस्थरता)
H

When govt. hikes foreign direct investment When govt reduces FDI limit
limits
Merger-Acquisition, New product launched, CEO/MD arrest/FIR, Courts slapping fine,
Environmental clearance given to factory media exposing scandal… (कोई कांड हो जाए)

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1C: SEBI Share-market→ Page 217

KING R & QUEEN P Help others god will help you

 🐮🐮 SENSEX – when does it go up 📉📉 Goes down when
If bond yield goes down in a manner where If bond yield goes up in a manner where share
bond investor thinks it’s better to pullout investor thinks it’s better to pullout money
money from bonds to buy shares. from Sharemarket & shift to bonds.
What is Bond Yield? Ans. Ref Pillar#1A2 What is Bond Yield? Ans. Ref Pillar#1A2

15.13.1 🐮🐮🐮🐮🐮🐮MSCI Emerging Market (EM) index

u
Faded topic. Deleting from handout.

yo
15.13.2 🌬🌬🌬🌬:�⚖� Force Majeure (अभेद्य शिक्त)

lp
he
Figure 4: Corona के चलते िबजनेस प्रोजेक्ट पूरा नही िकया, तो क्या जेल मे भेज दोगे, या फांसी पे लटका दोगे? कु छ नहीं उखाड़ सकते मेरा!
⇒ French word for ‘superior force’. It refers to unexpected external circumstances (अप्रत्यािशत बाहरी
पिरिस्थितयाँ) that prevent a party to a contract from meeting their obligations. e.g. Acts of God
(natural disasters, epidemics), war, terror attacks.
ill
⇒ In such cases, courts may not punish party for dishonoring contract. (करारनामे के दायित्व को न िनभाना)
w
⇒ E.g. Corona (COVID-19) Virus → Singapore Govt put restrictions on entry of Chinese →
Singapore construction firms facing labour crunch (श्रिमकों की कमी) → invoked ‘Force Majeure’ to
d
clients, “we can’t finish building your homes/offices in time.” Coronavirus: >55million people
go

infected across the world (as of 2020-Oct).

15.14🐮🐮🐮🐮🐮🐮 SHAREMARKET: 2020- IMPACT OF CORONA

rs

2020- Initial months of lockdown, ⏬⏬ due panic among investors, Force Majure but then
⏫⏫ because (शुरु-शुरु के महीनों में िगरावट िकंतु बाद में बहुत तेजी आई क्योंिक…)
he

1. Cheap Loans / Expansionary Monetary Policy → Some of that money may have entered the
share market through to large investors. (िवस्तार वादी मौिद्रक नीित)
2. 'work from home' + RBI loan Moratorium- may have encouraged many service sector employees
ot

to invest ₹ in the sharemarket. (तालाबं दी के दौरान लोन की िकस्त नहीं चुकानी थी तो कु छ ने वह रकम शेयर बाजार में
िनवेश की होगी)
p

3. Unprecedented demand and profit for IT and Pharma sector- Encouraged the investors to park
their money in such shares at very high price. (तालाबं दी के दौरान सूचना प्रौद्योिगकी और औषधीय कं पिनयों में
el

अप्रत्यािशत तेजी)
4. Youtubers/Reddit/Social media influencers giving online share trading Tips.
H

15.14.1 🐮🐮🐮🐮🐮🐮Sharemarket- 2022: IPO Bubble Burst: Case of Paytm (फू ट गया ग़ुब्बारा)
Shifted to Mains.

15.14.2 🐮🐮🐮🐮🐂🐂Sharemarket: 2021-22 observation by 📙📙ES23

Indian share market fell / remained volatile 2022-23 due to

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1C: SEBI Share-market→ Page 218

KING R & QUEEN P Help others god will help you

 ⇒ Exit of the foreign portfolio investors because of the USA fed-tapering. (More ref: Pillar1A2:
monetary policy lecture.)
⇒ Russia-Ukraine war → 1) imported inflation 2) weakening of Indian and global economy.
⇒ But the fall/shock in the Indian sharemarket was less compared to China, Japan, South Korea etc.
⇒ 2023-Feb: Market fell because of Adani – Hindenburg controversy. (Explained in other section)

u
yo
lp
he
ill
िवदेशी िनवेशक अमेिरकी फे ड टेपिरंग के चलते भारत से भाग रहे हैं. तथा रुस-यूक्रेन युद्ध के चलते महंगाई में बढ़ोतरी और वैिश्वक
w
अथर्व्यवस्था में मं दी की िस्थित। इन सबके बीच भारत का शेयर बाजार िगर रहा है। िकंतु हमारे शेयर बाजार में िगरावट, चीन जापान
दिक्षण कोिरया इत्यािद के शेयर बाजारो मुकाबले कम रही है। एसा आिर्थक सवेर्क्षण ने पाया।
d
15.14.3 Proportion of money invested by retailers is falling- says 📙📙ES23
go

Time Retail Investor’s investment Institutional Investors** Total investment

(A: आम / खुदरा िनवेशक) (B: सं स्थागत िनवेशक) = A+B
2021:Apr-Nov 42% 58% 100%
2022:Apr-Nov 37% 63% 100%
rs

**institutional investor means: pension companies, insurance companies, mutual fund et cetera.
he

15.14.4 Retail investors have decreased participation in the share market due to
⇒ flop/loss-making IPOs in primary market e.g. PayTM (issued @₹2150-> fell @606 in Feb’23)
⇒ increased volatility (ups and downs) in the secondary market due to Fed Tapering , Foreign
ot

investors’ exit etc. (शेयर बाजार में अिस्थरता)

⇒ global uncertainties due to Russia Ukraine war. (युद्ध के बाद िक वैिश्वक अिस्थरता)
p

⇒ Loss of income due to job-layoffs in IT/Startup sector. (नौकिरयों से िनकाले जाने पर आमदनी नहीं बची)
el

🔠🔠❓MCQ. In the parlance of financial investment, ‘Bear’ denotes [UPSC-CDS-2012]

H

(a) an investor, who feels that the price of a particular security is going to fall.
(b) an investor, who expects the price of a particular share to rise.
(c) a shareholder, who has an interest in a company, financially or otherwise.
(d) any lender, whether by making a loan or buying a bond.
🔠🔠❓ MCQ. Which of the following statements is/ are correct? [UPSC-CDS-2012-I]
1. NIFTY is based upon 50 firms in India.

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1C: SEBI Share-market→ Page 219

KING R & QUEEN P Help others god will help you

 2. NIFTY is governed and regulated by the Reserve Bank of India.
3. NIFTY is the stock index of Bombay Stock Exchange.
Answer Codes: (a) Only 1 (b) Only 2 (c) Only 3 (d) 1 and 3

15.15👟👟EFFICIENT MARKET HYPOTHESIS /THEORY (EMH)

- financial markets are efficient in processing information and pricing securities. So one investor

u
CANNOT always KEEP earning more profits than the average trend in market.
- Gist: शेयर बाजार में जो होना है, वह होकर रहना है. तुम कम्पनी का चाटर्/बेलेंश-शीट पढ़कर तं बूरा कु छ नहीं उखाड़ सकते। भले

yo
आपका एक दाव सही लग जाए, लेिकन दो-तीन गलत भी लग जाएं गे तो. िफर नफा मोटा नहीं सामान्य(एवरेज) ही हो जाएगा.
- However, some experts disagree with it. We’ll not debate. थोड़ा-पढ़ो-आगे-बढ़ो.

lp
15.15.1 Beta Value to monitor price volatility or risk of an asset
Indicator to monitor price-volatility/risk of an asset.

he
ill
w
Value Meaning
d
β>1 This company’s share moves faster than sharemarket in both directions.
go

High Reward: if SENSEX moves upward at 1x speed, this company will move at may be
1.5x speed.
High Risk: If SENSEX falling at 1x speed, this company will fall at 1.5x speed.
Usually Tech/Startup/small-cap companies show this behaviour.
rs

β<1 This company moves slower than SENSEX. Low risk, Low return.
β=1 This company’s share moves parallel to SENSEX.
he

β=0 uncorrelated to the market. Mona-Lisa Painting: its value changes independently of
SENSEX movement.
β less
ot

negatively correlated to the market. This asset moves in the opposite direction of the
than 0 SENSEX. e.g. Bond/Gold. If SENSEX goes up, people will shift money from gold/bonds
to shares so gold/bond will fall
p

MCQ. [CSP23-SET-A-Q073] In the context of finance, the term ‘beta’ refers to

(a) the process of simultaneous buying and selling of an asset from different platforms
el

(b) an investment strategy of a portfolio manager to balance risk versus reward

(c) a type of systemic risk that arises where perfect hedging is not possible
H

(d) a numeric value that measures the fluctuations of a stock to changes in the overall stock market

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1C: SEBI Share-market→ Page 220

KING R & QUEEN P Help others god will help you

 15.15.2 Alpha value to compare performance of Mutual Funds

u
yo
This indicator used mainly to compare a Mutual Fund / Hedge Fund manager’s performance against
a benchmark e.g. SENSEX

lp
Value Meaning
Alpha > 0 This MF gives better profit than SENSEX.e.g. if HDFC-MF has 2% Alpha. Means

he
when SENSEX claimed 10%, then HDFC-MF gave 12% return.
Alpha = 0 This MF performing same as SENSEX
Alpha < 0 This MF gives less return than SENSEX

ill
15.15.3 🚩🚩🚩 FAQ: Alpha vs Beta similarity / correlation / difference
w
Term Alpha Beta
Usage Mainly to compare performance of Mutual Mainly to find volatility/risk of a
d
Funds. share.
Beyond that we’ll NOT PHD. UPSC is only asking one liner from here. We’ll not spend more time.
go

15.15.4 ⚱Types of Analysis – fundamental vs Technical

Fundamental Analysis Technical Analysis
rs

Investor Company’s profit, loss, Share price related charts-graphs & mathematical-
studies balance sheet, new indicators e.g. Simple-moving-average of the share
what?
he

products-launch etc. price for last 200 days (200-day SMA).

More examples of indicators (listNOTIMP): Relative
Strength Index (RSI), Stochastic Oscillator, Moving
ot

average convergence divergence (MACD) etc.

Suitable for Long term Investor (longer Intraday Trader (buy/sell within a single day)
than 1 year) Swing Trader (buy/sell for few days or weeks)
p
el

15.15.5 ⚱DEMAT Portfolio: Meaning, Types, Portfolio Diversification

H

Portfolio means the collection of assets held by an investor.

In financial market, “Portfolio” means the list of shares/bonds/ETF you’re keeping in your DEMAT
account.

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1C: SEBI Share-market→ Page 221

KING R & QUEEN P Help others god will help you

 u
yo
lp
he
ill
w
d
go

15.16🗃🗃🗃🗃SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI)

rs
he
ot

⇒ HQ- Mumbai भारतीय प्रितभूित और िविनमय बोडर्,

p

⇒ (1988) Formed by an executive order → (1992) Became Statutory Body → powers increased
el

through amendments in 1999 & 2014. Now it can order search and seizure, attachment of
properties, arrest and detention. (खोज अिभग्रहण, सं पित्तयों की जब्ती/कु कीर्, िगरफ्तारी और िनरोध)
H

⇒ SEBI Board Composition: Chairman + 1 officer from RBI + 2 officers from Union Government
+ 5 members appointed by Union Government.
⇒ Chairman: upto 5 years / 65 age. Reappointment possible.
⇒ 2022: Madhabi Puri Buch-first woman chairperson in history of SEBI. She replaced Ajay Tyagi
(Ex-IAS). Selection was done by Financial Sector Regulatory Appointments Search Committee
(FSRASC) headed by the Cabinet Secretary (IAS).

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1C: SEBI Share-market→ Page 222

KING R & QUEEN P Help others god will help you

 ⇒ Regulates Process of issuing securities (Bonds, Shares, IPO, ETF, ReIT, INVITs, etc.) using the
Securities Contracts Regulation Act, 1956 [SCRA: प्रितभूित सं िवदा िविनयमन]
⇒ Regulates Places (Depositories, Stock exchanges, Commodity Exchanges etc.)
⇒ Regulates Persons (Investors, Brokers, Fund Managers, Public Limited companies etc.)
⇒ Regulates any Collective Investment Scheme (CIS) of ₹100 cr/> [In the aftermath of SAHARA
scam & Chit Fund scams. सामूिहक िनवेश योजनाए ]
⇒ Further appeal: Securities Appellate Tribunal (SAT) → Supreme Court.

u
○ Same SAT also hears appeals against the orders passed by Insurance Regulatory

yo
Development Authority of India (IRDAI) and Pension Fund Regulatory and
Development Authority (PFRDA).(More in 📑📑Pillar#1D)
⇒ SEBI has “SCORES” online portal for complaint. (िनवेशक इधर ऑनलाइन फ़िरयाद करे)

lp
⇒ SEBI has Securities Market Trainers (SMARTs) Program for investor education (िनवेशक प्रिशक्षण)
⇒ Saarthi app: Sebi’s app for investor awareness. (िनवेशकों में जागृित के िलए सेबी का नया एप)

he
15.16.1 🗃🗃⚖📜📜Securities Market Code
⇒ 💼💼Budget-2021: we’ll create a single new law named "Securities Markets Code" by merging

ill
older acts 1) SEBI Act, 1992, 2) Depositories Act, 1996, 3) Securities Contracts (Regulation) Act,
w
1956 4) Government Securities Act, 2007. (पुराने िविभन्न कानूनों का एकीकरण िवलीनीकरण करके "प्रितभूित बाजार
सं िहता" नामक नया कानून बनेगा)
⇒ Benefits? Same as the bullet points written in conclusion of “SEBI Investor Charter.”
d
go

15.17🗃🗃💪💪 SEBI INVESTOR CHARTER (िनवेशक अिधकार पत्र)

⇒ (Definition) A citizens’ charter (नागिरक अिधकारपत्र) is a document of commitments made by a
government agency to the citizens in respect of the services being provided to them. e.g. if "X"
rs

problem is not solved in "Y" days then complain to "Z" officer on ABC Phone number / email
address etc.
he

⇒ (Origin) 💼💼Budget-2021: we’ll create an "investor charter" (िनवेशक अिधकार पत्र) for financial
investors across all financial products (Share, Bond, derivatives, Commodities market etc).
⇒ SEBI notified this in 2021-November.
ot

o This charter applies on Entities/actors e.g. investors, mutual funds, stock brokers, stock
exchanges, depositories, underwriters, real estate investment trusts (REITs),
p

infrastructure investment trusts (InvITS), & other collective investment schemes,

o This charter applies on Events e.g. initial public offerings (IPO), FPO, etc.
el

⇒ More details shifted to Mains-Handout. #RAFTAAR.

H

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1C: SEBI Share-market→ Page 223

KING R & QUEEN P Help others god will help you

 15.17.1 🗃🗃🗃🗃: 🏃🏃 SEBI: why protect investors & ⏫investors participation?

Figure 5: पूंजी बाजार की जड़ो को गहरा करना है तो िसफर् अमीरों का नही, गरीबो की बचत का पैसा भी जाना चािहए!

u
⇒ Share market scams erode publics’ hard-earned savings → alcoholism, depression, suicide and

yo
other social ills. (जनता की बचत का पैसा घपले में बबार्द तो जनता में शराब, अवसाद, आत्महत्या और अन्य सामािजक बुराई)
⇒ Duped investors will shy away from share market & they may invest in gold / real estate = not
very beneficial to economy as it our import-bill, creates black money opportunities.

lp
⇒ If households don’t participate in capital market → companies will have to approach the banks
to get more loans. But banks’ lending capacity is limited by CRR, SLR, PSL, NPA, PCA.(REF in

he
📑📑Pillar#1B2)
⇒ If more retail investors participate in capital market = “Deepening of the capital market” →
factory expansion, job creation, and economic growth. (खुदरा िनवेशक की मदद से पूंजी बाजार की जड़ों की ओर
गहरा करना- तािक रोजगार सृजन और आिर्थक वृिद्ध में मदद िमले)
ill
w
15.17.2 💼💼🏃🏃: measures to ⏫ retail investors participation- 25% public holding in Govt
Companies
d
⇒ Budget 2019: For all the listed government companies, we will strive for minimum 25% public
shareholding. (आम जनता को भी सरकारी कं पिनयों के शेयर खरीदने का मौका िमले)
go

⇒ SEBI to raise minimum public shareholding in listed private sector companies to 35%.
⇒ 👻👻ATMANIRBHAR: minimum shareholding related norms deferred under Corona crisis.
rs

15.17.3 Tulip Mania (िकसी िनवेश के पीछे सामूिहक पागलपन)

− mid-1600s: Tulip flower was introduced in Holland/Netherlands.
he

− some people started buying Tulips in high quantity, with the hopes of re-selling it to customers at
much higher price. But ultimately this bubble collapsed.
− Today, if price of an asset (share, real-estate, Bitcoin) start climbing unreasonably high →
ot

Columnist describe it as ‘Tulip Mania’.

15.17.4 🐮🐮 📉📉Volatility / ViX (कीमतों में अिस्थरता)

p
el
H

− If the prices of a share changes rapidly in a short time span → we say it has “high volatility”. e.g.

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1C: SEBI Share-market→ Page 224

KING R & QUEEN P Help others god will help you

 Adani after Hindenburg report.
− Mathematically expressed thru an indicator called “ViX”

15.18🗃🗃🗃🗃: 🏃🏃 SEBI REFORMS TO BOOST INVESTORS’ CONFIDENCE?

15.18.1 🪓🪓Circuit breaker

u
yo
lp
⇒ Harshad Mehta (1992), Ketan Parekh (2001) arranged money from banks, used it for rigging the

he
share prices to make windfall gains during Bull-runs by other investors. Once the prices crashed,
small investors suffered. बैंकों से गबन बं द करके पैसा लाए िजससे कं पिनयों के शेयर जमकर खरीद के उसकी मांग और दामों
को बढ़ाया तािक लालच में अन्य िनवेशक भी उन कं पिनयों के शेयर ऊँ ची कीमतों में खरीदने लगे अंत में यह लोग अपने शेयर बेच कर
भाग गए

ill
⇒ To prevent such scams, SEBI introduced Circuit Breaker System, wherein if fluctuation in the
w
share prices is more than “x%” than previous day, then stock exchange must stop trading for “y”
minutes.
d
15.18.2 🤝🤝⏰T+1 Settlement instead of T+2
go

⇒ Badla System/Carry forward system: Buying of shares using borrowed money & making
promises to carry forward the settlement for upto 72 days. scamsters misused (इसकी टोपी उसके सर पे:
सौदा आज करते लेिकन पैसों का भुगतान/शेयर की िडलीवरी ७२ िदनो बाद होती- और इस समय के दौरान वही घपलेबाज उन्ही शेयर
बेचने की टोपी दू सरों को पहेनाते रहेता)
rs

⇒ so SEBI discontinued Badla System (in 2001) & introduced (T+2) rolling settlement system i.e.
after trade is conducted, the parties must settle it within two working days (= buyer pays money,
he

seller deliver shares/bonds/securities). -> 2022: T+1 settlement started.

ot
p
el
H

15.18.3 🤝🤝⏰T+1 hour settlement

SEBI planning it from 2024. Let’s wait and watch.

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1C: SEBI Share-market→ Page 225

KING R & QUEEN P Help others god will help you

 15.18.4 🛒🛒 (💻💻:�:😈😈) Illegal Trading: Dabba-trading, Insider Trading, Front Running
⇒ Dabba Trading / Bucketing / Box Trading: While share trade occurs at stock exchange linked
with DEMAT accounts, the Dabba Trades occur in the unofficial books/ledgers of an
unscrupulous broker. He may or may not execute those orders in actual DEMAT account.
Investor prone to scam, govt deprived of taxes. So, SEBI declared it illegal.
⇒ Insider Trading (भेिदया लेनदेन): Whenever company launches new products, wins unique patents,

u
or undergoes merger/acquisition- its share prices may ⏫. If a person associated with company
uses such confidential information for buying/selling shares to make windfall gains. Such insider

yo
trading is illegal.
⇒ Front Running (illegal) : e.g. LIC Mutual Fund manager Yogesh knew that LIC-MF was going to
invest heavily in X company. So he bought the shares of that X company in advance in his

lp
personal account (to make profit when price rises after LIC-MF starts buying). SEBI banned him.

he
�� FAQ by Zhande-walle Babushone: what is the difference between insider trading and front
running?? Can we say front running is a some type of insider trading? I want to think and reflect for at
least 50 minutes on this matter. Ans. If you are intelligent enough, then figure out yourself, otherwise
it is notimp. Move to next topic. थोड़ा-पढ़ो-आगे-बढ़ो.
ill
w
15.18.5 🛒🛒 (💻💻 :�) Algo Trading & Co-Location
d
go
rs
he
ot

What does this mean? Explained in the video.

p
el

15.18.6 🧯🧯Investor Protection Fund (IPF)

⇒ SEBI requires Stock exchanges (BSE, NSE etc) and commodity exchanges (NSEL, MCX etc) to
H

setup Investor Protection Fund (IPF: िनवेशक सुरक्षा कोष).

⇒ IPF covers investors’ ‘non-speculative’ type of losses. e.g. if the other party is not delivering
shares because of some court case. IPF also promotes investor education and awareness.
🚩🚩🚩 FAQ by Zhande-walle Babushone: if we’ve CCP then why is this fund required? Ans. ok
then please ask SEBI to shut it down. 1-linerGK hai. accept and move to next topic.

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1C: SEBI Share-market→ Page 226

KING R & QUEEN P Help others god will help you

 15.18.7 🐮🐮📉📉Adani Hindenburg controversy (2023) & Flash Crash
⇒ Hindenburg Research firm (USA) alleged that Adani was doing stock manipulation, accounting
fraud, money laundering, taking too much loans beyond the capacity to repay etc. (HOW
exactly? Ans. Notimp after observing PYQ.)
⇒ then investors panicked and started exiting Adani shares at loss.
⇒ Shareprice fell from ₹3500 (2023-Jan) to ₹1500 (2023-Feb). Flash Crash = term to describe
sudden (and huge) fall in share price. e.g. Adani after Hindenburg report (2023)

u
⇒ Adani’s supporters argue that Hindenburg spreading negative news to make the share price fall,

yo
to make profit thru short selling of Adani shares. (How? Explained in the next section:)
⇒ SC has setup Justice A M Sapre panel to investigate Adani share crash and other regulatory
aspects for stock markets.

lp
15.18.8 📉📉Short selling (make profit from falling share price)

he
⇒ Short selling occurs when an investor borrows a share (िनवेशक शेयर उधार लेता है)
⇒ then sells it in the market (िफर बाजार में बेच देता है)
⇒ with hope to buy it back later for lesser price. (इस उम्मीद में िक बाद में उसे सस्ते दाम में वापस खरीद लेगा तािक उसे
मुनाफा हो जाए.)

ill
⇒ See the graphics given below. & watch video lecture for better understanding:
w
d
go
rs
he
ot
p
el
H

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1C: SEBI Share-market→ Page 227

KING R & QUEEN P Help others god will help you

 15.18.9 �Finfluencers: Bollywood star Arshad Warsi banned from Sharemarket
⇒ Finfluencer is an influenzer, who gives advice on financial investments via social media.
⇒ Sometimes they give wrong advice on behest of share market scamsters. SEBI formulating
guidelines to regulate this.
⇒ 2023: SEBI banned Bollywood actor Arshad Warsi for posting misleading videos on YouTube
channels encouraging investors to buy shares in Sadhna Broadcast. Exact scam = NOTIMP.

u
15.18.10 Sharemarket- company related documents

yo
Guidance Guidance report contains company’s estimate of its future growth. Company releases
this report for investors/shareholders/analysts.
Prospectus it is the document containing all the information about the company which is issuing
IPO.

lp
he
15.19🛒🛒 (🔪🔪🔪🔪) BOND MARKET REFORMS

15.19.1 🐯🐯🛒🛒 (🔪🔪🔪🔪: 🧔🧔�) G-Sec Trading- Retail investors’ RDG @RBI
⇒ RBI launched “Retail Direct Scheme” in 2021.

ill
⇒ Under this scheme, RBI permits “Retail Direct Gilt (RDG) account” for retail investors on its E-
w
Kuber online platform. (आम िनवेशक िरज़वर् बैंक में आरडीजी नामक खाता खोल पाएं गे)
⇒ Both Resident Indians & non-resident Indians (NRIs) can open this account. (गैर िनवासी भारतीय भी)
⇒ Then Retail investors can directly buy Treasury Bills (T-Bill), G-Secs (of Union Government),
d

State Development Loans (SDL are ‘G-secs’ of State Govts) and Sovereign Gold Bonds, from RBI
go

directly. (आम िनवेशक सीधा िरज़वर् बैंक से इन प्रितभूितयों को खरीद सकता है.)
⇒ Application fees to open the account = ₹ ZERO
− 🤩🤩Benefit? 1) Earlier retail investors bought G-sec “indirectly” through mutual funds wherein
rs

mutual fund manager (MF) charged commission/fees. Now retail investor can buy directly so
does not have to pay such commission/fees to MF managers. (िबचौिलयों को दलाली/कमीशन नहीं देना होगा)
he

− 🤩🤩2) Deepening of G-Sec market through ⏫retail participation (बाजार की जड़ों को गहरा करेगा)
ot

15.20🐯🐯🛒🛒 (🔪🔪🔪🔪: 🧔🧔�) G-SEC TRADING: RBI'S NDS-OM, OTC

⇒ RBI owns and regulates Negotiated Dealing System (NDS) for trading in G-Sec.
⇒ Clearing Corporation of India Limited (CCIL a company founded by SBI, IDBI, ICICI, LIC etc)
p

maintains this system.

el

⇒ NDS system for recording the transactions of G-Sec buy-sell. NDS has following components:
i.e. buyer/seller call each other on the telephone, make the deal about buying
H

Telephonic and selling and then inform the reserve bank's NDS system (ke we've done this
deal).
Over-The- Buyer physically walks into the seller's office (or vice versa) and conducts the
Counter (OTC) transaction. Later they report transactions to RBI's NDS System (ke we've done

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1C: SEBI Share-market→ Page 228

KING R & QUEEN P Help others god will help you

 this deal). (ऑिफ़स में रूबरू िमलके ख़रीद-िबक्री करेंगे, बाद में िरज़वर् बैंक को सूिचत करेंगे िक हमने ये
िकया था)
Negotiated Dealing System-Order Matching system (NDS-OM): electronic,
computer screen based, anonymous, order driven trading system for dealing in
NDS-OM G-sec's secondary market.
Buyer-seller places orders online without knowing names/phone numbers of
each other. (ख़रीददार और िवक्रेता एक दू सरे की असली नाम पहचान नहीं जान पाएं ग)े

u
🚩🚩🚩FAQ: Then what is E-Kuber?

yo
⇒ Ans. E-Kuber is the core banking solution (CBS: REF Pillar1A1) platform of RBI to digitally
handle all operations of RBI e.g. NEFT-RTGS, Repo, MSF, CRR, PSLC certificate trading, G-Sec,
Sovereign Gold Bond, Retail Direct Scheme (RDG) etc.

lp
⇒ You may think of E-kuber as a Windows Operating system, & NDS as a sub-component/excel-
software inside of it that handles G-Sec buying-selling database management/account keeping.

he
15.20.1 📞📞Bid-Ask Spread
Player Jetha wants to buy at Bhide wants to sell at Spread / Gap
(Bidding price) (Asking price)
WIPRO Share 600 800
ill ₹200
w
In above situation, the deal can’t happen because the Bid-Ask Spread is high.
- Either buyer or the seller will have to make price-compromise, only then deal can happen.
- If bid-ask spread is HIGH = liquidity of the asset decreases. Because it becomes difficult to sell
d

such asset. (खरीददार की बोली/कीमत और बेचने के भाव में िजतना अंतर ज्यादा होता है तो उस सं पित्त की तरलता कम होने
go

लगती है क्योंिक उसको बेचना मुिश्कल हो जाता है)

15.20.2 📞📞Arbitrage: Making profit due to difference in to markets/location.

Location Delhi Mumbai Arbitrage
rs

Gold Price (10gm) 60,900 60,800 ₹100

he

- In above example, a dealer can buy the gold from Mumbai and sell to Delhi and he will make a
profit (arbitrage) of ₹100.
- nowadays the arbitrage in financial assets (share/bond etc) is very low because of the online
ot

trading.
p

🔠🔠❓MCQ. Find correct statement(s): (Asked in Prelims-2021)

1. Retail investors through demat account can invest in ‘Treasury Bills’ and ‘Government of India
el

Debt Bonds’ in primary market. [आम िनवेशक डीमैट खाते द्वारा प्राथिमक बाजार में सरकारी प्रितभूितयों में िनवेश कर
सकता है]
H

2. The ‘Negotiated Dealing System-Order Matching’ is a govt securities trading platform of the
Reserve Bank of India. [NDS-OM सरकारी प्रितभूितयों में खरीद िबक्री करने के िलए िरजवर् बैंक द्वारा बनाया गया मं च है]
3. The ‘Central Depository Services Ltd.’ is jointly promoted by the Reserve Bank of India and the
Bombay Stock Exchange. [CDSL को िरजवर् बैंक और बॉम्बे स्टॉक एक्सचेंज द्वारा सं युक्त रूप से बनाया गया था]
Codes: a) 1 Only b) 1 and 2 c) 3 Only d) 2 and 3

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1C: SEBI Share-market→ Page 229

KING R & QUEEN P Help others god will help you

 15.21🌽🌽🧶🧶🧶🧶🤝🤝 COMMODITY MARKET, FMC, SEBI MERGER
- A commodity market / exchange (वस्तु बाजार) is a place where buyers & sellers trade goods in bulk
- food grains, cotton, precious metals or energy resources (coal, oil gas)
- “Commodity Futures”: Type of contract for future delivery and settlement of commodity e.g.
“on 1/5/2021, I shall deliver you 500 quintals of wheat at X price”.

u
- Commodity exchanges were under a statutory regulator Forward Market Commission (FMC)
under the Ministry of Consumer Affairs and Public Distribution.

yo
- But Jignesh Shah generated fake receipts without any commodities in the warehouses & traded at
NSEL-commodity exchange. FMC failed to prevent scam. (एक कांड हो गया था)
- So first FMC transferred to Finance Ministry and FMC ultimately merged with SEBI (2015).

lp
15.21.1 💍💍🎖🎖🎖🎖🏛🏛Commodity Market: Gold exchanges & 💼💼Budget-2021

he
⇒ Gold exchange is a special type of commodity market devoted only to Gold trading.
⇒ 💼💼Budget-2021: We will undertake reforms in the regulation of gold exchange markets in India.
1) SEBI will be the regulator

ill
⇒ 2) Warehousing Development and Regulatory Authority (WDRA- Statutory body under Dept of
w
Food and Public Distribution) Will be responsible for Warehousing/Vaulting, Assaying,
Logistics of gold exchanges. (भं डारण, गुणवत्ता परीक्षण, रसद के मामलों की िजम्मेदारी)
d
15.21.2 💍💍💍💍🧶🧶🤝🤝Commodity Market: Electronic Gold Receipts (EGRs)
go

स्वणर् कं पिनयां “डब्लूडीआरए” नाम की वैधािनक सं स्था द्वारा पं जीकृ त गोदामों में सोने की ईट/िबिस्कट जमा करेंगे, उसकी “इलेक्ट्रॉिनक
स्वणर् रसीदें” सेबी द्वारा पं जीकृ त इलेक्ट्रॉिनक गोल्ड एक्सचेंज पर बेची जाएगी। ग्राहक/िनवेशक ऑनलाइन तरीके से उसे खरीद पाएगा
- Stage1: Gold companies deposit their gold in the warehouses authorized by Warehousing
Development and Regulatory Authority (WDRA, it is a statutory body under Ministry of
rs

Consumer Affairs, Food & Public Distribution.)

- Stage2: Warehouse manager generates Electronic Gold Receipts (EGRs).
he

- Stage3: EGR are listed on the SEBI regulated electronic gold exchanges. → Buyer can buy the
gold electronically and be assured of the quality. Later he may even sell this EGR to another
ot

investor or he may goto warehouse to collect physical gold.

🤩🤩Benefits: 1) Assured quality. 2) Tax evasion is difficult due to online transactions monitored by
SEBI. इसे ग्राहक को स्वणर् की गुणवत्ता के बारे में सुिनिश्चत होगी। कर चोरी मुिश्कल होगी क्योंिक ऑनलाइन खातों की िनगरानी होगी.
p

15.21.3 💍💍💍💍🧶🧶🤝🤝Commodity Market: India’s first bullion exchange (2022)

el
H

India International Bullion Exchange (IIBX) is India’s first bullion exchange @ GIFT City, Gujarat.
⇒ Bullion refers to physical gold and silver of high purity stored as coins, biscuits or bricks (ingots).

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1C: SEBI Share-market→ Page 230

KING R & QUEEN P Help others god will help you

 ⇒ A bullion market/exchange is a place where large quantity of gold and silver is traded for 24/7
basis. (बुिलयन माकेर् ट ऐसा स्थान है जहां बड़ी मात्रा में सोने और चांदी का िदनरात अिवरल कारोबार होता है।)
15.22� RELATED BODIES WITH SIMILAR SOUNDING NAMES

u
yo
Figure 6: अभी भी इतने सारे "कांड" क्यो हो रहे है, गवनर्र साहब?- िवत्तमं त्री @FSDC meeting.
- Financial Stability & Development Council: Chairman – Finance Minister. Other
FSDC members – 1. RBI Governor 2. SEBI chief 3. IRDAI chief 4. PFRDA chief 5. IBBI
(2010) chief & govt officials

lp
िवत्तीय - Functions? Supervision of the economy & large financial conglomerates,
िस्थरता coordination among the financial regulators, financial literacy and financial

he
और िवकास inclusion.
पिरषद - Secretariat assistance by: FinMin → Dept. of Economic Affairs (आिर्थक मामलों का
िवभाग)
FSB -
ill
Financial Stability Board is a brainchild of G20. (िवत्तीय िस्थरता बोडर्)
w
(2009) - Functions? Financial monitoring at global level, Coordination between national
HQ: financial regulators bodies. (अलग-अलग देशों के िवत्तीय िनयं त्रक के बीच तालमेल)
BASEL - India has 3 seats in FSB: 1) Secretary of Department of Economic Affairs (IAS) 2)
d

Dy. Governor of RBI 3) SEBI chairman

go

FATF - Financial Action Task Force (िवत्तीय कारर्वाई कायर्दल) is a brainchild of G7.
(1989) - India member in 2010. Function? Combating Money laundering and terror
HQ: Paris finance. (More 📑📑Pill#2) (धन शोधन और आतं की िवत्तपोषण से लड़ना)
rs

- International Organization of Securities Commissions (IOSCO) is the

IOSCO international body of world's securities regulators. SEBI is a member.
he

- Famous for its IOSCO Guidelines for Investors Protection & risk prevention
🔠🔠❓ 'Financial Stability and Development Council': find correct statement(s): (Pre-2016)
1. It is an organ of NITI Aayog.
ot

2. It is headed by the Union Finance Minister

3. It monitors macro-prudential supervision of the economy.
p

Answer Codes: (a) 1 and 2 only (b) 3 only (c) 2 and 3 only (d) 1, 2 and 3
el
H

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1C: SEBI Share-market→ Page 231

KING R & QUEEN P Help others god will help you

 15.22.1 🏫🏫�NISM- capacity building for financial market professionals - 👛👛Budget-2023

u
yo
⇒ National Institute of Securities Markets (NISM) is an educational institute set up by SEBI. HQ:
Mumbai, Foundation Year-2006

lp
⇒ �Budget-2023: NISM to conduct more training courses for financial Market

he
⇒ NISM will give them degrees, diplomas and certificates for finishing such courses
िवत्तीय सं स्थानों में कायर्रत पेशेवरों के क्षमता वधर्न के िलए िविवध िडग्री और स्नातक, िडप्लोमा और सिर्टिफके ट िशक्षा कायर्क्रम राष्ट्रीय
प्रितभूित बाजार सं स्थान (एनआईएसएम) द्वारा चलाए जाएं गे

15.23📦📦 � � INVESTMENT FUNDS → MUTUAL FUND (MF) FOR AAM-AADMI

ill
w
d
Figure 7: swag से करेंगे 'middle-class' का 'स्वागत'। Observe colors in logo, meant for attracting ordinary crowd
go

⇒ Mutual Fund is an Asset Management Company (AMC-NBFC) that pools savings of (retail)
investors and gives them “Units”.
⇒ MF Manager parks this money in securities & builds his ‘portfolio’.
rs

⇒ Whatever dividend/ interest is generated from the portfolio, it is distribute among investors in
the proportion of their units.
he

⇒ Investor pays Entry Load (= fees for joining), Exit Load (= fees while quitting). SEBI regulates
these fees.
ot

⇒ Due to low deposit rates in banks, people invested money in mutual funds however post-IL&FS
crisis, corona crisis, charm declining because mutual funds are subject to such market risks.
p

⇒ ⚾📻📻⚾🎙🎙✋ “Side pocketing”: SEBI ‘s technical guidelines to help MFs to separate their
IL&FS type stressed/toxic assets from their standard assets. Helps protecting the investors.
el

How?NOTIMP.
H

15.23.1 📦📦 � � Mutual fund → ESG, Shariya Mutual Funds

⇒ ESG Mutual Funds= These mutual funds will invest clients’ money in companies that have good
performance on Environmental, Social, And Governance (ESG) aspects.
⇒ Shariya Mutual Fund= These mutual funds will invest clients’ money in companies that are
compliant with Islamic Shariya law. E.g. They will not invest in alcohol, pork, gambling etc

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1C: SEBI Share-market→ Page 232

KING R & QUEEN P Help others god will help you

 related companies.

15.23.2 📦📦 � � Mutual fund → SIP, ELSS, ULIP

⇒ Traditional Mutual Fund = client invests entire amount at once. एक साथ पूरी रकम जमा करानी होती है
⇒ Systematic Investment Plan (SIP)= Mutual fund wherein client deposits small-small fixed

u
amounts at fixed interval e.g. month basis etc. ग्राहक छोटी-छोटी िकस्तों में रकम जमा करवाता है
⇒ Equity Linked Savings Scheme (ELSS)= It is a sub-type of mutual fund where money is locked in

yo
for 3 years and invested in equities (shares). It’s eligible for certain benefits in Income Tax.
⇒ Unit linked insurance policy (ULIP)= client invest money in a scheme wherein → (1) some ₹₹

lp
goes into Mutual Fund (2) some ₹₹ goes into insurance policy (📑📑Ref: HDT-Pillar#1D)

he
15.23.3 📦📦 � � Mutual fund → 🎛🎛 Mutual fund risk-o-meter
⇒ SEBI requires mutual fund company to disclose how much risk is present in their scheme, on a
monthly basis, thru a digital dashboard called 'risk-o-meter'. (िकतने जोिखम पूणर् तरीके से िनवेश कर रहा है)

ill
⇒ It shows 6 categories of risk: low, low to moderate, moderate, moderately high, high, (#)very
w
high risk. (#) SEBI added this new category 'very high risk' in 2020-Oct.
⇒ This helps the investor to make decision- which Mutual fund he wants to joins depending on his
risk appetite. (उस िहसाब से िनवेशक तय करें उसे कौन से सलामती पूणर् या जोिखमपूणर् म्यूचुअल फं ड में जाना है.)
d
go

15.23.4 📦📦 � � Mutual Fund: Backstop Entity- SEBI proposal for stressed MF

NOT YET formed. And outdated for 2024-25. So deleting it. #RAFTAAR for Prelims.
15.23.5 🛒🛒 (🔪🔪🔪🔪: 🧔🧔�) Bond Buying Institution in 💼💼Budget-2021
NOT YET formed. And outdated for 2024-25. So deleting it. #RAFTAAR for Prelims.
rs

15.24📦📦 � � INVESTMENT FUNDS → HEDGE FUND (हेज फण्ड) FOR RICH-AADMI

he
ot

Figure 8: Swag से नही करेंगे 'middle-class' का 'स्वागत'। Observe ‘premium’ logo-designs to attract rich people
⇒ Special type of Mutual Fund meant for HNI (High Net Worth Individual) who wants high risk
high return. SEBI norms: Minimum investment per person is ₹1 crore. (िसफर् अमीरों के िलए है)
p

⇒ Hedge Fund manager will invest their money in Junk Bonds, Risky assets; he’ll do risky trading
el

activities such as Arbitrage, Leverage, Short Selling, Future&Options(F&O) trading, Derivatives

Trading etc. to generate maximum return. (how is that done in real life, what do these words
H

mean? = UPSC-CSE not for recruitment of HF managers.)

15.24.1 📦📦 � � Investment Funds: “Accredited Investor”

Deleting from handout. I’m not finding it exam-worthy anymore.

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1C: SEBI Share-market→ Page 233

KING R & QUEEN P Help others god will help you

 15.24.2 📦📦 � 🏬🏬 🛩🛩 Investment Funds → REITs / InvITs: for rich-aadmi
REITs: Real Estate Investment Trusts InvITs: Infrastructure Investment
-(भू-भवन-सं पित्त िनवेश न्यास ) Trusts-(अिधसं रचना)
Who can HNI / institutions: Min. ₹2 lakh ₹10 lakh. ₹1 lakh
invest? ₹50,000 investment (SEBI ⏬ reduced minimum limits
in 2019 to attract more investors)
Manager parks in real estate projects that are soon to In airport, highway, thermal plants,

u
the money in? complete. gas grid etc. He’ll earn from toll

yo
He’ll earn income from rent / sale. collection at highways, services fees
at airports etc.
Example Blackstone-Embassy group IRB, India-grid

lp
✅Benefits of REITs and InvITs-
 Stressed developer gets new finance to finish the project while HNI gets new opportunity to

he
invest his money, and he may also sell the units to third party via stock exchange.
 SEBI permitted these instruments in 2014. Later SEBI relaxed technical norms related to capital,
leverage, issue size but they are not important for us. हर तकनीकी िनयम अपने िलए काम का नहीं

ill
15.24.3 📦📦 � � Investment Funds → Sovereign Wealth Fund (सं प्रभु धन कोष)
w
⇒ State owned investment fund, wherein central bank, finance ministry and other public sector
financial intermediaries park their surplus fund. →money used for investment.
d
⇒ E.g. 2020-Jun: Abu Dhabi Investment Authority (ADIA) bought 1.16% of Reliance Jio for
go

₹5600+cr. Singapore's GIC sovereign wealth fund, Qatar Investment Authority (QIA) also active
in Indian market.
⇒ What is National Investment & Infrastructure Fund (NIIF) Ans. Ref: Pillar#5: Infrastructure
rs

15.25📦📦 🏛🏛 INVESTMENT FUNDS → CPSE-EXCHANGE TRADED FUNDS (ETF: ईटीएफ)

he

⇒ Disinvestment (िविनवेश): government sells it shares from Central Public Sector Enterprises
(CPSE: कें द्रीय सावर्जिनक क्षेत्र के उद्यम) but does not reduce its shareholding below 51%.
⇒ If Govt’s shareholding reduced below 51%, then it is called Privatization (िनजीकरण), although
ot

NITI prefers the term ‘Strategic Disinvestment’. (More in Pill#2)

⇒ 2014: Govt wanted to disinvest 10 CPSE (ONGC, GAIL ltd etc). If govt tried to sell individual
p

company- shares, it would be more time consuming, and govt may not get good prices for each
el

company.
⇒ So, Govt gave CPSE-shares to a fund manager Goldman Sachs - who created new securities out
H

of it, called “Exchange Traded Funds (ETF)”, and made a “New Fund Offer (NFO)” to the
public to subscribe to these securities at ₹ 10 per unit.

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1C: SEBI Share-market→ Page 234

KING R & QUEEN P Help others god will help you

 ⇒ If an investor holds the ETF → he will get returns from the dividend generated by those CPSE-
companies in the backend. He may also sell these ETF to a third party via stock exchange, hence
called Exchange Traded Funds.

u
yo
lp
he
Figure 9: how do exchange traded funds (ETF) work?
⇒ BHARAT-22: Another CPSE-ETF when Govt wanted to disinvest shares from 22 companies

ill
including CPSE, PSBs and UTI using ICICI Prudential as fund manager (2017-18). However,
w
PSB-NPA problem → poor dividends → BHARAT-22 not giving good returns, so, investors
response was initially lukewarm.
d
⇒ Later govt announced, “We’ll give the ELSS-walla income tax benefits to CPSE-ETF-investors as
go

well” to attract investors.

15.25.1 (🦁🦁🔪🔪)📦📦: (🏛🏛🛒🛒🤝🤝) Bharat Bond (Debt) ETF (2019)
⇒ Fund Manager (Edelweiss Asset Management ltd) → He’ll issue Bharat Bond-ETF.
rs

⇒ Maturity: 3 yrs and 10 years. Unit Size: ₹1000 each. So even middle-class investors buy these
Bond-ETFs.
he

⇒ Fund managers will invest this ₹₹ into a basket of bonds issued by Central Public Sector
Enterprises, Central Public Financial Institutions (CPFIs such as public sector bank and
insurance companies) and other Government organizations. ETF will be tradable at the stock
ot

exchange.
👍👍 Bharat bond ETF: Benefits?
p

 For Government companies = Easier and more efficient to borrow ₹₹ instead of individually
launching their bonds in the market. एक एक सरकारी कं पनी अलग से बांड जारी करती तो शायद िनवेशक सब को नहीं
el

िमल पाते
 For Investors = Safety, assured return on bonds, irrespective of Government company’s profit.
H

 ⏫retail participation → deepening capital market. (खुदरा िनवेशक की मदद से पूंजी बाजार की जड़ों की ओर
गहरा करना)
 💼💼Budget-2020: given success of Bharat bond ETF, we are planning to launch another debt-
ETF containing G-sec. This will help the retail investors to invest in G-sec.

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1C: SEBI Share-market→ Page 235

KING R & QUEEN P Help others god will help you

 Misc. : Gold-ETF: Investors give money → manager buys gold for safekeeping and trades it
depending on price movements → returns are divided among the unit-holders. In between, the
investor may sell his Gold-ETF to third party via Stock Exchange therefore they’re also Exchange
Traded Funds. How/why/NOTIMP

15.25.2 (🦁🦁🔪🔪)📦📦: (🏛🏛🏛🏛🏛🏛) CPSE-ETF vs Mutual Fund

Table 3: Sad that I’ve to spoonfeed this much

u
Mutual Fund CPSE-ETF

yo
Objective = invest clients’ money in Objective different than Mutual Fund
shares/bonds (1) help Government for its disinvestment
(2) help Government company to borrow money
(Bharat-Bond ETF)

lp
fund managers may buy/sell variety of He’s not doing that. His objective given above.

he
shares and bonds of Government
companies and private sector companies
for best returns through out the scheme.
a fund manager may also change the His portfolio (list of govt companies’ shares/bonds)
composition of the portfolio for example if
Infosys shares are not performing well → ill
is fixed. It’ll not change.
w
he may sell them and fill up the box with
Wipro shares for better dividend.
d

15.26📦📦 INVESTMENT FUNDS → ALTERNATIVE INVESTMENT FUNDS (AIF)

go
rs
he

It’s a technical classification by SEBI (वैकिल्पक िनवेश कोष)

- AIF Category I: They generate positive spillover effects on the economy. Example: Venture
ot

Capital Funds, Angel investors fund, SME Funds, social venture fund, Infrastructure funds. SEBI
keeps relaxed / lighter norms on them. जो िक अथर्तंत्र में सकारात्मक असर उत्पन्न करते हैं
p

- AIF Category II: Neither in Cat-1 nor in Cat-3 E.g. Private Equity or Debt Fund. जो ना तो ऊपर की
el

श्रेणी में है ना नीचे की श्रेणी में है

- AIF Category III: They undertake excessive risk to generate high returns in short period of time.
H

E.g. Hedge Funds. SEBI norms are stricter/heavier on them, because otherwise they may
destabilize the capital market. जो िक अथर्तंत्र में जोिखम बढ़ाते हैं, नकारात्मक असर उत्पन्न करते हैं

15.26.1 (🦁🦁📦📦):(🏗🏗🏠🏠) Govt’s AIF for Real Estate Sector (2019)

Outdated for 2023 so deleting.

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1C: SEBI Share-market→ Page 236

KING R & QUEEN P Help others god will help you

 15.27🗃🗃 FORWARD / FUTURE CONTRACTS & CALL / PUT OPTION

Figure 10: भिवष्य मे खरीदने का सोदा तो िकया, लेिकन दाम िगर जाए, तो खुद को बचाऊँ तो कै से?

u
- A Forward / Future contract is a customized contract between two parties where settlement takes
on a future date at a price/quantity agreed upon today. E.g. on 1/5/2025 I shall sell you 100 nos. of

yo
Infosys shares at ₹1000 each.
- In such contracts, there is a risk of other party not honoring commitment if he’s getting better
deal elsewhere in the future. So, for protecting (=hedging) themselves, they (=buyer or seller)

lp
may buy “Option” from a third party by paying fees. नुकसानी से बचने के िलए बीमा िलया जाए
- Option is a type of insurance for executing the forward/future contract in a manner beneficial to

he
them e.g. I’ll sell you for ₹1000 on X date, & you must buy, but if I’m getting another buyer who
is willing to pay ₹1500 then I may not sell you & you can’t compel me. Such ‘insurance options’
are further subdivided into Call Option and Put Option, their internal difference & real-life

-
mechanism not imp. for UPSC.
Hedging = Act of purchasing such options/insurance to prevent your losses.
ill
w
🔠🔠❓Which one of the following terms is used in Economics to denote a technique for avoiding a
d
risk by making a counteracting transaction? [UPSC-CDS-2016-I]
(a) Dumping (b) Hedging (c) Discounting (d) Deflating
go

15.28🗃🗃 🔗🔗 DERIVATIVES & SWAPS (व्युत्पन्न प्रितभूितयां और अदला-बदली)

⇒ A derivative is a contract whose value is derived from the value of another underlying asset
rs

which could be a share, bond, commodity or currency. इस प्रितभूित का मूल्य िकसी और सं पित्त से उद्भिवत होकर
आता है
he

⇒ They’re usually generated by the process of ‘securitization’. E.g. NHB taking loan papers from
banks, using them to generate new Mortgage Backed Securities. (प्रितभूितकरण की प्रिक्रया से इसे बनाते हैं)
ot

⇒ SWAP: is derivative instrument to swap one financial asset with another financial asset (usually)
to reduce the risk e.g. Currency Swap Agreement between two countries to protect themselves
against dollar volatility (more in 📑📑Pillar#3).
p

⇒ Similarly, there are Credit Default Swap (CDS) agreement against the risk of default, Interest
el

swap agreement to protect against volatility in interest rates. But their mechanisms NOT IMP.
H

15.28.1 🗃🗃🗃🗃: 🚛🚛🤝🤝🚛🚛 Bilateral Netting of Qualified Financial Contracts Act 2020
DELETED from 2022 because outdated/faded topic.

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1C: SEBI Share-market→ Page 237

KING R & QUEEN P Help others god will help you

 15.29👻👻🔗🔗📦📦 PARTICIPATORY NOTES (P-NOTES: पािर्टिसपेटरी नोट्स)
⇒ A foreigner wishes to invest his money in India but does not want to go through the hassles of
registering with SEBI, getting PAN card number, opening a DEMAT account etc. So, he will
approach a SEBI registered foreign institutional investor (FII) / foreign portfolio investor (FPI)
such as Morgan Stanley, Citigroup or Goldman Sachs. He’ll pay them & instruct them to
purchase particular shares and bonds and store them in their Demat account.

u
⇒ Then FII will give him P-Notes, and he’ll receive interest and dividend accordingly.

yo
⇒ He may also sell those P-notes to a third party. (िकसी अन्य व्यिक्त को भी बेच सकता है)
⇒ P-Notes are Offshore Derivative Instruments that derive the value from the underlying Indian
shares and bonds. (अपतटीय व्युत्पन्न उपकरण)

lp
he
ill
w
d
go
rs
he

िबना SEBI पं जीकरण के भारतीय पूंजी बाजार मे िनवेश करू, तो कै से?

😱😱P-Notes are harmful for Indian economy because:
⇒ P-note investors are not directly registered with SEBI. Identity of the actual investor, source of
ot

funds remain disguised= chances of Tax evasion, money laundering, terror finance (इसके िनवेशक ने
स्वयं सेबी में पं जीकरण नहीं करवाया वह पैसा िकधर से लेकर आया यह सब जानकारी नहीं िमल पाती, कर चोरी, काले धन को वैध
p

बनाना,आतं की िवत्तपोषण)
el

⇒ If P-Note owner sells his P-Notes to another foreign investor, Government of India may be
deprived of taxes. (Compared to a scenario where Indian share owner is selling his shares to
H

another Indian investor at profit, then government gets securities transaction tax and capital
gains tax on his profit, & he can’t dodge it because DEMAT accounts linked with PAN card.
More on PAN card@Pillar#2 → BlackMoney)

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1C: SEBI Share-market→ Page 238

KING R & QUEEN P Help others god will help you

 Therefore, SEBI tightening the control P-Notes e.g. “X” category of FPIs can’t issue P-Notes. “Y”
category of FPI can issue P-Notes but every time they issue P-notes-they’ll have to deposit $1,000 to
SEBI etc.

Table 4: Sad that even for such simple things I’ve to create such spoonfeeding-tables just to prevent FAQs from weak students
P-Notes Foreign investor wants to invest in Indian share/bond market without
registering with SEBI. He wants to buy Indian companies’ shares/bonds in

u
India. िफरंगी आदमी भारत की कं पनी में िनवेश करना चाहता है लेिकन सेबी से पं जीकरण नहीं

yo
करवाना चाहता
Bharat-DR Foreign Company wants to Indian to invest in its foreign/firangi-shares,
without registering with SEBI. िफरंगी कं पनी अपनी कं पनी के शेयसर् भारतीयों को बेचना

lp
चाहती है लेिकन सेबी से पं जीकरण नहीं करवाना चाहती
ADR/GDR Non-American Company wants to American people to invest in its shares

he
without registering with American SEBI. गैर-अमेिरकी कं पनी अपनी कं पनी के शेयर
अमरीकी जनता को बेचना चाहती है लेिकन अमेिरका के शेयरबाजार िनयं त्रक से पं जीकरण नहीं
करवाना चाहती.
GDR- similar concept, refer to respective segment.
Masala/Panda/
ill
Foreign company/org wants to borrow money, in a particular currency from
w
Kangaroo Bonds a particular country. Refer to respective segment
etc
d
🔠🔠❓______ is issued by registered foreign portfolio investors to overseas investors who want to
be part of the Indian stock market without registering themselves directly? (Pre-2019)
go

(a) Certificate of Deposit (b) Commercial Paper (c) Promissory Note (d) Participatory Note

15.29.1 🔪🔪(�🧶🧶) Credit Default Swap (CDS)

rs
he
ot
p
el

⇒ CDS is an instrument to protect the lender/bond investors from the loan default by the borrower
H

⇒ PS: LIC is not 'insurer' in this case. I’ve used its logo only for easier visualisation.
⇒ Topic was in news, due to some scam involving a Swiss Bank “Credit Suisse”

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1C: SEBI Share-market→ Page 239

KING R & QUEEN P Help others god will help you

 15.30🍋🍋 TAX ON INVESTMENT / FINANCIAL ASSETS
− Normally, whenever we make investment, it is subjected to variety of taxes such as income tax,
capital gains tax, securities transaction tax, commodities transaction tax, stamp duty etc.
depending on the type of investment/transaction. (Ref: Pillar#2A-Taxation for more)
− However, in following investments, government provide some relief in the taxes. How
much/when? NOTIMP.

u
15.30.1 🍋🍋😍😍 Tax relief given on

yo
CATEGORY Examples
Bank FD (sp.type) - - 5-Year Tax Saving Fixed Deposit (FD) with Banks
Small Savings / - Public Provident Fund (PPF)

lp
social security - Employee Provident Fund (EPF)
More in Pillar1D - Sukanya Samriddhi Yojana (SSY)- Fixed bank deposit in the name of

he
daughter
- National Savings Certificate (NSC)
- - Senior Citizen Savings Scheme (SCSS)
Pension/Insurance - Unit Linked Insurance Plans (ULIPs)
Pillar1D - National Pension System (NPS) ill
w
- EPFO
Share market Equity-Linked Savings Scheme (ELSS)
d
Bonds Tax-Free bonds by some (NOT ALL, only Some) of the Govt
go

companies/statutory bodies such as

- National Highways Authority of India (NHAI),

- Indian Railway Finance Corp (IRFC),
rs

- Power Finance Corporation (PFC),

- Housing and Urban Development Corporation (HUDCO),
he

- India Infrastructure Finance Company Limited (IIFCL) etc.

Donations Electoral Bonds, PM-CARES fund (ref Pillar2), Army Welfare Fund etc.
ot

Location based Investments made from GIFT City (Gujarat). (Ref: Pillar#3A: Intl. Trade)
Above list is NOT exhaustive/complete. There could be some more tax-free instruments also. But we
are not here for Chartered Accountant exam.
p
el

15.30.2 🍋🍋🥵🥵 Tax relief NOT given on

Now, if the name of an instrument is not mentioned in above list → then good chance, it is
H

subjected to some tax for example

− Bank Savings Account pe interest income.
− Sovereign Green Bond (Yes government has NOT given any tax benefit on it, YET)
− Municipal Bonds
− G-Sec, T-Bill; Shares, Company Bonds; Futures, Options, P-Notes

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1C: SEBI Share-market→ Page 240

KING R & QUEEN P Help others god will help you

 − Mutual Fund, REITS, InVITS, ETF
− Bitcoins and Cryptocurrency (30% Tax)
− Property, Mona-Lisa Painting, Gold-Silver etc precious metals, Diamonds, Racehorses etc.
investments

MCQ. [CSP23-SET-A-Q021] Consider the following statements :

- Statement-I : Interest income from the deposits in Infrastructure Investment Trusts (InvITs)

u
distributed to their investors is exempted from tax, but the dividend is taxable.

yo
- Statement-II : InvITs are recognized as borrowers under the 'Securitization and Reconstruction
of Financial Assets and Enforcement of Security Interest Act, 2002'.
Which one of the following is correct in respect of the above statements?

lp
(a) Both Statement-I and Statement-II are correct and Statement-II is the correct explanation for
Statement-I

he
(b) Both Statement-I and Statement-II are correct and Statement-II is not the correct explanation for
Statement-I
(c) Statement-I is correct but Statement-II is incorrect
(d) Statement-I is incorrect but Statement-II is correct

ill
w
Pillar 1C2: Corporate Governance
15.31🏙🏙🏙🏙 COMPANY TYPES
d
go
rs
he
ot
p
el
H

15.31.1 👶👶Company types based on incorporation

🤴🤴Chartered Setup by a charter given by a king / queen. E.g. East India Company in
Companies 1600. (चाटर्डर् कं पिनया)

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1C: SEBI Share-market→ Page 241

KING R & QUEEN P Help others god will help you

 ⚖Statutory Setup by special acts of Parliament or State legislature. E.g. RBI, LIC,
Companies SBI. (वैधािनक कं पिनया)
✒Registered Registered under the Companies Act, 1956 (and later 2013)
Companies e.g. Tata Motors, Infosys. (पं जीकृ त कं पिनया)

15.31.2 🏙🏙🏙🏙 Company types based on number of members

u
Private ltd. Public Limited Company (Companies Act 2013)
Members Min. 2 to Min. 7 to Max. unlimited number (depending on how many

yo
Max. 200 shares issued & purchased by the people)
can they Can’t ⇒ A public ltd. company can invite public at large, to subscribe
invite public to its shares and bonds.

lp
at large, to
⇒ If their shares are listed on a stock exchange (BSE, NSE etc),
buy shares

he
/bonds? it’s a ‘Listed Public Limited Company’ (e.g. Reliance), else
क्या सामान्य जनता it’s an ‘Unlisted Public Limited Company’ (e.g. India Post
को िवज्ञापन देकर Payment Bank : IPPB)
अपने शेयर-बांड
बेच सकते है?
ill
w
Directors 2-15 ⇒ Min 3 to Max 15. out of them one must be Indian Resident,
(Min-Max) 1 must be Woman and 1/3rd of the directors must be
d
independent directors.
⇒ Independent directors are persons without any pecuniary
go

interest in company, they are supposed to protect minority

shareholders’ interests. (अल्पसं ख्यक शेयरधारकों के िहतों की रक्षा करने
के िलए स्वतं त्र डायरेक्टर)
rs

Term limit N/A Their directors have age limit, term limit.
Corporate Norms Companies Act requires them
he

Governance either not ⇒ to hold specific number of annual meetings of board of

Norms applicable directors, norms for quorum, mechanism for e-voting,
or relaxed. ⇒ have to appoint Company Secretary,
ot

UPSC- ⇒ Implement mechanism for protecting whistleblowers

CSE≠CA And so on…
p

FAQ: How can pvt limited company have shareholding?

⇒ Ans. They can ask friends and family, venture capital funds, angel investors and other type of
el

investors to invest in the company. They cannot put an advertisement in the newspaper that we
H

are inviting the public at large to buy our shares. IF they want to invite public at large, → they
need to convert registration from private limited company to public limited company.
⇒ Companies usually start as originally as private limited companies. e.g. Infosys (private ltd) in
early 80s → when their business grows and they want more capital they will convert into public
limited companies. → they will issue shares for the first time for the public at large → so we
call it Initial Public Offer (IPO) e.g. same infosys (public ltd) in early 90s launched IPO..

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1C: SEBI Share-market→ Page 242

KING R & QUEEN P Help others god will help you

 ⇒ In future same public ltd. company may also require more capital so again they will issue more
shares for the the second time, third time etc. → then we call it Follow on Public Offer (FPO)

15.31.3 🏙🏙🏙🏙 Company types based on Ownership

🧔🧔 Government / Public Sector / सावर्जिनक क्षेत्र 🤵🤵 Private Sector / िनजी क्षेत्र की
When Government owns 51%/> shares. When private parties own 51%>. E.g. Reliance,

u
Examples: Steel Authority of India (SAIL), Tata, Adani
India Post Payment Bank (IPPB)

yo
Holding Company / िनयं त्रक कं पनी Subsidiary Company / िनयं ित्रत कं पनी
A company that owns majority shares in A company that is controlled by a parent
another company. E.g. Tata Sons ltd. holds holding company. E.g TCS, Tata Steel, Tata

lp
majority shares of Tata Consultancy Services Sky are subsidiary co of Tata Sons.
(TSC), Tata Steel, Tata Sky etc.

he
15.31.4 🏙🏙🏙🏙 Company Types: Misc.
Under ⇒ One Person Company: special type of private ltd company having only
Companies Act
ill
one member. 💼💼Budget-2021: One Person Companies (OPCs)- Legal
reforms in Companies Act to [1) allow NRIs to easily register OPC in
w
India [2) OPC can be converted to other types of companies any time
⇒ Not for Profit Company: e.g. GSTN, NPCi etc. their profit is re-invested
d
in business expansion. They get certain tax benefits & relief in how
go

frequently they’ve to submit data to MCA. (लाभ-रिहत कं पनी, जो कं पनी मुनाफे के

िलए नहीं बनाई गई)
⇒ Dormant Companies: A) setup to start business in future B) setup to store
intellectual property C) not filled annual returns for two consecutive
rs

years. (िनिष्क्रय/सुप्त कं पनी)

👬👬🤝🤝Under ⇒ Limited Liability Partnership (LLP) Company is formed by minimum 2 or
he

LLP Act 2008 more partners.

सीिमत देयता ⇒ Individual partners are shielded from joint liability created by another
ot

भागीदारी अिधिनयम partner's wrongful business decisions or misconduct. E.g. Vajiram and
Ravi IAS Study Centre LLP
⇒ LLP’s registration fees, auditing/reporting norms, tax liabilities, winding
p

up process etc. are more flexible than a (public or pvt) ltd. company
el

registered under Companies Act. उनके िलए िनयमो में िरयायत/आसानी होती है।
Under Indian ⇒ A Partnership firm is formed by minimum 2 or more partners.
H

Partnership ⇒ Each partner is liable jointly with all the other partners for losses,
Act 1932 wrongful biz. decisions and misconduct.
15.31.5 🏙🏙🏙🏙 Corporate Governance → Small Companies given compliance relief
⇒ 💼💼Budget-2021: Companies with paid up capital not more than ₹2cr & annual turnover not
more than ₹20cr = treated as ‘Small Companies’.

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1C: SEBI Share-market→ Page 243

KING R & QUEEN P Help others god will help you

 ⇒ They’ll be given relief in Companies Act related compliance e.g. how frequently they’ve to
submit accounts and ownership related documents to the Ministry of Corporate Affairs etc.
15.31.6 🏙🏙🏙🏙 Commercial Organizations: Other Types
PSU, CPSE Ref: Pillar2: Disinvestment
MSME Ref: Pillar1D: financial inclusion, Pillar4B
Startups Ref: Pillar4B

u
15.31.7 👬👬🤝🤝🧔🧔 Corporate Governance → LLP settlement Scheme 2020
Faded topic. Deleting from handout

yo
15.32🔨🔨 STATUTORY BODIES IN MINISTRY OF CORPORATE AFFAIRS (MCA)
15.32.1 🔨🔨 � Competition Commission of India (भारतीय प्रितस्पधार् आयोग)
⇒ Competition among companies= consumer gets goods and services at the most competitive /

lp
affordable prices. कं पिनयों के बीच स्पधार् होगी तभी तो ग्राहक को अच्छी सेवा और िकफायती दाम में चीजे िमलेंगीं

he
⇒ Therefore, government must prevent cartelization (price fixing or production fixing by a group
of Companies), prevent monopoly (single company commanding the production / supply),
protect consumers’ interests and ensure freedom of trade.
⇒ 1970: Monopolies and Restrictive Trade Practices (MRTP) Act.

ill
⇒ Later MRTP Act replaced with Competition Act, 2002- which has a statutory regulator
w
Competition Commission of India (CCI: 1 Chairman + 6 Members)
⇒ In past, CCI has imposed penalties on cement companies, real estate companies. It is also
investigating Airtel, and other telecom companies for alleged cartelization.
d

⇒ Competition (Amendment) Bill, 2022 to increase CCI’s powers further. But mostly technical so
go

I’m avoiding it for Poor cost:benefit. Still if Economic Survey 2024 praises it too much then I’ll
revisit.
⇒ Appeals against CCI are heard by National Company Law Appellate Tribunal (NCLAT)
rs

15.32.2 Google pe Penalty by CCI

Refer to Pillar4B: service sector.
he

15.32.3 🔨🔨 � Insolvency and Bankruptcy Board of India (IBBI)

ot

This too is a statutory body under the Ministry of Corporate Affairs (MCA). Read Pillar#1B-2: NPA
Table 5: Bodies under Companies Act 2013
Features National Company National Financial Investor Serious Fraud
p

Law Tribunal Reporting Education & Investigation

(NCLT) Authority (NFRA) Protection Fund Office (SFIO)
el

राष्टी्र य कम्पनी िविध राष्टी्र य िवत्तीय प्रितवेदन िनवेशक एवं िशक्षा रक्षण गं भीर धोखाधडी अन्वेषण
H

अिधकरण प्रािधकरण कोष कायार्लय

Members Judicial + technical. Chairman + Boss: Corp. Affairs Civil servants &
They’ve benches members Secretary (IAS). financial experts
@Delhi, Kolkata, Plus, members
Jaipur etc.

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1C: SEBI Share-market→ Page 244

KING R & QUEEN P Help others god will help you

 Features National Company National Financial Investor Serious Fraud
Law Tribunal Reporting Education & Investigation
(NCLT) Authority (NFRA) Protection Fund Office (SFIO)

from RBI, SEBI,

financial experts
Appeal NCLAT (Appellate NFRAA (Appellate Regular Courts Regular Courts

u
tribunal) Authority)

yo
Cases Hear the cases Sets standards for They use Investigate white-
related to Companies Auditors & (CA), in unclaimed money collar (financial)
Act, Board room listed companies from shares/bonds frauds. Powers to
battles, Merger- and large unlisted for financial search, seize,

lp
Acquisition, companies. If literacy and arrest.

he
Corporate malpractices-> awareness Once SFIO gets
Insolvency & investigate and case, other
Bankruptcy (I&B) debar them, Powers agencies (like CBI)
of civil court. can’t proceed.

15.32.4 Unclaimed shares and dividends of IEPF & 👛👛Budget-2023 ill

w
d
go

Figure 11: Image source: Agnipath (2012)

rs

Investor Education & Protection Fund Authority (IEPF) is a statutory body in Companies Act, 2013.
⇒ Secretary (IAS) of Ministry of Corporate Affairs is the ex-officio chairman of this IEPF body.
he

⇒ IEPF looks after the unclaimed shares, bonds, dividends, interest etc.
⇒ IEPF uses such money for investor awareness.
ot

⇒ �Budget-2023: if a person wants to ‘reclaim’ the unclaimed shares and unpaid dividends from
IEPF → we’ll setup an IT portal to help him file such application.
लावािरस शेयरों और लाभांश िनवेशक िशक्षा और सं रक्षण िनिध प्रािधकरण (आईईपीएफ) नामक वैधािनक सं स्था में रखे जाते हैं। यिद
p

इन लावािरस शेयर/िडिवडेंड की पुन:प्रािप्त के िलए कोई व्यिक्त अज़ीर् करना चाहता है, तो एक ऑनलाइन पोटर्ल बनाया जाएगा
el

15.32.5 🔨🔨� Ministry of Corporate Affairs also associated with:

Chartered Accountants Regulates the CA profession through a
H

Act 1949 Statutory body: Institute of Chartered Accountants of India (ICAI).

ICAI also has IPA status under I&B Code.
Company Secretaries Act, Statutory Body: Institute of Company Secretaries of India (ICSI).
1980 Also has IPA status. REF (More in 📑📑Pillar#1B2)

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1C: SEBI Share-market→ Page 245

KING R & QUEEN P Help others god will help you

 Cost and Works Statutory Body: Institute of Cost Accountants of India (ICAI). Also
Accountants Act, 1959 has IPA status. What does it mean? REF (More in 📑📑Pillar#1B2)
Legislative ⇒ 1860: Societies Registration Act- for registration of literary,
Responsibilities of MCA scientific and charitable societies. E.g. Sahitya Akademi,
National School of Drama etc. जो मुनाफे के िलए नहीं लेिकन कला सािहत्य
िवज्ञान के प्रसार के िलए बने
⇒ 1932: Partnership Act

u
⇒ Companies Act 1956 → 2013.

yo
⇒ 2008: Limited Liability Partnership Act
E-governance initiatives ⇒ INC-29 online form to registration of new company. Later it
of MCA was replaced with Simplified Proforma for Incorporating

lp
Companies (SPICe) online form.
⇒ MCA-21 portal, where companies can file online documents

he
related to Companies Act compliance. MCA21 Version 3.0=
this latest Version 3.0 portal will have additional modules for e-
scrutiny, e-Adjudication, e-Consultation and Compliance

Officers
Management.
ill
Indian Corporate Law service (ICLS) via UPSC CSE-exam
w
15.32.6 Companies Act: EoD- Central Data Processing Centre in 👛👛Budget-2023
d
⇒ In the past, Ministry of corporate affairs had launched many E-governance initiatives that helps
the company to register and upload documents. Example MCA21, SPICe, SPICe+ etc. How do
go

they work? What exactly do they do? NOT.IMP

⇒ �Budget-2023: well - setup Central Data Processing Centre for faster processing of various
forms filled by Companies under the Companies Act. How Exactly? Not.IMP
rs

⇒ �Benefit? Ease of doing business for the companies.

कं पनी कानून के तहत कं पिनयों ने कॉपोर्रेट मामलों के मं त्रालय में पं जीकरण तथा िविवध दस्तावेज जमा करने होते हैं। इस प्रिक्रया को
he

ज्यादा तेजी से िनपटाने के िलए एक कें द्रीय डाटा प्रोसेिसगं कें द्र की स्थापना की जाएगी

15.32.7 �👬👬 Corporate Governance (कॉपोर्रेट शासन)

ot
p

Figure 12: तुम मेरे पापा के दोस्त हो? - Cyrus Mistry

el

Shifted to Mains-QEP. Basically deals with how to ensure that company is run without any
scams/scandals.
H

⇒ Companies Act has various provisions for it. E.g.

⇒ Term limits on board of directors, provision for independent directors,
⇒ Reservation for women directors.
⇒ How many companies can one Chartered Accountant audit?
⇒ Protection for whistleblower, company secretary etc.

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1C: SEBI Share-market→ Page 246

KING R & QUEEN P Help others god will help you

 ⇒ SEBI can also issue some directives. E.g. splitting CMD post.
⇒ Notable committee for improving corporate governance in India: Uday Kotak (2017).
What does above things mean? Ans. shifted to Mains Handout.

15.32.8 Corporate Social Responsibility

Refer to Mains Handout.

15.32.9 NSE Prime regulation for corporate governance (2022)

u
- National Stock Exchange has developed this voluntary framework.

yo
- It contains a set of higher standards of corporate governance for Companies listed on NSE stock
exchange.
- What is corporate governance? Ref. last section of this handout

lp
MCQ.-EPFO-2023: ‘NSE Prime', sometimes mentioned in news, denotes:

he
(a) A high standard corporate governance initiative
(b) Long-duration Sovereign Green Bonds
(c) Concessions and tax-holidays for hi-tech startup companies

ill
(d) Special privileges for certain categories of Non-Banking Financial Institutions
w
15.33👊👊🐤🐤 TAKEOVER RELATED TERMS
- Sometimes in news because of the Elon musk purchase of Twitter (“X”). - We will not DO to the
d
actual B.Com/MBA aspect of it. - We will get a very vague only, with some examples.
go

Friendly Takeover Hostile Takeover

When board of director approve where a person takes control of another company (the
selling the company to another target company) without the consent of the target
rs

company. company’s board of directors.

e.g. Ranbaxy sold to Sunpharma e.g. How Elon Musk acquired Twitter (“X”)
he

15.33.1 👊👊🐤🐤 Leverage Buy-Out (LBO)

- e.g. Elon Musk borrows money to takeover/acquire majority shareholding in Twitter (“X”).
ot

- Note: in real life, it is more complex, but we will not prepare MBA/B.Com here.

15.33.2 👊👊🐤🐤🐍🐍 Poison Pill against Takeover by Twitter

p

- it is a strategy adopted by a Company (Twitter) to defend itself against hostile takeover (By Elon
el

Musk).
- Generally involves giving extra shares to existing shareholder to make % shareholding
H

composition unfavorable to new buyer who is trying to take over (Musk). HOW?NOTIMP

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1C: SEBI Share-market→ Page 247

KING R & QUEEN P Help others god will help you

 15.33.3 🤞🤞 De-Merger When a company subdivided into multiple companies.
BEFORE AFTER De-merger
1) Piramal Enterprises (Doing two biz: NBFC and Pharmaceutical) 1) Piramal (NBFC)
2) Piramal Pharma
1) ITC (Hotel, Cigarettes, FMCG^^) 1) ITC ( Cigarettes, FMCG)
2) ITC (Hotel)
^^ FMCG = Fast Moving Consumer Goods e.g. soap, shampoo, toothpaste, potato-chips etc.

u
🚩🚩🚩 FAQ by Zhande-walle Babushone: How will the share-swaping/share buyback/share

yo
splitting work here? how is this similar or different than parent vs subsidiary companies?Ans.
handout is over and Aap abhi bhi nahi sudhre. Read boycott Notice in initial part of this handout.

lp
15.33.4 ✍🎷🎷 Mock Questions for Mains
Mostly around measures for deepening the capital market, corporate governance, sovereign gold

he
bond etc instruments, investor’s charter etc. This handout deals with ONLY Prelims #RAFTAAR.
📑📑Next Handout: 1D: Insurance, Pension, Financial Inclusion

ill
w
d
go
rs
he
ot
p
el
H

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1C: SEBI Share-market→ Page 248

KING R & QUEEN P Help others god will help you

 1D: ⚰Insurance, Pension & Financial Inclusion
�FAQ: So many schemes/facts/GK? Do I’ve to remember such long list and factual GK? Ans.
UPSC got into habit of asking microscopic facts from govt schemes since 2023, so I’ve given the
facts. आपसे होता है, उतना करो। मैंने फ़ीस ली थी, तो मैंने आपको माल दे िदया। अब तुम्हारे हवाले handout सािथयों।

Table of Contents

u
16 �Insurance (बीमा): Meaning and Significance ......................................................................... 252

yo
16.11.1 Insurance Principles (िसद्धान्त: hindi not required) ....................................................................................... 252
16.11.2 Bancassurance is very great says �ES23 ................................................................................................. 253

lp
16.12 �� History of insurance in India (भारत मे बीमा कं . का इितहास) ...................................................... 253

16.13 ��Life Insurance (जीवन बीमा) ................................................................................................. 255

he
16.14 �� � Life Insurance → public sector (सावर्जिनक क्षेत्र के जीवन बीमा सं स्थान).................................. 255
16.14.1 �� � Post Office Life Insurance (डाक जीवन बीमा) ................................................................................. 255
16.14.2 Post Offices Services: G2C and B2C ........................................................................................................... 256

16.15
ill
��� � Life Insurance Corporation of India (1956) ................................................... 256
w
16.15.1 LIC is regulated under following acts ........................................................................................................ 257
16.15.2 LIC’s Aam Aadmi Bima Yojana (AABY) for BPL (2007)........................................................................ 257
16.15.3 ��� � LIC’s Disinvestment (2020, िविनवेश) .................................................................................. 257
d

16.15.4 ��PM schemes for Life Insurance & Accidental (Gen) insurance (2015) ..................................... 257
go

16.16 � ���General Insurance (सामान्य बीमा) ............................................................................ 258

16.16.1 ��� � Public Sector General Insurance Entities: Timeline (समय रेखा) ........................................ 258
16.16.2 ��� �: (� �) General Insurance Business (Nationalisation) Amendment Bill, 2021 ........... 259
rs

16.16.3 Seasonal establishment, Casual Worker and some other words ............................................................. 259
16.16.4 �(� ��) Employees' State Insurance Corporation ........................................................................... 260
he

16.16.5 FAQ: Seasonal vs Temporary (Casual) ...................................................................................................... 261

16.16.6 An ESIC subscriber gets following benefits:.............................................................................................. 261
16.16.7 �(�
��) ESIC: 15% share investment ................................................................................................ 262
ot

16.16.8 ���Gen Insurance → Corona Warrior ₹50 lakh cover by Govt (2020-March) ...................... 262

16.17 � Gen → Health Insurance Schemes (स्वास्थ्य बीमा योजनाएं ) ........................................................... 262
p

16.17.1 � Types of Health insurance policies: Individual vs Floater Health Insurance ................................. 262
el

16.17.2 � Types of Health insurance policies: Fixed vs Indemnity based ....................................................... 262
16.17.3 ��Gen→ Health Insurance → Corona Kavach vs Rakshak .......................................................... 263
H

16.17.4 � �: �Arogya Sanjeevani Policy – standardized health insurance policies ................................ 263
16.17.5 � �: �SARAL JEEVAN BIMA-Standardized term Life Insurance policy .................................. 263
16.17.6 �� Niramya Health Insurance for PH. OLD SCHEME DONOT-LOOSE-SLEEP ....................... 263
16.17.7 ��IRDAI ordered companies to launch policies for HIV patients/PWD...................................... 263

16.18 ��5⃣L /�
�/�
� Ayushman Bharat / PM Jan Aroyga Yojana (PMJAY) ............................ 263

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1D: Insurance, Pension, FinInclusion → Page 249

KING R & QUEEN P Help others god will help you

 16.18.1 ���5⃣L /� �/� � PM Jan Arogya Yojana (PMJAY, 2018)?.......................................................... 264
16.18.2 PM-JAY Sub-schemes ................................................................................................................................. 265
16.18.3 Ayushman Bharat Digital Mission ............................................................................................................. 265
16.18.4 PM-JAY Challenges: .................................................................................................................................... 266

16.19 � ��� General Insurance → other than Health Insurance ....................................... 267
16.19.1 ��� Pradhan Mantri Fasal Bima Yojana (2016) ........................................................................... 267
16.19.2 ��� PM-FBY (2.0) reforms in 2020 ............................................................................................... 268

u
16.19.3 ��� Other Agriculture Insurance Schemes? (अन्य कु छ फ़सल बीमा योजना) ............................................... 268

yo
16.19.4 ⛴� ��) Insurance to Banks on Exporters’NPA → NIRVIC Scheme (2019) .......................... 268
�(�
16.19.5 �� Third Party Motor Insurance (थडर् पाटीर् मोटर इं श्योरेंस) ............................................................................ 269
16.19.6 �� Own Damage Insurance (OD: मोटर सं बं िधत स्वयं के नुकसान का बीमा ) ........................................................... 269

lp
16.19.7 Tech-driven add-ons in Motor-OD (own damage) cover....................................................................... 269
16.19.8 De-tariffication in Chinese insurance sector (�
�ES23) ......................................................................... 269

he
16.19.9 🏗🏗�
��Title Insurance (जमीन / इमारत का टाइटल बीमा) ....................................................................................... 270
16.19.10 ���Clinical Trial Liability Insurance ............................................................................................. 270
16.19.11 ���� Bharat Griha Raksha & other: Standardized home/factory insurance ......................... 270
🌬🌬🌬🌬(Proposed) Catastrophe Insurance (आपदा बीमा) ................................................................................... 270

ill
16.19.12
16.19.13 🌬🌬🌬🌬 Catastrophe Bonds, Surety Bonds: ................................................................................................... 271
w
16.19.14 ��General Insurance → Cyber Insurance (साइबर बीमा) ........................................................................ 271
16.19.15 �eIA: e-Insurance account ...................................................................................................................... 271
d
16.20 ���Re-insurance (पुनबीर्मा) ................................................................................................ 271
go

16.20.1 �(�
���)PANDEMIC RISK POOL proposal by IRDAI ............................................................ 272

16.21 ��IRDAI: the insurance sector regulator (बीमा क्षेत्र िनयं त्रक) .................................................... 272
16.21.1 ��Domestic Systemically Important Insurers (D-SIIs, (घरेलु प्रणालीबद्ध महत्वपूणर् बीमाकतार्) ........................... 273
rs

16.21.2 ��IRDAI- Bima Sugam Portal (2023) ............................................................................................... 273

16.21.3 Insurance progress indicators (बीमा प्रगित सं के तक) .......................................................................................... 273
16.21.4 FDI limits in Insurance sector? (बीमा क्षेत्र मे प्रत्यक्ष िवदेशी िनवेश की सीमा) .................................................................... 274
he

16.21.5 � � Arguments in favour and against increasing FDI in insurance sector? .................................. 275

17 � → � (��) PENSION (पेंशन) ........................................................................................ 275

ot

17.11 �� Employee Provident Fund Org. (कमर्चारी भिवष्य िनिध सं गठन) ................................................... 275
17.11.1 EPFO : Higher pension rule = NOT IMP for Exam ................................................................................. 276
p

17.11.2 ��� (2016) Pradhan Mantri Rojgar Protsahan Yojana (Labour Min) ....................................... 278
el

17.11.3 �Atmanirbhar Bharat Rozgar Yojana= Subsidy from Central Govt in EPFO contribution............ 278
17.11.4 ��FAQ: “why not merge EPFO with ESIC!!? ” ............................................................................... 279
H

17.12 �→�
�Pension for Govt Employees & Middle Class? = NPS............................................. 279
17.12.1 NPS-Lite (Swavlamban) (2010) .................................................................................................................. 279
17.12.2 Old Pension Scheme (OPS) in Non-BJP States......................................................................................... 280
17.12.3 NPS: Andhra Guaranteed Pension Scheme (GPS) ................................................................................... 280
17.12.4 �→�
� Pension: NPS: Minimum Assured Return Scheme (MARS) ................................................ 280
17.12.5 �→�
� Pension: NPS: T V Somanathan committee (2023) ............................................................... 280

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1D: Insurance, Pension, FinInclusion → Page 250

KING R & QUEEN P Help others god will help you

 17.13 �→�
�Pension for Senior Citizens WITH CAPACITY to Invest? ..................................... 281
17.13.1 Pradhan Mantri Vaya Vandana Yojana (2017-DFS, LIC) ....................................................................... 281

17.14 �→�
�Pension for Poor People WITH capacity to INVEST? ............................................ 281
17.14.1 � → ���: � Pension: Three Maan Dhan Yojanas ................................................................ 283
17.14.2 ��FAQ: “why not merge all these schemes into one!?? ................................................................ 283

17.15 �→�
� Pension for Poor People WITHOUT capacity to INVEST? ................................... 283

u
17.15.1 Pension types: Defined Contribution vs Defined Benefit ........................................................................ 284

yo
17.16 �� PFRDA, the Pension Funds’ Regulator ....................................................................... 284

17.17 ��Social Security for Overseas Indians (Pension / Insurance) ........................................ 285
17.17.1 ��Pravasi Bharatiya Bima Yojana, 2017 ............................................................................................ 285

lp
18 (��:�)→�Financial Inclusion (िवत्तीय समोवेशन) ............................................................ 285

he
18.11 ��:�
(� �)→�
� Fin. inclusion: Bank accounts for Everyone ............................................ 286
18.11.1 �(�
��:�
�)→�
� Pradhan Mantri Jan Dhan Yojana (PMJDY: प्रधान मं त्री जन धन योजना) ...................... 287
18.11.2 � Jan Dhan Darshak App (2018) ............................................................................................................ 288

18.12 ��:�
(�
ill
�)→ � Fin inclusion: Investments other than Bank .......................................... 288
w
18.12.1 ��Small Savings: Mahila Samman Bachat Patra (2023) .................................................................. 289
18.12.2 ��Small Savings: Senior Citizen Savings Scheme limits hiked ....................................................... 289
d
18.12.3 (�
�:�
�)→(�
�:�
�)Sukanya Samriddhi Yojana (2015)....................................................................... 289
18.12.4 �� � �� � Five Star Village scheme by Dept of Post (2020) ............................................................. 289
� �� �
go

18.12.5 � �� � Sampoorna Bima Gram Yojana (2017) ...................................................................... 289

��� �� �
18.12.6 � �� � Model Insurance Villages (MIV) proposal by IRDAI (2021) .................................. 290
��� �� �
18.12.7 (�
��:�
�)→ � Chit Funds................................................................................................................. 290
rs

18.13 �� ←(�
��) Financial inclusion: Credit (Loans: ऋण) ................................................... 290
18.13.1 (� �🗃🗃=(�
��)� ��) Refinance (पुनिर्वत्त) ............................................................................................. 291
he

18.13.2 ��: � ←(� ��) Credit Guarantee (ऋण अदायगी गारंटी) ...................................................................... 291
18.13.3 Financial inclusion: Credit Guarantee Fund for Education Loans (CGFEL) ........................................ 292
ot

18.13.4 � �� MSME: Definition changed in ATMANIRBHAR (2020)................................................... 292

18.13.5 �� �� MSME Non-NPA borrower → ECLGS 1.0 ................................................................... 293
18.13.6 �� �� MSME Non-NPA borrower → ECLGS 2.0 (Atma-Nirbhar 3.0) ................................ 293
p

18.13.7 ���� MSME NPA borrower → Subordinate Debt (गौण ऋण) .................................................... 294
el

18.13.8 �🗃🗃🗃🗃🗃🗃🏭🏭 MSME → Equity infusion via Fund of Funds (िनिधयो की िनिध) ................................................. 294
18.13.9 ����� NBFC → Mudra (2015, 100% SIDBI subsidiary) .................................................... 294
H

18.13.10 �� �� Mudra Loans → Shishu Loans pe 2% Interest subvention .......................................... 295

18.13.11 �� psbloansin59minutes.com (2018) ................................................................................................ 295
18.13.12 �Stand Up India Scheme, 2016 (उित्तष्ठ भारत) .............................................................................................. 295
18.13.13 �Self-help group (स्व-सहायता समूह) → Credit ............................................................................................... 296
18.13.14 ��PM Street Vendors’s AtmaNirbhar Nidhi Scheme (PM-SVANidhi)........................................ 296
18.13.15 ��Street vendors’s PM-SVANidhi → Main Bhi Digital (2021) ..................................................... 297

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1D: Insurance, Pension, FinInclusion → Page 251

KING R & QUEEN P Help others god will help you

 18.13.16 �PaiSA Portal (2018) ............................................................................................................................... 297
18.13.17 �Jan Samarth Portal (2022)..................................................................................................................... 297
18.13.18 �� Kisan Credit Card (1998)............................................................................................................... 297
18.13.19 ��: � ←(�
��) Interest Subvention (ब्याज सहायता) ........................................................................ 298

18.14 ����Farm Loan Waiver (कृ िष ऋण माफी) .......................................................................... 299

18.14.1 ����Agri-Finance → Loan waivers for the farmers................................................................ 299

u
18.15 �� Financial inclusion: Insurance & Pension ................................................................... 299

yo
18.15.1 �� Micro Insurance (सूक्ष्म बीमा)..................................................................................................................... 299
18.15.2 🏍🏍🏍🏍🏍🏍 Gig Workers’ social security code (िगग कमीर् की सामािजक सुरक्षा सं िहता) ..................................................... 299
18.15.3 � UNORGANISED WORKERS’ SOCIAL SECURITY ACT, 2008 ................................................... 300

lp
18.16 ��: �Financial Inclusion: Customer Protection (ग्राहक सुरक्षा) ............................................ 301
18.16.1 �RBI’s 3 Ombudsman (ओमबड्समेन/ िशकायत िनवारण अिधकारी/लोक प्रहरी) .................................................................. 301

he
18.17 �Financial Inclusion: various reports (भारत का प्रदशर्न)................................................... 301
���

16 ⚰INSURANCE (बीमा): MEANING AND SIGNIFICANCE

ill
w
- Meaning: insurance policy is a Debt instrument / Legal contract against eventualities of death or
damage. (मृत्यु या क्षित की घटनाओं के िखलाफ कानूनी अनुबंध).
d
- Indemnification = process of insuring someone/something & paying compensation, if any
go

death/loss. (क्षितपूिर्त)
- 2 parties in this contract: 1) Insured / client 2) Insurer / Underwriter.
- Insurance provide stability to the households (against death, disability, damage) and
rs

entrepreneurs (against fire, theft, natural disasters etc.) बीमा पिरवार और उद्योगपितयों को जोिखमों के सामने
िस्थरता मुहैया कराता है
he

- Insurance companies invest clients’ premium in various public and private sector projects,
thereby channelizing savings towards investment & economic growth. बीमा-िकस्त के द्वारा लोगों की बचत
िनवेश में जाती है
ot

16.11.1 Insurance Principles (िसद्धान्त: hindi not required)

p

⇒ Uberrima fides- Good faith, hide nothing. (e.g. if client has HIV+ve, but hiding it before buying
el

health insurance)
⇒ Indemnity- Only “REAL” loss, not imaginary. (couldn’t join IIM-A, because CAT-books burned
H

in fire)
⇒ Subrogation- Insurer can recover from negligent 3rd party. E.g. client bought factory fire
insurance → fire accident due to faulty boiler → insurance company can recover money from
boiler maker.
⇒ Causa Proxima - Direct loss link. Bollywood fan can’t buy policy for Actor Bachchan.

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1D: Insurance, Pension, FinInclusion → Page 252

KING R & QUEEN P Help others god will help you

 ⇒ Insurable interest- If “risk-x” not happen, client remains in same position, “risk-x” happens
client in bad position. (e.g. I didn’t win lottery= Is not insurable interest. )

MCQ. The principle of subrogation in insurance allows (EPFO-2023) (a) investment of policy
amount (b) refund for insured and insured’s insurance company (c) auto-renewal of policy. (d)
indemnification of the insured.

u
yo
16.11.2 Bancassurance is very great says 📙📙ES23
·
.
-
-

lp
he
ill
w
d
16.12 ⚰🏺🏺 HISTORY OF INSURANCE IN INDIA (भारत मे बीमा कं . का इितहास)
go
rs
he
ot
p

- (1818): Europeans started insurance companies in India, but they charged higher premium on

I
el

Indian clients with racist bias that Indians belong to an inferior race = higher probability to die.
H

(अंग्रेज कं पिनयां भारतीय लोगों पर ज्यादा बीमा िकस्त मांगते थे)

- (1870): Bombay Mutual Life Insurance was the first Swadeshi life insurance company and they
did not charge extra premium on Indian clients.
- (1912): Life Insurance Companies Act to regulate them, but lax norms, so just like the banking
industry, the insurance industry too faced problems in the aftermath of Great Depression in
USA. So, 1938: Insurance Act for tougher regulation. पहले कांड होते रहेते थी िफर क़ानून बनाया गया

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1D: Insurance, Pension, FinInclusion → Page 253

KING R & QUEEN P Help others god will help you

 - Just like the banking, the insurance industry had to be nationalized after independence due to
scams, financial inclusion and Five-Year Plans. धांधली, िवत्तीय समावेशन और पं चवषीर्य योजना के िलए राष्ट्रीयकरण
Chronology �Bank ⚰ Insurance
1948-49 RBI nationalized -----
1955 SBI nationalized -----
1956 ---- LIC Act took over ~245 (private owned) Life insurance

u
companies.

yo
1969 Nationalization of 14 ----
Private Banks
1972 ---- GIC Act: GIC and its 4 subsidiaries tookover ~107

lp
(private owned) General insurance companies.
1980 Nationalization of 6 ----

he
Private Banks
Reforms Narasimham ‘91 & ‘98 Malhotra Committee 1993→ Private insurance
सुधार सिमित companies were allowed, FDI was liberalized
Safeguards
सुरक्षा के िलए
CRR, SLR, BASEL
ill
Investment Pattern, Solvency Margin. E.g. They must
invest minimum “x%” of premium in G-Sec, they can’t
w
कु छ मानदंड invest more than “y%” of premium in pvt companies
shares/debentures etc. They must not invest in
d
companies having less than “AA” credit rating etc.
go

Exact norms not imp.

Financial PSL norms Rural & Social Obligation Norms: every year “x”
Inclusion, 25% branches in number of policies must be sold in rural areas,
Welfarism unbanked rural areas PH/backward etc. Further Insurance companies
rs

required to invest minimum “x%” in affordable

he

housing projects, State Govt’s fire equipment etc. Else

IRDAI imposes penalty. ग्रामीण और सामािजक दाियत्व मानदंड
Delivery - Bank branch, Insurance Intermediaries: (मध्यस्थ/ िबचौिलया)
ot

Channel - Business - Agents/brokers.

Correspondence - Bankers selling insurance (Bancassurance)
p

Agent (BankMitra) - Surveyor/Loss Assessor (सवेर्क्षक).

-
el

Third Party Administrators (e.g. Hospital where

treatment is given for health insurance जहां आप का
H

इलाज हो)

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1D: Insurance, Pension, FinInclusion → Page 254

KING R & QUEEN P Help others god will help you

 16.13 ⚰💀💀LIFE INSURANCE (जीवन बीमा)

u
yo
lp
he
Life Insurance Type → Money returned? 📆📆At maturity 💀💀At death
Whole life= Longer policy: (e.g. 35-40 yrs) Yes, savings YES
Endowment= Shorter policy: (e.g. 10-20) returned with

Term life= Short Policy, Low Premium e.g. PM Jeevan

ill interest
✋No Yes
w
Jyoti Bima Yojana. मृत्यु नहीं हुई तो बीमा िकस्त वापस नहीं िमलेगी
ULIP: Unit Linked Insurance Plans: Part of money goes in Yes, savings YES
d
insurance, part in Mutual fund returned with some
profit
go

16.14⚰💀💀 🦁🦁 LIFE INSURANCE → PUBLIC SECTOR (सावर्जिनक क्षेत्र के जीवन बीमा सं स्थान)
rs

16.14.1 ⚰💀💀 📮📮 Post Office Life Insurance (डाक जीवन बीमा)

he
ot

- They’ve developed “DARPAN” PLI (Postal Life Insurance) App.

p

Postal Life Insurance (PLI) Rural Postal

Life Insurance
el

Started from 1884 1995

H

Who can buy - Employees in Panchayat/municipal employees, Public For Villagers,

sector company, public sector banks, University, schemes like
Cooperative bodies,

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1D: Insurance, Pension, FinInclusion → Page 255

KING R & QUEEN P Help others god will help you

 - Private sector Professionals such as doctors, engineers, Gram
management consultants, charted accountants, architects, Suraksha,
lawyers, bankers etc. Gram Suvidha,
- Private sector companies employees IF it is a LISTED Gram Santosh,
company employees of listed company (Ref: Pillar#1C) Gram Priya,
Example Suraksha, Suvidha, Santosh, Sumangal, Yugal Suraksha, Bal Gram

u
schemes Jiwan Bima Sumangal, etc.

yo
�FAQ: can “X” person buy or not? Ans. Refer the list and apply common sense. If not able to
apply common sense, THEN IGNORE this topic.

16.14.2 Post Offices Services: G2C and B2C

lp
G2C (Government to Citizen) B2C (Business to Citizens)
- Application forms for Pradhan Mantri - Bharat Bill payment system bills (electric,

he
Fasal Bima Yojana, Pradhan Mantri Street gas, water bills, etc.), (Ref: Pillar#1A1)
Vendors' Atmanirbhar Nidhi Yojana; - renewal premium collection for Life
Pradhan Mantri Jan Arogya Yojana Insurance policies and General Insurance
(Ayushman Bharat); Pradhan Mantri
ill
such as motor vehicle, health and fire
w
Shram Yogi Maan-dhan Yojana; Pradhan insurance, etc.
Mantri Laghu Vyapari Maan-dhan Yojana;
National Pension Scheme;
d

- PAN card eKYC, Election Card Printing

go

- e-Stamp (i.e. buying stamp-paper for

property registration etc.)
�FAQ: What do about terms mean? Answer wait till pillar1 and 2 are over.
rs
he

16.15⚰💀💀💀💀 🦁🦁 LIFE INSURANCE CORPORATION OF INDIA (1956)

ot

⇒ To take over/nationalize the private life insurance companies → LIC Act, 1956. So, LIC is a
p

statutory corporation/statutory company. (वैधािनक िनगम)

el

⇒ Rigveda: “योगक्षेम” (Yogakshema: well being) = name of LIC HQ@Mumbai & its corporate
magazine.
H

⇒ Gita: “योगक्षेमं वहाम्यहम्” (Yogakshemam Vahamyaham:- I ensure safety and well being (of my
devotees) = LIC motto.
⇒ 2018: LIC became majority shareholder in IDBI bank. (More in 📑📑Pillar#1B1- Classification)

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1D: Insurance, Pension, FinInclusion → Page 256

KING R & QUEEN P Help others god will help you

 ⇒ 2021: 1) Govt ⏫retirement age of LIC chairman from 60 to 62 years. 2) LIC launched ‘Ananda’
App for insurance agents.

16.15.1 LIC is regulated under following acts

1956 Life Insurance Corporation of India Act
1938 Insurance Act
1999 Insurance Regulatory and Development Authority (IRDAI) Act

u
yo
16.15.2 LIC’s Aam Aadmi Bima Yojana (AABY) for BPL (2007)
Beneficiary? below poverty line (BPL) and marginally above poverty line (APL) citizens in various
occupations like carpenter, cobbler, blacksmith etc. What is BPL/APL? (Ref: Pillar#6: Poverty)

lp
Death ₹30,000
Disability ₹37,500 to 75,000

he
Child scholarship for class9-12 and ITI courses ₹1200 per year
Who pays premium?

Contribution by
Union Government's social security fund inside LIC
ill Amount
₹100
w
Beneficiary (OR State/Central Dept if they want to do it) ₹100
Total Premium ₹200
d
go

16.15.3 ⚰💀💀💀💀 🦁🦁 LIC’s Disinvestment (2020, िविनवेश)

- 💼💼Budget-2020: LIC Act will be amended → LIC : Initial Public Offering (IPO) → Government
will sell part of its shareholding. 2022: SEBI permitted IPO.
rs

- Govt sold 5% of its 100% shareholding. (more about this IPO: refer to Pillar1C: Sharemarket)
he

16.15.4 🧔🧔⚰PM schemes for Life Insurance & Accidental (Gen) insurance (2015)
ot
p

Figure 1: शराब पी के मर गए देवदास बाबू तो PM-सुरक्षा बीमा योजना मे कु छ नही िमलेगा!

Table 1: 2015: Finance Ministry → Dept of Financial Services launched these two schemes.
el

Features 🧔🧔⚰💀💀 🕯🕯✔♿✖ Pradhan Mantri 🧔🧔⚰💀💀♿✔🍾🍾✖

Jeevan Jyoti Bima Yojana (PMJJB) Pradhan Mantri Suraksha Bima
H

Yojana (PMSBY)
Age 18-50 years with bank account in India. 18-70 years. Remaining same as
NRIs eligible but payment in rupee PMJJB
currency only.

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1D: Insurance, Pension, FinInclusion → Page 257

KING R & QUEEN P Help others god will help you

 Features 🧔🧔⚰💀💀 🕯🕯✔♿✖ Pradhan Mantri 🧔🧔⚰💀💀♿✔🍾🍾✖
Jeevan Jyoti Bima Yojana (PMJJB) Pradhan Mantri Suraksha Bima
Yojana (PMSBY)
Purchase LIC or any empaneled pvt. life insurance 4 Public Sector, or any empaneled
from company. pvt. General Insurance company.
Premium - Rs. 436 per person/ annum. - Rs.20/- per person/

u
- (before 2022, it was ₹330) - (Before 2022, it was ₹12)
Type LIFE Insurance General Insurance

yo
Nature of 1 year “term” LIFE insurance. 1-year “term” accident cum
Plan Term LIFE insurance = no death, no death insurance.
money returned.

lp
Return? Any type of death: ₹ 2 lakhs Accidental Death: murder,

he
िकसी भी प्रकार की मृत्यु पर पिरवार को मुआवजा िमलेगा natural disaster etc. ₹2 lakhs
- Loss 1 eye/hand/leg: 1 lakh
- Loss 2 organs/>: max. 2 lakhs

ill
Suicide, alcohol-drugs related
death: not eligible
w
- Neither scheme gives hospitalization cost. (अस्पताल में िचिकत्सा खचर् के िबल की अलग से कोई रािश नहीं िमलेगी)
- In both scheme, premium money auto-debited from bank account, after person applies. (बैंक खाते
d
में अपने आप फ़ीस का पैसा कट जाता है)
go

16.16 ⚰ 💊💊💊💊💊💊GENERAL INSURANCE (सामान्य बीमा)

An insurance policy other than ‘life insurance’, is called General Insurance. e.g. Accident Insurance,
Health Insurance, Crop Insurance, Fire-Theft-Marine & Vehicle Insurance. दघु टर् ना बीमा, स्वास्थ्य बीमा,
rs

फसल बीमा, आग-चोरी-समुद्री और वाहन बीमा

he

16.16.1 ⚰💊💊💊💊 🦁🦁 Public Sector General Insurance Entities: Timeline (समय रेखा)
1948 Employees' State Insurance Corporation (ESIC) under Labour Ministry – through an act
ot

of Parliament to protect selected category of workers. मजदू रों का स्वास्थ्य बीमा

1957 Export Credit Guarantee Corporation of India (ECGC: िनयार्त ऋण गारंटी िनगम) under
Commerce Ministry. Gives insurance cover to exporters, and credit guarantee to
p

Bank/NBFC who loan to exporters.

el

1961 DICGC Act: banks must buy deposit insurance from it. Although not considered a
General Insurance Company in textbook sense because doesn’t directly sell insurance
H

policy to any individual household/businessman. (पाठ्यपुस्तक की पिरभाषा में उसको बीमा कं पनी नहीं
बोल सकते)
1972 General Insurance Nationalization Act: 107 (private) general insurance companies were
taken over by GIC and its 4 subsidiaries (viz. National insurance, New India Assurance,
United India, Oriental).

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1D: Insurance, Pension, FinInclusion → Page 258

KING R & QUEEN P Help others god will help you

 2002 Agriculture Insurance Company ltd, (formed with funding of GIC, above 4 public sector
Gen. Insurance Cos and NABARD.) कृ िष बीमा कं पनी
2018: Budget announced to merge (िवलीनीकरण) National Insurance Company, United India
Insurance Company, Oriental India Insurance Company- but the plan has not materialized yet.

16.16.2 ⚰💊💊💊💊 🦁🦁: (🤵🤵) General Insurance Business (Nationalisation) Amendment Bill, 2021
General Insurance Nationalisation Act 1972 General Insurance Business (Nationalisation)

u
(सामान्य बीमा राष्ट्रीयकरण कानून) Amendment Bill, 2021

yo
Five General Insurance (GI) Companies To facilitate privatization of these public
brought under Govt control sector/Government owned GIs. सामान्य बीमा क्षेत्र की
1) General Insurance Corp of India (GIC) सरकारी कं पिनयों के िनजीकरण का रास्ता आसान बनाने के िलए

lp
2) National Insurance, िवधेयक
3) New India Assurance,

he
4) Oriental Insurance
5) United India Insurance.
Majority shareholding (minimum 51%) must Removed this rule. So, in future, govt may sell
remain under Government control (बहुमत
शेयरहोिल्डगं सरकार के हाथ में अिनवायर् रूप से होनी चािहए) ill
its majority shareholding to private party (e.g.
w
Adani/Ambani etc) [इन पांच कं पिनयों में बहुमत
शेयरहोिल्डगं सरकार के पास होना अिनवायर् नहीं यानी िक िनजी
क्षेत्र का आदमी भी मािलक बन सकता है]
d

- 🤩🤩Pro-Arguments? Privatization will help in Professionalism, Profitability, Customer

go

responsiveness of these Govt companies (िनजीकरण के पक्ष में तकर् : पेशेवर तरीके से सं चालन होगा, मुनाफा बढ़ेगा,
ग्राहकों की सुिवधा बढ़ेगी)
- 😰😰Anti-Arguments? Shifted to Mains Handout.
rs

16.16.3 🏭🏭Seasonal establishment, Casual Worker and some other words

he

Word Meaning ESIC (health EPFO (Pension)

insurance)
Seasonal Where the factory/shop is not working for Not covered Salient / not
ot

establishment whole year e.g. marriage orchestra, salt-pan openly mentioned.

मौसमी इकाई on seashore, horse-ride operators in hill And I'm not in
p

station, sugarcane farms, Diwali- habit of doing

el

firecrackers, tea plantation etc. James-Bond study

Casual When worker employed for only a few Covered* Covered*
H

worker days/weeks by the boss. e.g. construction

अिनयत श्रिमक worker, sugarcane mill worker, temporary
gardener in Infosys office etc.
Unorganized e.g Cobblers, blacksmith, carpenter, coolie No. No
sector worker etc. More in Pillar4C: unemployment

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1D: Insurance, Pension, FinInclusion → Page 259

KING R & QUEEN P Help others god will help you

 Word Meaning ESIC (health EPFO (Pension)
insurance)
असं गिठत क्षेत्र
Organized e.g. those working in registered factory, Yes* Yes*
sector company, etc. More in Pillar4C:
workers unemployment

u
Informal When worker doesn’t have paper/formal No No
worker job contract with employer (अनौपचािरक)

yo
Formal When worker has paper/formal job contract Yes* Yes*
worker with employer (औपचािरक श्रिमक)
*provided ke other conditions are met abt minimum number of workers in a factory, salary level etc.

lp
16.16.4 🦁🦁(💉💉💉) Employees' State Insurance Corporation

he
ill
w
d
go
rs

- 1948: Employees' State Insurance Act → 1952: ESIC corporation (ESIC) setup under Labour
he

Ministry. (कमर्चारी राज्य बीमा िनगम, श्रम मं त्रालय)

ESIC applicability? BEFORE 👻👻ATMA-NIRBHAR (2020)
any non-seasonal establishment with Compulsory Compulsory (अिनवायर्)
ot

10/> employees
If establishment less than 10 workers Voluntary Compulsory (खतरनाक उधोगों के मजदू रो
p

→ but it’s a hazardous industry e.g. (स्वैिच्छक/वैकिल्पक) का क-रा-बी-िन मे पं जीकरण अिनवायर्)

(firecrackers, toxic chemicals, acid)
el

If establishment less than 10 workers Voluntary Voluntary

H

→ Non-hazardous industries (स्वैिच्छक/वैकिल्पक) (स्वैिच्छक/वैकिल्पक)

- 👷👷 Who are ESIC subscribers? Employee in above establishment, with monthly salary less than
₹21,000/-
- 👷👷 � Who pays ESIC premium? “x%” of employee’s wages+ “y%” from employer’s side.

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1D: Insurance, Pension, FinInclusion → Page 260

KING R & QUEEN P Help others god will help you

 - What is X and Y? notimp unless preparing for ESIC/Insurance Exams. Furthermore, Factoids
like ESIC vision-2022 to enrol 100 million workers. notIMP4UPSC
- ESIC covers both permanent employees & casual/temporary employees (= employed only for a
few days/weeks/months.) स्थायी-कमीर् और अस्थायी/अयाथविध-कमीर् दोनो को लाभ िमलता है।
- 💼💼Budget-2021: we’ll expand this to cover more workers. But exact details yet to be disclosed.

16.16.5 FAQ: Seasonal vs Temporary (Casual)

u
Seasonal industry (Casual) Temporary worker in non-seasonal

yo
Farm laborer, salt-pan worker, marriage ⇒ e.g. worker employed in a newspaper
orchestra, marriage catering etc. factory for 1 month.
⇒ Newspaper company itself is non-seasonal.

lp
⇒ But worker is ‘temporary’.

he
NOT Eligible for ESIC YES Eligible for ESIC

16.16.6 🤩🤩An ESIC subscriber gets following benefits:

1) Medical insurance for the worker and his family from day#1 of joining (स्वास्थ्य बीमा)
2) Maternity Benefit to women employees (मातृत्व लाभ)
ill
w
3) Monthly pension to family, if worker dies by employment related injuries. Corona-2020-21→ if
worker died of Corona, family member to be given pension. (originally such pension was to be
given for workers’ death in factory employment related accident, and not for corona illness.)
d

नौकरी करते वक्त ऑिफस/फै क्ट्री में हादसे के चलते मजदू र मर गया तो पिरवार को पेंशन। नया सुधार: कोरोना की बीमारी में मर गया
go

तो भी पिरवार को पेंशन
4) Sickness benefit: partial wages during medical leave. (बीमारी प्रसुिवधा)
5) Monthly payment on disability (िवकलांगता मािसक भुगतान)
rs

6) Unemployment allowance if involuntary loss of employment- through the scheme ‘Atal Bimit
Vyakti Kalyan Yojna’. Previously it was called: “Rajiv Gandhi Shramik Kalyan Yojana” (अटल-
he

बीिमत कल्याण = अनैिच्छक रूप से उसकी नौकरी चली गई तो बेरोजगारी भत्ता)

One IP-Two e.g. if insured person (IP) is a migrant worker in Surat, while his family
Dispensaries living in Bhubaneshwar then they can take benefit in two hospitals 1) at
ot

Surat 2) at Bhubaneshwar
E-Pehchan Digital id cards for ESIC beneficiaries
p

Abhiyan ensuring the change of bed sheet according to rainbow pattern during the
el

Indradhanush week, i.e., to be changed everyday;

Nirman Se Shakti/ ‘initiative to modernize the infrastructure of ESIC hospitals
H

ESIC 2.0
�Project digitization and automation of ESIC processes by WIPRO (2017)
Panchdeep
� �Project Modernization of India Post (2008) डाक िवभाग का आधुिनकीकरण
Arrow

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1D: Insurance, Pension, FinInclusion → Page 261

KING R & QUEEN P Help others god will help you

 16.16.7 🦁🦁(💉💉💉) ESIC: 15% share investment
�BEFORE � After 2022-Reform
ESIC invested subscribers premium/fees/corpus upto 15% of the fund will be invested in
in 1) fixed deposits in the banks 2) debt equities (shares). Remaining 85% in G-Sec,
instruments (e.g. G-Sec, Companies’ bond Bond, FD etc fixed return debt instruments.
debentures)

u
Problem: return on investment (ROI) not very � Benefit? If the share market performance

yo
high; because BankFD/ G-Sec/Bonds etc are positively, then ESIC could earn more profits.
fixed interest instruments. This will help ESIC to cover the cost of running
hospitals in a sustainable manner

lp
🔠🔠❓ Consider the following: [Asked in UPSC-Pre-2012]

he
1) Hotels and restaurants 2) Motor transport undertakings
3) Newspaper establishments 4) Private medical institutions
The employees of which of the above can have coverage under ESIC?
(a) 1, 2 and 3 only (b) 4 only (c) 1, 3 and 4 only
ill
(d) 1, 2, 3 and 4
16.16.8 👻👻🤧🤧⚰Gen Insurance → Corona Warrior ₹50 lakh cover by Govt (2020-March)
w
Deleting because outdated.
16.17💊💊 GEN → HEALTH INSURANCE SCHEMES (स्वास्थ्य बीमा योजनाएं )
d
go

16.17.1 💊💊 Types of Health insurance policies: Individual vs Floater Health Insurance

Individual health insurance policy Floater health insurance policy
Covers 1 person Cover person and his family members.
rs

16.17.2 💊💊 Types of Health insurance policies: Fixed vs Indemnity based

he

Fixed Benefit (िनिश्चत लाभ) Indemnity Based (क्षितपूिर्त आधािरत)

Fixed payment given depending on illness. Upto to the “actual hospitalization cost” from the
⇒ If the Policy agreement said “if you get total insured sum.
ot

cancer, we’ll give you ₹50 lakhs.” ⇒ "Indemnity" = upto actual cost in treatment,
⇒ So, even if a patient spends ₹10 lakh subject to max limit. so, if ₹5 lakh ki policy=
p

on hospitalization, still the company ⇒ Actual treatment cost ₹2 lakh → company pays
el

will pay ₹50l. only ₹2 lakh

इससे कोई फकर् नहीं पड़ता िक हॉिस्पटल का िबल िकतना ⇒ Actual treatment cost ₹7 lakh→ company pays
H

आया आपको एक िनिश्चत रकम दी जाएगी max ₹5 lakh

Further Subtypes
⇒ Cashless policy: patient simply goes to an
empanelled hospital = free treatment.

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1D: Insurance, Pension, FinInclusion → Page 262

KING R & QUEEN P Help others god will help you

 Fixed Benefit (िनिश्चत लाभ) Indemnity Based (क्षितपूिर्त आधािरत)
⇒ Non-Cashless policy: patient first pays hospital
bill from own pocket → submits bills to
insurance company → gets refund.
e.g. SBI Corona Rakshak Policy Rs. 700 e.g. (1) SBI Corona Kavach Policy. Premium ₹4848,
premium → fixed benefit of ₹50,000 coverage upto ₹5 lakh. (2) PM-JAY schemes for poor

u
16.17.3 💊💊🤧🤧Gen→ Health Insurance → Corona Kavach vs Rakshak

yo
Read above table carefully.

16.17.4 💊💊 😵😵: 🧐🧐Arogya Sanjeevani Policy – standardized health insurance policies

Sufficient to know, these are health insurance policies by public and private sector insurance

lp
companies. More details deleted because topic faded/outdated for 2023/24 exam cycles.

he
16.17.5 ⚰ 😵😵: 🧐🧐SARAL JEEVAN BIMA-Standardized term Life Insurance policy
Sufficient to know, these are life insurance policies by public and private sector insurance
companies. More details deleted because topic faded/outdated for 2023/24 exam cycles.

ill
16.17.6 💊💊♿ Niramya Health Insurance for PH. ✋OLD SCHEME DONOT-LOOSE-SLEEP
w
- Boss? By Dept. of Empowerment of Person with disabilities (िदव्यांगजन सशिक्तकरण िवभाग)→
Oriental Insurance Company. 🤩🤩Benefit? upto ₹1 lakh health insurance for handicapped
d
- Premium? Orphan Minor PH= ZERO; Other PH: ₹250-500, depending on poverty level
go

16.17.7 💊💊♿IRDAI ordered companies to launch policies for HIV patients/PWD

2022 Many insurance companies don’t have any scheme/policies for for HIV/PWD. then Delhi
HC ordered IRDAI to do solve it.
rs

2023 IRDAI made it mandatory for general insurance companies to launch health insurance
policies to cover people with mental illness, physical disability, and HIV/AIDS.
he

16.18💊💊💊💊5⃣L /👪👪/📆📆 AYUSHMAN BHARAT / PM JAN AROYGA YOJANA (PMJAY)

ot

in Budget 2018 launched Ayushman Bharat with two components:

A) 1.5 lakh Primary Health Care Centers (PHC) to be transformed into Health & Wellness Centres
p

with Free drugs, checkup, mother-child care etc. (स्वास्थ्य और कल्याण कें द्र)
B) National Health Protection Scheme (AB-NHPS) → Later renamed ‘PM Jan Arogya Yojana
el

(PMJAY)’ and launched with Motto “Swasthya Aapka, Saath Hamara” from Ranchi, Jharkhand
H

(2018, Sept).
a. It has subsumed Rashtriya Swasthya Bima Yojana (RSBY) & Senior Citizen Health
Insurance Scheme (SCHIS).

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1D: Insurance, Pension, FinInclusion → Page 263

KING R & QUEEN P Help others god will help you

 u
yo
lp
he
16.18.1 🧔🧔💊💊💊💊5⃣L /👪👪/📆📆 PM Jan Arogya Yojana (PMJAY, 2018)?
ill
⇒ What is given? A FREE insurance cover upto ₹ 5 lakh per family, per year for secondary and
w
tertiary hospitalization.
⇒ All pre-existing disease covered from day 1.
d
⇒ Also covers 3 days of pre-hospitalisation and 15 days of post-hospitalisation expenses.
go

⇒ Cashless and paperless access [NITI Aayog running web portal, with privacy protection]
⇒ � Beneficiaries? Socio-Economic Caste Census (SECC: सामािजक आिर्थक जाित जनगणना) data → + 8
cr rural + 2 cr urban = 10 cr families= ~50 crore people.
rs
he
ot
p
el
H

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1D: Insurance, Pension, FinInclusion → Page 264

KING R & QUEEN P Help others god will help you

 ⇒ No limit (= No cap) on family size. No limit on age. (पिरवार में िकतने सदस्य, उनकी क्या उम्र है- कोई सीमा नहीं)
⇒ Where to get treatment? (इलाज कहां पर होगा)= All public hospitals and empaneled private hospitals
(by the respective States). [इलाज होगा सरकारी अस्पताल और राज्य सरकार द्वारा अिधकृ त िनजी अस्पताल में]
⇒ Hospitals to have Pradhan Mantri Aarogya Mitras (PMAMs/hospital-receptionist-type-ke-log)
to help/guide patients in this scheme. These PMAMs are trained by Ministry of Skill
Development. (कौशल्य िवकास मं त्रालय द्वारा आरोग्य िमत्र को तालीम)

u
16.18.2 PM-JAY Sub-schemes

yo
1. PM SEHAT (Social Endeavour for Health and Telemedicine) 2020- जम्मू कश्मीर के सभी िनवािसयों के िलए
a. BEFORE: 6 lakh families of the J&K getting Ayushman Bharat Scheme. (= poor family
selected through socio economic caste census 2011)

lp
b. AFTER PM SEHAT: All residents of J&K (=21 families, rich-poor everyone) eligible for
₹5 lakh health insurance of PM-JAY scheme. Even if they are traveling outside Jammu

he
Kashmir, in other parts of India, they can avail treatment at PM-JAY-walli hospitals.
2. Ayushman CAPF scheme (2021-Jan) कें द्रीय सशस्त्र पुिलस बल
a. Joint initiative of Home Ministry & National Health Authority

ill
b. Assam Rifles, Border Security Force ( BSF), Sashastra Seema Bal (SSB), Central Reserve
w
Police Force (CRPF), Central Industrial Security Force (CISF), National Security Guard
(NSG), and Indo-Tibetan Border Police (ITBP)
c. Their Personnel & their family members also covered
d
go

16.18.2.1 �PMJAY → National Health Authority (राष्ट्रीय स्वास्थ्य प्रािधकरण)

- Originally it was an “Agency”, then restructured & renamed into “Authority” (2019).
-
rs

NHA oversees the implementation of PM-JAY, operational guidelines, collaborate with

insurance companies & IRDAI, running web-platform etc. (योजना को िक्रयािन्वत करेगा बीमा कं पिनयों के साथ
he

तालमेल िबठाएगा)
- NHA is an ‘attached (adjunct) office (सं लग्न कायार्लय)’ with health ministry (स्वास्थ्य मं त्रालय). i.e. Health
Ministry only looks after parliamentary matters like replying in question hour, annual reports
ot

etc. thus giving NHA more freedom in day to day functions. (रोजाना कायोर्ं में मं त्रालय की दखल कम)
- NHA has a Chief Executive Officer (CEO) with status of Secretary to Govt of India (सिचव).
p

- Above NHA → “Governing Board” (शासक-मं डल) with following composition:

-
el

Chairman: Minister of Health & Family Welfare (स्वास्थ-पिरवार कल्याण मं त्रालय)

- Members: NITI Ayog CEO, NHA-CEO & other govt officials and experts (िवशेषज्ञ).
H

- States will be represented in the Governing Board on rotational basis (चक्रानुक्रम).

16.18.3 Ayushman Bharat Digital Mission

NHA also implements “Ayushman Bharat National Digital Health Mission” (Basically Sarkaari-
google-drive mein x-ray report store kro yojana!) More in �Pillar#6:health schemes

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1D: Insurance, Pension, FinInclusion → Page 265

KING R & QUEEN P Help others god will help you

 16.18.3.1 PMJAY → State Health Agency (SHA)
- Each State to form a State Health Agency (SHA: राज्य स्वास्थ्य एजेंसी) to get the scheme
implementation.
16.18.3.2 PMJAY → Funding / Cost:sharing
Category (श्रेणी) Cost sharing (खचर् की साझेदारी)
"Special Category States" (िवशेष श्रेणी के राज्य): Union contributes 90%: while

u
- North-Eastern States, and State contributes 10% of the
A
cost

yo
- TWO Himalayan Hilly States: Himachal Pradesh and
Uttarakhand#
- Other States: who are not in above category (UP, Bihar, 60:40

lp
etc.)
B - Union territory (UT) with legislature: Delhi,

he
Puducherry, Jammu & Kashmir. (िवधाियका वाले कें द्र शािसत
प्रदेश)
- UT without legislature: Ladakh, Andaman Nicobar etc. 100%
C

- #
(िबना िवधाियका के कें द्र शािसत प्रदेश)
ill
Before the removal of Article 370 (in 2019), the State of J&K was previously in Special category,
w
so it got 90:10 funding.
- Afterwards: J&K is UT with legislature, so, J&K will get 60:40. So, 2019-Aug: Central
d

Government considering creating a new category ‘Hill Union Territory (पहाड़ी कें द्र शािसत प्रदेश)’ so
go

J&K may continue to received 90:10 funding. But, no need for 🎓🎓✋#🕰🕰थोड़ा-पढ़ो-आगे-बढ़ो

16.18.4 😰😰PM-JAY Challenges:

rs
he
ot

Shifted to Mains Handout. Gist given in above image.

p
el

16.18.4.1 🍋🍋PM-JAY- taxes to build hospital?

 Govt to setup hospitals in aspirational (=backward) districts for treatment of PM-JAY
H

beneficiaries.
 Hospital construction Funding: Public private partnership (PPP) → Public side’s funding will
be provided using ₹₹ from health cess on imported medical devices.
 (More about health cess in 📑📑Pillar#2-Taxation) (आयात होने वाले िचिकत्सक उपकरणों पर स्वास्थ्य उपकर
लगाकर उस पैसों से िपछड़े िजलों में अस्पताल बनाएं गे)

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1D: Insurance, Pension, FinInclusion → Page 266

KING R & QUEEN P Help others god will help you

 u
yo
🔠🔠❓ MCQ. Which is not a feature of the Ayushman Bharat Scheme? (CDS-i-2020)
(a) There is no cap on family size and age. (पिरवार की सदस्यों की सं ख्या और आयु पर कोई सीमा नहीं)

lp
(b) The scheme includes pre- and post-hospitalization expenses.
(c) A defined transport allowance per hospitalization will also be paid to the beneficiary.

he
(d) The scheme provides a benefit cover of Rs. 10 lakh per family.
🔠🔠❓ MCQ. Ayushman Bharat is a national health insurance system for: (UPSC-Geologist-2020)
a) women b) every citizen c) old age people d) poor and vulnerable.

ill
🔠🔠❓ MCQ. Which are the benefits of the Pradhan Mantri Jan Arogya Yojana? (CDS-i-2019)
w
1. Free treatment available at all public and empanelled private hospitals.
2. Cashless and paperless access to quality health care services. नकदी रिहत और कागज रिहत प्रशासिनक प्रिक्रया
d
3. Govt provides health insurance up to ₹ 5 lakh per family per year.
go

4. Pre-existing diseases are not covered. पहले से मौजूद बीमािरयों को कवर नहीं िकया जाता है
Codes: a) 1 and 3 only b) 1 , 2 and 3 c) 2 and 4 only d) 2, 3 and 4
rs

16.19 ⚰ 💊💊💊💊💊💊 GENERAL INSURANCE → OTHER THAN HEALTH INSURANCE

16.19.1 🧔🧔⚰💊💊 Pradhan Mantri Fasal Bima Yojana (2016)
he
ot
p
el
H

- Nodal Ministry: Agri Min → Public sector general insurance companies, and empanelled private
sector insurance companies. सरकारी सामान्य बीमा कं पिनयां तथा िनजी क्षेत्र की ऐसी सामान्य बीमा कं पिनयां िजनको कृ िष
मं त्रालय ने इस योजना लागू करने के िलए सूचीबद्ध िकया है

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1D: Insurance, Pension, FinInclusion → Page 267

KING R & QUEEN P Help others god will help you

 - Against natural calamities, pests, diseases; (प्राकृ ितक आपदाएँ , कीट, बीमािरयाँ;)
- Protects before, during and after harvest (फसल की कटाई).
- Premium (बीमा-िकस्त) paid by farmers against the total insured amount: Rabi winter crops (1.5%)
– Kharif summer monsoon crops (2%) –Horticulture & Commercial crops other than oilseed &
pulses (5%). Remainder premium is paid by Union: State Gov. It’s optional for States to join.

u
16.19.2 🧔🧔⚰💊💊 PM-FBY (2.0) reforms in 2020

yo
Before-2020 From 2020-Kharif
Suppose a kharif crop insurance premium Suppose a kharif crop insurance premium = ₹100.
= ₹100. ⇒ Farmer pays ₹2 of the premium

lp
⇒ Farmer paid ₹2 of the premium ⇒ Union pays only ₹25 to 30 based on whether it’s
⇒ Union paid ₹49 + State paid ₹49. In irrigated or unirrigated respectively.

he
other words, Union and States shared ⇒ State may have to pay ₹68-73. So, states’ burden
their premium burden half-half increased.
(50:50). ⇒ However, the Union will bear 90:10 of the

ill
burden in case of North Eastern States.
w
Compulsory for farmer to buy this Voluntary (स्वैिच्छक) for farmers. (बैंक लोन पास करवाने के
insurance policy, IF he wanted crop loans िलए िकसान को यह योजना यह बीमा िनकलवाना अिनवायर् निह)
from bank
d

------ Updated methodology for assessment of crop loss

go

🔠🔠❓MCQ. Find correct statements about ‘Pradhan Mantri Fasal Bima Yojana': (Prelims-2016)
1. Under this scheme, farmers will have to pay a uniform premium of 2% for any crop they
cultivate in any season of the year. िकसी भी फसल में िसफर् 2% बीमा िकस्त िकसान ने चुकानी होगी
rs

2. This scheme covers post-harvest losses arising out of cyclones and unseasonal rains.
Codes: (a) 1 only (b) 2 only (c) Both 1 and 2 (d) Neither 1 nor 2
he

16.19.3 🧔🧔⚰💊💊 Other Agriculture Insurance Schemes? (अन्य कु छ फ़सल बीमा योजना)
ot

- Apart from PM Fasal Bima, there is Restructured Weather Based Crop Insurance Scheme
(RWBCIS, 2016)- protects against weather only. (so not pests/diseases).
- There was a National Agricultural Insurance Scheme and Modified (NAIS), but PM Fasal Bima
p

subsumed it. लेिकन वो सब याद रखने से परीक्षा में बहोत लाभ नहीं.
el

16.19.4 ⛴🔪🔪(�🏦🏦) Insurance to Banks on Exporters’NPA → NIRVIC Scheme (2019)

H

Figure 2: िनयार्तक बैंक का कजार् नहीं चुकाएगा तो नुकसान की भरपाई कौन करेगा

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1D: Insurance, Pension, FinInclusion → Page 268

KING R & QUEEN P Help others god will help you

 Boss? Commerce Ministry → Export Credit Guarantee Corporation (ECGC)
⇒ NIRVIK (Niryat Rin Vikas Yojana) is an Export Credit Insurance Scheme (ECIS).
⇒ Exporter takes a loan from a bank. But if he defaults then ECGC will cover upto 90% of his
principal + interest losses to the bank. (Before NIRVIC scheme, it was only 60%)
⇒ Exporters pay ‘premium (बीमा-िकस्त)’ to the bank → bank pays it to ECGC. (Exporter need not
goto ECGC office himself. He can get the application form from the loan giving bank itself.)

u
⇒ Premium rates depend on sector e.g. diamond, chemical etc. exact figures=NOTIMP

yo
16.19.5 💊💊💊💊 Third Party Motor Insurance (थडर् पाटीर् मोटर इंश्योरेंस)

lp
he
- Motor Vehicles Act (1988) requires all motor vehicle owners to purchase it. (कानूनी रूप से अिनवायर्)
- Third party (TP) insurance: When your vehicle hits another vehicle, person or property → that
victim (third party) registers a case, gets compensation. IRDAI regulates premium rates & other
norms.
ill
w
- SC judgement (2019): TP insurance validity should be 3-5 years, so even if owner forgets to
renew annually, the third party is protected. (अवधी ज़्यादा होनी चािहए)
d
go

16.19.6 💊💊😰😰 Own Damage Insurance (OD: मोटर सं बं िधत स्वयं के नुकसान का बीमा )
- It protects owner of vehicle against theft, vandalism, accident, fire.

16.19.7 🚗🚗Tech-driven add-ons in Motor-OD (own damage) cover

rs

IRDAI has allowed insurance companies to launch Tech-based add-ons in in motor own-damage
policies for two-wheelers and private cars e.g. "pay as you drive," "pay how you drive,"
he

16.19.8 🚗🚗De-tariffication in Chinese insurance sector (📙📙ES23)

ot
p
el
H

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1D: Insurance, Pension, FinInclusion → Page 269

KING R & QUEEN P Help others god will help you

 Normally, in a vehicle insurance After De-tariffication
motor vehicle insurance companies to charge fixed premium based on risk profile of the
premiums based on type of the bike/car. This premium is driver e.g. age, physical fitness, past
usually decided by the Government/insurance regulator car-accidents, alcohol addiction etc.
�ES23 said Chinese vehicle insurance sector witnessed De-tariffication. (सामान्य रूप से वाहन बीमा कं पनी
की फीस/प्रीिमयम िफ़क्स/सब के िलए एक समान होते है। हालांिक डी-टेिरिफके शन ऐसी प्रणाली है जहां जोिखम की सं भावना के िहसाब से

u
फ़ीस/प्रीिमयम अलग अलग हो सकता है।)

yo
16.19.9 🏗🏗⚖📜📜Title Insurance (जमीन / इमारत का टाइटल बीमा)

lp
he
Figure 3: जमीन मकान िववादों के कानूनी लफड़ो में नुकसान से बचने का िबमा img source: Gulabo Sitabo movie (2020)
- 'Title' (अिधकार-िवलेख) means a legal document showing ownership of a property. 'Title dispute':
usually happens when multiple persons are claiming ownership of the same land / building.
- 'Title Insurance' protects the new buyer in case of such legal disputes (by refunding the money he
had spent in buying land, construction, legal expenses etc).
ill
w
- Real Estate Regulation and Development Act 2016 (RERA) requires the builders to buy this type
of insurance. More on RERA in 📑📑pillar#5: urban infrastructure.
d

16.19.10 💉💉⚖📜📜Clinical Trial Liability Insurance

go

⇒ Type: General Insurance Cover

⇒ Objective: To protect the pharmaceutical company From legal expenses/Lawsuits, if a volunteer
patient suffers damage/death in clinical trials. (यिद कोई व्यिक्त नैदािनक परीक्षणों में क्षित / मृत्यु तो फ़ामार् कम्पनी
rs

को बीमा कम्पनी मदद करेगी।)

he

16.19.11 🔥🔥🔥🔥🏡🏡🏭🏭 Bharat Griha Raksha & other: Standardized home/factory insurance
- IRDAI ordered @General Insurance companies to sell 1) Bharat Griha Raksha, 2) Bharat
ot

Sookshma Udyam Suraksha 3) Bharat Laghu Udyam Suraksha from 1/4/2021 onwards.
- Type? Standard Fire and Special Perils (SFSP) Policy.
p

- Beneficiaries? protect homes and factories of micro, small and medium enterprises (MSMEs).
el

- What damages are covered? fire, natural catastrophes, riot, strike/hartal, malicious damages,
terrorism,, etc upto ₹50 crores.
H

16.19.12 🌬🌬🌬🌬(Proposed) Catastrophe Insurance (आपदा बीमा)

⇒ Protects the client from natural and manmade disasters.

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1D: Insurance, Pension, FinInclusion → Page 270

KING R & QUEEN P Help others god will help you

 ⇒ Presently, farmers’ crops are protected from natural disasters through PM-Fasal Bima Yojana.
But, if his own home was destroyed in floods, it’s not covered → Union & State Governments
forced to use taxpayers' money for paying compensation to victims of floods, cyclones etc.
⇒ IRDAI doing some studies to launch catastrophe insurance (or CAT cover) for poor people.
16.19.13 🌬🌬🌬🌬 Catastrophe Bonds, Surety Bonds:

u
📑📑Refer Pillar#1C: SEBI-Sharemarket-यह हम पहले ही पढ़ चुके हैं

yo
16.19.14 👿👿👿👿General Insurance → Cyber Insurance (साइबर बीमा)
- It covers the losses related to malware attack, phishing and data, identity theft, ransom payment

lp
demand made by the hackers, data restoration costs, business interruption losses due to
cyberattacks. The loss of reputation, damage to mental health etc.

he
- Corona lockdown → home-from-home through computer → demand for such policies ⏫.
- Bajaj Allianz and HDFC ERGO are notable general insurance companies offering such products.

ill
🔠🔠❓In India, under cyber insurance for individuals, which of the following benefits are generally
covered, in addition to payment for the loss of funds and other benefits? (UPSC-Prelims-2020 SetB.Q90)
w
1. Cost of restoration of the computer system in case of malware disrupting access to one’s
computer
d
2. Cost of a new computer if some miscreant wilfully damages it, if proved so
go

3. Cost of hiring a specialized consultant to minimize the loss in case of cyber extortion
4. Cost of defence in the Court of Law if any third party files a suit
Answer Codes: [a) 1, 2 and 4 only [b) 1, 3 and 4 only [c) 2 and 3 only [d) 1, 2, 3 and 4
rs

16.19.15 👿👿eIA: e-Insurance account

⇒ Shares/Bonds are stored digitally in DEMAT accounts. (More in 📑📑Pillar#1C)
he

⇒ Similarly, Insurance policies can be stored digitally in e-Insurance accounts e.g. NSDL's National
Insurance Repository (NIR). (बीमा दस्तावेजों को िडिजटल रूप से सं ग्रिहत करना)
ot

⇒ 🤩🤩Benefit? convenience to customers especially if he bought insurance policies from different

companies e.g. Vehicle insurance, fire insurance, Health Insurance, Life Insurance. He can easily
track their expiry date/ online renewal etc. in one portal. (सदस्यता का ऑनलाइन नवीनीकरण आसान होगा)
p

16.20⚰↗⚰RE-INSURANCE (पुनबीर्मा)
el

.-
·
DICGCI Act (1961) requires banks to take deposit insurance from DICGCI.
H

- Similarly, Insurance Act (1938) requires insurance companies take ‘re-insurance’ on their biz.
.
बीमा कं पनी ने स्वयं का "धं धा चौपट बचाओ" बीमा लेना होगा
- Previously, only GIC was the sole-reinsurer, but then norms liberalized in 2015.
- Now private re-insurance cos allowed. e.g. India’s ITI Reinsurance Ltd.

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1D: Insurance, Pension, FinInclusion → Page 271

KING R & QUEEN P Help others god will help you

 - Even foreign re-insurers such as Swiss Re, Munich Re, General Reinsurance (Warren Buffet,
USA), Lloyds (UK) are permitted. (पहले के वल जीआईसी, लेिकन अब अनेक कं पिनयों को अनुमित दी गई)
- 🤩🤩Benefits of multiple re-insurance cos? GIC’s monopoly in dictating re-insurance premium
rates is gone. So, insurance cos’ cost of operations to decline → biz. expansion, launch
innovative products etc.

u
yo
lp
he
16.20.1 😷😷(🤵🤵🤵🤵🧔🧔)PANDEMIC RISK POOL proposal by IRDAI ill
w
⇒ Corona= many people died/sick = insurance companies required to pay large sum of
compensation. This is putting lot of Business stress/losses on insurance and reinsurance
d

companies. (महामारी में काफी लोग बीमार हुए/मर गए. बीमा कं पिनयों ने मुआवजा देना पड़ा, मुनाफ़े पर गहरा तनाव)
go

⇒ PANDEMIC RISK POOL = Insurance companies and government will contribute ₹₹ into this
fund to help in insurance companies in future pandemics. (बीमा कं पिनयां और सरकार िमलकर एक
िनिध/कोष/फं ड में पैसा जमा करें तािक भिवष्य में महामारीजन्य तनावपूणर् िस्थितयों में बीमा कं पनी की मदद हो सके ।)
rs
he

16.21 ⚰�IRDAI: THE INSURANCE SECTOR REGULATOR (बीमा क्षेत्र िनयं त्रक)
- 1996: IRDA setup→ given statutory status in 1999 (वैधािनक सं स्था बनी)
Org - 2014: Its name changed to Insurance Regulatory and Development
ot

सं गठन Authority of India (IRDAI: भारतीय बीमा िविनयामक एवं िवकास प्रािधकरण)
- HQ: @Hyderabad, Telangana. (Whereas RBI & SEBI HQs @Mumbai.)
p

Structure 1 Chairman: Dr. Debasish Panda (Ex-IAS) (5/65),

el

सं रचना 9 members (5/62) = Total 10. They can be re-appointed. (पुनिर्नयुिक्त सं भव है)
⇒ IRDAI gives separate licenses for life, general & re-insurance companies.
H

Functions ⇒ Prescribes norms for insurance companies for accounting, solvency, audit,
कायर् commission to agents etc. It can penalize companies, suspend or cancel
registration. Appeal → Securities appellate Tribunal (SAT) (More in
📑📑Pillar#1C)

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1D: Insurance, Pension, FinInclusion → Page 272

KING R & QUEEN P Help others god will help you

 ⇒ Norms for agents & brokers, banks selling products (Bancassurance), Surveyor/
Loss Assessor, and Third-Party Administrators (e.g. Hospital)
⇒ Consumer grievance redressal via Insurance Ombudsman (िशकायत िनवारण अिधकारी).
IRDAI is member of Financial Stability & Development Council (FSDC). Ref: 📑📑1C

16.21.1 ⚰�Domestic Systemically Important Insurers 8 (D-SIIs, (घरेलु प्रणालीबद्ध महत्वपूणर् बीमाकतार्)

u
- IRDAI prepares a list of big insurance companies that are “too big to fail” i.e. they feel it will
create very great economic distress for India. (यिद ये बीमा कं पिनयां िगर गयी तो अथर्तंत्र में भारी तबाही होगी)

yo
- IRDAI labels them as D-SIIs & imposes additional rules/monitoring/supervision on them.
- Latest List: 1) Life Insurance Corporation of India (LIC), 2) General Insurance Corporation of
India (GIC), 3) The New India Assurance Co. Ltd. (NIACL) (उनपर ज्यादा सख्त िनयम/िनगरानी रखेंगे)

lp
16.21.2 ⚰�IRDAI- Bima Sugam Portal (2023)

he
ill
w
d
go
rs

16.21.3 ⚰📈📈Insurance progress indicators (बीमा प्रगित सं के तक)

he

Insurance penetration (%: बीमा प्रवेश) Insurance Density ($:बीमा घनत्व)

=Premium divided by GDP =Premium divided by population
ot
p
el
H

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1D: Insurance, Pension, FinInclusion → Page 273

KING R & QUEEN P Help others god will help you

 For India, these indicators are low compared to Malaysia many other developing countries. (उक्त
सूचकांकों में भारत अन्य िवकासशील देशों के मुक़ाबले मे काफ़ी पीछे है)

16.21.4 🇺🇺🇸🇸💸💸FDI limits in Insurance sector? (बीमा क्षेत्र मे प्रत्यक्ष िवदेशी िनवेश की सीमा)
⇒ Foreign Direct Investment (FDI) is the (more than 10% equity / share) investment made by a
foreign entity into an Indian company, with the objective to get involved in the management /
production of that Indian company. (िकसी िवदेशी इकाई द्वारा एक भारतीय कं पनी में 10% से ज्यादा शेयर िनवेश

u
करना उसे कहते हैं प्रत्यक्ष िवदेशी िनवेश) (More on FDI 📑📑Pillar#3A)

yo
⇒ e.g. 2018: Walmart-USA bought 77% shares in Flipkart-India @$16 billion.

lp
he
ill
w
d
go

FDI limits in insurance sector→ 😰😰BEFORE 🤩🤩AFTER (Automatic Route)

State owned/public sector Life insurance NO RULE 20% (done in 2022)
rs

corporation i.e. LIC (सावर्जिनक क्षेत्र का जीवन बीमा िनगम)

Insurance company itself (Except LIC) 49% 74%** (done in 2021)
he

Insurance intermediaries e.g. agent/broker, 49% 100% (done in 2020)

surveyor/loss-assessor, third party
administrators (hospital who give treat to health
ot

insurance clients) (बीमा क्षेत्र के िबचौिलये/दल्ले)

** 💼💼Budget-2021: announced to amend Insurance Act, 1938 to ⏫ FDI limit from 49% to 74% in
p

Insurance Companies. With following safeguards: हालांिक कु छ शतोर्ं के साथ →

el

⇒ the Majority of Directors on the Board and key management persons must be Resident Indians.
H

बोडर् ऑफ डायरेक्टर तथा कं पनी प्रबं धन के विरष्ठ पदािधकािरयों मैं बहुमित भारतीय िनवासी होने चािहए
⇒ At least 50% of Directors must be Independent directors. (स्वतं त्र डायरेक्टर) (Ref#1C)
⇒ Certain % of profits must be retained as general reserve. मुनाफे का कु छ प्रितशत सामान्य आरिक्षत िनिध के रूप
में अलग से रखना होगा, ताकी अगर कोई कांड हो जाए तो इन पैसों से क्षितपूिर्त हो सके .

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1D: Insurance, Pension, FinInclusion → Page 274

KING R & QUEEN P Help others god will help you

 16.21.5 🤗🤗 � Arguments in favour and against increasing FDI in insurance sector?
Shifted to Mains. #Prelims-RAFTAAR-🏎🏎

17 💉 → � (💰💰💰💰) PENSION (पेंशन)

- ⚰Insurance: person/his family eligible to receive ₹ ₹ if he suffers death / damage. e.g. PM
Jeevan Jyoti: ₹ 2 lakhs on death. जीवन बीमा का लाभ लेना है तो व्यिक्त का मरना जरूरी है

u
- �Pension: Person eligible to receive monthly ₹ ₹ when he retires. And when he dies, his wife

yo
(is usually) eligible to receive monthly ₹ ₹. When she also dies, scheme stops. बुढ़ापे में पेंशन िमलता रहे.
आपके मरने पर आपके पित या पत्नी को भी पेंशन िमलता रहे।
17.11�🦁🦁 EMPLOYEE PROVIDENT FUND ORG. (कमर्चारी भिवष्य िनिध सं गठन)

lp
- 1951-52: EPFO was setup initially by ordinance & then Act.

he
- Nodal: Labour Ministry (श्रम मं त्रालय).
- EPFO governed by Tri-partite “Central Board of Trustees” ित्रदलीय के न्द्रीय न्यास बोडर् -
I. Government (Union + state) – 15 nominees (मनोनीत सदस्य)
II. Employers (industrialists) - 10 nominees
III. Employees (workers) – 10 nominees
ill
w
- They make policy decision about where to invest money (usually G-sec>C-Bonds>Shares; with
minimum and maximum slabs) and they decide how much interest should be paid to
d
subscribers.
go

Chronology Scheme (Tech. norms not written here as they’re not imp4IASexam)
1952 Employee Provident Fund (EPF)
⇒ Principal + interest returned upon retirement age/ death. Interest Rate:
rs

8.5%(2020-21) → ⏬ Reduced to 8.1%(2022-23)- lowest in last 40 years.

⇒ Partial withdrawal upto “X%” allowed for education, marriage, illness and
he

house construction. (अविध से पहेले आंिशक रूप से पैसा िनकालना)

⇒ 2020: 👻👻ATMANIRBHAR → PM Garib Kalyan Package→ labour ministry
allowed EPFO subscribers’ to withdraw upto “X%” of EPF fund to help the
ot

workers during lockdown. (कोरोना के चलते ज़रूरतमं द मज़दू र अपने खाते से पिरपक्वता-अविध से
पहेले आंिशक रूप से पैसा िनकाल सके )
p

1976 Employees Deposit Linked Insurance Scheme (EDLI)

el

⇒ Boss pays Premium. If worker dies → family gets insurance.

⇒ 2020-Reform: if worker died of Corona family member will be given insurance
H

(min 2.5 lakh to max 7 lakh). कोरोना मृतक श्रिमक के पिरजनो को बीमा रािश
1995 Employee Pension Scheme (EPS)
⇒ Monthly pension on retirement (once they attain the age of 58 years old) /
permanent disability (वय-िनवृित/स्थायी िवकलांगता में पेंशन िमलेगा).

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1D: Insurance, Pension, FinInclusion → Page 275

KING R & QUEEN P Help others god will help you

 (𝐴𝐴𝐴𝐴𝐴𝐴 𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠 𝑜𝑜𝑜𝑜 𝑠𝑠𝑠𝑠𝑠𝑠𝑙𝑙 5 𝑠𝑠𝑦𝑦𝑠𝑠𝑠𝑠𝑠𝑠 𝑋𝑋 𝑛𝑛𝑛𝑛𝑛𝑛𝑛𝑛𝑦𝑦𝑠𝑠 𝑜𝑜𝑜𝑜 𝑠𝑠𝑦𝑦𝑠𝑠𝑠𝑠𝑠𝑠 𝑖𝑖𝑛𝑛 𝑠𝑠𝑦𝑦𝑠𝑠𝐴𝐴𝑖𝑖𝑠𝑠𝑦𝑦)
EPS pension =
70
- Note1: Different websites give different formulas. Formula is not imp, but
sufficient to know that it is not linked with SHAREMARKET performance
(unlike NPS scheme.)
- Note2: If the worker dies before retirement (=while in job) → the minimum
guaranteed pension to the spouse = ₹ 1,000 per month.

u
17.11.1 EPFO : Higher pension rule = NOT IMP for Exam

yo
lp
he
ill
w
d
go
rs
he
ot
p
el

- EPFO covers both permanent employees & casual/temporary employees (= employed only for a
H

few days/weeks/months.) स्थायी कमीर् और अस्थायी/अयाथविध कमीर् दोनो को लाभ िमलता है।
- EPFO Act doesn’t apply to cooperative society with less than 50 workers, if such cooperative
society not using power (electricity, coal etc). [Why? Ans. NOTIMP.]
- EPFO subscriber worker has UAN (Universal Account Number) that remains unchanged even if
he changes job from one organization to another. (मजदू र का खाता नं बर- नौकरी बदलने पर भी वही रहता है)

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1D: Insurance, Pension, FinInclusion → Page 276

KING R & QUEEN P Help others god will help you

 - Previously, employee himself couldn’t generate his UAN, he had to request his boss to send
forms to EPFO. But 2019: EPFO allowed employees to generate UAN online by simply giving
Aadhar & Mobile Number. (एक जमाने में मजदू र ने मािलक द्वारा फॉमर् िभजवाना होता, लेिकन अब मजदू र खुद अपना
खाता खोल सकता है)
- Factory owner/Employer has LIN (Labour Identification Number)- which he uses while
uploading EPFO documents on Shramsuvidha webportal of Labour Ministry.

u
- EPFO & ESIC transactions can be done through:
o Through public and pvt sector banks (बैंक खाते द्वारा पैसा भेज सकते हैं)

yo
o through Ministry of Electronics and Information Technology (MeitY)’s UMANG App
(Unified Mobile Application for New-age Governance).

lp
he
ill
w
d
go
rs
he
ot
p
el
H

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1D: Insurance, Pension, FinInclusion → Page 277

KING R & QUEEN P Help others god will help you

 17.11.1.1 💉�EPF Commutation (2020)
⇒ EPFO: Employees’ Pension Scheme (EPS: कमर्चािरयों की पेंशन योजना) = worker gets pension after
retirement age (58 years).
⇒ EPF Pension commutation= Worker can partially withdraw his pension in advance before
reaching retirement age. But, then EPFO will pay him less pension afterwards when he actually
reaches retirement age. (पेंशन रूपांतरण: वयिनवृित्त उम्र/पिरपक्वता समय से पहले पैसा उठाना। हालाँिक ऐसा करने पर बाद

u
के वषोर्ं में पेंशन कम िमलेगा)

yo
17.11.2 🧔🧔💉� (2016) Pradhan Mantri Rojgar Protsahan Yojana (Labour Min)
- Too outdated for 2023 so deleting it.

lp
- Under the scheme government contributed some money to EPFO, on behalf of the factory
owner, when factory owner recruited new persons. (फ़ै क्ट्री मािलक जब नए आदमी को नौकरी पे रखेगा तो कु छ

he
वषोर्ं के िलए सरकार उसका EPF का पैसा भरेगी, ऐसी पुरानी ने योजना के )

ill
17.11.3 👻👻Atmanirbhar Bharat Rozgar Yojana= Subsidy from Central Govt in EPFO contribution
It was launched during the Atmanirbhar Bharat 3.0 package (November 2020)
w
Beneficiary eligibility: Worker's Monthly wages LESS THAN ₹15,000 AND
1) Fresh EPFO-Worker got new job in an EPFO registered firm OR
d
2) Past EPFO-Worker had lost job between March1 to Sept30 of 2020, BUT got a job on/after
go

October1, 2020 in an EPFO registered firm

🤩🤩Entitlement: यह योजना में फायदा क्या िमलेगा
EPF scheme �worker (मजदू र) �Boss (मािलक)
rs

if the firm has up to 12% of wages → 🧔🧔 12% → 🧔🧔 Govt to contribute to EPFO

1000 employees Govt to contribute to (सरकार देगी)
he

EPFO
if the firm has >1000 12% of wages → 🧔🧔 ✋12%: Boss has to contribute from his
ot

employees Govt to contribute to pocket. Govt will not contribute. (सरकार नहीं
EPFO देगी)
🤩🤩Benefit? Formal Job creation, more money in the hands of workers → demand⏫ → Post
p

corona economy Revival. (औपचािरक रोजगार सृजन, मजदू र के हाथ में ज्यादा पैसा आएगा िजससे बाजार में मांग में बढ़ोतरी)
el

🗓🗓Scheme validity? (यह योजना िकतने िदनों तक वैद्य/जारी रहेगी)

⇒ Scheme registration open till June 2021.
H

⇒ Registered worker will continue to receive benefit for two years. e.g. if registered in January 2021
→ then ₹₹ upto January 2023.
🎓🎓Note: for faster revision I have used the term worker and boss (मजदू र और मािलक) But, in real mains
exam, you should write employee and employer/Entrepreneur (कमर्चारी और नोकरीदाता / उद्यमी)

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1D: Insurance, Pension, FinInclusion → Page 278

KING R & QUEEN P Help others god will help you

 17.11.4 🚩🚩🚩FAQ: “why not merge EPFO with ESIC!!? ”
Their laws are different. To merge them you’ve to merge two laws. But this is not some priority for
govt like Article 370. So, prepare facts as given in the handout. #थोड़ा-पढ़ो-आगे-बढ़ो

17.12 �→�PENSION FOR GOVT EMPLOYEES & MIDDLE CLASS? = NPS

u
yo
lp
he
Govt Employees (from 2004)
ill Middle Class (from 2009)
w
- 2004: New Pension Scheme (नवीन पेंशन योजना) - In 2009, the Government employee-walla
→(2009) renamed into National Pension National Pension System was made open
d
System. (राष्ट्रीय पेंशन प्रणाली) for all citizens (and NRIs) aged 18-55 on
go

- Subscriber? Those who joined govt. service voluntary basis. You contribute money till
on or after 01/01/2004 (except Armed age of 60, as per your capacity →invested
forces) →pension.
- -
rs

Mechanism? Employees (10 % of basic

pay) + Govt. contribution (14% of basic
he

pay: since Interim-Budget-2019) → goes to

PFRDA →NPS Trust → empaneled NPS-
Fund-manager → Invested G-sec,
ot

Corporate Bonds and Shares depending on

your preference in Tier1/Tier2 accounts.
p

- NPS subscribers have PRAN: Permanent Retirement Account Number, Just like EPFO
el

subscriber has UAN Number.

17.12.1 NPS-Lite (Swavlamban) (2010)

H

If poor person from unorganized sector joined NPS, then govt to contribute ₹1000 per year or five
years in their account. (असं गिठत क्षेत्र में कायर्रत ग़रीब आदमी के खाते में सरकार द्वारा पाँच साल के िकए १-१ हज़ार रुपये वािर्षक
का योगदान)

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1D: Insurance, Pension, FinInclusion → Page 279

KING R & QUEEN P Help others god will help you

 17.12.2 ✋Old Pension Scheme (OPS) in Non-BJP States
⇒ Union Govt believes 1) we don’t have enough money to sustain OPS. 2) better to use tax payers’
money for poor.
⇒ However some non-BJP states such as Rajasthan reverting to OPS.
⇒ Experts argue that OPS is unsustainable because State govts don’t have enough money to run it
forever. More elaboration / bolbachchan = shifted to Mains. #Raftaar-for-Prelims.

u
17.12.3 NPS: Andhra Guaranteed Pension Scheme (GPS)

yo
State Govt Employee State Govt Guaranteed Pension
10% of salary 10% 33% of last salary before retirement
14% 14% 40% of last salary before retirement

lp
17.12.4 �→� Pension: NPS: Minimum Assured Return Scheme (MARS)

he
⇒ PFRDA yet to release the guidelines so for the sake of simple example ….
⇒ suppose you contribute ₹100 & PFRDA gave MARS of 8% on the NPS account
⇒ Then if NPS unable to give u 8% return on ₹60 of subscription then whatever loss- will be paid

ill
by PFRDA/other org to subscriber. 😍😍Benefit? It’ll attract more people to join NPS.
w
न्यूनतम सुिनिश्चत वापसी योजना (MARS) - मान लीिजए PFDRA कहता है िक कम से कम 8% सालाना मुनाफ़ा िदया जाएगा और
अगर शेयर /बोंड बाज़ार िसफ़र् 7% दे पाता है तो 1% नुक़सान की भरपाई PFRDA या कोई और अन्य सं स्था द्वारा की जाएगी। असल में
d
िनयम बनने बाक़ी है, इसिलए ये तो एक काल्पिनक उदाहरण िदया है)
go

17.12.5 �→� Pension: NPS: T V Somanathan committee (2023)

Finance Ministry has setup T V Somanathan to review the NPS pension scheme for government
employees and suggest any changes, if needed.
rs

17.12.5.1 �📜📜 → � Jeevan Pramaan (2014)

he
ot
p
el
H

- Previously, a pensioner (in any Govt / public sector org.) had to submit a physical life certificate
in November each year to prove that he’s alive = hardship, bribery.
- "Jeevan Pramaan" – an "Aadhar-based Digital Life Certificate“ by Ministry of Electronics &
Information Technology (MEITY) (आधार काडर् और अंगठू ा लगा के िज़दं ा होने का प्रमाण पत्र तािक पेंशन िमलता रहे)

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1D: Insurance, Pension, FinInclusion → Page 280

KING R & QUEEN P Help others god will help you

 - Pensioner's Aadhar number + biometric reading device→ PC, Mobile→ “Digital Life
Certificate”→ submit to the authority → pension released.
- 2020: Jeevan Pramaan system also expanded to EPFO subscribers.
- 2022: EPFO also allows facial recognition system because in some very old pensioners, difficult
to scan finger-print/iris.

u
17.13 �→�PENSION FOR SENIOR CITIZENS WITH CAPACITY TO INVEST?

yo
17.13.1 Pradhan Mantri Vaya Vandana Yojana (2017-DFS, LIC)
⇒ Boss- Dept of Financial Services
⇒ 2023-March-31st: this is the last date to join the scheme. Then registration will close.

lp
⇒ Other similar schemes: Senior Citizen Savings Scheme, LIC Varistha Pension Bima Yojana but
they are old schemes so poor cost: benefit in preparing for UPSC.

he
ill
w
d
go

🔠🔠❓ [Asked in UPSC-CDS-2019-1] Consider the following passage about a scheme : It was
launched to provide social security during old age and to protect elderly persons aged 60 years and
rs

above against a future fall in their interest income due to uncertain market conditions. The scheme
enables old age income security for senior citizens through provision of assured pension / return
he

linked to the subscription amount based on government guarantee to Life Insurance Corporation of
India (LIC). Identify the scheme. Answer Choices:
a) Pradhan Mantri Swasthya Suraksha Yojana b) Pradhan Mantri Vaya Vandana Yojana
ot

c) Liveability Index Programme d) Rashtriya Vayoshri Yojana

17.14 �→�PENSION FOR POOR PEOPLE WITH CAPACITY TO INVEST?
p

ग़रीब आदमी जो ख़ुद की जेब से थोड़ा पैसा िनवेश कर सके - उनके िलए पेंशन योजना
el

👴👴Atal Pension Yojana (APY) 🧔🧔Pradhan Mantri Shram-Yogi Maandhan

H

By Dept of Financial Services, 2015 By labor Ministry, 2019

Only 18-40 age Indian citizen residing in India Income Tax-payer, NPS,EPFO,ESIC-
subscribers not eligible.
No minimum or maximum income limits. unorganized sector workers with monthly
Mukesh Ambani can also join, but given that fact income upto ₹15k. E.g. street vendors,

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1D: Insurance, Pension, FinInclusion → Page 281

KING R & QUEEN P Help others god will help you

 👴👴Atal Pension Yojana (APY) 🧔🧔Pradhan Mantri Shram-Yogi Maandhan
that maximum pension is ₹5,000 a month so rickshaw pullers, construction workers, rag
target-audience is poor people, unorganized pickers, agricultural workers, beedi workers
workers outside EPFO security. etc. in the age of 18-40
Monthly pay ₹42-210 rupees till the age of 60 Monthly invest ₹55-200 (depending on age of
joining). Govt to co-contribute equal amount.

u
Till the age of 60

yo
₹1k-5k monthly pension- depends on @which Fixed ₹3k pension per month after 60.
age joined, how much contributed?
- If subscriber dies after 60, then spouse If subscriber dies after 60, spouse
(husband/wife) gets ₹1500pm as family

lp
(Husband/wife) continues to receive same
amt. pension. pension.

he
- Both Husband & Wife die → Nominee (e.g. Both Husband & Wife die → Nominee (e.g.
their child) receives the entire principal their child) get nothing.
(premium) back. (माँ बाप दोनो मर गये तो बच्चे को िनवेशक-पित/पत्नी के देहांत पर उसके पत्नी/पित को आधा ही
मूलधन वापस)
One person-1-subscription account only. (एक
ill
पेंशन िमले। दोनो मर गये तो बच्चे को कु छ नहीं िमलेगा।
Same as left cell.
w
व्यिक्त का िसफ़र् एक ही खाता खुल सकता है)
💡💡Note: 1) Atal Pension Yojana 2) PM Jivan Jyoti Yojana and 3) PM Suraksha Bima Yojana are
d
collectively known as Pradhan Mantri Jansuraksha Schemes.
go
rs
he
ot
p

🔠🔠❓ [Asked in Prelim 2016] Find correct statement(s) regarding ‘Atal Pension Yojana’:
el

1. It is a minimum guaranteed pension scheme mainly targeted at unorganized sector workers.

2. Only one member of a family can join the scheme.
H

3. Same amount of pension is guaranteed for the spouse for life after subscriber's death.
Codes: (a) 1 only (b) 2 and 3 only (c) 1 and 3 only (d) 1, 2 and 3

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1D: Insurance, Pension, FinInclusion → Page 282

KING R & QUEEN P Help others god will help you

 17.14.1 � → 👴👴👴👴💰💰: 🧔🧔 Pension: Three Maan Dhan Yojanas

18-40 Age; ₹ 55-200 fees; LIC Fund manager Who?

u
Pension @60=3000 → family + This Ministry

yo
pension ₹ 1500 co-contributes
1) Pradhan Mantri Shram-Yogi Labour Ministry unorganized sector workers with
Maan-dhan (Feb’19) monthly income upto ₹15k

lp
2) PM Laghu Vyapari Maan- Labour Ministry Small trader / shopkeepers whose annual
dhan Yojana (Jul’19)# also turnover does not exceed Rs 1.5 crore,

he
known as ‘NPS-Traders’ based on self-declaration.
3) Pradhan Mantri KISAN Agri small / marginal farmers with upto 2ht
Maan-dhan Yojana (Aug’19) land.
-
ill
1 person can join only 1 type of above scheme. (एक व्यिक्त का िसफर् एक बार ही पं जीकरण होता)
w
- Income Taxpayers & those who joined EPFO/ESIC are not eligible for any of these schemes.
- 💼💼Budget-2020: we’ll launch a Universal Pension coverage with auto enrolment for workers.
d
It’ll cover workers even when they change jobs. <update when actually done>
17.14.2 🚩🚩🚩FAQ: “why not merge all these schemes into one!??
go

- More schemes = more speech points during election-rally for the minister. िफर चुनाव में बोलेंगे क्या?
- So, you may send merger-suggestion to Prime Minister. But until your suggestion is
implemented, prepare the facts as given in the handout. #थोड़ा-पढ़ो-आगे-बढ़ो
rs
he

17.15 �→� PENSION FOR POOR PEOPLE WITHOUT CAPACITY TO INVEST?

ot
p
el
H

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1D: Insurance, Pension, FinInclusion → Page 283

KING R & QUEEN P Help others god will help you

 - For Below Poverty Line (BPL) people, Rural Development Ministry’s National Social Assistance
Programme (NSoAP: राष्ट्रीय सामािजक सहायता कायर्क्रम) in 1995, where direct money is given without
asking for any premium from the beneficiary (लाभाथीर्).
- It’s a core of the core scheme (अित-महत्वपूणर् योजना) with 100% cost is paid by Union.
- It’s optional for state govt. to contribute money- They may contribute, if they want to enhance
the scheme’s features. (More in 📑📑Pillar#2D- Schemes types)

u
NSoAP Components 🧔🧔Union �State (Optional to give extra)

yo
Indira Gandhi Old ₹200-500* State Govt may give extra ₹₹ & rename
age pension @60 (depending on how old) it. e.g. Samajwadi Pension in UP
Indira Gandhi ₹300-500 State Govt may give extra ₹₹ and

lp
Widow pension (depending on how old) rename it e.g. UP Vidhva Pension @1k
Aged 40 onwards

he
Indira Gandhi Same as widow pension State Govt may give extra ₹₹ and
Disability pension: rename it e.g. Guj: Sant Surdas Scheme
Aged 18 onwards
National Family
Benefit INSURANCE
Death of bread winner:
₹20,000 ill e.g. Guj: Sankat Mochan
w
Annapurna (2001) If To BPL senior citizens not N/A
receiving old age pension then
d
10kg grain / pm for FREE.
go

⇒ 2020: 👻👻🤧🤧ATMANIRBHAR→ PM GaribKalyan → single time ₹1,000 to poor senior citizen,

poor widows & poor disabled (total 3cr person covered)

17.15.1 Pension types: Defined Contribution vs Defined Benefit

rs

Pension Type Defined Contribution Defined Benefit

Pension is fixed or Pension depends on Pension is fixed. Doesn’t matter what
he

not? performance of happens in sharemarket.

sharemarket
ot

Example - NPS - EPS (a scheme of EPFO),

- Private pension - OPS (Old Pension Scheme for govt
p

companies investment employees),

plans - Atal Pension Scheme (APY), Sharm Yogi
el

Maan-dhan, NSoAP
H

17.16�� PFRDA, THE PENSION FUNDS’ REGULATOR

2003: Executive order to setup PFRDA- Pension Fund Regulatory and Development
Org Authority (पेंशन िनिध िविनयामक एवं िवकास प्रािधकरण)
2013: given statutory status. HQ: New Delhi, just like IBBI.

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1D: Insurance, Pension, FinInclusion → Page 284

KING R & QUEEN P Help others god will help you

 1 Chairman: (5years / 65age), 5 members (5/62) = 6 people.
Structure
Re-appointment is possible.
⇒ Implement National pension system (NPS), select its fund-managers.
⇒ Regulate all public and private pension funds except EPFO, Seaman, Coal miners,
Assam tea plantations related pension schemes as they’ve their separate acts /
mechanisms.

u
Functions ⇒ Protect Clients, Pensioners

yo
⇒ Prescribe liquidity, auditing, investment norms for Pension funds.
⇒ Powers of civil court. (दीवानी अदालत की सत्ता/अिधकार िदए गये है)
⇒ financial awareness generation through pensionsanchay.org.in

lp
⇒ Pension FDI is linked with insurance FDI (49%) so not decided by PFRDA.
Website pensionsanchay.org.in = for awreness generation around pension and retirement.

he
17.17🛫🛫💉SOCIAL SECURITY FOR OVERSEAS INDIANS (PENSION / INSURANCE)

ill
w
17.17.1 🛫🛫💉Pravasi Bharatiya Bima Yojana, 2017
Some nations do not have strict laws regulating the entry, employment or safety of foreign workers.
d

So, the Indian Government classifies them under Emigration Check Required (ECR: उत्प्रवास जांच की
go

आवश्यकता) countries. e.g. Saudi, Qatar, UAE, Libya, Malaysia, etc.

 It’s compulsory for Indian workers going ECR nations to join Pravasi Bharatiya Bima Yojana.
(ईसीआर देशों में जाने वाली प्रवासी भारतीय मज़दू रों के िलए ये ख़रीदना अिनवायर् है)
rs

 Insurance cover of Rs. 10 lakhs if accidental death/permanent disability while abroad,

 Maternity expenses (प्रसूित खचर्) cover for women worker, Family Hospitalization etc.
he

 Scheme boss? Ministry of External Affairs (िवदेश मं त्रालय)

ot

18 (��:💰💰)→💳💳FINANCIAL INCLUSION (िवत्तीय समोवेशन)

⇒ Financial Inclusion: providing access to banking, investment, pension, insurance and credit
p

(loan) facilities to each citizen. This ensures social, economic and transaction security (लेनदेन में
el

सुरक्षा) (S-E-T), improves social harmony, women empowerment, helps reaping the benefit of
“LESS CASH Economy” (📑📑Ref: Handout#1A1) सभी नागिरकों को बैंिकंग, िनवेश, पेंशन, बीमा और ऋण की सेवा
H

प्रदान करना= उसे िवत्तीय समोवेशन कहेते है

⇒ Social Security (सामािजक सुरक्षा): a system of payments / assistance by the government to citizens
who are ill, handicapped, poor, aged or unemployed. (बीमार, िवकलांग, गरीब, वृद्ध या बेरोजगार को आिर्थक
मदद करना)

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1D: Insurance, Pension, FinInclusion → Page 285

KING R & QUEEN P Help others god will help you

 o The foundation of SS in our constitution @DPSP Article 41- State to provide public
assistance to its citizens in case of unemployment, old age, sickness and disablement; and
o DPSP Article 42- The State shall make provision for securing just and humane
conditions of work and for maternity relief. (राजनीितक पथदशर्क िसद्धांतों में िजक्र)

u
yo
lp
he
ill
w
d
⇒ Social Justice (सामािजक न्याय): distribution of wealth, opportunities, and privileges within a
go

society- through reservation in jobs, admissions and election and through legal safeguards for
protection of civil rights, prevention of atrocity and personnel laws. (समाज के िविभन्न जाती/वगोर्ं में
आरक्षण चुनाव तथा कानूनन अिधकारों द्वारा सं पित्त, अवसरों और िवशेषािधकारों का िवतरण= उसे समािजक न्याय कहेते है)
⇒ Collectively, these three (FI,SS,SJ) help in human development, inclusive economic growth and
rs

Sustainable Development Goals (SDG). (More in 📑📑Pillar#6) [कु ल िमलाकर िवत्तीय समावेशन, सामािजक
he

सुरक्षा और सामािजक न्याय इन तीनों की मदद से मानव-िवकास,समावेशी आिर्थक वृिद्ध, और सतत् िवकास लक्ष्यों को हांिसल करने मे
हमें मदद होगी]
ot

18.11 (��:💰💰)→💳💳 FIN. INCLUSION: BANK ACCOUNTS FOR EVERYONE

⇒ Nationalization of Banks (1955, ‘69, ’80)  1961: DICGC Act 1966 Cooperative Banks under
p

RBI’s Ambit  1969 Lead Bank Scheme (SCB:Pvt or Public) given lead role in district. They
el

prepared credit plan with ‘Service Area Approach’, and coordinate with the efforts of
Government, banks and NBFCs.
H

⇒ 1971: State level Bankers’ Committee to moniter progress of financial inclusion

⇒ 1976: Regional Rural Bank (RRB) setup through Act. (क्षेत्रीय ग्रामीण बैंकों की स्थापना)
⇒ Further, RBI requires commercial banks to setup atleast 25% of their branches in unbanked rural
areas. Similar norms for White label ATM Companies. (एक चौथाई शाखाएं गाँव में खोली होगी)

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1D: Insurance, Pension, FinInclusion → Page 286

KING R & QUEEN P Help others god will help you

 ⇒ 2005: RBI permitted no-frills savings account with no penalties on zero balance
⇒ 2006: RBI permitted Banking Business Correspondent Agents (BCA)
⇒ 2011: Government’s Swabhiman to increase banking presence in rural area.
⇒ 2013: e-KYC permitted.e.g. write Aadhar number, put fingerprint in biometric reading device,
no photocopies/xerox required. (काग़ज़ी नक़ल जमा करने की ज़रूरत नहीं, ऑनलाइन प्रमाणीकरण)
⇒ 2014: JanDhan Yojana, new Private Commercial Banks (Bandhan, IDFC First)

u
⇒ 2015: Small Finance Banks and Payment Banks.(लघु िवत् बैंक और भुगतान बैंक की स्थापना)

yo
⇒ 2017-18: India Post Payment Bank(More in 📑📑Pillar#1B1)

🔠🔠❓ MCQ. Service Area Approach was implemented under the purview of (UPSC Prelims-2019)

lp
(a) Integrated Rural Development Programme (b)✅ Lead Bank Scheme

he
(c) Mahatma Gandhi National Rural Employment Guarantee Scheme
(d) National Skill Development Mission
18.11.1 🧔🧔(��:💰💰)→💳💳 Pradhan Mantri Jan Dhan Yojana (PMJDY: प्रधान मं त्री जन धन योजना)

ill
w
d
⇒ 2014: launched by FinMin → Dept of Financial Services with
go

⇒ Motto “Meraa Khaataa, Bhagya Vidhaataa”. Scheme in two phases, 6 objectives:

PM JDY – phase I (2014-15) प्रथम चरण में PM JDY – phase II (2015-18) िद्वतीय चरण
1. Financial literacy (िवत्तीय साक्षरता) 1. Credit Guarantee Fund (For Overdraft
rs

2. Banking within 5 kms defaults) उधर से बैंक के नुक़सान की भरपाई

3. Account for every family with overdraft, 2. Direct Benefit Transfer (DBT)
he

with Rupay ATM-cum-DEBIT Card 3. Sell Micro insurance & pension products
through bank.
⇒ PM-JDY bank account can be opened in any Commercial or Cooperative Bank provided that (1)
ot

bank has CBS (2) bank is tied with Rupay Payment Gateway. अब िकसी वािणिज्यक या सहकारी बैंक में खाता
खोल सकते हैं
p

⇒ Basic Savings Bank Deposit Account - Age 10/>; Zero balance- no penalty. But, Chequebook
only with “balance”; (नाबािलगों के भी खाते खोले जा सकते हैं। िबना एक रुपया बचत जमा िकए भी खाता खोल सकते हैं।)
el

⇒ There are restrictions on max. number of money withdrawals per month. (पैसे िनकालने पर कु छ सीमाएं )
H

⇒ Overdraft upto ₹ 10k (originally ₹5k) depending on balance history of min. 6 months. Overdraft
given on only one account holder in household (preferably woman). (पिरवार की मिहला को 10,000 रुपये
तक की ओवरड्राफ्ट)
⇒ Overdraft Money has to be returned with interest within 3 years. Banks to decide the loan
interest rate. (ओवरड्राफ़्ट में िदया पैसा ब्याज के साथ वापस करना होगा। ओवरड्राफ्ट कोई दान-ख़ैरात निह है।)

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1D: Insurance, Pension, FinInclusion → Page 287

KING R & QUEEN P Help others god will help you

 ⇒ EVERY Jan Dhan account comes with FREE Accident Insurance of ₹1 lakh; Premium paid by
NPCi, it’s therefore necessary to regularly use card- atleast for checking balance. Union
Government employees, and income tax payers not eligible for this free insurance. (दघु टर् ना/अकस्मात्
सुरक्षा बीमा भी मुफ़्त में िमलता है)
⇒ 🤩🤩Significance? JAM trinity (JanDhan, Adhar, Mobile) for targeted and direct transfer of
subsidies, scholarship and payments to beneficiaries. (लाभाथीर् के खाते में सीधा /प्रत्यक्ष लाभ हस्तांतरण)

u
⇒ 😰😰Criticism? PM-JDY accounts used as money mules during demonetization.

yo
⇒ 2020: 👻👻ATMANIRBHAR→ PM GaribKalyan → ₹500 per month to 20 crore women Jan
Dhan accounts for 3 months. (कोरोना में मिहलाओं के जन धन बैंक खातों में 3 महीनों के िलए थोड़ी-थोड़ी रकम जमा की)
⇒ 2023: Total money deposited in PM-JDY crosses ₹2 trillion.

lp
🔠🔠❓ [Asked in Pre-2015] Pradhan Mantri Jan-Dhan Yojana’ has been launched for:

he
(a) providing housing loan to poor people at cheaper interest rates
(b) promoting women’s Self-Help Groups in backward areas
(c) promoting financial inclusion in the country
(d) providing financial help to the marginalized communities
ill
w
18.11.2 � Jan Dhan Darshak App (2018)
Jointly developed by Department of Financial Services (DFS) & National Informatics Centre (NIC).
d
It helps people find the nearby financial touch points such as Bank branches, ATMs, Post Offices etc.
go

18.12 (��:💰💰)→ 📮📮 FIN INCLUSION: INVESTMENTS OTHER THAN BANK

What if poor / lower middle-class person wants better returns than bank deposit? He may opt for…
rs

Act Small Savings Schemes: लघु बचत योजनाएं

Govt Savings Bank Act 1873 📮📮 Post Office schemes: monthly, 5 year, savings, time
he

deposit
Govt Savings Bank Act 1873 Senior Citizen Savings (2004)
ot

Government Savings Certi Act ’59 National Savings Scheme (NSC)’59

Government Savings Certi Act ’59 Kisan Vikas Patra 1988-11, 2014
PPF Act 1968 Public Provident Fund (PPF)
p

No Act → Sukanya Samriddhi Yojana ‘2015

el

- Individual eligibility, upper-lower limits etc. poor cost: benefit…except Sukanya Samriddhi.
- Money (usually) goes into National Small Savings Fund (NSSF)→ loans to Union and (selected
H

States), with technical norms which not imp for us.

- Here, interest rates are decided by FinMin’s Dept of Economic Affairs on quarterly basis. (िवत्त
मं त्रालय का आिर्थक मामलों का िवभाग इन योजनाओं की ब्याज दर तय करता है हर 3-3 महीने पर)

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1D: Insurance, Pension, FinInclusion → Page 288

KING R & QUEEN P Help others god will help you

 18.12.1 👛👛👛Small Savings: Mahila Samman Bachat Patra (2023)
It is a new small savings certificate scheme announced in the �Budget-2023.

Tenure Two-year period up to 2025-Mar

Max. Deposit upto ₹2 lakh per girl/woman
Interest 7.5%

u
18.12.2 👛👛👴👴Small Savings: Senior Citizen Savings Scheme limits hiked

yo
Matter Before After �Budget-2023
How much money can be deposited in an account? Upto ₹15 lakhs Upto ₹30 lakhs
18.12.3 (�:💰💰)→(�:💳💳)Sukanya Samriddhi Yojana (2015)

lp
he
- Parents open a (fixed deposit type) bank account in the name of a 0-10 years girl child, and

- ill
deposit annually ₹ 250 to ₹ 1.5 lakhs till she reaches age of 14.
w
FinMin’s Dept of Economic Affairs announces interest rate (originally 9.1%, presently ~8.5%)
- Money (principal and interest) can be withdrawn @ the age of 18-21 depending on whether
married or not. So, it indirectly prevents child marriages & empowers the grown-up daughter
d

with money to pursue higher education, small business etc.

go

- 1 daughter = ONLY 1 account can be opened in this scheme. (एक बेटी के नाम पर िसफर् एक)
- Maximum two daughters can be enrolled by parents/legal guardians.
rs

18.12.4 ⭐📫📫 ���

� ��� Five Star Village scheme by Dept of Post (2020)
गाँव वालों को िविवध लघु बचत योजना और बीमा योजनाओं से जोड़ने की डाक िवभाग की कोिशश
he

⇒ by Ministry of Communications Department of Post (सं चार मं त्रालय → डाक िवभाग)

⇒ Post offices will spread more awareness, enrol more villagers in the following schemes:
ot

⇒ Small saving schemes such as Post office Savings Bank accounts, National small savings
certificate Kisan Vikas Patra, Sukanya Samridhi Accounts, public provident fund (PPF)
⇒ Insurance schemes such as Rural Postal Life Insurance Policy, Pradhan Mantri Suraksha Bima
p

Yojana Account, Pradhan Mantri Jeevan Jyoti Bima Yojana Account.

el

18.12.5 ⚰💀💀📫📫 ��� � Sampoorna Bima Gram Yojana (2017)

� ��
H

⇒ by Ministry of Communications Department of Post (सं चार मं त्रालय → डाक िवभाग)

⇒ In every district, atleast 1 village identified → In that village, cover all households with a
minimum of one RPLI (Rural Postal Life Insurance) policy. (गांव के हर पिरवार को कम से कम एक ग्रामीण
डाक बीमा पॉिलसी बेची जाए)

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1D: Insurance, Pension, FinInclusion → Page 289

KING R & QUEEN P Help others god will help you

 18.12.6 ⚰💀💀💊💊 ��� � Model Insurance Villages (MIV) proposal by IRDAI (2021)
� ��
- Insurance Regulatory and Development Authority of India (IRDAI) proposed this
- To give complete insurance coverage to a village for its people’s life insurance, health insurance,
farm/crop insurance, animal (livestock) insurance, tractor/vehicle insurance etc.
- Funding/Subsidy by Union, State, Companies CSR Funds, NABARD & other AIFIs.
- (गाँववालों के िलए में सभी प्रकार के जीवन बीमा, सामान्य बीमा पॉिलसी उपलब्ध हो, तािक वह एक आदशर् बीमा ग्राम बन जाए। ऐसी

u
बीमा पॉिलसी खरीदने के िलए सरकार तथा अन्य सं स्थानों द्वारा गांव वालों को सिब्सडी/िरयायत दी जाए)

yo
18.12.7 (��:💰💰)→ 📦📦 Chit Funds
⇒ Scam and its subsequent judgements have become too oudated for 2023. So deleting it for

lp
#Prelims-RAFTAAR-🏎🏎
⇒ Sufficient to know: Chit fund is a collective investment scheme.

he
⇒ Members contribute small, small amount of money, every month. And members are given loan
from this fund. (सदस्य उसमें छोटी छोटी रकम जमा करते हैं और िफर सदस्यों को उसी में से लोन िदया जाता है)
⇒ Chit fund is a type of “contract” = subject to Concurrent list. So, both Union and State govt have

ill
laws for it. (समवतीर् सूची में होने के कारण कें द्र और राज्य दोनों इस पर कानून बनाते हैं लेिकन ढंग से िनगरानी कोई कर नहीं पाता)
w
⇒ Scams happened due to lack of proper supervision / nexus with politicians. (इसिलए कांड होते रहते हैं)
d

18.12.7.1 ⚖ 📦📦📦📦 Banning of Unregulated Deposit Schemes Act, 2019

go

- अिनयिमत जमा योजनाओं पर प्रितबं ध कानून

- If an entity is soliciting public to deposit /invest money, then it could be regulated by RBI (Bank,
NBFC-D, Home loan NBFCs etc), SEBI (MF, ReITs, InvITs etc), IRDAI & PFRDA, Corporate
rs

Affairs ministry (NIDHI), State Governments (chit fund), EPFO, etc.

- A deposit-taking scheme is defined as ‘unregulated’ if person is asking people to deposit/invest
he

money but he has not registered with any of the above organizations. E.g. builders, jewellers, etc.
Act prohibits advertisement & money collection in it. (ऐसी कोई भी बचत योजना जो िकसी भी िवत्तीय िनयं त्रक
ot

के दायरे में नहीं आती उसे गैरकानूनी माना जाएगा)

- Penalty upto ₹50 crores and jailtime upto 10 years + attaching the assets to refund depositors
within prescribed timelines. (जुमार्ना, कारावास, सं पित्त की जब्ती)
p

- Union to setup an online central database of deposit-taking activities in the country.

el
H

18.13�� ←(💰💰🔪🔪) FINANCIAL INCLUSION: CREDIT (LOANS: ऋण)

Self Study? Pillar#1A2: Monetary Policy → PSL. Pillar#1B1: Classification → microfinance

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1D: Insurance, Pension, FinInclusion → Page 290

KING R & QUEEN P Help others god will help you

 18.13.1 (💰💰🔪🔪)↗🗃🗃=(💰💰💰💰) Refinance (पुनिर्वत्त)

u
yo
- When an AIFI (or MUDRA) gives new finance to Banks/NBFCs based on the quantum of

lp
finance they (Bank/NBFC) have already given to end-borrowers.
- Usually works via t securitization of the previous loan papers. ? NOT IMP.#🕰🕰थोड़ा-पढ़ो-आगे-बढ़ो

he
18.13.2 ��: 🧔🧔 ←(💰💰🔪🔪) Credit Guarantee (ऋण अदायगी गारंटी)
Organization Credit Guarantee Fund Loans covered
SIDBI + Govt Credit Guarantee fund trust for
ill
Loans to Micro & Small Enterprise
w
Micro & Small Enterprise (CGTMSE)
Dept. of Financial National Credit Guarantee Trustee ⇒ Mudra, ECLGS, Stand up India,
Services Company (NCGTC) Skill & Education loans.
d

⇒ Education loan upto Rs.7.50

go

lakhs is backed by this org.

NCGTC Credit Guarantee Scheme for MFIs ⇒ Loans given by Microfinance
(CGSMFI) (2021) institutions to poor people.
rs

NCGTC Credit Guarantee Fund Scheme for ⇒ Loans for skill development.
Skill Development (CGFSSD)
he

Commerce Export Credit Guarantee Corporation Exporters

Ministry of India fund (ECGC)
ot

- Credit Guarantee Meaning? if borrower defaults, then losses of banks/NBFCs will be covered by
credit guarantor. So, Bank/NBFC can lend confidently without requiring borrower to pledge
collaterals.
p

- Earlier DICGC used to give credit guarantee for PSL borrowers, but now this work is done other
el

organizations mentioned in above table.

H

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1D: Insurance, Pension, FinInclusion → Page 291

KING R & QUEEN P Help others god will help you

 18.13.3 Financial inclusion: Credit Guarantee Fund for Education Loans (CGFEL)

u
yo
lp
he
18.13.4 👻👻 🚩🏭🏭 MSME: Definition changed in ATMANIRBHAR (2020)
- 2006: Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 gave definition
of micro, small and medium enterprises
-
ill
2020: ATMANIRBHAR → MSME ministry changed the definition as following: िनवेश और कु ल
w
िबक्री के िहसाब से उधयोगों को वगीर्कृत िकया जाएगा. िविनमार्ण (mfg) और सेवा (services) क्षेत्र के उधोगों के िलए एकसमान
व्याख्या।
d
💡💡 Note: This handout only deals with ‘loan’ component of MSME. For other MSME
go

issues/challenges, refer (More in 📑📑Pillar#4B → MSME)

rs
he
ot
p
el
H

✋in above image, read "<" sign as "NOT MORE THAN (से अिधक नहीं)
Investment: िनवेश annual turnover: वािर्षक कारोबार

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1D: Insurance, Pension, FinInclusion → Page 292

KING R & QUEEN P Help others god will help you

 18.13.5 👻👻🔪🔪 🚩🏭🏭 MSME Non-NPA borrower → ECLGS 1.0
ऋण अदायगी गारंटी -उन उधोगों के िलए िजनके लोन-खाते अभी एनपीए/अनजर्क पिरसं पित की श्रेणी मे नही है

u
yo
lp
he
⇒ Corona Lockdown → MSME business hurt → need loans to restart business → Emergency
Credit Line Guarantee Scheme (ECLGS: आपातकालीन क्रेिडट लाइन गारंटी योजना).
⇒ �Eligibility?
ill
w
o MSME Previous outstanding loan account can’t be more than ₹25 crores, and can’t be
not an NPA.
⇒ New/ Extra Loan Amount? 20% of the outstanding loan.
d

⇒ Loan Tenure? 4 Years (िमयादी/समयकाल)

go

⇒ Loan Interest? 9.25% (Bank), 14% (NBFC).

⇒ Collateral? Not required. (िगरवी कु छ भी नही रखना होगा)
⇒ If the borrower doesn’t repay loan principal or interest→ Credit guarantee covered by NCGTC
rs

(National Credit Guarantee Trustee Company Limited), a company under the Dept of financial
services in FinMin.
he

18.13.6 👻👻🔪🔪 🚩🏭🏭 MSME Non-NPA borrower → ECLGS 2.0 (Atma-Nirbhar 3.0)
ot

It was launched during the Atmanirbhar Bharat 3.0 package(November 2020)

�Eligibility? (Two conditions must be fulfilled simultaneously)
p

1) MSME as well as Non-MSME(large) firms operating in

el

(a) Healthcare sector (स्वास्थ्य क्षेत्र) OR

(b) 26 stressed sectors Identified by RBI is KV Kamath committee (e.g automobiles,
H

tourism, cement, gems and jewellery etc तनावग्रस्त क्षेत्र) AND

2) Its outstanding loans are > ₹50 crore - upto ₹ 500 Crore (as on 29.2.2020)
🤩🤩Benefit?
 Extra 20% loans against outstanding loans. (कजार् बकाया है उसके सामने 20% अितिरक्त कजर् िदया जाएगा)

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1D: Insurance, Pension, FinInclusion → Page 293

KING R & QUEEN P Help others god will help you

  Interest Rate not explicitly mentioned in Press-Statement. (योजना की प्रेस िवज्ञिप्त में स्पष्ट रूप से खुलकर नहीं
बताया, तो हमने खुद से गूगल सचर् मारने की कोई जरूरत नहीं है#🕰🕰थोड़ा-पढ़ो-आगे-बढ़ो )
 Repayment tenure of above loan: 5 years including 1 year moratorium on principal repayment.
(5 साल में कजर् चुकाना होगा और उसमें भी 1 साल तक मूलधन चुकाने पर रोक)
👜👜👜👜Budget-2022: This scheme is continued, with more funds.

u
18.13.7 👻👻🔪🔪🚩🏭🏭 MSME NPA borrower → Subordinate Debt (गौण ऋण)

yo
ऋण अदायगी गारंटी- उन आिर्थक तनावग्रस्त उधोगों के िलए िजनके लोन-खाते पहेले से एनपीए श्रेणी मे आ चुके है।
⇒ Beneficiary? MSME whose loan account is in NPA/ stressed category. लघु/
⇒ Such stressed MSME to be given subordinate loan Upto ₹75 lakhs to revive business.

lp
⇒ Tenure/Interest? Not clearly mentioned.

he
⇒ If the borrower doesn’t repay loan principal or interest→ Credit guarantee by CGTMSE (Credit
Guarantee Trust for Micro and Small enterprises, an org funded by SIDBI + Govt).

18.13.8 👻👻🗃🗃🗃🗃🗃🗃🏭🏭 MSME → Equity infusion via Fund of Funds (िनिधयो की िनिध)
ill
w
⇒ Govt will set up a Fund of Funds with ₹10,000 crore.
⇒ This FoF will invest in daughter funds (who’ll supply ₹40k cr from their funds). So, total
10k+40k=50k equity funding/infusion to MSME. (इिक्वटी के रूप में कं पनी में जान फूं कना)
d
go

18.13.9 🚫🚫🏦🏦🚫🚫🚫� NBFC → Mudra (2015, 100% SIDBI subsidiary)

rs
he
ot
p

- Micro Units Development & Refinance Agency. (सूक्ष्म इकाई िवकास एवं पून: िवत्तपोषण एजेंसी)
el

- Objective? provides indirect lending via SCB, RRB, Cooperative Banks, MicroFinance Inst &
other NBFCs. (अनुसूिचत वािणज्य बैंक क्षेत्रीय ग्रामीण बैंक सहकारी बैंक गैर बैंक िवत्तीय कं पिनयों द्वारा परोक्ष रूप से कजर् देता है)
H

- Ownership? It’s wholly owned by SIDBI, and also receives the funding from PSL-shortfalls via
RBI, and budgetary support via Department of Financial Services.
- Beneficiary? Micro Enterprises from Agri-allied sectors, mfg & service sector who are not
registered under the companies act = Non-corporate type. (िजन्होंने कं पनी कानून में पं जीकरण नहीं करवाया)

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1D: Insurance, Pension, FinInclusion → Page 294

KING R & QUEEN P Help others god will help you

 Table 2: Mudra-Products:
Pradhan Mantri MUDRA Yojana MUDRA Rupay Card
1) Shishu : loans upto 50,000/- - ATM cum Debit Card issued against MUDRA loan
2) Kishor : >50,000/- upto 5 lakh account.
3) Tarun : > 5 lakh and upto 10 - For working capital component.
lakhs - Can be accessed in all modes like a routine debit card
(ATM, MicroATM, PoS, Online)

u
- Mudra loans are collateral-free (जमानत से मुक्त). If borrower defaults on loan, then lender’s losses

yo
are covered through Credit Guarantee Fund for Micro Units [CGFMU] which is operated by
National Credit Guarantee Trustee Company Ltd. [NCGTC, 2016]- which is a private ltd
company by Dept of Financial Services in Finance Ministry.

lp
- 😰😰MUDRA Challenges? (1) Loan Interests are high (2) Rising NPA/Bad loans.

he
18.13.10 👻👻🔪🔪 🚩🏭🏭 Mudra Loans → Shishu Loans pe 2% Interest subvention
⇒ 👻👻ATMANIRBHAR-2020: Shishu loan borrowers = 2% Interest subvention (ब्याज-अदायगी मे
सरकारी-मदद) IF they’re prompt payees (=repaying the loans regularly).
ill
w
⇒ This offer is valid for 12 months.
d
🔠🔠❓ Pradhan Mantri MUDRA Yojana is aimed at (Asked in UPSC-Pre-2016)
go

a) bringing the small entrepreneurs into formal financial system

b) providing loans to poor farmers for cultivating particular crops.
c) providing pensions to old and destitute persons.
rs

d) funding the voluntary orgs involved in the promotion of skill development and employment
generation.
he

18.13.11 ⏰🔪🔪👿👿 psbloansin59minutes.com (2018)

ot

portal by SIDBI & 5 PSBs. GST-registered MSME get loans 10L to 1 cr. Without collaterals. if loan
approved then ₹1000 fees need to be paid
p

18.13.12 �Stand Up India Scheme, 2016 (उित्तष्ठ भारत)

el

- Boss? FinMin’s Dept of Financial Services (िवत्तीय सेवा िवभाग)

- Objective? Each SCB bank branch to give Greenfield Loans between ₹10 lakh and ₹1 Crore to at
H

least 1 SC/ST and atleast 1 Woman entrepreneur with tenure upto 7 years.
- Collateral? Bank can ask collaterals. If loan without collaterals, then Credit Guarantee Fund for
Standup India (CGFSI) operated by NCGTC.
- Budget-2019: this scheme extended till 31/3/2025.

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1D: Insurance, Pension, FinInclusion → Page 295

KING R & QUEEN P Help others god will help you

 - Margin money =is the amount of money that a bizman has to arrange by himself from his own
pocket/savings for the given biz-project. Remaining amount is given as a loan by the bank.
💼💼Budget-2021: 1) ⏬ margin money requirement from 25% to 15%. 2) Agri-biz projects also
eligible.

18.13.13 👭👭Self-help group (स्व-सहायता समूह) → Credit

u
yo
- is an informal group of 10-20 local people to combine their savings/ resources, engage in biz
activity like weaving, agarbatti etc अपनी बचत और सं साधनों की मदद से कु छ छोटा उत्पादन करने वाला गरीब लोगों का

lp
एक अनौपचािरक समूह
- and not registered in as a firm / company under partnership act or companies act etc.

he
- 1992: NABARD started SHG-Bank linkage program wherein SHG given loans without collateral.
- Self-Help Groups are formed under the government schemes like National rural livelihood
mission (NRLM). More in 📑📑Pillar#6]
- Budget-2019:
ill
w
o 1 woman in each self-help group (SHG) will be made eligible for ₹ 1 lakh loan under
Mudra scheme.
d
- 👻👻ATMANIRBHAR → PM GaribKalyan → Women Self Help Groups (SHGs) to be given ₹20
go

lakh collateral free loans. Further,

o Government will procure masks and sanitizers prepared by SHG = ₹₹ income for
poor families. (सरकार इनसे मास्क और सेिनटाइज़र ख़रीदेगी)
rs

� MCQ: Find Correct [Prelims-23-SET-A-Q074]

he

1. The Self-Help Group (SHG) Programme was originally initiated by the State Bank of India by
providing microcredit to the financial deprived. (स्वयं सहायता समूह [सेल्फ-हेल्प ग्रुप (एस. एच. जी.)] कायर्क्रम मूलत:
भारतीय स्टेट बैंक द्वारा िवत्तीय रूप से वं िचतों को लघु ऋण प्रदान कर प्रारंभ िकया गया था।)
ot

2. In an SHG, all members of a group take responsibility for a loan that an individual member takes.
(िकसी एस. एच. जी. में, समूह के सभी सदस्य उस ऋण के िलए उत्तरदाियत्व लेते हैं, जो ऋण कोई अके ला सदस्य लेता है।)
p

3. The Regional Rural Banks and Scheduled Commercial Banks support SHGs. (क्षेत्रीय ग्रामीण बैंक और
अनुसूिचत वािणिज्यक बैंक एस. एच. जी. को मदद देते हैं।)
el

Codes: (a) Only one (के वल एक) (b) Only two (के वल दो) (c) All three ( सभी तीन) (d) None
H

18.13.14 🤑🤑🤑PM Street Vendors’s AtmaNirbhar Nidhi Scheme (PM-SVANidhi)

⇒ Boss? Ministry of Housing and Urban Affairs (MoHUA)- आवास और शहरी मामलों का मं त्रालय
⇒ Loan Tenure: 1 year. Repayment to be done on a monthly basis.
⇒ Loan Interest? approx @7.25% & if vendor repays in timely fashion → govt will give 7% interest
subsidy in his bank account. (फे रीवाला ने रुण अदायगी िनयिमत रूप से की तो ब्याज में सरकार राहत/सिब्सडी देगी)

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1D: Insurance, Pension, FinInclusion → Page 296

KING R & QUEEN P Help others god will help you

 ⇒ If vendor repays the loan on time, then he can apply for more loans, as follow:
Cycle 1st cycle 2nd cycle 3rd cycle
Loan Amt ₹10,000 ₹20,000 ₹50,000

u
yo
lp
18.13.15 🤑🤑🤑Street vendors’s PM-SVANidhi → Main Bhi Digital (2021)
⇒ MoHUA to give ₹₹ to Urban Local Bodies (ULBs: नगरपािलका को शहरी मं त्रालय पैसा देगा)

he
⇒ To spread digital literacy among street vendors who took SVANidhi Loans e.g. How to use UPI,
BHIM, Netbanking. Connect food-street vendors with online e-commerce players like Swiggy-
Zomato etc to expand street-vendors’ sales etc. (सड़क िवक्रेताओं को िडिजटल भुगतान और िडिजटल िबक्री माध्यमों
की जानकारी देना)
ill
w
18.13.16 �PaiSA Portal (2018)
Outdated for 2024. Deleting it.
d

18.13.17 �Jan Samarth Portal (2022)

go
rs
he

⇒ Finance Ministry’s single portal to help beneficiaries to apply for various Government loan
schemes for Education Loans, Agriculture Loans, Business Activity (livelihood) Loans, etc.
⇒ It connects borrower with 125+ banks and NBFCs for loan application.
ot

⇒ When person applies for business loan, the portal cross-checks his UIDAI-Aadhar number,
income tax, GST, UDYAM (MSME registration number), CIBIL credit score etc data/scores for
p

faster loan processing

el

18.13.18 �💳💳 Kisan Credit Card (1998)

H

1998: Launched by RBI +NABARD. Farmer gets credit card from PSB, RRB, State Coop Banks for:
- Can swipe it to buy farm inputs (seeds, fertilizers, pesticides etc.)

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1D: Insurance, Pension, FinInclusion → Page 297

KING R & QUEEN P Help others god will help you

 - Investment credit requirement for agriculture
- Working capital for maintenance of farm assets
- Post-harvest expenses, (फसल काटने के बाद होने वाले खचर्)
- Consumption requirements of farmer household; (घर में उपभोग हेतु खचेर्)
- Can withdraw cash (as loan).
- Money to be repaid with interest. Accidental insurance also given.

u
- Budget-2018: Kisan Credit Card (KCC) extended to Animal Husbandry and Fisheries farmers.

yo
Interim-Budget-2019: they (animal/fisheries-walla) too will get the interest subvention
- Interim-Budget-2019: comprehensive drive with a simplified application form to get all farmers
under KCC cards.

lp
he
🔠🔠❓ MCQ. Under the Kisan Credit Card scheme, short-term credit support is given to farmers
for which of the following purposes ? (UPSC-Prelims-2020)
1. Working capital for maintenance of farm assets
2. Purchase of combine harvesters, tractors and mini trucks
3. Consumption requirements of farm households
ill
w
4. Post-harvest expenses
5. Construction of family house and setting up of village cold storage facility
d
Codes: [a) 1, 2 and 5 only [b) 1, 3 and 4 only [c) 2, 3, 4 and 5 only [d) 1, 2, 3, 4 and 5
go

18.13.19 ��: 🧔🧔 ←(💰💰🔪🔪) Interest Subvention (ब्याज सहायता)

Govt pays part of the interest rate for borrower. (farmer, MSME, affordable housing etc) such as:
- Farm loans upto 3 lakhs→ 9% MINUS 2% (to all farmers) MINUS 3% (regular paying farmers)=
rs

only 4% loan interest farmer has to pay.

-
he

Budget-2019:
o KCC-card-walla Animal Husbandry and Fisheries farmers also eligible.
o If natural disaster- then crop loans are rescheduled, we’ll streamline the subvention
ot

norms there.
o MSME: incremental loans upto ₹1 crore to GST registered MSME industry= 2%
subvention. (As such already announced by Modi in 2018)
p
el
H

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1D: Insurance, Pension, FinInclusion → Page 298

KING R & QUEEN P Help others god will help you

 18.14💊💊🔪🔪💰💰🌽🌽FARM LOAN WAIVER (कृ िष ऋण माफी)
18.14.1 💊💊🔪🔪💰💰🌽🌽Agri-Finance → Loan waivers for the farmers
Shifted to Mains. Gist of the matter is that economic survey is opposed to loan waivers because then
farmer become irregular in returning the loans, whenever the elections are near.

18.15⚰� FINANCIAL INCLUSION: INSURANCE & PENSION

u
- Various schemes are given in previous sections: But just to quickly recall the notable terms:

yo
Insurance: Postal Life, ESIC, PM Jeevan Jyoti & Surkasha Bima (₹2 lakh), PM-JAY (₹5 lakh
annual health insurance per family), PM-Fasal Bima (1.5-5% premium);
- Pension: EPFO, NPS, Atal Pension (1-5k), PM Shram Yogi Mandhan (3k), PM Vay-Vandana

lp
(8%@LIC), Maan-Dhan Yojanas (3k/pm)

he
18.15.1 ⚰🔬🔬 Micro Insurance (सूक्ष्म बीमा)
⇒ Insurance policy may be Life / General Insurance with a very low premium.
⇒ When small sum insured (upto ₹50k) & target audience is poor / villagers / farmers.

ill
⇒ It may be an individual / group based insurance. Intermediaries such as NGO, SHG, MFI help in
w
selling such policy. Policy/ Contracts are given in local language. e.g. LIC’s Jeevan Madhur and
Jeevan Mangal
d
go

18.15.2 🏍🏍🏍🏍🏍🏍 Gig Workers’ social security code (िगग कमीर् की सामािजक सुरक्षा सं िहता)
rs
he

⇒ Informal workers (अयथािविध कमीर्)= doesn’t have formal job contracts with employers. E.g.
Domestic Maids, Brick Kiln Workers, Construction Labourers, Chowkidar, Dhaabaa
cooks/waiters etc.
ot

⇒ Gig workers (िगग कमीर्)= Uber Taxi Drivers, Amazon/Zomato Delivery boys, Urbanclap’s
beauticians/ plumbers/ AC repairman, Unacademy Educators etc. They are freelancers /
p

independent contractors (स्वतं त्र ठे केदारों) hired by startup or digital companies for short-term
engagements. While they may have some written contract to deliver services to the company, but
el

the contract is worded in such manner they are not “regular employees” of a company = not
H

eligible for EPFO, ESIC etc.

⇒ 2019-Sept: Labour Ministry drafting a “social security code for all informal & gig workers”. It
aims to provide ‘insurance on death/disability/sickness’, maternity benefit, pension, scholarship
for their children etc. (मृत्यु / िवकलांगता / बीमारी पर बीमा, मातृत्व लाभ, पेंशन, िगग कमीर् के बच्चों को छात्रवृित्त)

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1D: Insurance, Pension, FinInclusion → Page 299

KING R & QUEEN P Help others god will help you

 18.15.3 ⚖ UNORGANISED WORKERS’ SOCIAL SECURITY ACT, 2008
- Requires union to setup National Social Security Board under chairmanship of Labour Minister
(श्रम मं त्री की अध्यक्षता में राष्ट्रीय सामािजक सुरक्षा बोडर्।)
- Requires the States to setup similar boards at State level- to look after the social security benefit
of the unorganised sector workers. (राज्य स्तर पे भी ऐसे बोडर् का गठन)
- require setting up set up a National Social Security Fund for unorganised sector workers with an

u
initial allocation of Rs 1000 crore. (राष्ट्रीय सामािजक सुरक्षा कोष)

yo
- Similar funds at State level.
- requires the union government to enact various schemes for (a) life and disability cover; (b)
health and maternity benefits; (c) old age protection for these workers. ()

lp
Sr Name Description
1 Indira Gandhi National Old Age Pension learned under NSoAP

he
Scheme
2 National Family Benefit Scheme learned under NSoAP
3 Janani Suraksha Yojana BPL women given money to delivery child

4 Handloom Weavers’ Comprehensive ill

@hospital. (Ref: Pillar#6A for more)
not enough exam worthyGK
w
Welfare Scheme
5 Handicraft Artisans’ Comprehensive not enough exam worthyGK
d
Welfare Scheme
go

6 Pension to Master craft persons not enough exam worthyGK

7 National Scheme for Welfare of Fishermen not enough exam worthyGK
and Training and Extension
rs

8 Janshree Bima Yojana this was merged with Aam Admi Bima Yojana
in 2013
he

9 Aam Admi Bima Yojana LIC + Govt of India’s scheme for unorganised
sector workers.
10 Rashtriya Swasthya Bima Yojana subsumed/merged inside the PM-JAY ₹5 lakh
ot

health insurance.
�� FAQ: Most of these schemes are low-profile / outdated / merged → then why government
p

not updating the law with latest schemes’ list? Ans. Send suggestion to PM.
el

MCQ. Which one of the following schemes is not a Social Security Scheme under the Unorganised
Workers’ Social Security Act, 2008? (EPFO-2023) (a) National Family Benefit Scheme (b) Janshree
H

Bima Yojana (c) Employees’ Pension Scheme (d) Rashtriya Swasthya Bima Yojana

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1D: Insurance, Pension, FinInclusion → Page 300

KING R & QUEEN P Help others god will help you

 18.16��: �FINANCIAL INCLUSION: CUSTOMER PROTECTION (ग्राहक सुरक्षा)
😾😾Bank/NBFC 📈📈Share/Bond ⚰Insurance (IRDAI) �Pension
(under RBI) (SEBI)
Ombudsman: Bank, SCORES ⇒ Insurance - If EPFO- then its
NBFC, Digital Portal→ Ombudsman via internal machinery
Transaction (given SEBI→SAT IRDAI Act ‘1999, - If NPS: NSDL→

u
below) hears matters upto PFRDA.

yo
₹30 lakhs. If higher - If pvt sector pension
claim then consumer company’s scheme:
courts / other courts. PFRDA → SAT.

lp
⇒ Higher appeal against
IRDAI → SAT

he
18.16.1 😾😾RBI’s 3 Ombudsman (ओमबड्समेन/ िशकायत िनवारण अिधकारी/लोक प्रहरी)
- 2021-Feb: 😰😰BEFORE: RBI appointed 3 types of ombudsman for consumer complaints: (i)
Banking Ombudsman Scheme (ii) NBFC Ombudsman (iii) Digital Transaction Ombudsman.

ill
🤩🤩After: Integrate these 3 into a One Nation One Ombudsman / Integrated Ombudsman
w
Scheme (एकीकृ त िशकायत िनवारण अिधकारी योजना)
18.17📈📈🌐🌐🦁🦁FINANCIAL INCLUSION: VARIOUS REPORTS (भारत का प्रदशर्न)
d
I'm not writing the ranks here because it will be very poor cost benefit memorising it for exam.
go

Report By
Global Microscope Report The Economist Magazine’s Economist Intelligence Unit, Accion
global NGO &partners like Bill & Melinda Gates Foundation,
rs

Metlife foundation etc.

Global Findex Database World Bank with help of Bill & Melinda Gates Foundation
he

Global Pension Index Mercer CFA Institute, Canada

Indian Government’s Indian Finance Ministry’s Department of Financial Services (DFS).
ot

Financial Inclusion Index

RBI’s Financial Inclusion - RBI launched in 2021. Focuses on 3 parameters: Access, usage
Index and quality of the financial services in an area.
p

- Score ranges from between 0 and 100.

el

- 0% = total pathetic. 100% = full financial inclusion.

- Present score for India 60.1% (2023)
H

National Strategy for RBI

Financial Inclusion
NEXT Handout: Pillar2: Budget, Taxation

(Batch:PCB10-RAFTAAR-ONLY-Prelims) Mrunal’s Economy Pillar#1D: Insurance, Pension, FinInclusion → Page 301

KING R & QUEEN P Help others god will help you

 PILLAR #2: BUDGET, TAXATION, Subsidies, Disinvestment, Deficit, Public Finance
Table of Contents

20 �� Pillar #2: Budget: Relevance in UPSC? ......................................................................... 303

20.1 � Fiscal Policy (राजकोषीय नीित): Meaning & significance ............................................................. 303
A well planned Fiscal Policy can help in following arenas:............................................................................................ 304

20.2 � Budget (बजट): Meaning............................................................................................................ 305

u
20.2.1 �Three Funds related to Budget (Self-Study= Laxmikanth chapter on Parliament) ....................... 305

yo
20.2.2 ��Donation Funds: PMNRF vs PM CARES (दान) ............................................................................. 306
20.2.3 �� Three Documents related to Budget (बजट के साथ प्रस्तुत तीन दस्तावेज) ...................................................... 307

20.3 ��SIX Stages of Passing the Budget in Parliament (6 चरण) ..................................................... 309

lp
20.3.1 �Financial Year (FY: िवत्तीय वषर्) ................................................................................................................... 309

20.4 �����Vote on Account- (लेखा अनुदान) ......................................................................... 309

he
20.5 (�
���)=�
�� Interim Budget (अंतिरम बजट) ....................................................................... 310
20.5.1 ��Budget’s THEME (बजट की िवषयवस्तु) ..................................................................................................... 311

20.6
20.6.1
ill
�� Economic Survey (आिर्थक सवेर्क्षण) ........................................................................................ 311
���Chief Economic Advisor (CEA: मुख्य आिर्थक सलाहकार) ............................................................. 313
w
20.7 �Finance ministry and its departments: (िवत्त मं त्रालय और उसके िवभाग) ......................................... 313
20.7.1 ��Department of Economic Affairs (DEA: आिर्थक कायर्/ आिर्थक मामलो का िवभाग) .......................................... 313
d
20.7.2 ��FinMin#2: Department of Expenditure (व्यय िवभाग)......................................................................... 314
go

20.7.3 ��RBI’s Next Generation Treasury Application (NGTA), 2020-Oct ............................................ 314
20.7.4 ��FinMin#3: Department of Revenue (राजस्व िवभाग)............................................................................. 314
20.7.5 ���FinMin#4: Department of Financial Services (DFS: िवत्तीय सेवाएँ िवभाग) ...................................... 315
20.7.6 ��FinMin#5: DIPAM (िनवेश एवं लोक पिरसं पित्त प्रबं धन िवभाग) ............................................................................. 315
rs

20.7.7 ��FinMin#6: Department of Public Enterprises (DPE: सावर्जिनक उपक्रम िवभाग) ...................................... 315
20.7.8 ��FinMin#6: DPE → National Land Monetization Corporation (NLMC-2022) ...................... 316
he

20.8 � Indian Audit and Accounts Department ................................................................................ 317

20.8.1 � IAAD-OIOS by CAG (िविभन्न मं त्रालयों की लेखा परीक्षण के िलए िडिजटल पोटर्ल) .............................................................. 317
ot

20.9 �Budget→ �Revenue Part→ �Receipts→ �Tax Receipts ............................................ 317

20.9.1 � Types of taxes: direct / indirect: प्रत्यक्ष कर/ अप्रत्यक्ष कर.......................................................................... 318
20.9.2 Types of taxes: Progressive vs Regressive vs Proportional ...................................................................... 318
p

20.9.3 � Adam Smith’s 4 canons of taxation (कराधान के चार िसद्धांत) ................................................................... 319
el

21 �� Direct Taxes: Types (प्रत्यक्ष करों के प्रकार) ........................................................................... 319

21.1.1 �� Paper Taxes ..................................................................................................................................... 320
H

21.2 ��Direct taxes: merits and demerits (प्रत्यक्ष करों के लाभ व् नुकसान)............................................. 320

21.3 ��Union Tax, Cess and Surcharge (कें द्रीय कर, उपकर और अिधभार) ............................................. 321
21.3.1 ��: ��Cess pe FAQ & PHD......................................................................................................... 321
21.3.2 ��: � Direct Tax → Cess: �Pradhan Mantri Swasthya Suraksha Nidhi (PMSSN) ............... 322
21.3.3 Laffer Curve, Tax elasticity, Tax Buoyancy etc ......................................................................................... 322

(Batch:PCB10-Prelim) Mrunal’s Economy Pillar#2A1: Budget → Revenue Part → Direct Tax-Receipts → Page 302

KING R & QUEEN P Help others god will help you

 21.4 ��: � Direct Tax → Corporation Tax (िनगम कर) ................................................................. 323

21.5 ��: �� Minimum Alternate Tax (MAT) & AMT (न्यूनतम वैकिल्पक कर) ............................. 323
21.5.1 ��: �� Corporation Tax on Startups .......................................................................................... 324
21.5.2 ��� Angel Tax on Startup Investments (2012) .................................................................................. 324

21.6 ��: � Equalisation Levy / Google Tax (समकारी लेवी/ गूगल टैक्स) ............................................. 325

21.7 ��: � Dividend Distribution Tax (DDT: लाभांश िवतरण कर) .................................................. 326

u
21.8 ��: �� Buyback Tax (शेयर की वापसी-खरीद पर कर) ....................................................................... 326

yo
21.9 �� : ���Capital Gains Tax (CGT: पूंजीगत लाभ कर) ........................................................ 327
21.9.1 Indexation benefit / cost inflation index (CII) benefit ............................................................................. 328
21.9.2 ��: Bitcoin Profit pe 30% Tax and transfer pe 1% TDS in ��Budget-2022 ........................... 329

lp
21.10 ��: � Income Tax on Individuals (व्यिक्तक आयकर) ............................................................ 329

he
21.10.1 Revenue Forgone / Tax Expenditure (प�रत्य� राजस्व/कर खचर्) .............................................................................. 330
21.10.2 Income Tax: no tax upto ₹7 lakh after �Budget-2023 = Boosting Economy.................................... 331
21.10.3 Income Tax: switching between NTR vs OTR after �Budget-2023 ................................................... 331
21.10.4 Surcharge on Income Tax ........................................................................................................................... 332
21.10.5
21.10.6
ill
Effective Tax on super-rich person earning >5 cr .................................................................................... 332
��Income Tax Slabs -> old tax regime -> senior citizens................................................................ 332
w
21.11 ���Direct Tax Code (DTC) Task Force (2017-2019) ................................................... 332
d
21.12 ��Direct Taxes: Misc. Concepts (इधर उधर के िछटपुट मुददे) .......................................................... 333
21.12.1 ��Hindu Undivided Family (HUF) (िहदं ू अिवभािजत पिरवार): ............................................................... 333
go

21.12.2 ��Presumptive Taxation (प्रकिल्पत कराधान) .......................................................................................... 333

21.12.3 ��Advance Tax ? (अिग्रम कर)................................................................................................................. 333
21.12.4 � ATMA NIRBHAR BHARAT → Tax Ordinance 2020 [कर अध्यादेश] .................................................. 334
rs

21.13 ���TDS & TCS ............................................................................................................... 334

21.14 ���Tax Deducted at Source (TDS): (स्रोत पर कर कटौती) ................................................... 334

he

21.14.1 ���) TDS → ATMA NIRBHAR BHARAT REFORMS .................................................... 335

� (�
21.14.2 ���Tax Collected at Source (TCS): (स्त्रोत पर सं गृहीत कर) ................................................................. 335
ot

21.14.3 ��Tax refund? (कर वापसी) ..................................................................................................................... 336

21.15 �Misc. Direct Taxes - Financial Transaction Taxes (िवत्तीय लेनदेन कर).................................... 336
21.15.1 �� (Concept) Tobin Tax / Robinhood Tax ....................................................................................... 336
p

21.15.2 ��STT & CTT (प्रितभूित लेनदेन कर और वस्तु लेनदेन कर) .............................................................................. 336
el

20 💼💼🍋🍋 PILLAR #2: BUDGET: RELEVANCE IN UPSC?

H

Year 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027
MCQ 3 3 4 1 1 2 3 1

20.1 💼💼 FISCAL POLICY (राजकोषीय नीित): MEANING & SIGNIFICANCE

- ‘Fiscal’ is a word derived from Greek. Means ‘basket’ and symbolizes the public purse.

(Batch:PCB10-Prelim) Mrunal’s Economy Pillar#2A1: Budget → Revenue Part → Direct Tax-Receipts → Page 303

KING R & QUEEN P Help others god will help you

 - Fiscal Policy is the set of Govt. decisions regarding taxation, expenditure, subsidies and other
financial operations. (कराधान, व्यय, सिब्सडी और अन्य िवत्तीय सं चालन हेतु सरकार द्वारा िलए गए िनणर्य)
- Using fiscal policy, Govt influences the savings, investment and consumption in an economy, to
accomplish certain national goals such as income redistribution, socio-economic welfare,
economic development and inclusive growth. (बचत, िनवेश और खपत को सरकार को प्रभािवत करती→ आय का
पुनिर्वतरण, सामािजक-आिर्थक कल्याण, समावेशी िवकास हो सकता है)

u
yo
lp
he
ill
w
A well planned Fiscal Policy can help in following arenas:
d
 Full Employment: through welfare schemes/ rural employment programmes like MGNREGA
go

(�
�More in pillar6) (लोक कल्याणकारी योजनाओं द्वारा पूणर् रोजगार)
 �To Fight Inflation (मुद्रास्फीित): Higher Income tax → �disposable income (व्यय योग्य आय) →
demand curbed, To fight deflation= �direct and indirect taxes to boost demand. (�
�More in
pillar4: Inflation) (अपस्फीित से लड़ने के िलए करों में कटौती करे माँग को बढ़ाएँ )
rs

 � To Boost Economic Growth: Provide income tax benefits on household savings in

he

LIC/Mutual Fund etc. → industries get new capital investment → factory expansion, jobs, GDP
growth. (�
�More in pillar4: GDP) (करों में िरयायतें दे कर िनवेश को बढ़ोतरी, आिर्थक वृिद्ध को बढ़ोतरी देना)
 �To Boost Inclusive Growth (समावेशी िवकास): Higher taxes on rich → use money for health,
ot

education, women, poverty removal programs. (�

�More in pillar6: Human Dev)
 � To Boost Regionally Balanced Growth: Give tax benefits to industrialists for setting up
p

factories in North East, Naxal/Left-wing Extremism (LWE) & other backward areas. (उद्योगपितयों को
उत्तर पूवीर् राज्य तथा नक्सल प्रभािवत राज्यों में फै क्टरी लगाने पर करो में िरयायते देकर सभी प्रदेशो का सं तुिलत िवकास)
el

 �Exchange Rate Stability (िविनमय दर िस्थरता): Give tax benefits to exporters to boost exports;
H

while impose higher taxes on imported items to reduce imports → Current Account Deficit
(CAD: चालू खाता घाटा) controlled → ₹ :$ Exchange rate volatility controlled. (�
� pillar3:BoP)

🔠🔠❓ MCQ. “Fiscal policy” means (UPSC-Indian-Engg-Service-2018)

a) Balancing the revenue collection and expenditure
b) Establishing equilibrium between demand and supply of goods and services

(Batch:PCB10-Prelim) Mrunal’s Economy Pillar#2A1: Budget → Revenue Part → Direct Tax-Receipts → Page 304

KING R & QUEEN P Help others god will help you

 c) Use of taxation, public borrowing and public expenditure by Government for purposes of
stabilisation or development. d) Deficiency as an instrument of growth

u
yo
lp
he
ill
w
d
go
rs
he
ot
p

20.2 💼💼 BUDGET (बजट): MEANING

el

Budget is an annual financial statement containing estimated revenues and expenditures for the next
financial year. Budget is the primary tool used by Govt to implement its fiscal policy. (अनुमािनत राजस्व
H

और व्यय का वािर्षक िवत्तीय िववरण, िजसकी मदद से सरकार राजकोषीय नीित को लागू िक्रयािन्वत है).
20.2.1 🔐🔐Three Funds related to Budget (Self-Study= Laxmikanth chapter on Parliament)
Art. 🔐🔐Consolidated Fund Incoming taxes, loans raised, loans recovered. Withdrawal
266 Of India (CFI) (सं िचत िनिध) need Parliament Permission (- except for Charged
Expenditure like Judges’ salaries).

(Batch:PCB10-Prelim) Mrunal’s Economy Pillar#2A1: Budget → Revenue Part → Direct Tax-Receipts → Page 305

KING R & QUEEN P Help others god will help you

 Art. 🔐🔐Public Account Incoming ₹ ₹ from provident fund, small savings, postal
266 of India (लोक लेखा) deposit etc. Govt acts similar to a banker transferring fund
िसफर् पहली बार बनाते वक्त सरकार from here to there so parliament permission ✋not
ने सं सद की अनुमित लेनी है. िफर हर necessary.
बार इसमें से पैसा खचर् करते वक्त IF separate fund is to be created for the first time, for a specific
सं सद की अनुमित नहीं लेनी है. expenditure, then needs parliament permission to “create” it
e.g. Central Road Fund Act 2000, where Road Cess on Petrol,

u
Diesel would be deposited.

yo
Art. 🔐🔐Contingency Fund ⇒ Unforeseen events. Held by Finance Secretary (IAS) in
267 of India (आकिस्मकता िनिध) Dept of Economic Affairs, on behalf of President.
⇒ Parliament approval is “subsequently” obtained, after

lp
expenditure. Money refilled from CFI.
👜👜👜👜Budget-2021 reforms

he
1. Amount � from Rs 500 crore to Rs 30,000 crore
2. 40% of this amount will be kept with Dept of Expenditure
& 60% by Dept of Economic Affairs (DEA).

ill
🔠🔠❓ Authorization for the withdrawal of funds from the Consolidated Fund of India must come
from: (Pre-2011) (a) President of India (b) Parliament of India (c) The PM of India (d) The Union
w
Finance Minister
🚩🚩🚩FAQ: What is Cess? Ans. Finish entire Handout first.
d

20.2.2 🤧🤧🤧🤧Donation Funds: PMNRF vs PM CARES (दान)

go
rs

👴👴PMNRF by Nehru 1948 🧔🧔PM CARES Fund by Modi 2020

⇒ Prime Minister’s National Relief Fund Prime Minister’s Citizen Assistance and
he

(PMNRF) राष्ट्रीय राहत कोष Relief in Emergency Situations Fund

⇒ Originally for helping Pak-refugees. For dealing with any kind of emergency or
distress situation, e.g. COVID-19 pandemic
ot

Nowadays for floods, cyclones, earthquakes,

accidents, heart/kidney transplant, cancer, िकसी भी िकस्म क� आपातकालीन पिरिस्थितयों से लड़ने के
acid attack, riots etc. िलए
p

⇒ Not setup by Parliament. ⇒ Same। इसे सं सद द्वारा नहीं बनाया गया, बजट में से इसे
el

⇒ No support given from the budget. पैसा नहीं िदया जाता, सामान्य लोगों के और िविवध
⇒ Only runs from donations of ordinary people सं स्थानों के दान से ये चलता है,
H

and institutions & foreigners donations.

⇒ Donors get Income tax exemption. ⇒ Same. दान देने पर आयकर में छू ट मीलती है .यिद
⇒ If company donates ₹₹=counted in Corporate कं पनी दान देगी तो उसे कॉपोर्रेट सामािजक दाियत्व में
Social Responsibility (CSR, Ref#1C ). िगना जाएगा
⇒ Prime Minister’s Office (PMO) operates ⇒ same.प्रधानमं त्री कायार्लय सं चािलत करता है

(Batch:PCB10-Prelim) Mrunal’s Economy Pillar#2A1: Budget → Revenue Part → Direct Tax-Receipts → Page 306

KING R & QUEEN P Help others god will help you

 👴👴PMNRF by Nehru 1948 🧔🧔PM CARES Fund by Modi 2020
⇒ PM- e
is the ex-officio chairman. He’s assisted ⇒ Prime Minister is the· ex-officio
&
by officers. (पदेन अध्यक्ष) Chairman. (पदेन अध्यक्ष)
-

⇒ Ex-officio Trustees (पदेन ट्रस्टी): Ministers of

- -
ex

Defence, Home Affairs, Finance

- - - -

⇒ 3 Nominated Trustees (मनोनीत): experts - °

-

u
from
- health, science,
- social- work, law etc.
e
PM selects स्वास्थ्य, िवज्ञान, सामािजक कायर्, कानून

yo
Notes:
⇒ 1962: A separate ‘National Defence Fund’ under PM to help military & paramilitary forces’
families. Other features mostly similar to above funds. (ऊपर के टेबल में हमने पढ़े वो दो फण्ड के अलावा एक

lp
तीसरा राष्ट्रीय रक्षा कोष/ िनिध भी है)
⇒ Usually, such Govt donation funds are registered under Indian Trust Act, 1882. But, some legal

he
experts / critics suggest these donations should be brought under Public Account / Consolidated
Fund to bring accountability & transparency. (पारदिर्शता और जवाबदेही की कमी)
⇒ 😰😰Controversy? PM CARES Fund officials refused to give information to a person under Right

ill
to information Act (RTI), so now court case about applicability of RTI on this. (सरकार इस फं ड का
िहसाब िकताब “सूचना अिधकार कानून में” देने से इं कार कर रही थी तो कोटर् में के स चला)
w
d
go
rs
he
ot
p

20.2.3 💼💼📃📃 Three Documents related to Budget (बजट के साथ प्रस्तुत तीन दस्तावेज)
el

- Budget comes from a French word 'bougette' meaning a leather bag / suitcase.
- -

- Finance Minister (FM: िवत्त मं त्री) would keep documents in it → present in parliament.
-
-
-
H

-e 2019: FM Nirmala Sitharaman ended this colonial practice by presenting the budget in a
- - - -
-

traditional four-fold red cloth called -

- -
-
“Bahi-Khata”. (लाल रंग के कपड़े में लपेट के पेश िकया)
- While the term ‘budget’ not given in our constitution, but for each financial year, the Govt is
required to present following: (सं िवधान में इस शब्द का िजक्र नहीं हालाँिक हर साल तीन दस्तावेज सं सद में रखे जाते हैं। )

=O
📃📃Art. 112 📊📊Annual Financial Statement (AFS: वािर्षक िवत्तीय िववरण) containing receipt and
-
= - -

(Batch:PCB10-Prelim) Mrunal’s Economy Pillar#2A1: Budget → Revenue Part → Direct Tax-Receipts → Page 307

KING R & QUEEN P Help others god will help you

 expenditure of last year (and projections for the next year).
1) The revenue expenditure data must be shown separately from other
expenditures data (e.g. capital expenditure)
��FAQ: What does this mean? Ans. Finish pillar2D: to learn about
capital expenditure. Presently we are at pillar#2A.
2) No compulsion to show railway budget separately from general budget.
3) No compulsion to show plan expenditure separately from non-plan.

u
📃📃Art. 265 Taxes can’t be imposed without law so Finance Bill to obtain Parliament's

yo
📃📃Art.117 permission to collect taxes. (िव� िवधेयक कराधान के िलए।)
Further, Parliament can reduce or abolish a tax proposed by the Govt. but
�Read
Parliament cannot increase tax beyond what Govt has proposed in the Finance
more about

lp
them in bill. E.g. If Modi Govt’s Finance bill proposes “we want to ⏫tax on imported
Laxmikanth shoes from 25% → 35%”. Then

he
or UA Notes ⇒ Members of parliament can vote to allow tax@35%/reduce/remove it.
⇒ �Members of parliament CANNOT vote “let’s �tax to 45%”.
📃📃Art. 114 🛒🛒Appropriation Bill (िविनयोग िवधेयक) to obtain Parliament's permission to spend

�Read of two types : ill

money from Consolidated Fund of India(CFI: Art 266). Such expenditure can be
w
more about 1) The expenditures ‘charged’ upon the Consolidated Fund of India e.g. Judges
them in salaries. They can be discussed but they are non-votable & automatically
d
Laxmikanth approved. (भारत की सं िचत िनिध पर भािरत व्यय. सं सद में उसकी चचार् हो सकती है, िकन्तु मतदान नहीं।
or UA Notes वरना यिद सांसद मतदान से, जज की तनख्वाह ⏬कर देंगे तो जज िनष्पक्ष रुप से काम नहीं कर पाएं गे)
go

2) The expenditure ‘made’ from CFI. E.g. ₹ ₹ for a scheme. They’re discussed
and voted. (भारत की सं िचत िनिध से िकये गए व्यय. सं सद में इसपर चचार् भी होगी और वोिटंग भी)
⇒ The finance bill and appropriation bill are considered money bills (धन िवधेयक) under article 110.
rs

Therefore Rajya Sabha (RS) approval is not necessary. (राज्य सभा की अनुमित अिनवायर् नहीं)
⇒ At maximum Rajya Sabha can discuss it for 14 days and give suggestions to Lok Sabha for
he

amendments, but it’s not binding on the Lok Sabha to accept Rajya Sabha’s suggestions. (धन
िवधेयक के मामले में राज्यसभा द्वारा िदए गए सुजाव मानना लोकसभा के िलए बाध्यकारी नहीं है)
⇒ Sometimes, the ruling party does not have majority in Rajya Sabha to pass other type of ordinary
ot

bills (e.g. a bill to transfer National Housing Bank (NHB)’s ownership from RBI to Govt. or
abolishing some low-profile statutory body or enacting a law to make Aadhar card compulsory)…
p

⇒ Then, ruling party packs those ordinary bills’ proposals inside Finance Bill to get it approved
without Rajya Sabha’s obstruction. (कु छ बार सामान्य िवधेयक के मामले भी िवत्त िवधेयक में डालकर, िबना राज्य सभा
el

की अनुमित के पास करवाने की हरकते सत्तापक्ष द्वारा की जाती है, जो नैितक नहीं)
H

⇒ In such scenarios, whether a given bill is money bill or not?= Ans: Lok Sabha Speaker’s decision
is final [Art.110(3)]. Speaker’s decision cannot be enquired by any Court [Art.122].

🔠🔠❓ MCQ. What will follow if a Money Bill is substantially amended by Rajya Sabha? (Pre’13)
a. Lok Sabha may still proceed with the Bill, accepting or not accepting recommendations of Rajya Sabha.
b. The Lok Sabha cannot consider the Bill further.

(Batch:PCB10-Prelim) Mrunal’s Economy Pillar#2A1: Budget → Revenue Part → Direct Tax-Receipts → Page 308

KING R & QUEEN P Help others god will help you

 c. The Lok Sabha may send the Bill to the Rajya Sabha for reconsideration.
d. The President may call a joint sitting for passing the Bill.
🔠🔠❓ MCQ. Find correct statement(s): (UPSC Pre’15)
1. The Rajya Sabha has no power either to reject or to amend a Money Bill.
2. The Rajya Sabha cannot vote on the Demands for Grants.
3. The Rajya Sabha cannot discuss the Annual Financial Statement.
Codes: (a) 1 only (b) 1 and 2 only (c) 2 and 3 only (d) 1, 2 and 3

u
yo
20.3 💼💼�SIX STAGES OF PASSING THE BUDGET IN PARLIAMENT (6 चरण)
1. 🎙🎙Presentation of budget (बजट का प्रस्तुितकरण)
2. 🤬🤬General Discussion (आम बहस)

lp
3. 🗳🗳Scrutiny by departmental committees (िवभागीय सिमितयों द्वारा जांच)
4. 🗳🗳✂Voting on demands for grants, cut motions, guillotine. (अनुदान की मांग पर मतदान )

he
5. �🛒🛒Passing of Appropriation Bill (िविनयोग िवधेयक का पािरत होना)
6. �🍋🍋Passing of Finance Bill (िवत्त िवधेयक का पािरत होना )

ill
📗📗 Self-Study from Indian Polity by M.Laxmikanth’s chapter on Parliament or Unacademy
Polity Notes/Lecture
w
20.3.1 📆📆Financial Year (FY: िवत्तीय वषर्)
⇒ 1867: British Indian Govt started financial year 1st April to 31st March to align with their home
d
country’s financial year. क्योंिक इं ग्लडैं में ऐसा िवत्तीय वषर् था, इसिलए भारत में िवत्तीय वषर् ऐसा िकया
⇒ Constitution has not specified any months for FY but we continued the British legacy.
go

⇒ 2016-17: Finmin setup Shankar Acharya Committee: Whether we shd change FY (like Jan-Dec
or Rabi-Kharif Cropping seasons) for better estimation of tax collection and expenditure?
⇒ �2017: All states not in favor because accounting practices /softwares need to be changed. Its
rs

challenges outweighed the benefits. So, Modi Govt not implementing. इसको लागू नहीं कर रहे
⇒ �2020: some fake news that FY changed due to Corona, but it was FAKE-NEWs (झठू ा समाचार)
he

20.4 📃📃🛒🛒🤧🤧📆📆⏳VOTE ON ACCOUNT- (लेखा अनुदान)

The Constitution does not mandate any specific date for presentation of the Budget, but it is
ot

presented to the Lok Sabha on such day as the President directs.

⇒ Before 2017: Presented in the last working day of February. Then it’ll pass through
aforementioned six stages- consuming all the time upto May month.
p

⇒ But while those six stages were going on, the financial year will be over (on 31st March) so
el

previous year’s Appropriation Act’s validity will be over.

⇒ Then govt cannot withdraw money from the Consolidated Fund of India even for the routine
H

expenditure like staff salary, electricity bills.

(Batch:PCB10-Prelim) Mrunal’s Economy Pillar#2A1: Budget → Revenue Part → Direct Tax-Receipts → Page 309

KING R & QUEEN P Help others god will help you

 u
yo
⇒ So, to avoid such crisis, government will put a motion for vote on account.
⇒ Here, parliament (= practically Lok Sabha) will allow the govt to spend some money from the

lp
CFI, till the (next) Appropriation Act for next financial year is passed.
⇒ Vote on Account is generally granted for two months for an amount equivalent to one-sixth of

he
the total budget estimation.
✋Vote on Account is no longer necessary because (अब इसकी जरूरत नहीं)
⇒ Constitution has no compulsion to put budget on a specific date. So, 2017 onwards, Modi Govt.

⇒ All the six stages are completed by the last week of March.
ill
began tabling the budget on the first working day of February.
w
⇒ Appropriation bill gets passed and signed by President before completion of 31st March. So they
did not require vote on account in 2017, 2018.
d
⇒ (###) However, in 2019’s Interim Budget, Modi Govt demanded “vote on account” because they
go

planned to place full-budget after general elections and perhaps they wanted to keep the ‘option’
open for tabling a big-sized appropriation bill after winning the election. (2019 के अंतिरम बजट में
हालांिक मोदी सरकार ने लेखानुदान की मांग की थी क्योंिक चुनाव के बाद बड़ा सामान्य बजट प्रस्तुत कर उसमें मोटी रकम का
“िविनयोग िवधेयक” डालने का िवकल्प/ऐसी िखड़की/रास्ता वे खुला रखना चाहते थे)
rs

🚩🚩🚩FAQ: (###) I’ve 500 types of counter arguments / doubts on this (###) bullet point. Ans. Govt
he

did not bother to give long reasoning behind their decision. Nobody filed a PIL SC. Economic
survey, NITI Aayog and columnist did not bother to comment much on it. So, I did not bother to
think/reflect more on it, Because it is NOT an efficient way to complete syllabus. #🕰🕰थोड़ा-पढ़ो-आगे-बढ़ो
ot

20.5 (🤴🤴🗳🗳🧔🧔)=🥛🥛💼💼 INTERIM BUDGET (अंतिरम बजट)

p
el
H

(Batch:PCB10-Prelim) Mrunal’s Economy Pillar#2A1: Budget → Revenue Part → Direct Tax-Receipts → Page 310

KING R & QUEEN P Help others god will help you

 ⇒ Our constitution does not define or require interim budget. (अंतिरम बजट का सं िवधान में िजक्र नहीं है)
⇒ But, during election year or extreme situation (E.g. when coalition government may collapse
before its term) then it’s considered unethical for such Govt. to make drastic/populist changes in
budget like “2gm gold for the marriage of every BPL-girl.”
⇒ So, while they’ll present a budget in the regular fashion i.e. 3 documents (AFS, FinBill,
Appro.Bill) & 6 Stages of Passing. But it (should) not have grand populist announcements. (ऐसी
पिरिस्थितमे लोक-लुभावन की योजनाओ के साथ बजट प्रस्तुत करना नैितक नहीं होगा, वरना िवपक्षी नेता जीत नहीं पाएं गे चुनाव)

u
⇒ Such budgets are called Interim Budgets, and were presented in 2004 (Yashwant S.), 2009

yo
(Pranab M.), 2014 (Chidambaram P.) and 2019 (Piyush G.)
⇒ Just like a Regular General Budget, an Interim budget is valid for the whole financial year,
however in between if new government is formed, they may present another budget to change

lp
the provisions. (वैसे तो पूरे वषर् के िलए वैध होता है)
⇒ E.g. 2014-Feb: FM Chidambaram presented (interim) budget in 15th Lok Sabha, but then

he
UPA/Congress defeated in general election→ 2014-July: BJP’s FM Arun Jaitley presented (Full)
General Budget in 16th Lok Sabha.
⇒ 2019-Feb: FM Piyush G. presented Interim budget in 16th Lok Sabha → 2019-May: Modi won

ill
General Election → 2019-July: FM Nirmala S. presented (Full) Gen Budget in 17th Lok Sabha.
w
✋Note: throughout the handout, I’ve used the term “Full” budget to
differentiate it from “Interim” Budget for easier revision & visualization. But in
Mains, you should use the word ‘General Budget’(सामान्य बजट)
d

20.5.1 👜👜👜👜Budget’s THEME (बजट की िवषयवस्तु)

go

Constitution doesn’t require, but sometimes FM will do it to create media-hype:

Budget Year Did FM Speech mention a specific theme (िवषयवस्तु)?
7. No specific theme mentioned in speech but focus on AtmaNirbhar Bharat
2021 (Full)
rs

8. Paperless/Digital Budget in a Samsung tablet made in India, covered in

Paperless
Red-colored cover.
he

⇒ Azadi ka Amrit Kaal, the 25-year-long leadup to India@100.

⇒ Four priorities: 1) PM GatiShakti, 2) Inclusive Development 3)
Productivity Enhancement & Investment, Sunrise Opportunities, Energy
ot

2022 (Full) Transition, and Climate Action 5) Financing of Investments

Paperless ⇒ Paperless/Digital Budget in a tablet, covered in Red-colored cover.
p

‘Saptarishi’ (7 priority) for Amrit Kaal, namely:

2023 (Full) 1) Inclusive Development , 2) Reaching the Last Mile, 3) Infrastructure and
el

Paperless Investment, 4) Unleashing the Potential, 5) Green Growth, 6) Youth Power ,

7) Financial Sector
H

20.6 📘📘📘📘 ECONOMIC SURVEY (आिर्थक सवेर्क्षण)

- A document prepared by (usually) by the Chief Economic Adviser (CEA) in FinMin.
- ✋No constitutional obligation to prepare or present it but usually it’s tabled in the parliament a
day before the Union Budget. (सं िवधािनक रूप से ऐसा करना अिनवायर् नहीं)

(Batch:PCB10-Prelim) Mrunal’s Economy Pillar#2A1: Budget → Revenue Part → Direct Tax-Receipts → Page 311

KING R & QUEEN P Help others god will help you

 - 2019-Feb: No economic survey was presented before the interim budget.
- 2019-July: Economic Survey presented before the (Full) General Budget.
- While Budget is labelled after next financial year (e.g. 2019-20), the Economic survey is labelled
after previous Financial Year. e.g. The survey tabled on Jan-2018 labelled as “Economic Survey
2017-18”, the Survey tabled in July-2019 is labelled “Economic Survey 2018-19”.
- For faster revision/easy visualisation, throughout my handout, I’ve used following labels:

u
- “📙📙📙📙ES22” means Economic Survey 2021-22 presented on 31/1/2022

yo
- “📙📙📙📙ES21” means Economic Survey 2020-21 presented on 31/1/2021. & so forth.
Table 1: Theme / Format of Economic Survey?

lp
he
Till 2013-14
ill
⇒ Single Volume survey. (िसफ़र् एक अंक में प्रकािशत िकया जाता था)
w
⇒ Adopted Two Volume Systems like “IMF’s World Economic Outlook”. (दो-अंक)
2014-15 ⇒ Vol1= future suggestions | Vol2= Past data.
2 volumes ⇒ Explicitly mentioned Theme in preface (प्राक्कथन): “Creating opportunity and
d

reducing vulnerability” (through JanDhan-Aadhar-Mobile = JAM trinity)

go

Paperless / Digital Survey. No theme explicitly mentioned in preface. but focus areas /
2020-21
major talking points were 1) #SavingLives&Livelihoods 2) V-shaped Recovery 3)
2 volumes
Countercyclical fiscal policy 4) Bare Necessities Index
rs

⇒ Released both in digital and paper (hardcopy) on 31/Jan/2022

⇒ THEME in Preface: Art and science of policy-making under conditions of
he

extreme uncertainty using “Agile” approach. ("फु तीर्ली" दृिष्टकोण का उपयोग करते हुए
2021-22 अत्यिधक अिनिश्चतता की िस्थितयों में नीित-िनमार्ण की कला और िवज्ञान)
1 Volume ⇒ Not published by CEA. Published by Principal Economic Adviser. (Reason is not
ot

important, but explained in video lecture so save page space in handout.)

⇒ Shifted from TWO Volumes to ONE Volume. (Reason is not important, but
p

explained in video lecture so save page space in handout.)

⇒ Released both in digital and paper (hardcopy) on 31/Jan/2023, by CEA.
el

⇒ No theme explicitly mentioned in preface. but focus areas were

H

⇒ India’s Post-Corona economic recovery is complete

2022-23
1 Volume ⇒ GDP growth likely to be 6% to 6.8% for 2023-24
⇒ 2022’s survey: the social sector was covered in chapter number-10.
⇒ 2023’s survey: social sector chapter was shifted to chapter number 6- to highlight
that Modi Govt is very serious about social sector (health, edu etc.)

(Batch:PCB10-Prelim) Mrunal’s Economy Pillar#2A1: Budget → Revenue Part → Direct Tax-Receipts → Page 312

KING R & QUEEN P Help others god will help you

 20.6.1 📙📙📙📙�Chief Economic Advisor (CEA: मुख्य आिर्थक सलाहकार)
- Works under Finance ministry’s Department of Economic Affairs
- Usual tenure 3 years, reappointment possible, but not a constitutional or statutory body. Has
control over Indian Economic Service (IES) officers. (तीन साल का कायर्काल पुनिर्नयुिक्त सं भव)
- Notable CEAs in Past: Manmohan Singh, Raghuram Rajan, Arvind Subramanian (2014-18).
- 2018-2021: Krishnamurthy Subramanian served as the CEA.
- 2022-Jan: Dr V. Anantha Nageswaran as its Chief Economic Advisor (CEA). Nageswaran MBA

u
from IIM-A. His famous books: 1) Can India grow? 2) The Rise of Finance: Causes,

yo
Consequences and Cures
20.7 �FINANCE MINISTRY AND ITS DEPARTMENTS: (िवत्त मं त्रालय और उसके िवभाग)

lp
he
ill
w
d

20.7.1 �💼💼Department of Economic Affairs (DEA: आिर्थक कायर्/ आिर्थक मामलो का िवभाग)
go

Functions of DEA:
⇒ Fiscal policy, Preparation and presentation of Union budget including the Railway component of
budget. Budget for union territories without legislature, budget for States under president rule.
rs

⇒ DEA announces the Interest rates of small saving schemes. (Ref:1D, लघु बचत योजनाओं की ब्याज दर)
⇒ DEA maintains a website www.pppinindia.gov.in, to provide information related to Public Pvt
he

Partnership (PPP). (📑📑Ref-Pill5: Infrastructure for more)

Organizations under/related to DEA

ot

1) Constitutional Body: Art. 280: Finance Commission. DEA liaisons with it.
2) Chief Economic Advisor (CEA) that we learned in previous section.
3) Financial Stability and Development Council (FSDC): is neither Constitutional nor statutory
p

body. FM is chairman. Members include the chiefs of all financial regulatory bodies- such as RBI,
el

SEBI, IRDAI, PFRDA and the chief of IBBI (📑📑Ref: 1C)

4) Govt Company: Security Printing and Minting Corporation of India Ltd. (SPMCIL). Registered
H

under the Companies Act responsible for printing currency notes, coins, commemorative coins,
cheques, postage stamps, non-judicial stamps, passports/visa and other travel documents etc.
5) Infrastructure Finance Secretariat (IFS) for infra projects.

(Batch:PCB10-Prelim) Mrunal’s Economy Pillar#2A1: Budget → Revenue Part → Direct Tax-Receipts → Page 313

KING R & QUEEN P Help others god will help you

 20.7.2 �🛒🛒FinMin#2: Department of Expenditure (व्यय िवभाग)
⇒ Controller General of Account (CGA: महालेखा िनयं त्रक from Indian Civil Accounts Service (ICAS)
service, recruited by UPSC-CSE) prepares estimate of how much money to be spent from
consolidated fund of India.
⇒ Implements Finance Commission report, Pay Commission reports, Pension to employees (in old
pension scheme Ref 1D)
⇒ Org: Arun Jaitley National Institute of Financial Management (AJNIFM), Faridabad: for

u
training/research.

yo
⇒ Web Portals of Expenditure Department:
 Public Financial Management System (PFMS): for disbursing money to various
Ministries and departments at Union and State level

lp
 Bharatkosh- Non Tax Receipts Portal (NTRP): For selling India yearbook Yojana
Kurukshetra mags etc products and services by the government of India

he
 PARAS: portal for pension related accounts.

20.7.3 💸💸💸💸RBI’s Next Generation Treasury Application (NGTA), 2020-Oct

Outdated / faded topic. They’re yet to implement it. So, I’m deleting from handout.

ill
🔠🔠❓ MCQ. Public Financial Management System (PFMS) is a web-based online software application
w
designed, developed , owned and implemented by the (UPSC-CDS2019-II)
A) Department of Financial Services B) Institute of Government Accounts and Finance
C) Controller General of Accounts D) National Institute of Financial Management
d
go

20.7.4 �🍋🍋FinMin#3: Department of Revenue (राजस्व िवभाग)

Looks after the taxation matters using bodies: <Hindi terms not given because it’ll take too much
printout space, but they’re given in indirect tax section of this handout>
 Central Boards of Revenue Act 1963 : 2 bodies →
rs

Statutory
o Central Board of Direct Taxes (CBDT)→ Dept of Income Tax
Bodies
o Central Board of Indirect Taxes and Customs (CBIC). Before-2018-
he

& Quasi-
March, it was known as Central Board of Excise and Customs (CBEC).
judicial bodies
It implements GST from 1st July 2017, under the 101st Constitutional
ot

Amendment Act, 2016.

वैधािनक सं स्थाएं
 Authorities for Advance rulings for IT, Customs & Central Excise, GST
अधर् न्याियक
 Various Tribunals and appellate bodies related to taxation.
p

 Enforcement Directorate (for enforcing PMLA and FEMA Act)

el

Attached /  Central Economic Intelligence Bureau

Subordinate##  Central Bureau of Narcotics
H

 Financial Intelligence Unit

Companies / - Goods and Service Tax Network (GSTN)
factories - Government Opium and Alkaloid Factories (GOAF)
Special Opium related matters. Madhya Pradesh, Rajasthan and Uttar Pradesh have
functions permitted cultivation of Opium for medicinal/pharma purpose. Such Opium is used

(Batch:PCB10-Prelim) Mrunal’s Economy Pillar#2A1: Budget → Revenue Part → Direct Tax-Receipts → Page 314

KING R & QUEEN P Help others god will help you

 for manufacturing morphine (pain relief for cancer patients and soldiers injured in
war), codein (cough-syrup) and thebaine (used in industrial chemicals). [अफ़�म]
##🚩🚩🚩FAQ: What is the meaning of Attached/Subordinate/Autonomous Body? Ans.
https://unacademy.com/lesson/mrunals-yearbook-ministries-and-departments-forms-of-
government-organisations-in-hindi/7KCEZHT4
20.7.5 �💳💳💳💳FinMin#4: Department of Financial Services (DFS: िवत्तीय सेवाएँ िवभाग)

u
Functions of DFS:
Schemes for Financial Inclusion (📑📑Ref-1D), PSB supervision and recapitalization, Public Sector

yo
Financial Intermediaries, including their regulators (Except EPFO, ESIC etc.)
Organizations under/related to DFS:
 Bank Board Bureau: Neither Constitutional / statutory. Setup through gazette notification for

lp
selection of top officials (MD, CEO, Chairman and full-time Directors) for PSBs, LIC and other
public sector financial institutions. (📑📑Ref:1B-2)

he
 Govt Company:
o National Credit Guarantee Trustee Company (NCGTC): For providing credit guarantee
for loans in Mudra, certain MSME loans, Stand up India, education-skill development

ill
related loans. (इस सरकारी योजनाओं में लाभाथीर् कजार् वापस नहीं करें तो बैंक के नुकसान की भरपाई ये कं पनी
करेगी)
w
o National Bank for Financing Infrastructure and Development (NABFID)
 �E-Bikray Portal: for online-auction of attached assets by public sector banks, in cases of loan
d
default.
go

20.7.6 �🏭🏭FinMin#5: DIPAM (िनवेश एवं लोक पिरसं पित्त प्रबं धन िवभाग)
 Department of Investment and Public Asset Management (DIPAM) looks after Disinvestment /
privatization of Govt Companies / Central Public Sector Enterprises (CPSE- सावर्जिनक क्षेत्र के कें द्रीय
rs

उद्यम) (Ref �#2D: Disinvestment)

he

20.7.7 �🏭🏭FinMin#6: Department of Public Enterprises (DPE: सावर्जिनक उपक्रम िवभाग)

BEFORE 🤩🤩AFTER 2021-July Reform
Department of Public Enterprises (DPE) - DPE shifted to Finance Ministry. (सावर्जिनक
ot

functioned under Ministry of Heavy Industries उपक्रम िवभाग अब से िवत् मं त्रालय के अंतगर्त काम करेगा)
and Public Enterprise - �Benefit? DPE can work with more
p

(पहले ये सावर्जिनक उपक्रम िवभाग “भारी उद्योग तथा सावर्जिनक synergy / coordination with DIPAM
उपक्रम मं त्रालय” के अंतगर्त काम करता था)
el

Department. (तालमेल सं कलन में बेहतर होगी)

- DPE looks after Government Companies/Central Public Sector Enterprises (CPSEs)’s
H

administration, expenditure, financial health, survey/performance monitoring etc. (सरकारी कं पिनयों

के प्रबं धन, ख़चेर् िवत्तीय स्वास्थ्य, सवेर्क्षण/प्रदशर्न की िनगरानी के बारे में देखता है)
- DPE gives 'Ratna' status to CPSEs’ that are making good profits. (Ref �#2D: Disinvestment)
- DPE looks after CPSEs’ employees’ training, rehabilitation (Voluntary Retirement Scheme: VRS)
and other personnel matters What is VRS = Explained in Pillar1B1 lecture in public sector bank
merger lecture. (सरकारी कं पिनयों के कमर्चािरयों के तालीम, स्वैिच्छक िनवृित्त इत्यािद कािर्मक प्रशासन)

(Batch:PCB10-Prelim) Mrunal’s Economy Pillar#2A1: Budget → Revenue Part → Direct Tax-Receipts → Page 315

KING R & QUEEN P Help others god will help you

 - DPE DOESNOT look after selection/recruitment of employees in CPSE. There are separate
organizations for it -given in table below:
Selection/Interview of Managing Director, Who is responsible?
Chairman & other Top-Officials in _ _ (इन उच्च पदािधकािरयों का चयन कौन करता है)
Public Sector Banks/NBFCs/AIFI e.g. SBI, BBB was there. Then BBB replaced by
PNB, LIC, NABARD, NHB etc (What are FSIB (More in 📑📑Pillar#1B2) (सरकारी
they? Ref: 1B1: Classification) → → बैंकों/सरकारी िवत्तीय सं स्थान में उच्च अिधकािरयों के

u
चयन के िलए अलग सं स्था है)

yo
Government companies Other than Public Enterprises Selection Board
[Public Sector Bank/NBFC/AIFI] e.g. (PESB) under the Ministry of personnel
ONGC, Coal India, Hindustan Copper, (सरकारी बैंक/ सरकारी िवत्तीय सं स्थान के अलावा

lp
Hindustan Aeronautics Limited (HAL) etc वाली सरकारी कम्पिनयों में उच्च अिधकािरयों के चयन
के िलए अलग सं स्था PESB है)

he
RBI Governor, SEBI Chief etc regulators Separate Committee headed by Cabinet
→. →. → Secretary (IAS)
The highest official in each of above 6 depts is called ‘Secretary’ (usually an IAS)

ill
→ senior-most among them is designated as Finance Secretary=signs ₹ 1 note.
Finance Secretary usually heads the Dept of Economic Affairs (DEA)
w
20.7.8 �🏭🏭FinMin#6: DPE → National Land Monetization Corporation (NLMC-2022)
d
go
rs
he
ot
p
el

⇒ ��Budget-2021 announced this → 2022-March: Govt said we’ll setup NLMC under Dept
H

of Public Enterprise. This company 100% owned by Govt with paid up capital of ₹150 cr.
⇒ Function? Renting/selling surplus land-assets of govt depts/govt companies etc. It will hire
experienced professionals from private sector to ensure efficient management.
⇒ Related topics: PM Gati Shakti, National Monetization Pipeline, National Infra Pipeline: (REF: in
�Pillar#5: PPP / public private partnership)

(Batch:PCB10-Prelim) Mrunal’s Economy Pillar#2A1: Budget → Revenue Part → Direct Tax-Receipts → Page 316

KING R & QUEEN P Help others god will help you

 (सरकारी कं पिनयों की अितिरक्त ज़मीन / इमारत /सं पित्तयों को िनजी क्षेत्र के उधोयपतीयो को िकराये पे देना/बेच देना- इन सबके िलए एक
“राष्टी्र य भू-मौिद्रकरण िनगम” की स्थापना।)

20.8 � INDIAN AUDIT AND ACCOUNTS DEPARTMENT

 As per Press Release FinMin = 6 departments that we learned above.
 This (lesser known) dept is headed by Constitutional Body: Comptroller and Auditor General

u
(CAG: भारत के िनयं त्रक-महालेखापरीक्षक इस के मुिखया होते हैं तो इस िवभाग को िवत्त मं त्रालय का िहस्सा नहीं माना जाता)

yo
20.8.1 � IAAD-OIOS by CAG (िविभन्न मं त्रालयों की लेखा परीक्षण के िलए िडिजटल पोटर्ल)
- One Indian Audit & Accounts Department (IAAD) One System (OIOS)
- Made by CAG- for paperless administration.

lp
he
ill
w
d
go

🔠🔠❓ MCQ. Find correct Statement(s): (MCQ-Prelims-2015)

1. The Dept of Revenue is responsible for the preparation of Union Budget.
2. No amount can be withdrawn from the Consolidated Fund of India without authorization from
rs

Parliament of India.
3. All the disbursements made from Public Account also need the authorization from Parliament
he

Codes: (a) 1 and 2 only (b) 2 and 3 only (c) 2 only (d) 1, 2 and 3
🔠🔠❓ MCQ. Which one of the following is responsible for the preparation and presentation of
Union Budget to the Parliament? (MCQ-Prelims-2010)
ot

(a) Department of Revenue (b) Department of Economic Affairs

(c) Department of Financial Services (d) Department of Expenditure
🔠🔠❓ MCQ. Fiscal Policy in India is formulated by: (MCQ-CDS-2012)
p

(a) the Reserve Bank of India (b) the Planning Commission (c) the Finance Ministry (d)SEBI
el

20.9 💼💼BUDGET→ ⏳REVENUE PART→ 📥📥RECEIPTS→ 🍋🍋TAX RECEIPTS

H

बजट→ राजस्व भाग→ प्रािप्तयां→ कर प्रािप्तयां

(Batch:PCB10-Prelim) Mrunal’s Economy Pillar#2A1: Budget → Revenue Part → Direct Tax-Receipts → Page 317

KING R & QUEEN P Help others god will help you

 20.9.1 🍋🍋 Types of taxes: direct / indirect: प्रत्यक्ष कर/ अप्रत्यक्ष कर

u
yo
Parameter 🍋🍋🍋Direct Tax 🍋🍋🛒🛒🍋Indirect Tax (e.g.

lp
(e.g. 5% Tax on your 18% GST on purchase of
income) Biscuit)

he
🤧🤧Incidence of Tax: Point from where Income Tax Assessee Shopkeeper/seller (िवक्रेता )
government collects the tax. (करापात) (प्रत्यक्ष करदाता खुद)
😰😰Impact of Tax: point where the burden Income Tax Assessee Customer/buyer (ग्राहक )
(प्रत्यक्ष करदाता खुद)
of tax is ultimately felt and can’t be
transferred elsewhere. (कराघात/कर का प्रभाव)
ill
w
The incidence and impact of tax is…. On the same person Not on the same person.
🎓🎓Note: Above table’s deeper interpretation also involves how ‘burden’ is shifted from seller to
d
buyer, But we’ll not waste time learning its GRAPH/PHD. #🕰🕰थोड़ा-पढ़ो-आगे-बढ़ो
go

20.9.2 Types of taxes: Progressive vs Regressive vs Proportional

rs
he
ot

Type of Tax Example

p

Proportional If Govt. had a single 10% flat rate direct tax on income irrespective of whether
el

समानुपाती🔂🔂 you’re a poor, middle class, upper middle class or a rich person. Then each
taxpayers’ same proportion of income(10%) will go into taxes.
H

Progressive - 5%-20%-30% income tax slabs depending on your income.

(प्रगामी) - Thus, richer the person, bigger proportion of his income will go into taxes.
�😁😁 Thus, direct taxes are progressive in nature.
↗�😥😥 - Misc. term: Degressive tax: It is a blend of progressive tax and proportional
अमीर पे ज्यादा गरीब पे tax. If a direct tax increases upto a point & after that limit, a uniform rate is
कम

(Batch:PCB10-Prelim) Mrunal’s Economy Pillar#2A1: Budget → Revenue Part → Direct Tax-Receipts → Page 318

KING R & QUEEN P Help others god will help you

 Type of Tax Example
charged (5-5-10-10-...10). So, its partly proportional because tax rate remains
unchanged even if income increases. (✋but further PHD/hairsplittery not
req on this term. If MCQ asks then Ans= income tax is PROGRESSIVE TAX)
Regressive - 18% GST on Biscuits worth ₹100 = ₹18 paid as (indirect) tax.
(प्रितगामी) - When Mukesh Ambani buys one packet, and a poor man buys one packet,
greater proportion of poorman’s income is gone in taxes. Thus, indirect taxes

u
�😁😁
↗�😥😥 are regressive in nature. (गरीब आदमी की वेतन का ज्यादा िहस्सा जाता है)

yo
MCQ. Which one of following is a progressive tax structure? [UPSC-CDS-2015-II]
(a) Tax rate is the same across all incomes (b) Tax rate increases as income increases
(c) Tax rate decreases as income increases (d) Each household pays equal amount of tax

lp
20.9.3💣💣 Adam Smith’s 4 canons of taxation (कराधान के चार िसद्धांत)
1. Canon of Equality (समानता का िसद्धांत): Tax should be equal /proportionate to income. Rich people

he
should pay more taxes than poors.
2. Canon of Certainty (िनिश्चतता का िसद्धांत): dates, slabs, % should be definite & told in advance.
Randomly govt should not demand “x%” tax to build statue, temple or mosque.

ill
3. Canon of Convenience (सुिवधा का िसद्धांत): tax payer shouldn’t be made wait for a kilometre long
w
queue & fillup 50 pages worth tax forms.
4. Canon of Economy (िमतव्य्यता का िसद्धांत): to collect ₹ 100 crore tax, govt shouldn’t be spending ₹ 99
d
crores in salaries of tax officials.
go

🔠🔠❓ MCQ. Which of the following was not advocated by Adam Smith? (UPSC-CDS-2019-1)
a) Canon of equality b) Canon of certainty c) Canon of convenience d) Canon of fiscal adequacy
🔠🔠❓ MCQ. Find Correct Statements (UPSC-CDS-2016-1)
rs

1. Ability to pay principle of taxation holds that taxes people pay should relate to their income or wealth
2. The Benefit Principle of taxation states that individuals should be taxed in proportion to the benefit they
he

receive from Government programmes

3. A progressive tax takes a larger share of tax from poor families than it does from rich families
ot

4. Indirect taxes have the advantage of being cheaper and easier to collect
Answer Codes: (a) 1 and 3 only (b) 2 and 4 only (c) 1, 2 and 4 only (d) 1, 2, 3 and 4

21 🍋🍋🍋 DIRECT TAXES: TYPES (प्रत्यक्ष करो ं के प्रकार)

p

Direct Taxes
el

🧔🧔 of Union Govt. * Means Abolished �🕉🕉 Of State Govt.

👜👜On income - Corporation Tax, Minimum Alternate 1. Agriculture Income tax
H

(आय पर) Tax (MAT) 2. Professional Tax

- Income Tax on income except agri. (Constitutional ceiling of
- Capital Gains Tax (CGT) max ₹2500 per year)
- ❌ *Dividend Distribution Tax (DDT)
🏠🏠On assets, - Securities Transaction Tax (STT) 1. Land Revenue (भू राजस्व )
transactions & Commodities Transaction Tax (CTT) 2. Stamp/Registration duty

(Batch:PCB10-Prelim) Mrunal’s Economy Pillar#2A1: Budget → Revenue Part → Direct Tax-Receipts → Page 319

KING R & QUEEN P Help others god will help you

 Direct Taxes 🧔🧔 of Union Govt. * Means Abolished �🕉🕉 Of State Govt.
(सं पित्त, लेनदेन पर) - ❌ *Wealth Tax (संपि� कर) 3. Property tax in urban areas
- ❌ *Banking Cash Transaction Tax (शहरी क्षेत्रों में सं पित्त कर)
- ❌ *Estate Duty
🛒🛒On − ❌ *Hotel Receipt Tax, *Gift Tax #Road Tax (although debatable
expenditure (खचर् − ❌ *Fringe Benefit Tax i.e. When the as in some States/categories of

u
पर) employer give benefits to employee apart vehicles- the seller will collect &
submit)

yo
from salary e.g. subscription to gymkhana
or golf-club.
🚩🚩🚩FAQ: How much money collected from these taxes? Ans. REF: Pillar2A2: GST Handout

lp
21.1.1 🍋🍋🍋 Paper Taxes
Govt never earned large amount of money from wealth tax, gift tax and estate duty. So these taxes

he
were informally called as ‘paper taxes’- says NCERT. (सरकार को कभी भी संपि�कर, भेंट कर, और एस्टेट ड्यटू ी में से
बह�त ज्यादा मात्रा में आमदनी नहीं ह�ई इसिलए इनको “कागजी कर” कहा जाता था.)

🔠🔠❓MCQ. Corporation tax is imposed by _ _ _ [UPSC-CDS-2013-II]

ill
(a) State Government(b) Central Govt (c) Local Government(d) State as well as Central Govt
w
21.2 🍋🍋🍋DIRECT TAXES: MERITS AND DEMERITS (प्रत्यक्ष करों के लाभ व् नुकसान)
😀😀Merits of Direct Taxes 😓😓Demerits (नुकसान)
d

1. Progressive (प्रगामी: richer the person higher 1. Externality (बाह्यता) not counted: Academic
go

the tax): income inequality ⬇ Books Author vs Film star promoting cigars
2. Promotes civic consciousness (नागिरक चेतना) [30% Income Tax on both].
since citizen directly feels the ‘pinch of tax’ 2. Hardship not counted: Working Carpenter
rs

(चुभन महसूस करना). [5%] vs sleeping landlord [5%] (किठन पिरश्रम के

िलए कोई िरयायत नहीं )
he

3. To ⬆ savings & investment: Income tax

deduction/exemptions on NPS/ LIC etc. 3. High level of direct tax= laziness, less foreign
4. Elasticity (लचीलापन): As public’s income level investment. (उची दरे लोगों को आलसी बनाती है)
ot

4. Narrow base: poor people not covered. If we

⬆ then tax revenue ⬆
try then very large Income tax staff will
5. Certainty (when and how to pay IT, िनिश्चतता)
required to supervise over poor people. (सं कीणर्
p

6. Can ⬇ volatility in International currency

आधार)
el

exchange rates by imposing Tobin Tax

5. Prone to litigation & loopholes, tax evasion,
(📑📑More in Pillar#3) (मुद्रा िविनमय दर की अिस्थरता
H

avoidance. (📑📑More in #2B: Blackmoney)

को कम िकया जा सकता है )
(मुकदमेबाजी, कर-चोरी, कर-पिरहार)

(Batch:PCB10-Prelim) Mrunal’s Economy Pillar#2A1: Budget → Revenue Part → Direct Tax-Receipts → Page 320

KING R & QUEEN P Help others god will help you

 21.3 🍋🍋🍋UNION TAX, CESS AND SURCHARGE (कें द्रीय कर, उपकर और अिधभार)

u
yo
Any Union - Computed on taxable income, profit, transaction. Goes to Consolidated Fund of
Tax India → Later divided between Union and states as per the Finance Commission

lp
(सं घ कर) formula. (IGST’s distribution matter slightly different. Refer to Pillar2B:GST.)
Surcharge - Computed on Tax amount. So, it is a ‘tax on tax’. This ₹₹ will also goto CFI.

he
- Surcharge is not shared with States using Finance Commission Formula.
(अिधभार) - Usually, surcharge doesn’t have any clear objective in ‘prefix’, so it may be used for
any purpose. Exception is 10% Social Welfare Surcharge (समाज कल्याण अिधभार) on the

ill
customs duty on imported goods. → ₹₹ specifically used for social welfare schemes
of the Union. (सामान्य रूप से इन पैसों का उपयोग िकस खास काम में होता है उसे स्पष्ट बताया नहीं जाता)
w
Cess - Computed on [(Tax) + (Surcharge, if any)]
(उपकर) - Clear objective is mentioned. E.g. Road & infrastructure cess, Health & Education,
d
GST compensation cess etc.
- By default, cess goes to CFI→ from there, cess goes to Public Accounts. Sometimes
go

there may be separate fund inside public account for it, e.g. Central Road Safety
Fund, Prarambhik Shiksha Kosh etc.
- Finance Commission can’t prescribe formula to share cess with States. (Although
rs

some of the cess money will invisibly goto states as a part of scheme implementation
e.g. Pradhan Mantri Fasal Bima Premium share, etc. but that depends on discretion
he

of Union) (इस रकम को िवत्त आयोग राज्यों के साथ नहीं बाँट सकता. कें द्र सरकार अपने िववेक से अलग अलग
योजनाओं में शायद इस उपकर का कु छ पैसा राज्यों को दे सकती है )
- GST Compensation Cess matter is little different. <explained in the GST segment of
ot

next handout>

21.3.1 🍋🍋🍋: 🚩🚩🚩Cess pe FAQ & PHD

p

🚩🚩🚩FAQ: Why does Govt levy cess/surcharge, why is Finance Commission Kept out of it?
el

Ans. So Ruling party@Union can use money for their favourite schemes without having to share the
money it with State Govt. (तािक कें द्र का स�ा प� अपनी मज़� से उस पैसे को इस्तेमाल कर सके । िबना राज्यों को उनका िहस्सा िदए)
H

🚩🚩🚩FAQ: IS it compulsory that every tax MUST have Cess and Surcharge on it?
Not compulsory. Depends on Govt’s mood / discretion. (सरकार क� मज़� पर िनभर्र)

🚩🚩🚩FAQ: Is Cess applicable only on direct taxes OR on indirect taxes?

(Batch:PCB10-Prelim) Mrunal’s Economy Pillar#2A1: Budget → Revenue Part → Direct Tax-Receipts → Page 321

KING R & QUEEN P Help others god will help you

 Some of them applicable on direct taxes. Some of them applicable on indirect taxes.
Cess examples → Applicable on
Health & Education Cess → Levied on Direct Taxes such as Income Tax, Corporation Tax
Health Cess → Levied on Customs Duty on Imported Medical Devices
Agriculture Infrastructure Levied on Customs Duty on some products
and Development Cess Levied on Excise Duty on some products
Road & Infrastructure Cess Levied on Excise Duty on Petrol, Diesel

u
GST Compensation Cess Levied on GST on some products e.g. Vimal Gutkha, cars etc.

yo
🚩🚩🚩FAQ: Is “Health Cess” and “Health & Education Cess” same or different?
Ans. Different. Observe table given above.

lp
🚩🚩🚩FAQ: I’ve 500 other doubts. Ans. Not important for UPSC exam.#🕰🕰थोड़ा-पढ़ो-आगे-बढ़ो

he
21.3.2 🍋🍋🍋: 🏦🏦 Direct Tax → Cess: 🍋🍋Pradhan Mantri Swasthya Suraksha Nidhi (PMSSN)
प्रत्य� करों पर लगाए गए उपकर का पैसा इस फंड में डालेंगे और िविवध स्वास्थ्य योजनाएं चलाएंगे
⇒ Govt levies 4% Health & Education Cess on direct taxes such as income tax & corporation tax.
(प्रत्यक्ष करों पर स्वास्थ्य व िशक्षा उपकर)

ill
⇒ 2021-March: govt created a new “Non-Lapsable” fund under Public Account. (What is “Non-
w
Lapsable fund? Ref: Pillar#2D). लोक लेखा में एक ग़ैर-व्यप्तगत िनिध बनायी जाएगी
⇒ This fund will receive ₹ ₹ from above cess.
⇒ Health ministry will use this money for (More in �Pillar#6)
d

o 1) Ayushmann Bharat & its sub schemes like PM-JAY (5L-Health insurance),
go

o 2) Pradhan Mantri Swasthya Suraksha Yojana (setting up AIIMS-like institutions in

every state & upgrading government medical colleges).
o 3) National Health Mission (NHM) राष्टी्र य स्वास्थ्य िमशन
rs

o 4) Health emergencies like Corona स्वास्थ्य आपदाएँ

21.3.3 Laffer Curve, Tax elasticity, Tax Buoyancy etc

he

Refer to �2B: black money handout.

ot
p
el
H

(Batch:PCB10-Prelim) Mrunal’s Economy Pillar#2A1: Budget → Revenue Part → Direct Tax-Receipts → Page 322

KING R & QUEEN P Help others god will help you

 21.4 🍋🍋🍋: 🏦🏦 DIRECT TAX → CORPORATION TAX (िनगम कर)

Figure 1: िनचोड़ िनचोड़ के कर/टेक्ष लेंग,े िकसी को नहीं बख्शेंगे!

⇒ Also known as “Corporate Income Tax (CIT: िनगमो पे लगने वाला आयकर)”

u
⇒ It’s levied on Company’s profit, under the Income-tax Act, 1961. (Technically called “NET

yo
Income” but we’re not here for CA-exam’s pedantry.)
Sr Type of Company Corporation Tax on profit
Sr1 � New INDIAN MFG company registered from 15 % +surcharge & cess as given

lp
1/10/2019 onwards. (but they must start above = 17.01%
manufacturing by 31/3/2024)

he
Sr2 � other Indian companies not mentioned in Sr.1 22 % tax +10% surcharge on (tax)
(अन्य भारतीय कं पिनयों पर ) +4% health edu cess (on tax +
surcharge) = 25.17%
Sr3 � Foreign Company’s profit from India
Sr4 � Zero Profit companies ill 40%
15% MAT
w
21.5 🍋🍋🍋: 🏦🏦🏦🏦 MINIMUM ALTERNATE TAX (MAT) & AMT (न्यूनतम वैकिल्पक कर)
d
go
rs
he

- Some industrialists make profit but use tax-deduction, exemptions, depreciations and
accounting tricks to show ₹0 taxable income to escape paying Corporation Tax. So,
- Budget-1996 (Chidambaram) introduced 18.5% MAT on book profit of such ‘ZERO TAX
ot

Companies’, using a different type of formula. (What was the formula, not important).
- Modi govt ⏬ reduced MAT from 18.5% → 15%
p

- Alternative Minimum Tax (AMT: 15%) is a similar type of tax on Cooperative societies e.g.
el

Amul, IFFCO. (we will not waste more time on it. Beyond this 1 line GK.)
H

🚩🚩🚩FAQ: if it is showing zero taxable income, then how can we complete the tax on it?
Ans. Explained in the video lecture. Beyond that you may feel free to do PhD & Chartered
accountant-giri from https://www.incometaxindia.gov.in/tutorials/10.mat-and-amt.pdf

(Batch:PCB10-Prelim) Mrunal’s Economy Pillar#2A1: Budget → Revenue Part → Direct Tax-Receipts → Page 323

KING R & QUEEN P Help others god will help you

 21.5.1 🍋🍋🍋: 🏦🏦🏦🏦 Corporation Tax on Startups

Figure 2: “अभी अभी धं धा शुरू िकया है, थोड़ा बख्श दो, मािलक!” IT Dept: “ठीक है, िसफर् थोड़े वषोर्ं के िलए ही!”
Startup is a company not older than 10 years and not having turnover more than 100 cr. & is doing

u
innovation in goods/services. Govt helps them through Startup India Scheme (📑📑more in Pillar4B).

yo
 Startup can claim 100% deduction (=Tax Holiday) on its profits, for 3 years out of the first 10
years of registration incorporation. (Tax Holiday = no need to pay tax.)
21.5.2 🍋🍋🍋🍋🍋🍋 Angel Tax on Startup Investments (2012)

lp
he
ill
w
⇒ 2012: UPA/Congress Govt ordered the suspicious startup Companies to pay 30% Tax + Penalty
d
on the investment which they received from Angel investor. (सं िदग्ध स्टाटर्अप कं पिनयों को आदेश िदया िक
आपको जो िनवेश में पैसा िमला है उस पर 30 प्रितशत एं जल टैक्स और जुमार्ना भरना होगा)
go

⇒ This was called ‘Angel Tax’. But then controversy that Angel Tax will discourage the growth of
startup companies so norms relaxed. (आलोचकों ने बोला ऐसी सख़्ती के चलते स्टाटर्अप के िवकास को अवरोध होगा)
rs

Budget-2019: made from reforms:

STARTUP REGISTERED WITH DPIIT STARTUP NOT REGISTERED WITH DPIIT
he

NO need to pay Angel Tax YES, need to pay Angel Tax

�Budget-2023: made some reforms
Angel tax applicable when startup not BEFORE �BUDGET-2023
ot

registered with DPIIT, & got funding from _ _ _

Local Investors YES, pay Angel Tax YES, pay Angel Tax
Foreign Investors NO need to pay YES, pay Angel Tax
p

Angel Tax
el

DPIIT = Dept for Promotion of Industry and Internal Trade (DPIIT) under Commerce Ministry.
H

(Batch:PCB10-Prelim) Mrunal’s Economy Pillar#2A1: Budget → Revenue Part → Direct Tax-Receipts → Page 324

KING R & QUEEN P Help others god will help you

 21.6 🍋🍋🍋: 🏦🏦 EQUALISATION LEVY / GOOGLE TAX (समकारी लेवी/ गूगल टैक्स)

u
yo
lp
he
ill
What does above chart mean? Ans. Explained in Video Lecture.
w
Related terms:
1. ‘Global Minimum Tax’ regime : (More in �Pillar#2B: Black Money)
d

2. Significant Economic Presence (SEP: उल्लेखनीय आिर्थक उपिस्थती): Concepts basically means if a
go

foreign company is making money from Indians through digital ads / streaming services (e.g.
NETFLIX videos from overseas servers) then the company has ‘SEP’ in India, therefore, Indian
govt has powers to tax it. �Budget-2020 made some technical changes into it. But, poor
rs

cost:benefit chasing it for MCQs.

3. OECD used a phrase ‘Tax challenges of digitization’ to denote above problems where digital
he

services type Multinational Corporation (MNC) are avoiding taxes. (बहुराष्ट्रीय िनगमो द्वारा कर को टालना)
4. France has implemented tax on large technology companies called GAFA Tax (Google Apple
Facebook Amazon) from 1st Jan 2019. Other nations also doing similar.
ot

5. ��FAQ: What is the difference between tax, duty, levy?= if you get selected in IRS (Indian
revenue service) they’ll teach you in training. ��Not-imp here. #थोड़ा-पढ़ो-आगे-बढ़ो.
p

6. ��FAQ: What is onshore/offshore safe harbor regime? ��Not-important

7. What is Global Minimum Tax, DTAA, GAAR, PoEM etc? Ans. �Pillar#2B: Black Money.
el
H

🔠🔠❓ MCQ. With reference to India’s decision to levy an equalization tax of 6% on online
advertisement services offered by non-resident entities, Find correct statements? (Pre-2018)
1. It is introduced as a part of the Income Tax Act.
2. Non-resident entities that offer advertisement services in India can claim a tax credit in their
home country under the “Double Taxation Avoidance Agreements”.

(Batch:PCB10-Prelim) Mrunal’s Economy Pillar#2A1: Budget → Revenue Part → Direct Tax-Receipts → Page 325

KING R & QUEEN P Help others god will help you

 Answer Codes: a) 1 only b) 2 only c) Both 1 and 2 d) Neither 1 nor 2

21.7 🍋🍋🍋: 🗃🗃 DIVIDEND DISTRIBUTION TAX (DDT: लाभांश िवतरण कर)

u
yo
lp
- 1997: FM Chidambaram started to levy DDT on a shareholder’s dividend income.
- Shareholder did not have to pay separate Income tax on such dividend

he
- DDT Rate: 15% + cess + surcharge = 20.56% on dividend paid.
- 💼💼Budget-2020: abolished DDT. But, dividend will be taxable in the hands of shareholder (i.e.
he’ll pay income tax on it). 🤩🤩Benefits?
ill
 Previously even lower middle-class shareholder’s ~ 20% dividend was cut in the name of
w
DDT. But now he may have to pay barely 0-5% income tax on income from dividend.
 Thus, Shareholders get to keep more ₹₹ for spending→ shopping spree → demand,
d

production, economic growth. (मध्यम वगर् की जेब पर कर-बोझ कम होगा.)

go

21.8 🍋🍋🍋: 🗃🗃🛒🛒 BUYBACK TAX (शेयर की वापसी-खरीद पर कर)

rs
he
ot

�What does above chart mean? Ans. Explained in the video lecture. �
p
el
H

(Batch:PCB10-Prelim) Mrunal’s Economy Pillar#2A1: Budget → Revenue Part → Direct Tax-Receipts → Page 326

KING R & QUEEN P Help others god will help you

 u
yo
lp
he
ill
w
d
go
rs
he

21.9 🍋🍋🍋 : 🏠🏠🏠🏠🏠🏠CAPITAL GAINS TAX (CGT: पूंजीगत लाभ कर)

ot
p

- When an owner makes profit by selling his capital assets such as non-agro-land, property,
jewellery, paintings, vehicles, machinery, patents, trademarks, shares, bonds & other securities-
el

then he has to pay CAPITAL GAINS TAX (CGT).

- Depending on how long did the owner keep that asset before selling it, he will pay:
H

- EITHER Long Term Capital Gains tax (LCGT: x% दीघार्विध) OR

- OR Short Term Capital Gains tax (SCGT: y% अल्पाविध)
- Depending on the time of sale, you have to pay either long-term or short-term. You don’t have
to pay both of them.

(Batch:PCB10-Prelim) Mrunal’s Economy Pillar#2A1: Budget → Revenue Part → Direct Tax-Receipts → Page 327

KING R & QUEEN P Help others god will help you

 Equities (Shares) If sold within 1 year of purchase If sold after 1 year of purchase
Long Term Capital Gains N/A 10%
(LTCG)
Short Term Capital Gains 15% N/A
(STCG).
- Note: above time(year) and tax% are different for different types of assets.

u
�FAQ: Isn’t this a loss to government, they are charging less amount of tax for long-term? Ans. It

yo
encourages the investors to hold the shares for longer duration, and thereby preventing unnecessary
speculation/volatility in market. (िनवेशक रोज उठ कर शेयर बेच के भागने लगेगा तो शेयर बाजार में अिस्थरता बढ़ जाएगी.
इसिलए िनवेशक ठहर के बैठे इस वास्ते बेचने से पहले लबं ी अविध तक �कने पर कम टैक्स लेते हैं)

lp
- 👜👜👜👜Budget-2022: Bitcoin, NFT and other virtual digital assets (VDA): profit pe 30% CGT.

he
Trade/Transfer pe 1% TDS (Refer to 📑📑Pillar1: 1A1 about cryptocurrency theory)
- 👛👛Budget-2023: nothing exam-worthy.

21.9.1 🧅🧅Indexation benefit / cost inflation index (CII) benefit

ill
w
d
go
rs

- Indexation benefit = adjusting the profit as per changes inflation. So that person has to pay less
amount of Long term Capital Gains tax. (This is not available in short-term capital gains tax)
he

Indexation benefits on capital gain tax? BEFORE AFTER 1/APRIL/2023

profits made from Debt mutual funds (they Yes given Stopped
ot

invest the clients money in Company bonds/

G-sec/debt instruments.)
Normal shares / bonds NO NO
p

Sovereign gold bonds (Ref#1C) Yes Yes

real estate (building/property) Yes Yes
el

Bitcoin/cryptocurrency profit NO NO
H

�FAQ: is Indexation benefit given in XYZ other instrument? Ans. I don’t know. We are not here
for Chartered Accountant exam.

(Batch:PCB10-Prelim) Mrunal’s Economy Pillar#2A1: Budget → Revenue Part → Direct Tax-Receipts → Page 328

KING R & QUEEN P Help others god will help you

 21.9.2 🔗🔗🔗🔗:🍋🍋 Bitcoin Profit pe 30% Tax and transfer pe 1% TDS in 👜👜👜👜Budget-2022

u
yo
lp
🔠🔠❓MCQ: In which of the following circumstances may ‘capital gains’ arise? (Prelims-2012)
1. When there is an increase in the sales of a product.

he
2. When there is a natural increase in the value of the property owned.
3. When you purchase a painting & there is a growth in its value due to increase in its popularity.
Answer Codes: (a) 1 only (b) 2 and 3 only (c) 2 only (d) 1, 2 and 3
21.10🍋🍋🍋: 👪👪 INCOME TAX ON INDIVIDUALS (व्यिक्तक आयकर)
ill
James Wilson (financial member of the Council of India, founder of the Economist magazine and
w
Standard Chartered Bank) introduced income tax in India on 24 July 1860 to compensate the British
losses during 1857’s Sepoy mutiny. So, 24th July is celebrated as Income Tax Day (Aaykar Diwas).
d
go
rs
he
ot
p
el
H

You can use any ONE of the given system OTR or NTR.

(Batch:PCB10-Prelim) Mrunal’s Economy Pillar#2A1: Budget → Revenue Part → Direct Tax-Receipts → Page 329

KING R & QUEEN P Help others god will help you

 Sr Matter OTR NTR-2023
Sr.1 (Non-Agriculture) Gross Income of salaried employee aged 750000 750000
less than 60YR
Sr.2 minus Standard deduction -50000 -50000
Sr.3 minus NPS deduction -50000# N/A*
Sr.4 minus LIC, ELSS (Ref#1C), Home Loan etc deduction -150000# N/A*
Sr.5 Taxable Income: (Sr.1-2-3-4) 500000 700000

u
Sr.6 Income Tax on taxable income (Sr.5) 12500 25000

yo
Sr.7 REBATE on Income Tax (Sr.6) -12500** -25000**
Sr.8 Income tax to be paid (Sr.6-7) 0 0
Sr.9 surcharge on IT if taxable income >Rs.50 lakh 0 0

lp
Sr.10 4% health & Education Cess on (Sr8+9) (0+0)x4%=0 (0+0)x4%=0
Total Tax to be paid 0 0

he
⇒ # These are max deduction limits. So if u invest more money in LIC/NPS beyond these limits,
still you’ll NOT get more deduction than this. (इससे ज्यादा पैसा डालोगे तो भी ज्यादा माफ़ी नहीं िमलेगी)
⇒ *in NTR-2023, whether person saves money in LIC/NPS etc or not, he’ll not get any deduction

ill
benefit (except 50k Std deduction). So N/A = not applicable.
⇒ **Tax rebate allowed only if taxable income upto Rs.5 lakh in OTR OR Rs.7 lakh in NTR. So if
w
Akshay Kumar having 200 crore income = he’ll not GET REBATE. See next table.
d
21.10.1 Revenue Forgone / Tax Expenditure (प�रत्य� राजस्व/कर खचर्)
go

Sr Matter OTR NTR-2023

1 non-agro Gross salary income Rs.5.50 cr Rs.5.50 cr
2 Std. Deduction (-) 50,000 (-) 50,000
3 NPS (-) 50,000 N/A
rs

4 LIC, Home Loan etc (-) 2,00,000 N/A

5 Taxable income: 1-2-3-4 5,47,50,000 Rs. 5,49,50,000
he

6 Tax rebate N/A bcoz income >5 lakh N/A bcoz income >7 lakh
7 Tax+Surcharge+Cess on Sr5= Rs.2,31,35,190 Rs. 2,10,40,500
ot

⇒ in above case, Tax Payer has to pay Rs.20,94,690 LESS in NTR compared to OTR.
⇒ So from Tax-payer's point of view, this is 'Tax savings'.
⇒ From the Govt's point of view this is 'revenue forgone / tax expenditure' (सरकार के नए स्लेब/िनयमो के
p

चलते िजतना कर कम आया, सरकार उस नुक्सान को ‘राजस्व पिरत्यक्त/कर खचर्’ कहते है.)
el

⇒ Govt deliberately makes such 'revenue forgone' to boost the economy indirectly. (How? Next
section) (अथर्तत्रं क� बहेतरी के िलए सरकार जानबुज कर ऐसा राजस्व प�रत्य� करती है.)
H

(Batch:PCB10-Prelim) Mrunal’s Economy Pillar#2A1: Budget → Revenue Part → Direct Tax-Receipts → Page 330

KING R & QUEEN P Help others god will help you

 21.10.2 Income Tax: no tax upto ₹7 lakh after 👛👛Budget-2023 = Boosting Economy

u
yo
lp
Sr Matter OTR NTR-2023

he
Sr.1 (Non-Agri) Gross Income of salaried employee aged less than 60YR 750000 750000
Sr.2 Money LOCKED in NPS -50000 0**
Sr.3 Money LOCKED in LIC, EPFO, etc
Sr.4 Income tax to be paid
ill -150000 0**
0 0
w
Sr.5 Money LEFT for spending/ disposable income? 550000 750000
⇒ **Assuming that person did not SAVE any money in LIC/NPS etc.
d
⇒ 50k Std. Deduction doesn’t LOCK your money. It’s just mathematical subtraction for tax
go

purpose.
⇒ Disposable income = income left for spending, after deduction of direct taxes and social security
(LIC, NPS etc.) (खचर् करने योग्य आय वो आय है, जो प्रत्यक्ष-कर और पेंशन-िबमा वगेरा भरने के बाद आपके पास रहती है)
⇒ Thus, The new tax regime increases the disposable income in the hands of taxpayers, and this is
rs

likely to boost the shopping, demand, production, jobs and economic growth. (नई प्रणाली में करदाता के
he

िलए खचर् करने योग्य आमदनी बढ़ रही है जो िक आिथर्क वृिद्ध में मदद करे गी)

21.10.3 Income Tax: switching between NTR vs OTR after 👛👛Budget-2023

ot
p
el
H

(Batch:PCB10-Prelim) Mrunal’s Economy Pillar#2A1: Budget → Revenue Part → Direct Tax-Receipts → Page 331

KING R & QUEEN P Help others god will help you

 21.10.4 Surcharge on Income Tax
Surcharge if taxable income is OTR (Old Tax Regime) NTR (New Tax Regime)
More than ₹50 lakh upto 1 cr. 10% 10%
More than ₹1 cr upto 2 cr. 15% 15%
More than ₹ 2 cr upto 5 cr. 25% 25%
More than ₹5 cr 37% 25%

u
21.10.5 Effective Tax on super-rich person earning >5 cr

yo
Sr Item OTR NTR
Sr1 Income Tax Highest Slab 30% 30%
Sr2 Surcharge on Income Tax 37% of 30%IT = 11.1% 25% of 30%IT = 7.5%

lp
Sr3 Heath Edu Cess on (Sr1+Sr2) 4% (30%+11.1%)=1.64% 4% (30%+7.5%)=1.5%
Effective Tax = Sr1+2+3 42.74% 39%

he
21.10.6 ��Income Tax Slabs -> old tax regime -> senior citizens
- (OLD Tax Regime) Income tax slabs for senior citizens are slightly relaxed. i.e.
OTR income tax 0% 5%
ill 20% 30%
w
Less than 60 age Upto 2.50 lakh 2.50-5 lakh 5-10 lakh >10 lakh
60 or more but Upto 3 lakh 3-5 lakh Same as above Same as above
less than 80 age
d

>80 age Upto 5 lakh =0% N/A

go

21.11🍋🍋�🏦🏦DIRECT TAX CODE (DTC) TASK FORCE (2017-2019)

rs
he

⇒ 2017: Finance Ministry setup this taskforce under CBDT member Arbind Modi. Later, he retired
so another CBDT member Akhilesh Ranjan was made Chairman.
⇒ Taskforce had noted IRS officer, Chartered Accountant, Tax Lawyer, Corporate Consultant etc.
ot

⇒ While Government did not disclose full report in public domain, but according to journalists, it
contains following suggestions:
p

1. Replace the Income Tax Act 1961 with a simpler Direct Tax Code (प्रत्यक्ष कर सं िहता).
2. Reduce the corporation tax further. िनगम करों में और कटौती की जाए
el

3. Tax rates for domestic and foreign companies should be same. This will encourage ease of doing
H

business in India. (भारतीय और िवदेशी कं पिनयों पे एक समान िनगम कर लगे तािक व्यापार में सुगमता)
4. Give additional tax relief for the startup companies. (More in Pillar4B)
5. Increase the number of tax slabs from present three (5%,20%,30%) to four (10%, 20%, 30% and
lastly 35% for super-rich earning ₹ 2 crore />).
6. Abolish Dividend Distribution Tax (DDT). [which is actually done in �Budget-2020]

(Batch:PCB10-Prelim) Mrunal’s Economy Pillar#2A1: Budget → Revenue Part → Direct Tax-Receipts → Page 332

KING R & QUEEN P Help others god will help you

 7. Setup Litigation Management Unit to look after the tax related court cases in an efficient
manner. (मुकदमों की प्रबं धन इकाई बनाई जाए तािक कराधान के के सों का प्रभावी रूप से िनपटारा हो सके )
++ many other reforms, but poor cost:benefit chasing them. #थोड़ा-पढ़ो-आगे-बढ़ो

21.12🍋🍋🍋DIRECT TAXES: MISC. CONCEPTS (इधर उधर के िछटपुट मुददे)

21.12.1 🍋🍋👪👪Hindu Undivided Family (HUF) (िहंदू अिवभािजत पिरवार):

u
- A Hindu, Buddhists, Jains, or Sikhs family members can come together, pool their assets and
form an HUF under the Income Tax Act. (उनको आयकर बचाने में कु छ फ़ायदे होते हैं)

yo
- HUF is taxed separately from its members, & helps saving taxes due to certain
provisions/loopholes of Income Tax Act. How exactly? Ans. not here for CA exam.

lp
21.12.2 🍋🍋�Presumptive Taxation (प्रकिल्पत कराधान)

he
- Salaried employees can easily compute their taxable income from their annual salary, & pay
income tax. (तनख्वाह-शुदा/ वेतन-भोगी कमर्चारी के िलए आयकर िगनना बहुत आसान होता है)
- Companies hire full time Chartered Accountants to computer their taxable income and pay

- ill
Corporation tax. (और कं पनी के मािलक तो िहसाब िकताब रखने के िलए CA को नौकरी पे रखेंगे)
But self-employed freelance consultants / professionals such as lawyers, doctors, fashion
w
designers, DJ-walle-babu etc. face difficulty in keeping such account books. (लेिकन स्वरोजगािरयों के
िलए िहसाब िकताब रखना थोड़ा मुिश्कल होता है )
d

- So, for above persons, Income Tax Act has Presumptive Taxation System. It is not a separate tax
go

but a ‘method/formula’ to calculate their income tax. How it works? NotIMP. (यह कोई अलग कर नहीं
है िकंतु आयकर िगरने का एक अलग िकस्म का सूत्र है. वह क्या सूत्र है हम पढ़ने नहीं बैठेंगे)
Table 2: ✋don't confuse the terms and at the same time no need for CA-giri
rs

Income Tax on income ⇒ A direct tax levied by Union.

other than agri → ⇒ Every resident has to pay it on his taxable income.
he

(आयकर ) ⇒ Within that income tax: lawyers, doctors, fashion designers etc.
self-employed/freelance professionals do calculation of income
tax using Presumptive Taxation
ot

Professional tax ⇒ It is a separate direct tax Levied by State Govt on the

(व्यवसाय कर) →[गैर-िकसान professionals (who are not farmers).
p

पेशेवर पर राज्य सरकार का कर] ⇒ Constitution says it can’t be more than ₹2,500 per yr per person.
el

21.12.3 🍋🍋⏰Advance Tax ? (अिग्रम कर)

- New financial year starts from 1st April 2019 and ends on 31st March 2020.
H

- If everyone paid all of their direct taxes at 11:59PM on 31st March 2020, then govt. will face
money-shortage for the whole year till 31st March midnight comes.
- So, Advance Tax mechanism requires people to pay their Income tax and Corporation tax in
advance-instalments on quarterly basis (every 3-3 months), If their annual tax liability is ₹10,000
or more. (बड़े आयकरदाता और कं पिनयों ने हर तीन तीन महीने पर िकश्तों में कर जमा करना होगा)

(Batch:PCB10-Prelim) Mrunal’s Economy Pillar#2A1: Budget → Revenue Part → Direct Tax-Receipts → Page 333

KING R & QUEEN P Help others god will help you

 21.12.4 👻👻 ATMA NIRBHAR BHARAT → Tax Ordinance 2020 [कर अध्यादेश]
Outdated. Deleted from handout

21.13🍋🍋�✂TDS & TCS

To keep track of income/payment & reduce opportunities of tax-evasion/blackmoney, Government

u
requires TDS/TCS to be collected in certain payments.
Who collects/cuts it? From whose payment?

yo
TDS (खरीदार) Buyer of goods/services/investment ⇒ Seller’s fees (e.g.
TAX before making payment to the seller/investor. wedding-DJ/Catering
DEDUCTED Examples: walla)

lp
AT SOURCE ⇒ University paying salary to ⇒ Employee’s salary,
employee/professor ⇒ Depositor/ lender’s

he
⇒ Book Publisher paying royalty to author interest
⇒ Banker/Bond-Issuer paying Interest ⇒ Shareholder’s dividend
⇒ Company paying dividend to shareholder etc.
TCS:
ill
(िवक्रेता) Seller of Goods/Service e.g. Luxury Car Customer who is buying
w
TAX Showroom Owner, Foreign Currency Seller specified types of
COLLECTED goods/services/foreign
AT SOURCE currency. (चुिनदं ा वस्तुओ ं और
d
सेवाओं के ग्राहक)
go

⇒ ��FAQ: Whether TDS/TCS applicable on “X” thing or not? �Ans. not important beyond
examples given in table.
⇒ ��FAQ: Can we call TDS and TCS indirect taxes? Ans. �No, they are administrative
rs

mechanisms to discourage black money. TDS/TCS are not separate taxes. E.g. TDS that is cut
from salary/dividend/bank interest= ultimately that TDS ₹₹ goes into the income tax
he

computation of respective employee/shareholder/depositor. So TDS is not a separate tax.

21.14🍋🍋�✂TAX DEDUCTED AT SOURCE (TDS): (स्रोत पर कर कटौती)
ot
p
el
H

- Suppose a college pays ₹10,000 to a freelance visiting faculty.

(Batch:PCB10-Prelim) Mrunal’s Economy Pillar#2A1: Budget → Revenue Part → Direct Tax-Receipts → Page 334

KING R & QUEEN P Help others god will help you

 - Suppose a bank/NBFC/post-office pays ₹10,000 as interest to a depositor, then how to ensure
that payment-recipient (visiting faculty) reports his income to the tax authorities, otherwise he
could avoid paying taxes!!
- So, Income Tax Act requires such organizations (college) to deduct a portion of the payment at
source and deposit it to IT-dept. along with PAN card number of the recipient.
- Then, payment-recipient (visiting faculty) will be forced to file his tax return form, to unlock his

u
TDS amount.

yo
- 😰😰On one side, TDS helps fighting tax evasion but on the other side, TDS also creates hardship
for lower middle-class persons, because part of their payment is cut in advance. So, in each
budget, Govt will finetune the norms.(कभी सख़्ती की जाती है, कभी िरयायत दी जाती है)

lp
- Budget-2019: TDS on cash withdrawal to encourage digital payments
- 2% TDS if total cash withdrawn during a financial year exceed 1 crore from a single user-

he
account in bank or post-office. This will encourage digital payments.
- Related? Banking Cash Transaction Tax (BCTT: 2005-09) in 📑📑Pillar#2B:Black Money
-
-
ill
�Budget-2020, 2021: some technical changes. NOTIMP for Exam#�
�थोड़ा-पढ़ो-आगे-बढ़ो
��Budget-2022: 1% TDS on Bitcoin and other Virtual Digital Assets (VDA)’s transfer/trade.
w
21.14.1 👻👻 (🍋🍋�✂) TDS → ATMA NIRBHAR BHARAT REFORMS
d
Faded/ outdated. So deleting from handout.
go

21.14.2 🍋🍋🏎🏎✂Tax Collected at Source (TCS): (स्त्रोत पर सं गहृ ीत कर)

rs
he
ot

- If a rockstar buys an SUV car worth ₹25 lakhs, then it means he must be a rich man. How to
p

ensure he is paying Income Tax regularly (apart from TDS mechanism)?

el

- So, the car showroom owner (seller) is required to collect extra 1% from Rockstar (Buyer) and
deposit to IT-dept. Rockstar will have to file tax-return to unlock this amount.
H

(Batch:PCB10-Prelim) Mrunal’s Economy Pillar#2A1: Budget → Revenue Part → Direct Tax-Receipts → Page 335

KING R & QUEEN P Help others god will help you

 21.14.3 🍋🍋🍋🍋Tax refund? (कर वापसी)

- A person is eligible to receive income tax refund from IT-dept IF he has paid more tax to the govt

u
than his actual tax liability. e.g. If college deducted 10% TDS from freelance visiting faculty

yo
payment, but what if he was in 0% or 5% Income Tax slab? Then, Income Tax Department will
refund his money with interest.
- Similarly, GST refund can be claimed by an entrepreneur from GSTN webportal.

lp
21.15 🍋🍋MISC. DIRECT TAXES - FINANCIAL TRANSACTION TAXES (िवत्तीय लेनदेन कर)

he
21.15.1 🍋🍋🍋🍋 (Concept) Tobin Tax / Robinhood Tax
- 1970s: Nobel recipient American economist James Tobin proposed a small tax everytime
currency is converted into another currency (e.g. $ to ₹).
-
ill
Such tax will discourage short term speculative investment and flight of capital from one country
w
to another = stabilizing the global economy and currency exchange rates and share market.
- In India, foreign currency conversions subjected to GST (which is in indirect tax). However,
d
some other nations collect it as direct tax. (More in 📑📑Pillar#3A)
go
rs
he
ot
p

21.15.2 🍋🍋🗃🗃STT & CTT (प्रितभूित लेनदेन कर और वस्तु लेनदेन कर)

el

- Securities Transaction Tax (STT: प्रितभूित लेनदेन कर) is levied on the sale and purchase of shares,
ETF-units, derivatives and other securities at stock-exchanges.
H

- Its rate (0.001%-2%) varies as per the nature of the securities.

- Commodities Transaction Tax (CTT: वस्तु लेनदेन कर) is levied on non-agricultural commodities
traded at Commodities-Exchanges. Rate ~0.01%.

(Batch:PCB10-Prelim) Mrunal’s Economy Pillar#2A1: Budget → Revenue Part → Direct Tax-Receipts → Page 336

KING R & QUEEN P Help others god will help you

 u
yo
lp
he
Table 3: Not here for C.A. Exam, #थोड़ा-पढ़ो-आगे-बढ़ो
Direct Tax By Description
Capital Gains Union Applicable when any capital asset e.g. home/share/bond/bitcoin is “sold
Tax
Securities
Govt
Union
at profit” by its previous owner.
ill
⇒ Applicable on the selling price of share, bond and other securities.
w
Transaction Govt ⇒ Irrespective of whether seller is making profit or loss.
Tax
d
Dividend Union ⇒ Applicable on the dividend paid by by company to a shareholder.
Distribution Govt ⇒ �Budget-2020 abolished this tax. (ये टेक्स तो रद्द/बं ध हो गया है)
go

Tax
State ⇒ Applies on value of share/bond/securities, immovable properties
Govt (e.g. building) and certain types of legal agreements e.g. rent
rs

agreement etc.
⇒ Irrespective of whether seller is making profit or loss.
he

⇒ 2020: Union govt amended the Indian Stamp Act, 1899 so that the
Stamp Duty
Stamp duty rates on share/bonds/securities become uniform across
(स्टाम्प शुल्क)
ot

the states. (प्रितभूितयों पर स्टेम्प शुल्क के दरों को सभी राज्योमे एकसमान िकया).
Union collects → distributes it to State Govt of domicile of the
buyer. (प्रितभूित खरीदार िजस राज्य का है, उधर की राज्यसरकार को िमलेगा)
p

⇒ Corona crisis → Union Govt postponed implementation date.

el

⇒ ��Further operational mechanism/rules= poor cost:benefit.

Upcoming Handouts in Pillar#2
H

2A1) ✅ Direct Taxes

2A2) Indirect Taxes & GST
2B) Black Money, 15th Finance Commission
2C) Subsidies, Salaries, Revenue Expenditure, Revenue Deficit
2D) Disinvestment, Deficit, FRBM Act, Fiscal Council, Budgeting-Railway budget, plan-non plan
budget, & scheme types etc.

(Batch:PCB10-Prelim) Mrunal’s Economy Pillar#2A1: Budget → Revenue Part → Direct Tax-Receipts → Page 337

KING R & QUEEN P Help others god will help you

 PILLAR #2A2: BUDGET: TAXATION: Indirect Taxes & GST
Table of Contents
22 BUDGET→ REVENUE PART→ RECEIPTS→ TAX → Indirect Taxes...............339
22.1 Indirect Taxes: types ( प्र⌫⇠ ⇡⇢ ⌧⇡ प्र⇡ ⇢)..........................................................................................339
22.2 Indirect Taxes: merits and demerits (# $ %&'(⇡) ' )........................................................................340
22.3 (Concept) Pigouvian Tax (234 2%5' ⇡⇢)...................................................................................340

u
22.3.1 Customs Duty in Budget-2023...........................................................................................................................341

yo
22.3.2 Cess and Surcharges on Excise & Customs.............................................................................................341
22.3.3 Indirect Tax Petrol & Diesel price high because...........................................................................342
22.3.4 Indirect Tax → additional di1erential excise duty on Unblended Petrol ............................................342
22.3.5 Windfall Tax on export of petrol/diesel/ATF fuel (2022)..........................................................................342

lp
22.3.6 : GST on Petrol Diesel Electricity: NITI Aayog 6 year roadmap......................................................343
22.3.7 Petrol-Diesel: Dynamic Fuel Pricing System & oil bond repayment.............................................................344

he
22.4 Cascading E7ect of Indirect Taxes...................................................................................345
22.5 : Indirect Taxes: A Timeline of Reforms..............................................................................346
22.6 Indirect Taxes GST: Timeline ()A5⇢B )................................................................................347
22.7 :
ill
GST: 101st Constitutional Amendment Act, 2016...........................................................348
w
22.8 : GST Council: CompositionF GHI)JH 3K⇢LM.........................................................................348
22.8.1 GST Council: Functions; <ey=ll decide following-..............................................................................349
22.8.2 GST Council Decision not binding on States...............................................................................................350
d

22.9 GST Input Tax Credit (ITC: N'3(J ⇡⇢ प्र⌫5)..................................................................................350

go

22.9.1 Inverted Duty Structure Problem in GST on Textile........................................................................352

22.9.2 GST: Exempt vs ZERO RATED.........................................................................................................................352
22.9.3 Vaccine GST can=t be 0% ZERO RATED or DEXEMPTEDF because............................................................353

22.10 CentreOs Indirect Taxes subsumed in CGST....................................................................354

rs

22.11 ( ) StatesO Indirect Taxes subsumed in SGST..................................................................356

22.11.1 GST Revenue Collection Figures: GHIJKH LMGN OMPQ RS TURVS..................................................................................357
he

22.12 GST Rates on Services =0%: )% S⌧3⇢ GHI)JH ⇡T M⇢.......................................................................358

22.13 GST on Actionable Claims..........................................................................................................359
ot

22.13.1 → GST on Actionable Claims Lottery / Online Gaming.............................................................................360

22.13.2 GST → Lottery / Online Gaming → GST on full bet value (gross value); .................................................361
22.13.3 GST → Lottery / Online Gaming → on Wentry bets= but not on Wwinnings= ...............................................361
p

22.14 GST Rates on Goods : 0%: ) A ' 3⇢ GHI)JH ⇡T 0% M⇢U...................................................................361

el

22.14.1 GST Rates on Goods : 0% removed.......................................................................................................362

22.14.2 GST on goods- various slabs..................................................................................................................362
22.14.3 GST on Extra Neutral Alcohol (ENA);...........................................................................................................363
H

22.14.4 GST on Millets; (2023)......................................................................................................................................364

22.15 GST Composition Scheme (GHI)JH )⌧⇢W' 5 G' )....................................................................364

22.15.1 : ( ) 1% GST deposit in cash for controlling fake ITC claims.................................................364

22.16 Reverse Charge Mechanism (2%3⇢HY प्र$ ⇢ ⇡T Z%[ ).....................................................................364

22.17 E-way Bill System (_-% 2`# प्रa #H) from 2018 onwards.................................................................365

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2A2: Budget → Revenue Part → Indirect Taxes & GST → Page 338

KING R & QUEEN P Help others god will help you

 22.17.1 E-Invoice from 2022 onwards..........................................................................................................................365

22.18 → " " (" ) Compensation to States: WHYF ...............................................................................365

22.18.1 → ( ) Compensation to States: HOW;..............................................................................................366

22.19 →: " " " ( ) GST Compensation & Back2Back Loans........................................................367

22.19.1 [ → ( Back to Back loans: Bene[ciary States.......................................................................368
22.19.2 : GST Compensation Cess Extended till 2026..................................................................................368

22.20 GST Related Organizations ()⌧[ I).........................................................................................368

u
22.20.1 Group of Ministers (GoM: \U]^_`URM J\ab)...................................................................................................368

yo
22.20.2 National Anti-Pro[teering Authority (NAA/NAPA).........................................................................368
22.20.3 Authority for Advance Ruling (AAR-c]d\ efJg`URS hgI OMijRLk).....................................................................368
22.20.4 GST tribunal (GSTAT) (2023).............................................................................................................369
22.20.5 GST Fitment Committee (GHIJKH leK\mK J]\no).....................................................................................................369

lp
22.20.6 GSTN Network (Not for Pro[t Company- \pqMrM Llbo RUsqH ).........................................................................370
22.20.7 Project Saksham: Digital integration (2016)............................................................................................370
22.20.8 HSN and SAC Codes....................................................................................................................................370

he
22.21 PAN vs GSTIN vs Aadhar......................................................................................................371
22.21.1 PAN/GSTIN vs UID (=Aadhar Card)...................................................................................................372

22.22 GST: Benekts (# $)..................................................................................................................373

22.22.1 :
ill
GST Bene[t: Zero Rated Exports (vaw LSKSx nq_Myo )...............................................................................373
w
22.23 " GST: Ease of Doing Biz (EoD): decriminalisation.....................................................................374
22.23.1 GST-EoD: criminal prosecution threshold...............................................................................................374
22.23.2 GST-EoD: obstructing ozcers.....................................................................................................................374
d
22.24 GST: Challenges for Mains (W('m2Y5 )⌧ ........................................................................................374
go

22 BUDGET→ REVENUE PART→ RECEIPTS→ TAX → INDIRECT TAXES

{GK→ LMGN |M}→ OMPQ_MU→ RL→ cO~ RL
rs

- Tax incidence (RLMsMo)= @Person from whom govt collects the tax. (e.g. shopkeeper)
- Tax impact (RLMÅMo/RL RM O|MÇ) = @Person who [nally bears the tax & can=t pass its burden on
he

further. (e.g. Consumer)

- In the indirect taxes, tax incidence and tax impact does not fall on the same person. E.g. Customs
ot

Duty on import and export, Excise duty on manufacturing of goods, Service tax on services, Sales
Tax, Value Added Tax (VAT), and Goods and Services tax (GST).
- Indirect taxes fall under the Ambit of FinMin→ Department of Revenue (LMGN nÇ|M})→ Central
p

Board of Excise and Customs (CBEC): (RmÑH_ ÖÜMá IÇU JH\M vpà {`xy) → Budget-2018 renamed it as
el

Central Board of Indirect Taxes and Customs (CBIC): (RmÑH_ cO~ RL âL JH\M vpà {`xy)
22.1 INDIRECT TAXES: TYPES (cO~ RL`URS ORML)
H

Ad- Valorem tax (+,-./0 12) Specikc Tax per unit (34567 12 839 +/3:;)
Taxes based on the value of something. E.g. Tax based on quantity of items. E.g. ä 260 Excise duty
35% Customs Duty on import of orange on production of every 1000 cigarettes of 65-70mm
juice. So, if juice priced at ä1000 imported, length. Here we=re taxing them irrespective of their
then ä350 as tax. manufacturing price or selling price.

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2A2: Budget → Revenue Part → Indirect Taxes & GST → Page 339

KING R & QUEEN P Help others god will help you

 Ad- Valorem tax (+,-./0 12) Specikc Tax per unit (34567 12 839 +/3:;)
Easier to administer. Dizcult to administer, leads to inspector-raj &
[åJSlç_Méèo RLqM êMáM TJMq bf] litigation. But, if slight increase in this tax, then greater
burden passed on to the consumer so it helps reducing
harmful consumption. (How exactly; Ans.
microeconomics graph is not imp)

u
22.2 INDIRECT TAXES: MERITS AND DEMERITS (gM| ÇíqpRJMq )

yo
Merits gM| Demerits qpRJMq
➔ Convenient ()(4A) to collect because the ➔ Regressive (Ono}M\H) in nature, both poor and
traders act as honorary (=unpaid) tax rich taxed equally for the same item then

lp
collectors. Wider base because everyone poor people end up paying more portion of
covered e.g. 18% GST on Biscuit. their income in indirect taxes.

he
➔ Elastic (gìHgM): small brings large revenue, ➔ <is tax is hidden in the price. Customers do
because everyone is a1ected. Although they=re not always feel the pinch of paying indirect
DrelativelyF less elastic than Direct taxes. tax so it promotes less civic consciousness
(Poor cost bene[t interpreting its
ill
than direct taxes.[qM}òLR ìSoqM qbHUG}MoM]
w
Microeconomics graph) ➔ Indirect taxes → product becomes
➔ Can ⇥harmful consumption by imposing expensive → demand ⇥ so uncertainty
d
higher taxes on cigar, alcohol, soî drinks & involved in how much ä ä will Govt actually
go

fast food. (bMnqRMLR sáMïñ RM Ös|`} R\ RLÇM JRoS earn;[ÇMôÇ \mlRoqH T\áqH b`}H nqöõooM qbHU]
bó) ➔ High level of corruption, evasion, cascading
e7ect if input credit is not given e.g. erstwhile
rs

sales tax system.[úùMìML, RL ì`LH RS cÇJL]

22.3 (CONCEPT) PIGOUVIAN TAX (234 2%5' ⇡⇢)

he

- An externality ({MûoM) is a positive or negative consequence of an economic activity experienced

by unrelated third parties. E.g. Cement company (related parties: labourers & consumers
ot

bene[t); whereas unrelated third parties (local community, †ora and fauna) are harmed by
cement company=s air-pollution. [°fLJU{Uijo oHJLSs sL JRMLM¢R _M qRMLM¢R cJL]
- English economist Arthur C. Pigou proposed taxing the companies that create such negative
p

externalities: e.g. polluting industries, cigarettes (passive smoking), alcohol (social disharmony).
el

- We HAVE high level of indirect taxes on petroleum, tobacco and alcoholic products.
- We HAD DClean environment cessF on Rs 400 per tonne of coal (but abolished in GST)
H

- Sin taxF Similar concept- imposing tax on immoral things like alcohol, tobacco. Di1erence
between Sin Tax vs Pigouvian tax = that pedantism/hairsplittery NOT IMP

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2A2: Budget → Revenue Part → Indirect Taxes & GST → Page 340

KING R & QUEEN P Help others god will help you

 22.3.1 Customs Duty in Budget-2023

u
yo
lp
he
Budget-2023- some notable announcements:
- reduced customs duty on import of various components / parts required to mfg Electric vehicle
batteries, mobile phones, TV, lab grown diamonds, etc.

ill
- increased customs duty on imported kitchen chimney, imported gold & platinum jewellery, etc.
w
22.3.2 !"Cess and Surcharges on Excise & Customs
Cess / Surcharge Description
d
Social Welfare  Budget-2018 introduced 10% SWS on Customs Duty on imported
Surcharge (SWS)
go

goods.
On Customs
 Budget-2021- SWS will no longer be applicable on the gold and
(J\MG R£Mk cij|ML)
silver. (Because additional burden of Agriculture Infrastructure and
Development Cess (AIDC) on gold-silver. So, if SWF also levied = too
rs

much tax burden on people= Which may encourage more smuggling

and black money, so govt exempted these goods from SWS)
he

Health Cess  Budget-2020 Introduced 5% Health Cess on the (customs duty

On Customs +Surcharge) on imported medical devices (T_Mnoo ¶ìlRßM ÖsRLk).
ot

(NM§ ÖsRL)  <is Cess ää will be used for building (Ayushman Bharat scheme ke)
hospitals (to treat PM-JAY ä5lakh health insurance-walle poor
patients) in Aspirational Districts (TRMUvH-öGgS=backward districts
p

identi[ed by NITI Aayog.)

el

Agriculture  Budget-2021 introduced this (R™n´ cÇJULìqM âL nÇRMJ ÖsRL)

Infrastructure and  <is cess will be applicable on the Excise duty on petrol
H

Development Cess (cess@ä2.5/litre) and diesel (cess@ä4/litre)

On Customs  <is cess will be applicable on Customs Duty on Gold silver, alcoholic
And beverages, certain types of edible oils, certain fruits, certain Pulses,
Excise Cotton, Urea/fertilizer. (Cess varies from 1.5-100% depending on item)

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2A2: Budget → Revenue Part → Indirect Taxes & GST → Page 341

KING R & QUEEN P Help others god will help you

 22.3.3 Indirect Tax → Petrol & Diesel price high because
PETROL (Approx taxes in middle of 2021) DIESEL
A) Union Basic excise ä1.40 + Special additional excise ä11 + Basic excise ä1.80 + Special
Tax ä18 Road Infrastructure cess +ä2.50 Agriculture additional excise ä18 + ä18
infrastructure and development cess (AIDC) Road Infra cess +ä4 AIDC
B) State State VAT ä20 per litre. State VAT ä15 per litre.

u
Tax

yo
Total in India 135% taxes on base price 116% taxes on base price
=A+B
elsewhere Taxes on fuel: EU (45-60%), Canada 15-30%, USA (15%)
 If above fuels are replaced with highest GST slab (28%) → hardly ä5-6 per litre each for Union

lp
and State = Loss of over 4 lakh cr on petrol and diesel taxes in GST system compared to present

he
(Excise VAT) regime.
 So, cheap petrol-diesel is not possible, unless Union and State govts are willing to take deep cuts
in their revenue. Corona= direct tax collection . So govt not eager to reduce tax% on fuel.

22.3.4
ill
Indirect Tax → additional di7erential excise duty on Unblended Petrol
w
Govt wants 20% ethanol blending with petrol by 2025 to GHG emission. Budget-2022
announced one MORE TAX to force the oil re[neries to accomplish this target in a timely fashion:
Fuel Ethanol Blended Unblended petrol
d

Petrol
go

Basic excise + Special additional excise + Road Yes these tax and cess applicable on both type
Infrastructure cess + Agriculture infrastructure of fuel.
and development cess (AIDC) →
rs

Additional Di1erential Excise Duty → Rs.ä0/ litre Rs. 2/litre

Announced in Budget-2022
he

åïSq≠g ]\ÆØo sSK∞`g sL cnoòL± nÇ|SáR ÖÜMá vpà qbHUg}M_M GMI}M G{lR åïSq≠g-c-]\ÆØo-sSK∞`g sL ä2 Ono gHKL RS áL
sL _b Kf≤ g}S}M≥
ot

22.3.5 Windfall Tax on export of petrol/diesel/ATF fuel (2022)

p
el
H

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2A2: Budget → Revenue Part → Indirect Taxes & GST → Page 342

KING R & QUEEN P Help others god will help you

  Windfall Tax is a nickname given to a tax when it is levied on an unforeseen / unexpectedly large
pro[t (cO~MÆvo \pqMrS R¥ µ∂no \m_lá R`∑ Kf≤ g}M_M GMI o` ÖJSnÇxU r`g Kf≤ R¥ JU∏M áH GMoH.)
 2022: Fuel prices increased sharply in global market. So when Indian re[neries export
petrol/diesel → <ey will make a lot more pro[t compared to previous years. (nÇπ {M∫ML \mªjq RS
{ºH Ω¥\o`URS ìgoS|MLo RS ªjq nq_MyoRoMyæ UR` cO~MÆvo \pqMrM b` LbM ïM)
 And also if Indian re[ners export more quantity to foreign nations, then it will reduce supply of
fuel for local Indians = more in†ation in fuel.

u
 2022-Jul: government imposed Special Additional Excise Duty (SAED) on export of Petrol

yo
(ä6/litre) and Diesel (ä12/ litre) and Aviation Turbine Fuel (ä6/litre).
 Newspapers nicknamed this as Dwindfall taxF.
 2022-Aug onwards: fuel prices started to fall in the global market. So now Indian government
gradually changing/ deleting / reducing this tax. <en ball by ball cricket commentary notIMP

lp
(c|H jHLS jHLS åJ\mRKøoH R¥ GM LbH bf.)

he
FAQ: can windfall tax be imposed only on indirect taxes / petrol dieselF
Ans. If government is imposing any direct or indirect tax because of some unforeseen pro[ts to a
party, then journalist may label as Windfall Tax.

ill
FAQ: then canOt we say bitcoin prokt pe Capital Gains Tax is also windfall taxF
w
Ans. Journalists/Newspaper/Govt/Chief Economic Advisor/NITI etc have not used this word yet. So
I would not use it.
d
go

22.3.6 : GST on Petrol Diesel Electricity: NITI Aayog 6 year roadmap

2021-Aug: NITI Aayog proposed following formula:
 28% GST on petrol and Diesel. + Compensation Cess for States (this compensation will be
given to states for a period of six years)
rs

 18% GST on Electricity.

However this is a proposal stage. Separately a case is going on at Kerala High Court. We=ll update
he

when/if something big happens. (c|H _b J{ OôMnÇo bf.cJg \mgM}ab`qM {MR¥ bf. G{ Rp¡ {VM b`}M, o` áS¬m})S
ot

Related topic: OPEC Cartel, crude prices; Ans. ( Ref: HDT-Pillar#3A: BoP)
p
el
H

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2A2: Budget → Revenue Part → Indirect Taxes & GST → Page 343

KING R & QUEEN P Help others god will help you

 22.3.7 Petrol-Diesel: Dynamic Fuel Pricing System & oil bond repayment

u
yo
lp
he
ill
w
 1970s to 2002: Administered Price Mechanism (APM: OvMiJo/nq_U]^o \a£ oU^): Wherein the
government [xed the prices of petroleum fuels and paid subsidy to the oil marketing companies
d
(OMC: oSg nÇskq RUsnq_MU) for their losses by issuing Oil Bonds to them.
go

 2002-2014: Govt gradually began decontrolling fuel prices, its own subsidy burden.
 Present system= Dynamic Fuel Pricing System (ªjq R¥ }novHg √s JS{ágqSÇMgH \a£ OkMgH): wherein
OMCs decide the prices of petrol and diesel on DAILY basis, based on the movement in
international prices. Associated keyword/formula/methodology is uTrade parity price (TPP)v.
rs

What is means, how it works; = Poor cost bene[t chasing that.

he

 Benekt of dynamic pricingF In theory, If the oil prices lowered in the international market,
petrol diesel should become cheaper in India. nÇπ {MGML \máM\ ]}LqSsL åUGq RS áM\ |MLo \m|H R\ b`qS
ìMlbI. But, Union and State govt keep taxes on it so it remains expensive for common
ot

people.
p

- 2021-Aug: FM Sitharaman says we cannot reduce excise duty on petrol and diesel, because we
have to repay principal + interest on the oil bonds issued by the previous UPA-II government to
el

subsidise fuel prices in 2012-13.(\`áH JLRML qSRbM sSK∞`g xH∫g sSÖÜMá vpà qbHURMK JRoSƒ`UlR RMUdSJ JLRML
qSG` sSK∞`g xH∫g sL J≈∆xH áSqSRS hgI «_g \MR»lKU} RUsnq_`UR` æ∑g-{≠… GMLH lRI ïSÖJRM {RM_M sfJM ìpRMqM bf)
H

- 2021-Nov: First time in last 3 years, Modi govt cuts Petrol excise duty down by Rs 5/litre,
diesel by Rs 10/litre. Possible Reasons; 1) UP State Election 2) farmers require diesel for
irrigation pumpsets in Rabi/winter season. (Ö L OáSv ìpqMÇ JSsbgSRmÑ JLRML qSsSK∞`g xH∫g RS ÖÜMá vpà \m
R¥ RKøoH)

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2A2: Budget → Revenue Part → Indirect Taxes & GST → Page 344

KING R & QUEEN P Help others god will help you

 FAQ: if past Congress govts issued 10-20 year bond then theyOd be repaid by now. And or if
tenure is 20 years then lot of time available before repayment deadline comes. So why isnOt BJP govt
reducing taxesF And/OR IOve X counter arguments. Ans. NotIMP4Exam. My job was to give explain
the terms for exam. I=m done with it. ï`VM-sº`-T}S-{º`.

22.4 !" !"CASCADING EFFECT OF INDIRECT TAXES

u
 If a government levies 10% indirect tax every time an item is sold, but doesn=t provide input tax
credit (ITC) to the businessman, for the taxes he paid in previous stage, then [nal-customer will

yo
have to to pay tax on tax.
 <is Wcascading e1ect= of indirect taxes raises the price of [nal product. (cO~ RL`URM J`sMqH O|MÇ)

lp
he
ill
w
d
go
rs
he
ot
p
el
H

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2A2: Budget → Revenue Part → Indirect Taxes & GST → Page 345

KING R & QUEEN P Help others god will help you

 u
yo
lp
22.5 : INDIRECT TAXES: A TIMELINE OF REFORMS

he
ill
w
d
go
rs
he
ot
p
el
H

BossF System Provided ITC on Provided ITC on

UnionOs Taxes StatesO Taxes
Union MODVAT (1986-2004) Yes on excise paid by No
bizman
Union CENVAT (2004-2017) Yes on excise & services No

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2A2: Budget → Revenue Part → Indirect Taxes & GST → Page 346

KING R & QUEEN P Help others god will help you

 BossF System Provided ITC on Provided ITC on
UnionOs Taxes StatesO Taxes
tax paid by bizman
State VAT (2005-2017) No Yes on VAT paid by
Bizman
Union & State GST (2017) Yes Yes
combined

u
(GST Council)

yo
MCQ-UPSC-Pre-2014. xe sales tax you pay while purchasing a toothpaste is a:
(a) tax imposed by the Central Government
(b) tax imposed by the Central Government but collected by the State Government

lp
(c) tax imposed by the State Government but collected by the Central Government
(d) tax imposed and collected by the State Government

he
MCQ-UPSC-CDS-2013-I. Which of the following are direct tax in IndiaF
1. Corporation tax 2. Tax on income 3. Wealth tax 4. Customs duty 5. Excise duty
Ans. Codes: (a) 1, 2 and 3 (b) 1, 2, 4 and 5 (c) 2 and 3 (d) 1, 3, 4 and 5

22.6 INDIRECT TAXES → GST: TIMELINE ()A5⇢B ) ill

w
2004 Vijay Kelkar Task Force on Fiscal Responsibility and Budget Management (FRBM)
recommends GST. [nÇG_ RSgRL J]\no qSGST gM}aRLqSR¥ iJrMòLv R¥]
d
2006 In Budget speech, P.Chidambaram announces the launch of GST from 2010
go

2011 UPA government introduces 115th Amendment Bill 2011 to implement GST lapsed with
the dissolution of 15th Lok Sabha. (g`RJ|M nÇÅKq ìgoS_SnÇjS_R sMJ qbHUb` sM_M)
2014-16 Modi govt. introduces 122nd Constitutional Amendment Bill 2014 in 16th Lok Sabha.
Since GST aimed to change federal [nancial relations, so under Art.368, this
rs

constitutional bill required:

- @Union Parliament Lok Sabha and Rajya Sabha each:_50% majority of the total
he

membership, and 2/3rd majority of all members present and voting.

- @State Vidhan Sabha: approval by majority of state assemblies (i.e. 15 Vidhan-
ot

sabhas of India at that time)

Ultimately, it passed & became
p

- 101st Constitutional Amendment Act, 2016 (JUÇfjMnqR JUv`jq cijnq_\/ ΩMqaq)

el

SIDE NOTE: other imp amendments Acts

- 102nd , 2018: Constitutional status to National Commission for Backward Classes
H

(NCTC R` JUÇfjMnqR áGMylá_M GMI)

- 103rd , 2019: 10% EWS reservation (TÃïR √s JSns¡VSÇ}yRS hgI TLk)
- 104th , 2020: Anglo Indian reservation removed in LS & Vidhan shaba but SC/ST
continued till January 25, 2030. (IUÕ` |MLoH_ J\páM_ RM TLk bKM_M)
- 105th, 2021: To restore states' power to make their own OBC lists- Aîer SC

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2A2: Budget → Revenue Part → Indirect Taxes & GST → Page 347

KING R & QUEEN P Help others god will help you

 judgement (LMœ JLRML csqH OBC JaìH {qM JRS)
22.7 : GST: 101ST CONSTITUTIONAL AMENDMENT ACT, 2016
101 ÇMU JUÇfjMnqR JUv`jq cijnq_\, 2016 amended following articles in our Constitution.
246-A - States given power to tax goods and services. (previously, they couldn=t tax services.)
- But only UNION will have the power to tax inter-state supply of goods and services
in the form of DIGSTF (IR LMœ JSá–JLS LMœ \mÇôpâL JSÇM R¥ Tsa—o sL RSÇg RmÑ JLRML Kf≤ \M“}

u
JRoM bföGJSIGST RbM GMI}M)

yo
268-A Previously, this article empowered Union to levy Service Tax. But, since tax on services
has been brought under GST, this article was deleted. (JSÇM RL R` bKM_M }_M)
269-A IGST (on inter-state trade) will be distributed between Union and states, as per the

lp
formula by the GST Council (GHIJKH sòL´á)
270 CGST (=new indirect tax of Union, which replaced Excise Duty & Service Tax)..this

he
CGST will be distributed between union and states as per the formula by the Finance
Commission (nÇ T_`} iJrMòLv`URS cqpJML CGST R` RmÑ âL LMœ`U\m{M“KM GMI}M)
279-A President of India to appoint a constitutional body, DGST Council headed by Finance
Minister. F (GHIJKH sòL´á lR nq_p”± LMù∞sno RLm}S, âL nÇoí\U^H åJ sòL´á RM c‘ b`}M)
366
ill
Alcoholic liquor for human consumption (\láLM) is kept out of GST. (i.e. State govt
w
continue to levy State Excise on its production and State VAT on its sale.)
From 1st July, 2017: Goods and Services Tax (GST: ÇôpIÇU JSÇM RL) became e1ective. Here, supplier
d
gets input tax credit for indirect taxes of Union & States (CGST,SGST) that he paid in the previous
stage. [GST OkMgH \mns¡gSìLk \mìpRMI }I sL` RL`URS ’sL \Mr¥/Kf≤ çSlxK ]\goM bf]
go

22.8 : GST COUNCIL: COMPOSITIONF GHI)JH 3K⇢LM

Union representatives (2 Ononqij) StatesO representatives (31)
rs

1. Finance Minister as the - Each state government (including UT with legislature:

Chairman J&K, Delhi & Puducherry) can nominate 1minister to GST
he

2. Union Minister of State for council- it may be their minister of [nance or Dy.CM or
[nance or revenue. (nÇ _M any other minister as per their wish.
LMGN RS RmÑH_ LMœ \U^H) - One of them will be selected as the Vice-Chairman of GST
ot

council.
Voting power: 1/3 (IR nobM∑)
rd
Voting power: 2/3rd
✓ If all members don=t no unanimously agree over a proposal (_lá lRJH OôMÇ sL JÇyJ÷no qbHU, o` Ç`lKU}
p

b`}M) → it=ll be put for voting → then minimum 3/4th votes required to pass the proposal.
el

✓ Council Meetings to proceed only with quorum of 50% of total membership.(cnqÇM_ywaqo\ bMö∫LH)
H

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2A2: Budget → Revenue Part → Indirect Taxes & GST → Page 348

KING R & QUEEN P Help others god will help you

 22.8.1 GST Council: FunctionsF xeyOll decide following-

u
yo
lp
he
1. List of indirect taxes, cess, surcharge of the union and states to be subsumed under GST-regime.
(spLMqSRL` R` GHIJKH-◊Ç∂M \mJé÷hgo/ nÇgHq RLqM)

ill
2. Decide the date from which Crude oil, Petrol, Diesel, Aviation Turbine Fuel and Natural Gas will
be put under GST regime. (Until then excise-VAT on these [ve hydrocarbon fuel products, will
w
be unilaterally decided by Union and individual States). [Røq JH oMLHÿ JSåq sM“ì ìH∫`UsL GST g}MqM bf]
3. Decide Standard rates (JM\Mw áL) for GST (i.e. CGST, SGST and UTGST). IGST = {CGST +
d
(SGST or UTGST depending on destination)}
go

4. Decide Special rates (2%}~ M⇢) for GST, during natural disaster / calamity if required.
a. E.g. 2019-Jan, GST-Council also allowed Kerala to levy a 1% calamity cess (Ä3M Å3⇡⇢)
on intra-state trade for next two years, for the rehabilitation of 2018=s †ood-victims.
rs

5. Integrated GST (IGST) system during interstate commerce, and its tax-sharing.[]
6. Norms related to GST registration of businessmen. If a goods selling Bizman has turnover above
he

uxv lakhs, he must register @GSTN online portal, he must collect GST from consumers and
deposit it there. Originally the uxv was ä20 lakhs for ordinary states; ä10 lakhs for Sp.cat states &
ot

Telengana. However, in 2019-Jan the GST council doubled this limit to ä40l & ä20l respectively.
Within this, some technical relaxation given to merchants selling products on E-commerce
website. (Turnover limits for service seller bizmen in Manipur, Mizoram etc separate but
p

hairsplittery not REQ, not here for C.A. Exam).[◊MsMLH/Ö‹`}sno/Tsa—oRoMyRS sUGHRLk RS hgI nq_\
el

{qMI}M]
7. Protecting the interests of the special category states (B ) ÇaH ⇡ ⇢ É) i.e. 8 North Eastern states
H

and Himalayan states (Himachal and Uttarakhand.) e.g. 2021-Sikkim proposed to levy Covid
Cess on pharmaceutical companies and electricity companies to collect money for Corona wave
2.0. But, GST Council=s group of ministers (GoM) committee rejected Covid Cess proposal.

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2A2: Budget → Revenue Part → Indirect Taxes & GST → Page 349

KING R & QUEEN P Help others god will help you

 However GoM committee recommended Union Govt to give ä250 crore grant/compensation to
Sikkim for [ghting Covid Wave 2.0. (R`L`qM R¥ á–JLH gbL JSgVqSRS hgI iJn›\ R` \pTÇ∫M/cqpáMq)
8. Compensation to the states for their revenue loss in switching from VAT to GST regime
(through Cess mechanism: LMœ` R` ÖsRL fiMLM \pTÇGM)
9. Dispute settlement between Union vs state(s), state(s) vs state(s). (nÇÇMá nqsKMq)
So, Constitutional Amendment→ set up GST council → GST councilOs meeting→ laws passed by

u
Parliament and Vidhan Sabhas, to implement the GST related mechanisms.

yo
1. Parliament has passed:
✓ Central Goods & Services Tax Act (CGST: RmÑH_ ÇôpIÇU JSÇM RL cijnq_\)
✓ Integrated Goods & Services Tax Act (IGST: IR¥R™o \Mg âL JSÇM RL cijnq_\)

lp
✓ Union Territory Goods & Services Tax Act (UTGST: RmÑ vMiJo OáSv \Mg âL JSÇM RL
cijnq_\): Finance Act 2020 → amends UTGST Act to update list of UTs:

he
i. (new) Ladakh without legislature.
ii. (merged) 1) Dadra and Nagar Haveli + 2) Daman and Diu = treated as single UT
(because Govt merged them in 2019).

ill
✓ Goods and Services Tax (Compensation to States) Amendment Act. \Mg âL JSÇM RL (LMœ`U
w
R` \pTÇGM) JUv`jq cijnq_\
✓ Parliament originally passed them 2017, later amended in 2018 As per the
d
recommendations of the GST Council.
go

2. State Legislatures have passed State Goods and Services Tax Acts. (SGST)
3. #$%$Jammu & Kashmir passed SGST Act on 8th July, 2017→ then GST system became
e1ective there as well. JAMMU AND KASHMIR REORGANISATION ACT, 2019 has not
rs

abolished this SGST act. Present status is:

✓ SGST applicable on J&K (UT with Legislature:nÇjMfl_RM _p± RmÑvMiJo OáSv)
he

✓ UTGST on Ladakh (UT without Legi: nÇjMfl_RM-bHq RmÑvMiJo OáSv)

#$%$Stereotyping icons for faster revision. Take no o1ense.

ot

22.8.2 GST Council Decision not binding on States

p

 2022- Supreme Court observed that GST Council=s decisions are not binding on the states.
 <is may create challenges in the future, if (non-BJP) states do not comply with the GST council
el

decisions. (JpOH\ R`Ky qSsM_M lR GST sòL´á RS TáSv`UR` \MqqM- LMœ JLRML`URS hgI cnqÇM_y/{M‘ qbHUbf.)
H

22.9 GST INPUT TAX CREDIT (ITC: åqspK RL O~_)

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2A2: Budget → Revenue Part → Indirect Taxes & GST → Page 350

KING R & QUEEN P Help others god will help you

 Let=s understand with an example

u
yo
lp
he
ill
w
d
go

in same the State (or UT without legislature) = in another State (or UT w/o LSR)
rs

Intra-state supply (cUo:LMœ) = Inter-state supply (cUoLLMœH_)

→ → #$%$)
he

( ) (

1. Union levies →CGST 1. Union levies IGST =CGST + (SGST or

ot

2. State levies → SGST UTGST depending on destination).

3. UT without legislature levies → UTGST 2. From this IGST→ CGST goes to Union, and
the other portion goes to the #$%$
p

Destination State/UT without legislature.

el

 GST is a Wdestination based= indirect tax on consumption of goods & services.(GST Ös|`} sL g}qS
ÇMgM ‘∂Mq-TjMòLo’ cO~ RL bf)
H

 GST is applicable on supply of goods or services. (Çôpæ UâL JSÇMæUR¥ Tsa—o sL g}oM bf)

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2A2: Budget → Revenue Part → Indirect Taxes & GST → Page 351

KING R & QUEEN P Help others god will help you

 22.9.1 Inverted Duty Structure Problem in GST on Textile

u
yo
An inverted duty structure in GST arises when the taxes on output or [nal product is lower than the
taxes on inputs, creating an inverse accumulation of input tax credit- then government has to refund

lp
the GST to the business man. = administrative & accounting inconvenience for the govt.
Input Raw material Output Final Product Implication

he
Fiber (LSJM) 18% GST Apparel shirt/pants etc. Trader will accumulate
= 5% GST (Ç‚) 13% GST credit. Govt
will have to refund.

ill
AFTER Reform: GST council imposed Uniform 12% GST on manmade [bre (MMF), yarn, fabrics
and apparels, footwear. However, aîer the protests from textile industry, this decision was
w
postponed. (GHIJKH \mIR Ö„M vpà JULìqM: _lá R‰S\Mg GSJSRS RsVM ÿLHá sL Öj_`}sno qS18 sJÂK GHIJKH Kf≤ áSqM
sVSâL ÖJ\mJSof_ML lRI }I vKy-sogaq R¥ n{ç¥ sL 5% GST g}oM b` o`, o` cJg \mJLRML qSÖJ Öj_`}sno R` 13%
d
GST refund áSqM b`}M≥ åJ lbJM{-lRoM{ âL òLrUx R¥ \MïMs‰H JS{ìqSRS hgI RsVM-GpoSRS R‰S\Mg âL cUno\ ÖÜMá sL
go

IR J\Mq 12% GHIJKH g}M_M GMI}M ≥ bMgM“lR RsVM ◊MsMLH« RS nÇL`j RS ìgoSåJ nqky_ R` KMg lá_M }_M bf≥)

22.9.2 GST: Exempt vs ZERO RATED

rs
he
ot
p
el

GST ZERO RATED (0%) GST EXEMPT/NIL RATED NON-GST Supply

IF Govt levies 0% GST on <ese goods/services are NOT
H

IF Govt levies 0% GST, &

the Goods/Services & DOESNOT allow Bizman to subjected to GST. <ey are
ALLOWS bizman to claim claim ITC. E.g. Jaggery (}ÊSRM subjected to other taxes. E.g.
ITC. For example: }pV).  Petrol, Diesel etc 5
 18% GST on laptop  So if Bizman bought a hydrocarbon products=
bought by Infosys machine for crushing Excise & VAT.

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2A2: Budget → Revenue Part → Indirect Taxes & GST → Page 352

KING R & QUEEN P Help others god will help you

 GST ZERO RATED (0%) GST EXEMPT/NIL RATED NON-GST Supply
Company (Input) sugarcane → he=ll not get  Alcohol for human
 0% GST on EXPORT of ITC consumption = State
Soîware Services  So, then. to recover the Excise & VAT
(Output). cost+tax on input, Bizman
 Here, Indian soîware may charge more selling
company will price of jaggery on

u
accumulate / gain 18% customer.

yo
GST. ##
GST-ITC Given = YES GST-ITC Given = NO GST-ITC Given = NO
 In Soîware EXPORT case, Infosys Company gained ITC. So, A) Govt will REFUND and/or B)

lp
Infosys can use this ITC for adjusting/o1setting future sales within India.
 In both case A and B case, ultimately govt will not be able to earn GST from Infosys, however

he
government bene[ts from the increased exports→ jobs, GDP. Besides, more pro[t for Infosys in
export = more Corporation Tax for Govt.

22.9.3 Vaccine GST canOt be 0% ZERO RATED or uEXEMPTEDv because

Present situation &$Export of Vaccine ill
Domestic Sale of Vaccine
w
Vaccine → 0% GST (Zero Rated) 5% GST
 If Vaccines domestic sales pe 0% GST (ZERO RATED) = Businessman will accumulate large
d
amount of ITC. Govt will have to refund. = Less tax collection for Govt.
go

 If Vaccines= domestic sales pe GST EXEMPT/NIL RATED = Businessman will NOT get any ITC
on raw material /machines → he=ll price of vaccine on patient. (similar to Sugarcane
machine-Jaggery case).
rs

Çf≤Hq R` GST áM_LS JS{MbL qbHUlR_M }_M ƒ`UlR ÁJM RLqSsL eM\MyËalKRg RUsqH R` R‰S\Mg R¥ ÿLHáMLH sL cáM lR_M }_M
GST \Mr¥ |H qbHU]\gS}M o` dMbR sL Ω¥\o`URM {`È {ºoM bf.
he

MORAL Outrage: Isn=t there an inconsistency in logic/will there not be inverted duty structure
problem in Vaccine mfg similar to Textile; Ans. GST council decides rates based on variety of factors
like what are the tax rates on the inputs and how much GST-losses for the government versus the
ot

bene[t to the ordinary patients etc. If you get selected in IRS they will teach it to you there. (JLRML
csqM lá\M° g}MRL LSK nqjMyòLo RLoH bS, csqSR` ÈUxM gSRS TUá`gq RLqSR¥ ∫√Lo qlb bf≥)
p
el
H

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2A2: Budget → Revenue Part → Indirect Taxes & GST → Page 353

KING R & QUEEN P Help others god will help you

 22.10 CENTREOS INDIRECT TAXES SUBSUMED IN CGST

u
yo
lp
he
ill
w
d
Table 1: 1CD 1E F8GH 12 IJ 1CDK+ 4LMN4O PE4- 12 (PKIKNP;K) .C34QK: RJ SN
Indirect Tax of Union Whether replaced by CGSTF
go

For import-export: Basic - No, Customs Duty is NOT replaced with GST. It=s
Customs Duty, cess / surcharge on separate from GST-regime. So, imported goods are
it. subjected to Customs duty + IGST.
rs

JH\M vpà âL nÇÆ|Ê ÖsRL / cij|ML - Previously, imported goods were subject to Customs
Duty + education cess (ÆvM ÖsRL) but Budget 2018
he

Related Act: Customs Act 1962

replaced it with Customs Duty + 10% Social Welfare
Surcharge (J\MG R£Mk cij|ML).
ot

- Budget-2020: 5% Health CESS (NM§ ÖsRL) on

imported medical devices (¶ìlRßM ÖsRLk) for hospitals
p

construction in Aspirational (=backward) Districts.

el

On imports: Special Additional <ey=re not Wreplaced= with CGST. More about them in (More
Customs Duty (SAD), in Pillar#3B: World Trade Organization)
H

Countervailing Duty (CVD), Anti-

Dumping Duty (ADD)
Central Sales Tax CST was the Union tax levied on sale of items in inter-state
(CST-RmÑH_ n{ç¥ RL) trade, and it was assigned to the WOrigin state=. It=s replaced
with IGST (= CGST + SGST) IR LMœ JSá–JLS LMœ \m\Mg JM\Mq
{SìqSsL _SRL g}oM ïM bMgMUlR ÖÍ\ LMœ R` RmÑ JLRML _b LR\ áSoM ïM

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2A2: Budget → Revenue Part → Indirect Taxes & GST → Page 354

KING R & QUEEN P Help others god will help you

 Indirect Tax of Union Whether replaced by CGSTF
On providing services: Service - 1994: FM Manmohan Singh introduces 5% Service Tax
tax (JSÇM RL) and Krishi Kalyan Cess (JSÇM RL) on telephone bills, non-life insurance and stock-
and Swatchh bharat Cess brokers [vS_L {M∫ML RS ágMg].
- Over the years, more services were subjected to Service
Tax. <is service tax was NOT applicable on some
services e.g. Postal service, School fees etc.

u
- Ultimately, Service Tax+Cess = total 15%. Abolished

yo
aîer GST. [GST TqSsL _SJMLH ìH∫ ÿ¢ b` ìpR¥ bf]
On manufacturing/production - Yes, completely replaced by CGST (except 5
of goods: Excise duty and various hydrocarbon fuels: petrol, diesel etc.)

lp
Cess / surcharges on it.(ÖÜMá vpà âL - Excise on manufacturing medicinal & toiletry
nÇÆ|Ê ÖsRL / cij|ML) preparations containing alcohol (e.g. Cough syrups,

he
deodorants and perfumes) also replaced by CGST.
Related Act: Central Excise Act 1944
- Alcoholic Liquor for human consumption- falls in States=
purview so Union Excise / CGST not applicable on it.
Excise duty on Tobacco products -
ill
It=s replaced with 14% CGST. Further, Union also levies
w
[oU{MRa ÖÜMá`UsL ÖÜMá vpà] + GST Compensation Cess + National Calamity
Contingent DutyÎÎ (NCCD:-LMù∞H_ TsáM TRÏÌRoM ÓaKH) on
them.
d

- ÎÎ 101st Constitutional Amendment allows Union to tax

go

tobacco products separately.

- NCCD money goes to Public Account → National
Disaster Response Fund set up under Disaster
rs

Management Act, 2005.

he

- Budget-2023: increased NCCD (National Calamity

Contingent Duty) on cigarettes
- Once GST council decides the date they=ll be brought
ot

Excise duty on
production/rekning of Crude oil, under GST-regime. c|H GHIJKH qbHUg}oM. |nÇÒ \mGHIJKH
Petrol (Motor Spirit), Diesel, sòL´á o_ RLS}H ÖJRS {Má g}S}M.
p

Aviation Turbine Fuel and natural - Until then re[neries / oil-drilling companies have to pay
gas: R‰SoSg, sSK∞`g (\`KL ÔòLK), xHGg,
el

excise duty+cess/surcharges to Union for production /

nÇ\Mqq KL{Måq ªjq âL OMR™noR }SJ sL
manufacturing of these items. (and petrol pump owner,
H

ÖÜMá vpà
etc will have to pay VAT to states on their sale.)
- Presently, Petrol & Diesel are also subjected to UnionOs
Road and Infrastructure Cess (JVR âL {pnq_MáH ÚMUìM ÖsRL)
its ää goes into Public Account→ Central Road &

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2A2: Budget → Revenue Part → Indirect Taxes & GST → Page 355

KING R & QUEEN P Help others god will help you

 Indirect Tax of Union Whether replaced by CGSTF
Infrastructure Fund under Central Road Fund Act 2000.
#$Corporation Tax, Income  Arre Bhai, they=re #$DIRECT Taxes of Union, so
Tax, Capital Gains Tax etc [nq}\ RL, they are not replaced by GST. _SJ{ O~ RL bf.
T_RL âL saUGH}o gM| RL]  <e GST is meant to replace #$INDIRECT Taxes
only. GHIJKH RSÇg sL` RL`URS JMï GpxM bf

u
yo
22.11 ( ) STATESO INDIRECT TAXES SUBSUMED IN SGST

lp
he
ill
w
d
go
rs

Table 2: 2-TJO1E F8GH 12 IJ 2-T 4LMN4O PE4- 12 (NPIKNP;K) .C34QK: RJ SN

: Indirect Tax of State Govt. → whether replaced by SGSTF

he

On sale of goods: State Value Added Tax Yes, By default VAT is replaced by SGST, but read
(VAT) (In some states called uCommercial below:
ot

taxv ÇMÆkÛœR RL)

State VAT on selling of Crude oil, Once GST council decides the date, these=ll be
Petrol (Motor Spirit), Diesel, Aviation brought under GST-regime. Until then, petrol pump
p

Turbine Fuel and natural gas [ªjq n{ç¥ sL LMœ owners, LPG gas distributors etc. will have to collect
el

JLRML R¥ ÇSK RL] VAT (+ any cess / surcharges) from the customers
and deposit to the state government.
H

- State Excise on production of liquor No, they're completely kept out of GST. [unlike
for human consumption (\MqÇ Ös|`} RS above petro items where GST council will
hgI {qH vLM{ RS ÖÜMáq sL LMœ ÖÜMá vpà) implement it aîer DxF date]. Since inception of our
- State VAT on sale of liquor for Constitution, the power to tax liquor was with

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2A2: Budget → Revenue Part → Indirect Taxes & GST → Page 356

KING R & QUEEN P Help others god will help you

 human consumption. (\MqÇ Ös|`} RS hgI :States, & it constituted a major source of
{qH vLM{/ AáM⇢ R¥ n{ç¥ sL LMœ ÇfK) revenue for them, so States were unwilling to hand it
over in GST regime. Had Modi govt tried to bring
liquor in GST-regime, then majority of the Vidhan-
Sabhas may not have passed this Constitutional
Amendment Bill.

u
Electricity Duty n{GgH vpà No, it=s not replaced by SGST

yo
Road Tax on vehicles. No, it=s not replaced by SGST. Its status as
direct/indirect tax is vague because in some states/
vehicle categories: buyer himself deposits while in
some cases, seller required to collect & deposit.

lp
Purchase tax on vehicle, boats, and Yes replaced by SGST

he
animals-¬LHá RL
Advertisement tax on hoarding, banners Yes replaced by SGST
etc.- nÇ∏Msq RL
Luxury tax at Hotels, Spas, Resorts etc.-
cÙMvH nÇgMiJoM RL
ill
Yes replaced by SGST
w
Entry tax/Octroi for entry of goods in an Yes replaced by SGST
area -OÇSv RS hgI RL , «ı∞`∑
d
Taxes on Lottery, horse race betting, Yes replaced by SGST. Since they=re Wsinful/demerit
gambling etc. g≠KLH, Å`VSR¥ áøV JˆS{MGH, GpT goods=, they=re subjected to highest slab : 14% SGST
go

+ 14% CGST = 28%

Entertainment Tax on Cinema, Live Yes, replaced by SGST unless levied by a local body.
Performance shows etc.- \q`LUGq RL e.g. Kerala local bodies 10% on movie tickets.
rs

#$Income tax on Agriculture, Arre Bhai, they=re #$DIRECT Taxes of State so

Professional tax, Property tax, Stamp Duty, not replaced by GST. <e GST is meant to replace
he

Land revenue [R™n´ T_ RL, ◊MÇJMfl_R RL å~Mlá] #$INDIRECT Taxes only.

22.11.1 GST Revenue Collection Figures: GHI)JH ⇢ Gà प्र âä ⇡ Ä⌧⇡ã
ot

GST registered suppliers have to deposit the GST at the GSTN portal on monthly basis. In monthly
collection of GST, there are ups and downs based on seasonality.
p

Year/Month 2021-May 2022-May 2022-Dec

GST collection ä97,000 cr ä1,40,885 cr ä1,49,507 cr
el
H

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2A2: Budget → Revenue Part → Indirect Taxes & GST → Page 357

KING R & QUEEN P Help others god will help you

 u
yo
Table 3: 1U:PE12J .CPVPET-W- X.W:K RJSK PVPET-W- X.W:K RJSK

Budget-2023 GST> Corporation> IT > Excise> Customs

lp
Budget-2022 Same as above.
Budgets from 2019, Sometimes Corporation tax was #2, sometimes income tax was #2 but

he
2020, 2021 poor cost bene[t memorizing all that so I am deleting.
Budgets Before 2019 Corporation> GST> IT > Excise> Customs

22.12 GST RATES ON SERVICES =0%: JSÇMæUsL GHIJKH R¥ áL

ill
w
Which of following is ZERO Rated & which one is NIL Rated/EXEMPT; Ans. Poor cost:bene[t.
1. Services provided by union government, state government, local bodies, constitutional bodies,
department of post (except premium services like speed post), Railways (except premium
d

services like [rst class AC ticket)

go

2. Services by Reserve Bank of India and other [nancial regulators.

3. Services by Banks/NBFCs in connection with Government sponsored banking, insurance and
pension schemes. (Refer to [nancial inclusion handout)
rs

4. ESIC, EPFO services to the subscribers, Group insurance schemes for paramilitary forces
5. Religious, charitable activities, cooperative societies, Public libraries, Public toilets,
he

Crematorium, Burial grounds.

6. Rent on residential accommodation (lRLMI sL hg_M }_M òLbM_vH \RMq)
ot

7. Aviation Services in North-eastern States (Ö L saÇy\mÖ¯_q JSÇM)

8. Transport services to milk, (physical/paperbased) newspaper, defence equipment, disaster relief
p

material
9. Doctors, para-medics, Ambulance, Blood bank.
el

10. Agriculture warehouse, cold storage, renting of Agro machinery, Contractor who is supplying
H

farm labourers, APMC (Agricultural produce market committee)

11. Agriculture pre-processing of food e.g. ripening, waxing, retail packing, labelling of fruits and
vegetables which do not change essential characteristics of the said fruits or vegetables.
12. Veterinary doctor, Animal husbandry related services except racehorses

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2A2: Budget → Revenue Part → Indirect Taxes & GST → Page 358

KING R & QUEEN P Help others god will help you

 13. Educational services by Educational Institutes (like schools colleges universities Vocational
institutes. NOT COACHING Institutes)
14. Entrance Exam fee collected by Union or state government orgs.
15. Private training partners in government skill development schemes
16. Sports training and events by recognised sports body
17. Sports, Art, Culture etc. clubs with member-fees less than DXF rupees.

u
18. Circus, dance, drama or ballet, award function, concert, pageant, musical performance or any

yo
sporting event where admission fees is less than DXF rupees.
19. Admission to a museum, national park, wildlife sanctuary, tiger reserve, zoo, ASI-recognized
Heritage sites.

lp
20. 2020-Oct decision: satellite launch services supplied by ISRO, Antrix Corporation Ltd. and NSIL
would be exempted. (More about these organizations in (More in Pillar#5: communication

he
infrastructure)
21. Any service EXPORTED outside India (THEY ARE DZERO RATED ExportF)
In the Pre-GST era, most of above services were having 0% Service Tax. Çoy\Mq \mÖ± sL 0% GHIJKH

ill
g}oM, ÖJH ORML |aoRMg \mG{ ‘JSÇM-RL’ ïM o` Ç` |H åq\mJSœMáMoL JSÇMæUsL 0% ïM.
w
If a given service is not in the above list, then it will be subjected to GST: <see next table>
Example of services (Rp¡ ÖáMbLk JSÇMæURS öGq sL GST g}oM bf) iGST Rate
d
go

Plumbing, carpentering, Ads in print media, Ebooks 5%

- Accommodation in hotels, inns, guest houses with daily charges upto ä7500/- 12%
- Movie tickets, Engineering related services
rs

 Coaching Services, E-Books, e-newspaper, e-music, 18%

he

 WebSeries/OTT platforms-AmazonPrime, Hotstar etc.

 Ads in digital media, Legal and accounting services
 DTH/TV channels, Movie tickets above Rs.DxF, 5 star Hotel rooms
ot

Gambling, Horse Race club, Casino, online gaming. 28%

p

For more, you may refer to: https://cbec-gst.gov.in/gst-goods-services-rates.html

el

22.13 GST ON ACTIONABLE CLAIMS

H

 An actionable claim represents a legal right to demand/recover something (money, goods,

services) from another party- subject to terms and conditions.
 e.g. loan given by bank, credit card, Insurance policy, unpaid invoices, rent, etc.
 Actionable claims are subjected to GST. But SOME OF THEM may have separate calculation
methods.

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2A2: Budget → Revenue Part → Indirect Taxes & GST → Page 359

KING R & QUEEN P Help others god will help you

 Matter Amount GST
(A) Loan given / credit card spending ä10 lakh N/A
limit given
(B) Application processing fee of Bank ä500 18% GST
loan/credit card
(C) Late fees / penalty fee (if/when ä100 18% GST
applicable)

u
Total A+B= ä10,00,600 GST only on the application fees (ä500)

yo
and penalty ( ä100)
FAQ: How is GST counted on rent and unpaid invoices etc; Ans. We are not here for C.A.
exam. Be a race-horse. Only focus on the track. Don=t loiter like a street-bull.

lp
22.13.1 GST on Actionable Claims → Lottery / Online Gaming

he
Casino and online gaming apps owner had started court-litigation regarding the de[nition itself - to
avoid paying taxes. <eir argument is as follows:

ill
w
d
go
rs
he

#"Casino/Gaming OwnersO demand GST council decision

ot

Lottery/online gaming is not actionable claim. Because It is an actionable claim and we

there is no guarantee of winning. So don=t ask for GST. will demand GST.
ok then plz have 18% GST on game of skill (e.g. Chess) 28% GST on everything. We
p

and 28% GST on game of luck (e.g.Roulette, Dice) don=t care if it is a game of skill or
el

game of luck.
still if u want to charge GST on it → then GST should be We=ll charge 28% GST on entire
H

only on the fees. Plz don=t ask GST on the entire amount amount. See next section
(=full bet value).

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2A2: Budget → Revenue Part → Indirect Taxes & GST → Page 360

KING R & QUEEN P Help others god will help you

 22.13.2 GST → Lottery / Online Gaming → GST on full bet value (gross value)F
Components Amt #"CompaniesO demand GST council
Bet ä 80 Plz don=t ask GST on this rejected
Platform Fees ä 20 Plz ask only 18% Gst on this rejected
Total (Full Value of Plz don=t ask GST on this full
ä 100 28% GST on ä100
Bet) / gross revenue bet value˘

u
yo
22.13.3 GST → Lottery / Online Gaming → on éentry betsO but not on éwinningsO

lp
he
ill
w
d
go

22.14 GST RATES ON GOODS : 0%: ) A ' 3⇢ GHI)JH ⇡T 0% M⇢U

rs

Which of following is ZERO Rated & which one is NIL Rated/EXEMPT/0%; Ans. Poor cost:bene[t.
1. Fresh milk, Pasteurized Milk
he

2. Live animals (except race horses), poultry, pigs, shrimps, [shes, insects etc
3. FRESH, DUNBRANDEDF and not WPrepacked= animal products eggs, meat, honey, rawsilk etc.
ot

4. FRESH, DUNBRANDEDF and not WPrepacked= †owers, leaves, fruits vegetables, unroasted co1ee
beans & tea leaves, Salt.
5. Bread (ÎÎexcept when served in Restaurant/ pizza)
p

6. Prasadam supplied by religious places. (jM˙\R ∂Mq`UfiMLM lá_M GMqSÇMgM OJMá/}U}MGg/saGM JM\dH)
el

7. Deities made of stone, marble or wood;

8. Puja Samagri like Rudraksha, Panchamrit, Gangaajal
H

9. Rakhi, Kumkum, Bindi, Sindur, Plastic / glass bangles without precious metal.
10. Human blood, contraceptives, sanitary napkins, tampoons, hearing aid
11. Tocilizumab (Corona Drug), Amphotericin B (Black Fungus Drug) (From 2021-Jun)
12. Electricity, Firewood (n{GgH âL GgMqSR¥ gRVH)

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2A2: Budget → Revenue Part → Indirect Taxes & GST → Page 361

KING R & QUEEN P Help others god will help you

 13. Judicial / Non-judicial stamp papers, Court fee stamps, ordinary post cards etc.
14. Printed Books; physical edition of Newspapers, journals, periodicals irrespective of whether they
have advertisement or not.
15. Khadi sold by Khadi and Village Industries Commission(KVIC) certi[ed outlets
16. Gandhi topi, Charkha, national †ag, Earthen pot, clay idols
17. Agricultural hand tools like spade, axes, sickle.

u
18. When a constitutional / public authority auctions the giîs received by him.

yo
19. Spacecraî, satellites and their launch vehicles.
20. Import of speci[ed defense goods not manufactured in India
21. Free sample or giî given. E.g. DO1er: Toothpaste pe toothbrush FREEF then only Toothpaste

lp
subjected to GST. No gst on that free-toothbrush. (dMbR R` gp|MqSRS hgI \p˚ \mlá_M GMqSÇMgM Jósg)
22. Any Goods EXPORTED outside India (technically called DZERO RATED ExportF)

he
If a given goods is not in the above 0% list (and not kept out the GST-regime like Petrol-Diesel-
Daaru), then it will be subjected to GST: such as following:

22.14.1 GST Rates on Goods : 0% removed

BEFORE-2022
ill
From 2022
w
0% GST on cereals (wheat rice etc), †our (aata), 5% GST if they=re
pulses (daal), curd, Lassi, pu1ed rice (poha) $PREPACKED and
d
$Labelled and
go

$packet size is smaller than 25KG or 25 litres

0% Maps and Bank=s Chequebooks 18% GST
FAQ: Apart from above items, which other XYZ food item pe above rule applicable or notF
rs

Ans. Newspapers did not bother to highlight but you can satisfy curiosity by doing self-PHD on this
list: https://cbic-gst.gov.in/gst-goods-services-rates.html
he

22.14.2 GST on goods- various slabs

SOME Example of Goods iGST
ot

Semi-precious stones like agate, amber, topaz, lapis lazuli etc. 0.25%
p

Diamonds cut and polished (this new slab created in 2022-Jul) 1.50%
el

Jewellery, Pearls, Gold, platinum, silver etc. 3%

H

Milk powder, Baby food, Pizza bread, Mineral ores, liquid jaggery (raab), 5%
Ethyl Alcohol used in blending with petrol. Certain medicines
Corona related drugs/devices: Vaccines, Remdesivir, Oxygen Concentrator,
Ventilator, Covid Testing Kits, Pulse Oximeters, Temperature check equipment,
Hand Sanitizer, crematorium furnaces, Ethanol meant for blending with petrol

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2A2: Budget → Revenue Part → Indirect Taxes & GST → Page 362

KING R & QUEEN P Help others god will help you

 SOME Example of Goods iGST

Fruit Jams, Butter, Cheese, Canned Fish, Sugar cubes, Textile, certain medicines & 12%
surgical items, Railway wagon, electric car & its chargers
Ambulances, Bricks

➢ Ice cream, cakes, biscuits; 18%

u
➢ Soap, perfume, paint; Electronics, Computer & Mobile accessories

yo
➢ Certain medicines, Alcohol based hand sanitizers
➢ Paint, Polish, Wax and similar petroleum products

Luxury goods, Sin Goods, Demerit goods (nÇgMiJoM /sMs/ cÇ}pk JM\Mq): 28%

lp
➢ Ca1einated Beverages e.g. Red bull, Tobacco products, Pan Masala
➢ Cement, Granite, Marble, Air Conditioners, TVs of DxF size

he
➢ Motor vehicles, Aircraîs, Yacht, Guns, Lottery ticket, online games

22.14.3 GST on Extra Neutral Alcohol (ENA)F

ill
 ENA is made from foodgrains and sugarcane molasses (molasses is a byproduct leî aîer
crushing of sugarcane.)
w
 ENA has neutral smell and taste. (R`∑ NMá/Jp}Uj qbHU)
 ENA is colourless liquid, it has no impurities. (LU}bHq. R`∑ cvp]¸ qbHU)
d
 ENA is used as raw material in cosmetics, medicines, ink, and liquor.
go
rs
he
ot
p
el

Earlier there was confusion about taxes on ENA. But 2023-Oct: GST Council has given above
H

clari[cation. <at=s why news-headlines saying ZGST Council cedes right to states on taxing ENA used
in liquor for human consumptionF (GHIJKH sòL´á qS\MqÇ Ös|`} RS hgI {qM∑ GMqSÇMgH áM˝/\láLM \måôS\Mg b`qS
ÇMgS∑IqI sL RL g}MqSRM cijRML LMœ`UR` JøUs lá_M)

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2A2: Budget → Revenue Part → Indirect Taxes & GST → Page 363

KING R & QUEEN P Help others god will help you

 22.14.4 GST on MilletsF (2023)
 Millets = foodgrains such as Jowar (sorghum), Bajra (pearl millet), ragi ([nger millet),Kodra
(Kodo millet)
 2023 celebrated as International year of millets by Food and Agriculture Organization (FAO)
and United Nations (UN). So, GST council gave following clari[cation
Millet èour / its products (e.g. biscuits) pe GST BEFORE AFTER
Pre-packed & branded e.g. Britannia Ragi biscuit, Patanjali-Atta 18% 5%

u
Loose /unbranded (¡pˆM/¬p˛M {SìM GMI. n{qM ˇMUxSx ïfgH \msfR lRI) 0% 0%

yo
MCQ. Consider the following items:(Asked in UPSC-Pre-2018)
1) Cereal grains hulled 2) Chicken eggs cooked
3) Fish processed and canned 4) Newspapers containing advertising material

lp
Which of the above items is/are exempted under GST (Good and Services Tax);
(a) 1 only (b) 2 and 3 only (c) 1, 2 and 4 only (d) 1, 2, 3 and 4

he
22.15 GST COMPOSITION SCHEME (GHIJKH JULìqM _`GqM)

ill
w
d
A relief given to small traders. Instead of depositing GST money to Govt on monthly basis, they may
go

deposit it 3-3 months. (It has more technical rules. But we=ll NOT WASTE TIME in CA-giri).

22.15.1 : ( ) 1% GST deposit in cash for controlling fake ITC claims

Faded/outdated. Deleting this topic for Prelims-RAFTAAR
rs

22.16 REVERSE CHARGE MECHANISM (nÇsLHo O|ML R¥ ◊Ç∂M)

he
ot

Rp¡ ÿMJ \M\gSGbM“nÇçSoM qbHU{≈à dMbR qS¬pá JLRML R` GST G\M RLqM sVS}M
- Normally, a seller must collect the GST tax from buyer & deposit to the govt.
p

- However, in selected cases when seller is not registered with GST number, while buyer is
el

registered with GST number, then buyer will have to deposit the tax to government.
- How / when / why = NOT IMP, EXCEPT the MCQ word Association that WReverse Charge
H

Mechanism= is associated with GST, just like WE-way bill= mechanism is associated with GST.

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2A2: Budget → Revenue Part → Indirect Taxes & GST → Page 364

KING R & QUEEN P Help others god will help you

 22.17 E-WAY BILL SYSTEM (∑-ÇSn{g OkMgH) FROM 2018 ONWARDS

Figure 1: checkpost aEbcKd: 1. RJS-. Img source: Gangaajal movie

- When goods worth ä50,000/> are moved within a state (intrastate) or from one state to another

u
(inter-state), then the truck/transport/cargo/shipping/aeroplane company must generate E-way O

yo
-
Bill from GSTN Portal / App / SMS.-
- E-way bill=s self-declaration (that our truck is carrying Zxf type of goods worth Zyf value) reduces
the scope of bribery, delay, red-tape, harassment at the check post, thereby ensuring a hassle-free

lp
rapid movement for transporters throughout the country.

he
- E-way bill system became e1ective from 2018.

22.17.1 E-Invoice from 2022 onwards

O
E-Bill e
E-Invoice

er Who generates Cargo/courier/transport

ill-
 Businessman selling goods/services. It=ll
also contain info about E-bill (courier
>
-
w
itF -
company T
delivering goods
ecompany)
 Separate E-bill not required. Its info
d

embedded inside E-Invoice itself˘

go

ObjectiveF Ease of transporting goods improve the tax-surveillance and [ght


against false ITC-credit claims through
fake invoices.
rs

GST council announced E-invoice (=bill generation through govt=s online portal) from January-2020
with following deadlines
he

GST merchantOs annual turnover more than _ _ _ then E-Invoice compulsory from _ _ _
more than ä500 cr 2020^^
more than ä10 cr 2022^^
ot

^^Note: above deadlines from Government=s India Yearbook. However, due to Corona, deadlines
have been deferred. Deadlines keep changing, notIMP. ([ë4Y í⇡5 , ` M AU# 4ì⇡⇢U4)
p

22.18 → ( !") COMPENSATION TO STATES: WHYF

el

Recall De[nition: GST is a destination based indirect tax on consumption of goods and services.
(GHIJKH Çôpæ UâL JSÇMæURS ¬so-∂Mq sL TjMòLo cO~ RL bf≥)
H

✓ For the Union govt, largest source of tax collection were corporate tax and personal income tax.
Both are direct taxes and therefore kept out of the GST regime.

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2A2: Budget → Revenue Part → Indirect Taxes & GST → Page 365

KING R & QUEEN P Help others god will help you

 ✓ For the state governments, VAT was largest source of tax income, but it is to be subsumed under
GST, along with other indirect taxes, cess and surcharges levied by the states. <erefore, states
were afraid their revenue income will ⇥.[LMœ`UR¥ T\áqH RM \p⇥ JMjq “ÇfK” bKM lá_M åJhgI ÇS¶ìnUoo ïS]
✓ Secondly, GST is a destination-based tax, therefore industrialized states are not happy with it.
Consider a Nano car manufactured in Tata's Plant in Gujarat and sold in Uttar Pradesh.
(Destination) UP gets SGST, While (Source) Gujarat gets nothing. Although reverse is also true-

u
UP's bicycle sold in Gujarat, then Gujarat will earn SGST and UP will get nothing.

yo
✓ But the industrialized states such as Gujarat, Maharashtra, Tamil Nadu, Haryana feared they=d
get less SGST revenue in absolute terms compared to erstwhile VAT regime.
22.18.1 → ( !") Compensation to States: HOWF

lp
he
Parliament enacted GST Compensation to States Act 2017 (LMœ`UR` \pTÇGM cijnq_\)

ill
✓ Under its provisions, GST council recommended Union Govt to impose uGST Compensation
Cessv (GHIJKH nosa—o ÖsRL ) on speci[ed luxury & demerit goods, like
w
○ pan masala (60%), tobacco products (cess varies as per product),
○ aerated water & Ca1einated Beverages (12%), coal / lignite (ä400 per tonne),
d

○ motor vehicles-aircraî-yacht (3-22% depending on type of vehicle).

go

<e cess thus collected is used for compensating States for their revenue losses during the krst kve
years since inception of GST. i.e. 1st July 2017 to 30th June 2022
Table 4: GST Compensation to States Act 2017 (2-TJO1J .MX4I- Fhi3:+.)
rs

Section-  It contains formula for compensation: State's Projected Revenue = 14% annual
7 compound growth rate than its 2015's VAT collection (base year). If current year
he

SGST collection is less than Projected Revenue → Union to pay compensation

 (LMœ RM " cqp\Mnqo LMGN" ÖJRS 2015 RS ÇSK cqpsMo R¥ 14% ÇM—´R Ç™]¸ RS JMï R¥ ]}qM }_M≥ _lá
LMœ R` IJGHIJKH \SÖJJSR\ T\áqH ⌃∑ o` ÖJ LMœ R`, sbgS5 Ç´ñ RS hgI, RmÑ \pTÇGM áS}M- GqoM
ot

sL GHIJKH nosa—o ÖsRL gM}aRLRS≥ )

Section-  GST Council can recommend extending GST compensation cess beyond the
8 period of [ve years. (5 JMg JSRS sõMo |H ÖsRL GMLH L¬qSR¥ iJeMòLv RL JRoM bf. )
p

✓ Compensation available only for SGST. It is not given to <e Union Territory Without
el

Legislature (because they've UTGST e.g. Ladakh)

✓ State Liquor Taxes are outside GST, so Bihar / Gujarat / Nagaland / Lakshadweep / Parts of
H

Manipur can=t ask more ä for compensation from GST for having liquor prohibition (\‹-nq´Sj).
Year → 2018- 2019- 2020-21 2021-22 2022-23 2023-24
19 20
GST 95k cr 98k cr 1.10 Lakh Cr 1.05 Lakh 1.30 lakh cr 1.45 Lakh cr
Compensation expected but in cr.

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2A2: Budget → Revenue Part → Indirect Taxes & GST → Page 366

KING R & QUEEN P Help others god will help you

 Cess Onosa—o reality hardly
ÖsRL 85,000cr earned
ControversyF
 Before Corona: since 2019-August onwards payment pending. Also known as uGST Arrears
problemsv (\pTÇGSR¥ LR\ {RM_M bf) . 2019-Dec: only partial compensation released. FM Nirmala. S
says, DSales are ⇥, so we have not collected enough cess money kk to release the compensation.F
 Non-BJP states [rst complained to GST council, but it did not help much. So some State Govts

u
even threatened of going to Supreme Court, which hints cooperative federalism facing problems.

yo
However, later on Union government released the money to the States.

22.19 : → ( !") GST COMPENSATION & BACK2BACK LOANS

lp
he
ill
w
d
go

 2020: Due to Corona lockdown, State government and very little amount in SGST.
rs

 So, States started demanding ä2.35 lakh crore in GST compensation from Union.
 Union govt's initial reaction was, "Under the GST compensation Act, we are not legally obliged
he

to pay this large amount (ä2.35lcr) because of unexpected circumstances / 'Act of God' / 'Force
Majure' like Corona. We can only pay the originally estimated amount (ä97kcr)."
 However the Attorney General opined that GST Compensation Act does not provide such
ot

exceptions; Union ought to pay the entire loss amount ä2.35lcr. (cK≠q⌥-GqLg RM \MqqM bflR RmÑ qSsaLH
LR\ áSqH ìMlbI ƒ`UlR GHIJKH \pTÇGSRS RMqaq \mR`L`qMÇM_LJ GSJH TsMoRMgHq ìHG`U\SRmÑ R`∑ \Me¥ /csÇMá qbHU)
 But, corona → sales → GST compensation cess collection . So, the union o1ered two
p

options to borrow money for the compensation (ƒ`UlR GHIJKH \mT\áqH ÇfJS|H R\ bf, åJhgI RmÑ qS
el

LMœ`UR` sfJM ÖjML gSRL \pTÇGM ìpRMqSRS nÇRल्प láI….. )

 We will NOT study the di1erence between those TWO options because it is technical/outdated.
H

Just memorize that States accepted Wmodi[ed= version of Option#1 and they got Rs.1.10 lakh
crore. (Öq á` nÇRल्प`U\óƒM \p⌦S/Æ|ÊoMI ïSÇ` b\ sºqSqbHU{f↵m}S≥ {J LˆM \ML g` lR LMœ`UqS\pTÇ∫SRS hgI nÇRल्प#1
RM IR JUv`ijo N√s sJUá lR_M ïM≥ )

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2A2: Budget → Revenue Part → Indirect Taxes & GST → Page 367

KING R & QUEEN P Help others god will help you

 22.19.1 [ → ( !"Back to Back loans: Benekciary States
WhoF List of States and UT with Legislature
Will not get Some North Eastern State don=t have any SGST-shortfall → So they will not
get any compensation / back to back loans as per Section-7 formula.
Will get Remaining States & 3 UT (with legislature) =they will get the money e.g.
Andhra, Assam, Bihar, Goa, Gujarat, Haryana, Kerala etc and Union territories
of Delhi, Jammu and Kashmir, Puducherry

u
yo
22.19.2 : GST Compensation Cess Extended till 2026
GST Compensation Cess Originally Aîer Corona crisis & Back2Back loan matter
Expiry date → 30/June/2022 31/March/2026 oR JLRML gSoH LbS}H _SÖsRL/JSJ≥

lp
22.20 #"GST RELATED ORGANIZATIONS ()⌧[ I)

he
We already learnt about the GST council in the previous pages of handout. Apart from that…
22.20.1 #" !"Group of Ministers (GoM: A⌧îï5 ⌧⇡ )Aìñ)
<ese committees are set up by GST Council to look into speci[c issues from time to time. Example
Some examples of GoM headed by _ _
2021: Conrad Sangma, Meghalaya CM ill
Objective ↡ (for example)
Sangma to examine GST rates of Covid vaccine, drugs
w
and related items.
22.20.2 #" National Anti-Prokteering Authority (NAA/NAPA)
d
LMù∞H_ \pqMeM¬`LH nqL`jR OMijRLk
go

 GST provides input credit for most of the indirect taxes of the Union and State Govt. So,
entrepreneur=s cost of production should ⇥, then he should also ⇥ prices for consumers, yet
many companies had not reduced their prices e.g. Dominos Pizza, Nestle, Hindustan Unilever
rs

toothpaste & detergents etc. [Kf≤ çSlxK ]\gqSsL ÖÜMáq R¥ gM}o R\ b`oH bfo` ÇôpJôH b`qH ìMlbI. bMgM“lR
Rp¡ \pqMrMÿ`L RUsnq_MUìH∫`URS áM\ JôSqbHURL LbH ïH o` leL Öन्हmJ{Ω iJ¬MqSRS hgI _SJU∂M {qM_H }∑]
he

 So, Union govt set up NAA under Central Goods & Services Tax Act, 2017 to penalize them.
 <is Authority shall cease to exist aîer 2 years from birth (2017+2= 2019), unless GST council
ot

renews it.(bMgM“lR Gन्म RS á` JMg \mbH åJ JU∂M R` csqSTs {Uá b` GMqM ïM, iJÇM_ lR GST sòL´á T_p{ºM ám)
 GST council extended it till 2022-Nov (RM_yRMg {ºM_M)
 2022-Dec: NAA stops working. Now matters related to GST anti-pro[teering will be looked aîer
p

by the Competition Commission of India. CCI is a statutory body under Ministry of corporate
el

A1airs, setup under Competition Act, 2002 (Ref: Pillar#1C) (|MLoH_ OnojMyT_`})
H

22.20.3 #" Authority for Advance Ruling (AAR- îóA òô)# ⌧⇡ ö#I प्र õú⇡⇢a)
 Diabetic foods supplements are subjected to 12% GST whereas pasteurized milk is subject to 0%
GST. If Amul plans to launch WAmul Camel Milk' with bottle label: "Camel milk is easy to digest,
high in an insulin-like protein, hence benelcial for diabetic person."

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2A2: Budget → Revenue Part → Indirect Taxes & GST → Page 368

KING R & QUEEN P Help others god will help you

  So, whether Amul=s product be subjected to 0% GST or 12% GST; An entrepreneur would like
to such have clarikcation from Tax authorities before starting the production, lest he gets
tangled in raids and litigations aîerwards. (¡MsS\MLH âL \pRá\S{MGH fiMLM ÖÜHVq lR_M GMqM)
 So, CGST Act, 2017 provides for a statutory body called Authority for Advance Ruling (AAR),
where entrepreneur can seek such advance clari[cation.
 Higher appealF Appellate Authority for Advance Ruling (AAAR: c]d\ efJg`URS hgI csHg OMijRLk).

u
BenektF Reduces scope/opportunity for litigation/harassment/bribe demand → Ease of doing

yo
business (◊MsML RLqS\mTJMqH) → helps attract Foreign Direct Investment (FDI: O~ nÇáSvH nqÇSv).

22.20.4 #" #" #"GST tribunal (GSTAT) (2023)

lp
GST related cases are heard in the following sequence:
LEVEL DESCRIPTION

he
1. Adjudicating Authority Additional/Joint/Deputy/Assistant Commissioner/
Superintendent- (Depending on the case/amount)
2. First Appellate Authority Joint Commissioner/ Additional Commissioner / Commission -
(Depending on the case/amount)
3. Goods and Services Tax
ill
 Setup based on report of Dushyant Chautala committee. By
w
Appellate Tribunals amending the CGST Act. So, it=s a statutory/Quasi-Judicial
(GSTATs-2023) body. (ÇfjMnqR/c¸y-wMfl_R JU∂M bf)
Composition  GSTAT- HQ @Delhi & benches in di1erent States/cities.
d

1) President of  Will hear cases related to CGST Act, UTGST Act, SGST Act,
go

GSTATÎÎ (Judge of iGST Act. <us, it is the common forum of dispute resolution
SC/HC) dealing with Centre and States= GST laws.
2) 1 Judicial member  <is will help reducing the case pendency at HC/SC.
rs

3) 1 Technical member
(from Union side)
he

4) 1 Technical member
(from States= side)
4) HC and 5) SC Self-explanatory. (N_U ù bf)
ot

ÎÎNote: Don=t confuse this post D President of GSTATF with DPresident of IndiaF (Droupadi
Murmu). <ey are separate posts/people. (åjL b\MLS áSv RS LMùs∞ no R¥ {Mo qbHUb` LbH bf. _b cg} qøRLH/◊”± bf)
p

22.20.5 #"GST Fitment Committee (GHI)JH ùòJAUJ )ëA2Y)

el

 Fitment committee contains revenue ozcials from both Union and states.
 <ey examine the demands / proposals related to changing GST on particular item. (lRJH Çôp_M
H

JSÇM sL GHIJKH áL`U\m{ágMÇ RS OôMÇ sL J\HM RLoSbó)

 <ey submit the report to GST Council and then GST Council will take [nal decision. (leL _ScsqH
LM_ GHIJKH sòL´á R` áSoSbó≥ âL GHIJKH sòL´á cUno\ nqky_ gS}H)
 e.g. (2023) Tobacco industry demand reduction in GST. → [tment committee suggested Ddon=t
reduce.F → GST council didn=t reduce.

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2A2: Budget → Revenue Part → Indirect Taxes & GST → Page 369

KING R & QUEEN P Help others god will help you

  However, the recommendations of this committee are not always on the GST Council. (åqR¥
iJeMòLvmGHIJKH sòL´á sL {M‘ qbHUbf. Çb o` GHIJKH sòL´á ¬pá RS nÇÇSR/\∫⌥ JSo_ RLS}M.)

22.20.6 #" GSTN Network (Not for Prokt Company- A(' û ⇢íñY ⇡⌧3'H )
2013: Goods and Services Tax Network (GSTN) DNot for Pro[tF Private ltd. company set up under
the Companies Act.
Ownership→ 2013-18 Ownership from 2018

u
Union govt 24.5% 50%

yo
All states of India (incl. Delhi & Puducherry) 24.5% 50%
Non-Government Financial Institutions such as 51% 0%
HDFC Bank (20%), ICICI Bank (10%), NSE (10%),

lp
LIC Housing Finance (10%)
 <is company runs the GSTN online portal, where the suppliers register themselves, pay their

he
GST, claim input tax credits, generate e-way bills etc. [Infosys ltd. helped develop this
webportal.]
 GSTN Network ltd. also provides the IT infrastructure and soîware services to GST ozcials for

ill
monitoring the tax compliance, issuing notices, data mining etc.
w
 In future, such data could also be shared with the RBI=s Public Credit Registry (PCR: k R¥
JMÇyGnqR LöG✏∞H) so the lenders can have a complete picture of the borrower=s business.
 GST Suvidha Providers (GSPs): <ese are selected private IT/Fintech companies that develop
d

apps / soîware to help the taxpayers interact with GSTN portal. E.g. Zoho Accounting Soîware.
go

22.20.7 Project Saksham: Digital integration (2016)

CBEC/CBIC launched, uProject Sakshamv for data-coordination among following 3 portals
Name of Tax Excise Duty Customs duty GST
rs

Associated Web portal ACES SWIFT GSTN

- Separately, 2018: Indian Railways also launched Project Saksham but with di1erent objective of
he

employees= training and skill-upgradation for doing railway related work.

- CBIC has Antarang portal for internal communication among CBIC ozcers.
ot

- CBIC also launched portals such as i) ECTS (Electronic Cargo Tracking System), ii) Risk
Management System (RMS), iii) Indian Customs Compliance Information Portal (CIP) etc.
What is their objective; how do they work; Ans. not important.
p

22.20.8 HSN and SAC Codes

el

- Service Accounting Code (SAC) are used for classifying services for GST rates. e.g. coaching
H

services = SAC Code 999293 = 18% GST.

- Harmonized System of Nomenclature (HSN) developed by the World Customs Organization
(WCO) is used for classifying goods for GST rates. e.g. Jarda scented tobacco = HAC code
24039930 = 28% GST.

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2A2: Budget → Revenue Part → Indirect Taxes & GST → Page 370

KING R & QUEEN P Help others god will help you

 - BenektF HSN-SAC coding helps in computerised accounting, billing, digitization, surveillance
& big data analytics by Tax authorities.

22.21 PAN VS GSTIN VS AADHAR

u
yo
Table 5: don't lose too much sleep over it unless preparing for State Tax Dept Exams

lp
Di7erence PAN: ∂M_H gS¬M JU⇥MR GSTIN: ÇôpIÇU JSÇM RL sbìMq JU⇥MR
Permanent Account Number Goods and Services Tax Identi[cation Number

he
Full form issued by the Income Tax issued by the Central Board of Indirect Taxes &
Department Customs (CBIC)
Suzlon Energy ltd: Suzlon Energy ltd:
example
AADCS0472N 24AADCS0472N1Z8
10 digit alphanumeric number
ill
2 digit state code+ 10 digits PAN number + 3
w
Format (=containing both alphabets and characters = total 15 characters (=containing
numbers) both alphabets and numbers)
- IF Individuals / [rms registered under the
d

Pre-GST law (i.e., Excise, VAT, Service Tax

go

etc.) OR
Every income tax assessee-
Who has to - IF your biz. turnover is above a threshold
individual, HUF, [rm, company,
get itF limit of DxF lakhs for ordinary states or DyF
trust (internal di1erent not imp.)
rs

lakhs in Sp.cat. States. OR

- Merchants who sell through e-commerce
aggregators like Amazon.
he

Do all Every PAN card holder is not Every GSTIN holder is required to have PAN
taxpayers REQUIRED to have GSTIN. (e.g. a card number. (Because its format is like that,
ot

have itF salaried employee) observe DformatF row above).

- If [rm operates from more than one state,
- Only 1 PAN number allowed then a separate GST registration is required
p

How many per individual. for each state.

el

numbers / - Only 1 PAN number allowed - If a [rm has multiple subsidiaries, they have
cards can per company. to get GST number for each e.g. DFaith
H

one haveF - Subsidiary [rms will have to Hospitality Chain ltd→ Sam=s Pizza
get separate PAN numbers. restaurant, Sankalp Dosa restaurant, Sa1ron
Punjabi restaurantF
Prevent evasion of GST, and help the
Objective Prevent evasion of direct taxes.
entrepreneurs claim their input credits.

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2A2: Budget → Revenue Part → Indirect Taxes & GST → Page 371

KING R & QUEEN P Help others god will help you

 - PAN number is required for various activities like opening of bank account, opening of demat
accounts (for trading in securities), obtaining registration for GST, VAT-Excise registration (for
Petrol-Liquor dealers) etc.
- So, PAN is slowly becoming a Common Business Identi[cation Number (CBIN) or simply
Business Identikcation Number (BIN: JM\Mw ◊ÇJM_ sbìMq JU⇥MR)- because if a Department
knows your PAN number they can dig all information about you, know whether you=re eligible

u
to [ll up a particular tender or contract or a scheme application form or not;

yo
22.21.1 PAN/GSTIN vs UID (=Aadhar Card)
Table 6: don't lose too much sleep over it unless preparing for State Tax Dept Exams

$PAN and GSTIN $UID (=Aadhar Card)

lp
Issued by a Statutory body- Unique Identi[cation
Issued by the direct and indirect tax authorities that Authority of India (UIDAI:|MLoH_ nÇÆvù sbìMq

he
function under Ministry of Finance. OMijRLk ) under Ministry of Electronics and
Information Technology (MeitY).
<ese Tax authorities derive powers from: Aadhaar Targeted Delivery of Financial and Other
- Income Tax Act 1961
- Goods & Service Tax Acts in 2017. ill
Subsidies, Bene[ts and Services) Act, 2016 (DTjML
Iı 2016F)
w
Primary objective is to eliminate bogus
bene[ciaries in government schemes & reduce
Primary objective of these id-numbers is to reduce
d
subsidy leakage. Auxiliary bene[ts: Identifying
tax evasion by tracking the transactions.
go

dead bodies, tracking criminals, mobile number

ownership, tax evasion etc.
Unique Identi[cation number (UID) or Aadhaar
format contains both numbers + alphabets.
rs

is a 12 digit number. No alphabets.

Only for living resident HUMANS of India. Not
he

given for companies. Resident is de[ned as person

who lived in India for 182 days/> in last 12 months.
Issued for individual humans, Full-Budget-2019: we=ll consider giving
ot

HUF/[rms/companies/trustsÎÎ. immediate Aadhar card to NRIs with Indian

Passport so they don=t have to wait till ~180 days.
It=ll help them get through KYC bank/share market
p

transaction.
el

One HUMAN → one PAN number only. No age

same (IR åUJMq RM iJry IR TjML RMxynqRg JRoM bf)
H

limit. Minors can also join.

- ~ä110 Fees to get PAN card.
No fees to get Aadhar. \p⌘ \m]\goM bf.
- No fees to get GSTIN
Compulsory to enroll (cnqÇM_ybf), if your income or Voluntary to enroll. TjML RMxy{qÇMqM Nf≈✓R bf. cnqÇM_y
turnover is beyond DxF rupeesÎÎ. / {M‘RL qbHUbf.**

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2A2: Budget → Revenue Part → Indirect Taxes & GST → Page 372

KING R & QUEEN P Help others god will help you

 $PAN and GSTIN $UID (=Aadhar Card)
Demographic info:
<ey contain
- Name, Date of Birth, Gender, Address.
- Name
- Mobile & Email (optional)
- Photograph & Date of Birth (in case of
Biometric info:
DHumanF)
 Ten Fingerprints, Two Iris Scans, and Facial
- Address.

u
Photograph.
 Compulsory to link Aadhar card with PAN by 31/3/2023. (later deadline shiîed to 30/Jun/2023)

yo
ÎÎthere are more terms-conditions to it but he'll not do PhD.
22.22 GST: BENEFITS (# $)
✓ GST covers both goods and services, with standard rates, minimal number of cess/surcharges.

lp
(JM\Mw áL, {⌃o R\ ìHG`UsL ÖsRL/cij|ML g}oM bf≥ )

he
✓ GST online portal and e-way bill system reduces the interface between tax-ozcials and the
assesses, thereby reducing the scope of harassment, bribery and Inspector Raj. (=Ease of doing
business) (ÖÜHVq, òLπo¬`LH \mR\H → ◊MsML \mJp}\oM {ºH).

ill
✓ GST provides input credits to suppliers thereby incentivize them to sell with invoice at every
stage. <us, GST will expand our tax collection, and deter tax evasion. (åqspK çSlxK RS hgI n{g {qMqM
w
G√LH, åJhgI RLì`LH \p≈g)
✓ GST Input credit system ⇥ the cascading e1ect of taxes, ↓ cost of manufacturing & selling, while
d

its anti prokteering authority ensures that such bene[ts are passed on to the customers in the
go

form of reduced MRP. (\pqMeM¬`LH sL g}M\)

✓ Federal nations such as Canada and Australia shiîed from VAT to GST regime. It helped
boosting their revenue, GDP and exports. (RL LMGN, GHxHsH, nq_Myo \m{º`oLH)
rs

✓ GST rates are uniform across the States so it reduces the scope for érate arbitrageO (áL csÇUìq) i.e.
buying from another state for pro[teering, even if same item available in home state. (HOW;
he

Watch Video)
✓ GST=s ITC helps Ancillarisation, Subcontracting and Outsourcing. <is helps in more job
ot

creation (How; Watch Video) (cqp´U}HRLk, Ös↵SRM âL TÖKJ` J})

✓ Both CGST and SGST are computed on the same base (ä10,000), therefore tax burden on [nal
consumer is less in GST regime, than in Excise-VAT regime. (How; Watch Video) (IR TjML sL
p

RmÑ âL LMœ RS GHIJKH R¥ ]}qoH JSÖs|`±M sL {`G R\ b`oM bf)

el

✓ <us, GST will help to create a uni[ed common national market for India, & catalyse uMake in
H

Indiav, and Assemble in India(More in Pillar#4B)

22.22.1 : GST Benekt: Zero Rated Exports (~ìü ⇢J† 2'5 °Y )
- When company buys raw material or intermediate goods it will have to pay GST but if [nal
product is exported outside India, it'll be subjected to 0% IGST.

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2A2: Budget → Revenue Part → Indirect Taxes & GST → Page 373

KING R & QUEEN P Help others god will help you

 - So, whatever GST the company had paid on the inputs, all of that will become its DInput Tax
CreditF (and company can use this ITC to pay for the taxes on the purchase of raw material and
intermediate goods in the next time), thus reducing its cost of production. (ÖÜMá ¬ìy\mR\H)
- <is will improve price competitiveness of Indian products in foreign markets. (nÇáSvH {MGML \m|MLo
RM JM\Mq lReM_oH {qoM bf)
- Australia and other GST countries also follow similar Dzero rated exportF regime.

u
MCQ. Most likely advantages of implementing GSTF (Asked in UPSC-Pre-2017)

yo
1. It will replace multiple taxes collected by multiple authorities thus create a single market in India.
2. It will drastically reduce WCurrent Account De[cit= of India and will enable it to increase its
foreign exchange reserves.

lp
3. It will enormously increase the growth and size of Indian economy of India & will enable it to
overtake China in the near future.

he
Codes: (a) 1 only (b) 2 and 3 only (c) 1 and 3 only (d) 1, 2 and 3

22.23 ♀GST: EASE OF DOING BIZ (EOD): DECRIMINALISATION

Note: following decisions were taken in the GST Council meeting in 2022 December. <en in 2023

ill
budget, FM announced Dwe=ve done this for giving ease of doing business to the tradersF. (◊MsML \m
Jp}\oM RS hgI b\qSRp¡ csLMj`UR` røGáMLH RM_yÇMbH R¥ ØSkH JS{MbL lR_M bf)
w
22.23.1 ♀ GST-EoD: criminal prosecution threshold
d
MINIMUM AMOUNT OF TAX EVADED BEFORE AFTER
Sr1] Generating fake invoices to claim ITC Rs.1 crore tax evasion Rs.1 crore tax evasion
go

Sr2] o7ences other than Sr.1 Rs.1 crore tax evasion Rs.2 crore tax evasion
If the tax evasion amount is less than above limits → no criminal prosecution / jail. Simply penalty
only. (RLì`LH Ö± \M^M JSR\ bf, o` TsLMijR \pRá\M qbHUìgS}M≥ GSg qbHUb`}H≥ iJey Gp\MyqM g}S}M≥)
rs

22.23.2 ♀GST-EoD: obstructing o¢cers

he

BEFORE AFTER
obstructing or preventing any ozcer in discharge of his duties, it is decriminalized = No jail.
tempering evidence and failure to supply information Only penalty.
ot

= criminal o1ense.
(GHIJKH RS ceJL`URS RM_y\m{MjM xMgqM, J{ao`UJS¡SV¡MV RLqM, GMqRMLH qM áSqM å~Mlá \M\g`U\mGSg qbHU≥ \M^ Gp\MyqM)
p

22.24 GST: CHALLENGES FOR MAINS (ìpqøno_MU)

el

shiîed to Mains handout.

Handout: [2A) Direct & Indirect Taxes [2B) Black Money, 15th Finance Commission
H

[2C) Subsidies to Disinvestment [2D) Fiscal De[cit, FRBM, Budgeting & scheme types

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2A2: Budget → Revenue Part → Indirect Taxes & GST → Page 374

KING R & QUEEN P Help others god will help you

 2B: Finance Commission, Black Money & 2C: s ubsidies, revenue expendi ture
Table of Contents

23 ( ) Taxation → Finance Commission..................................................................377

23.1 Introduction to Finance Commission ( ⌫⇠ ⇡⇢ ⌧)...................................................................................377

23.2 ( ) Fifteenth FC Composition (setup in 2017-Nov).........................................................378

23.2.1 15th FC Terms of Reference (TOR: '()*+*,-'(./)1...............................................................................................378

u
23.3 [ ( )] FC: Vertical Tax Devolution from Union to States.............................................379

yo
23.4 [ ] Horizontal Tax Devolution among States..............................................................379
23.4.1 [ ]15th FC: Horizontal devolution: States: share.......................................................................380
23.4.2 14th Finance Commission- Horizontal formula.............................................................................................381

lp
23.4.3 Finance Commissions & the fate of UTs of J&K & Ladakh............................................................................381
23.4.4 → ( ) Grants from Union to States : 14th FC.................................................................................381

he
23.4.5 → ( ) Grants from Union to States : 15th FC..................................................................................382
23.4.6 Post-Devolution Revenue DeEcit Grants (FGH+I-JK +*LM N*O* FPQR*P)..........................................................383
23.4.7 15th FC: Special Grants: ('(ST. FPQR*P)..........................................................................................................384
23.4.8 15th FC: Local Bodies Grants (U*PV/ 'PW*/ FPQR*P)........................................................................................384
23.4.9
23.4.10 ill
15th FC: Disaster Management Grants (ZJR* [\G]P FPQR*P:)...................................................................385
15th FC: Sector SpeciEc Grants (^T_-'(`Sa FPQR*P)-Malnutrition..............................................................385
w
23.4.11 15th FC: Sector SpeciEc Grants (^T_-'(`Sa FPQR*P)-Health.........................................................................385
23.4.12 15th FC: Sector SpeciEc Grants (^T_-'(`Sa FPQR*P)- Others(Fb)................................................................386
d
23.4.13 Defence and Internal Security Fund for Union.....................................................................................386

23.5 ( ) FC: Giving Permanent Status (:;⇢< =>;?=@A;)...............................................................387

go

23.6 FC vs PC vs NITI: WhatDs the DiEerenceF.......................................................................................387

23.7 ( ) Special Category StatesF ⌫H@I J@K< L@ M;N?........................................................................388

rs

24 Taxation → Black Money & Allied Issues......................................................................389

24.1 ( ) Black Money Notable Organisations...............................................................................391
he

24.2 Tax Evasion (Hiding Income / Transaction) (LM X M<)..................................................................392

24.2.1 Prevention of Money Laundering Act (PMLA-2002)..........................................................................392
ot

24.2.2 PMLA Reporting Norms to apply on Crypto-exchanges (2023).........................................................392

24.3 Burden of Proof & PMLA..................................................................................................................392

24.3.1 PMLA Amendments via Finance Bill = Money Bill1......................................................................................393
p

24.3.2 Undisclosed Foreign Income & Assets Act (UFIA-2015)....................................................................394

el

24.3.3 Benami Transactions Prohibition Act (BTPA- 1988, 2016).................................................................394

24.4 ( ) Tax Evasion → Govt Announcements.................................................................................395

H

24.4.1 Tax (Evasion) hSurrenderi schemes........................................................................................................395

24.4.2 Vivad se Vishwas Scheme for Direct Taxes ( Budget-2020).............................................................395
24.4.3 Dispute Resolution Committee (DRC) in Budget-2021...................................................................396
24.4.4 TDS on inluencers / inluencer tax........................................................................................................................396
24.4.5 Tax Evasion → Other Initiatives from older days (Fb WRn).......................................................................396

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2B: Budget → Revenue → 15th FC, Black Money, Subsidies→ Page 375

KING R & QUEEN P Help others god will help you

 24.5 ( )Tax avoidance (LM \]M^;M / LM _;`A;)............................................................................................397
24.5.1 Double Taxation Avoidance Agreement (DTAA) & Round Tripping................................................397
24.5.2 International Law: Monism and Dualism & application of DTAA...........................................................398
24.5.3 Tax Avoidance through Non-Resident Status........................................................................................399
24.5.4 Place of Eoective Management (POEM: JVpqrn)....................................................................................399
24.5.5 Base Erosion and ProEt Shising (BEPS: \VqJVrt).....................................................................................400
24.5.6 Safe Harbour Rules (tQ+`^H \GR+u*v 'P/n)..................................................................................................................400
24.5.7 Transfer Pricing & Authority for Advance Rulings (AAR) ( vw*GH+I nxy)...............................................401

u
24.5.8 ( ) General Anti-Avoidance Rules (GAAR).......................................................................................401

yo
24.6 ( : ) Retrospective Tax: Vodafone......................................................................................401
24.6.1 ( : ) Retrospective Tax: Cairn Energy...............................................................................................403

24.7 : Global Minimum Tax (⌫bcdL efAgh LM)...................................................................................404

lp
24.7.1 : Global Minimum Tax: G7 Framework..............................................................................................404
24.7.2 : G7-OECD hTwoi Pillar Solution for Global Minimum Tax...........................................................404

he
24.8 : Reforms to reduce Tax Terrorism / Harassment.........................................................405
24.8.1 : Pre-Elled online forms for Tax Payers..........................................................................................405
24.8.2 : Updated Return Form to correct errors- in Budget-2022:.................................................405
24.8.3
24.8.4 :
ill
: Faceless interaction between Tax payers and Tax ozcial...........................................................406
Time limit on opening of past cases .........................................................................................406
w
24.8.5 : Document IdentiEcation Number (DIN: Rw*(T{ Jv)*P tG|*W).........................................................406

24.9 TaxpayersD Charter in Budget-2020 (LM=;g;i L; jklL;M\m)....................................................407

d
24.9.1 (Indian) Tax Payers' Charter released in 2020-Aug...............................................................................407

24.10 : Tax Ombudsman in Economic Survey 2021.........................................................408

go

24.10.1 : Tax ombudsman: Indian experience ..............................................................................................408

24.10.2 : Reducing Tax Terrorism / Harassment: online portals/Apps................................................................408
24.10.3 ITR / income tax return form – highest ever.................................................................................................409
rs

24.10.4 Income Tax : E-Governance Initiatives in Modi-Raj....................................................................................409

24.11 Taxation Global Treaties, Agreements & Indexes............................................................409

he

24.11.1 Tax Information Exchange Agreement (TIEA: W+ tx)P* '('Pn/ tnÄÅH*)....................................................409

24.11.2 USA:s Foreign Account Tax Compliance Act (FATCA-2010)..........................................................410
24.11.3 Intl.Coop: Tax Inspectors Without Borders (TIWB)...................................................................................410
ot

24.11.4 Global Financial Secrecy Index ((ÉÑÖW '(ÜV/ uáJPV/H* tx)W*GW).......................................................................410

24.12 →Black Money Demonetisation ( ⌫hop<LMK).....................................................................................410

24.12.1 Why Demonetise à 500 & 10001......................................................................................................................411
p

24.12.2 Demonetisation SC Verdict.............................................................................................................................411

el

24.12.3 Tax: GDP – why low in India (â*+H W* W+:LVäVJV FPQJ*H ã+*\ åáGvÉ?)...................................................................412
24.12.4 Tax: GDP ES19: hUse Behavioural Economics to improve Tax Compliancei...........................413
H

24.13 Revenue Shortfall.........................................................................................................................414

24.14 Taxation: Misc. Terms.....................................................................................................................414

24.14.1 Tax buoyancy (W+ éè*(WH*):................................................................................................................................415
24.14.2 Net Tax Revenue of the Govt (SQê W+ +*LM).......................................................................................................415

24.15 → Budget → Revenue Part → Receipts Non-Tax Receipts.................................................416

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2B: Budget → Revenue → 15th FC, Black Money, Subsidies→ Page 376

KING R & QUEEN P Help others god will help you

 25 Budget → Revenue Expenditure ()*+, -.// 12)....................................................................416
25.1 " ( →) Revenue Expenditure Subsidies.................................................................................417
25.1.1 ( ) Types of subsidies with selected examples......................................................................................418
25.1.2 Impact of Subsidies (tëíäV W* [â*(: tW*+*ìW r(G PW*+*ìW)....................................................................................418
25.1.3 Past Economic Surveys on subsidy delivery JAM/DBT (Zî,W t(ï^IáGWT éJ*/)...............................................419
25.1.4 National Recruitment Agency (NRA: +*añV/ âHó rLòtV)..................................................................................419

25.2 Revenue xpdr → Salaries→ 7th Pay Commission (⌫@gA ⇡⇢ ⌧).................................................419

u
25.2.1 Pay Commission: Dearness Allowance (DA: nvGu*q âÜ*)...................................................................................419

yo
25.2.2 Bonus to govt employees ...................................................................................................................................420
25.2.3 Pay Commission: Misc. terms...........................................................................................................................420

25.3 SALARY Reforms in Atmanirbharat 2.0 (Oct 2020).....................................................420

lp
25.3.1 Atma-Nirbhar 2.0: Festival Advance Scheme (ôáv*+áGnòrä(*Gt +Wn)........................................................420
25.3.2 Atma-Nirbhar 2.0: LTC Cash Voucher Scheme................................................................................420

he
25.4 ( < ) Revenue Descit & EEective revenue descit...................................................................420

23 ( ♀ ) TAXATION → FINANCE COMMISSION

23.1 INTRODUCTION TO FINANCE COMMISSION ('(Ü Z/áu) ill
w
- Fiscal Federalism refers to the division of responsibilities of i) taxation and ii) expenditure
between the dioerent levels of the government. (+*LWá.V/ tGN(*R: Wòö õ+ +*úáGWT \V) W+*]*P õ+ ã)-Wù
d

ÑLûTR*ü+/áGW* Z(GOP/\O(*+*/'(â*LP)
go

- While the 7th schedule assigns many responsibilities to the States but their taxation power is
relatively lower than Union:s. So, Finance Commission plays a key role in transferring union:s
revenue resources to the state.. (+*ú Wù W+*]*P S†°/*GWn vÉ¢t£§r '(Ü Z/áu Wòö WT W+á tT•v¶* •R§*H* vÉ)
rs

- Article 280: President of India forms a Finance Commission (a quasi-judicial body) every 5th
Year or earlier, with 1 chairman and 4 members. Eligible for re-appointment. Recommendations
he

are not binding on the government but usually not rejected.

Further self-study & HINDI TERMS@ M.Laxmikanth⇠s Indian Polity ch.45. or Unacademy Notes.
ot

14th FC: YV Reddy Recommendation Period: 1st April, 2015 to 31st March, 2020

15th FC: NK Singh Originally, it was meant to cover: 1st April, 2020 to 31st March, 2025
p

But later, Modi Govt ordered it to submit two reports:

1) Report#1: for 1/Apr/2020 to 31/March/2021 → submitted to President
el

in 2019-Nov, and accepted in 2020-Jan

H

2) Report#2: for 1/Apr/2021 to 31/March/2026. Title of report is "hFinance

Commission in Covid Timesi. Published in 2021-February.

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2B: Budget → Revenue → 15th FC, Black Money, Subsidies→ Page 377

KING R & QUEEN P Help others god will help you

 16th FC: <update when setup>

23.2 ♂( ) FIFTEENTH FC COMPOSITION (SETUP IN 2017-NOV)

u
yo
23.2.1 15th FC Terms of Reference (TOR: ⌫X;M;w? ⌫I⇢)F

lp
he
President of India has ordered them to study and recommend following:
1. Union Taxes: vertical devolution to the states, and its horizontal distribution among the states.
(except cess, surcharge and IGST).
2. Union:s grant-in-aids to the states. (Wòö ¨*+* +*úáGWá FPQR*P) ill
w
3. How to augment State Govts: Consolidated funds to help their PRI/ULBs
4. Any other matters referred by the President of India such as:
d

5. Use Census-2011 for your calculation. (LPuIP*) – however, Southern States were
go

apprehensive that they:d get less à compared to Northern States because Southern states
controlled their population.
6. While allotting money, FC should keep in mind Union:s responsibilities for New India 2022
rs

vision e.g. Swatchh Bharat, Digital India, PM-Jan Arogya etc. so FC should give more money for
he

that purpose. Non-BJP states didn:t like this.

7. Recommend measures for Fiscal Discipline/Consolidation for the Union and State governments.
(+*LWá.V/ FPQS*tP/tnTWP) e.g. asking State governments to stop populist schemes like Free
ot

TV/Mixer Grinder etc.

8. Shd union continue to provide revenue deEcit grants to States1 (+*LM N*OTWù â+J*q WT £§r FPQR*P)
p

9. How to Enance the disaster management initiatives1 (ZJR* [\G]P)

el

10. Performance based incentives to the state governments. ([RS-P Z]*ü+H [á≠*vP) e.g. reducing
population, stopping electricity thes, stopping populist schemes like free mixer-grinders etc.
H

11. (2019-Jul) suggest ways for allocation of non-lapsable funds for defence and internal security.
(+^* õ+ ZGHü+W tQ+^* '\PÆJuH 'PØ])
12. (2019-Oct) Award for the UT of J&K. (∞is terms of reference required under Jammu and
Kashmir Reorganisation Act, 2019. LûxW±V+ JQPu-≤P FØ]'P/n)

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2B: Budget → Revenue → 15th FC, Black Money, Subsidies→ Page 378

KING R & QUEEN P Help others god will help you

 23.3 [ ( ♀ )] FC: VERTICAL TAX DEVOLUTION FROM UNION TO STATES
Finance Commission recommends the vertical devolution (≥¥*-]+ W+ FGH+I) from the µdivisible pool:
of union taxes. (Here IGST, Cess, Surcharge not counted.)
FC → ⌫⇠ ⇡⇢ ⌧ 12th (2005-10) 13th (2010-15) 14th (2015-20) 15th (2020-21) & 21-26
ChairmanF (jyz) C.Rangarajan Vijay Kelkar VY Reddy NK Singh
States Share 30.5% 32% 42% 41%*

u
- ∏15th FC:s justiEcation: Compared to 14th FC, 1% extra Union should keep for UTs of J&K &
Ladakh:s security & other needs.

yo
- Sometimes Enance minister says hStates, along with Ladakh, J&K be given 42% share from Union
tax for 2021-2025i Although UT of J&K & Ladakh= to get 1%, so in reality other states getting
42-1=41%.i

lp
23.4 [ ♀ ] HORIZONTAL TAX DEVOLUTION AMONG STATES

he
ill
w
d
go
rs
he
ot
p
el
H

+*úáGWT \V) tnw+V//^É'HL W+FGH+I

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2B: Budget → Revenue → 15th FC, Black Money, Subsidies→ Page 379

KING R & QUEEN P Help others god will help you

 15th FC horizontal distribution formula components (|_L) → (};M;~L%)
Weight%
(both in Report#1 and Report#2)
Income Distance (⇡⇢ hÄj~gM):
 State GSDP divided by its Population = per capita GSDP.
45%
 For most states, Haryana:s per capita GSDP is taken as benchmark. How poorer is
your state compared to Haryana= more àà you:ll get.∏∏

u
Area (^T_π§) More area = more àà 15%

yo
Population (as per Census-2011: Z\*RV): More population = more àà 15%
Demographic Performance (>AÅ;~ÇÉLÑ⇢ AÖ;=A): States that have Total Fertility
12.5%
Rate (TFR: WQ§ [LPP R+), will get ⇥àà. More in Pill#6

lp
Forest and Ecology (⌫A Ü⌫~ \;]Má:LÑ): More forest= more àà 10%

he
Tax Eoort (LM à⇢;Å) : States who:ve improved their per capita (State) tax collection
2.5%
in the last 3 years = get more àà
Total (WQ§) 100%

ill
∏∏ Note: computing income distance: the Highest per capita GSDP: 1) Goa 2) Sikkim 3) Haryana 4) Himachal.
w
But since Goa, Sikkim are very small states with a unique economic situation, so it:ll distort statistical formula. So, there are some
internal Ene tunings done in formula. Long story cut short: Haryana taken as benchmark for most states. If you:ve more intellectual
curiosity about how above indicators are calculated in real life, you may spend waste time in PHD-reading of the original report@
d
https://Encomindia.nic.in/
go

MCQ. For the horizontal tax devolution, the Fifteenth Finance Commission used how many
of the above as criteria other than population area and income distanceF (Prelims-2023)
1. Demographic performance 2. Forest and ecology 3. Governance reforms
rs

4. Stable government 5. Tax and Escal eoorts

he

Codes: (a) Only two (b) Only three (c) Only four (d) All Eve

23.4.1 [ ⚖ ⚖ ]15th FC: Horizontal devolution: StatesD share

ot

Table 1: Try to remember 3-5 names in top & bottom each, & your home state for UPSC Interview.
1) Uttar Pradesh (17.931%) 11) Chhattisgarh (3.418%) 21) Himachal (0.799%)
2) Bihar (10.061%) 12) Gujarat (3.398%) 22) Meghalaya (0.765%)
p

3) MP (7.886%) 13) Jharkhand (3.313%) 23) Manipur (0.718%)

4) W. Bengal (7.519%) 14) Assam (3.131%) 24) Tripura (0.709%)
el

5) Maharashtra (6.135%) 15) Telangana (2.133%) 25) Nagaland (0.573%)

6) Rajasthan (5.979%) 16) Kerala (1.943%) 26) Mizoram (0.506%)
H

7) Odisha (4.629%) 17) Punjab (1.788%) 27) Sikkim (0.388%)

8) Tamil Nadu (4.189%) 18) Arunachal (1.76%) 28) Goa (0.386%)
9) Andhra (4.111%) 19) Uttarakhand (1.104%) ANY type of UT = 0% here
10) Karnataka (3.646%) 20) Haryana (1.082%)

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2B: Budget → Revenue → 15th FC, Black Money, Subsidies→ Page 380

KING R & QUEEN P Help others god will help you

 23.4.2 14th Finance Commission- Horizontal formula
Finance Commission also gives formula for How to distribute that share horizontally with
individual States (Guj | Bihar | MH | TN...). 14th FC (YV Reddy):s formula was…
14th FC horizontal distribution formula components Weight %
Z\*RV Population: as per Census 1971 17%
Demographic Change as per Census 2011 (To consider the
LPt*G†|Wù/ \R§*( 10%

u
migration angle.)
Income-Distance: Based on per capita income of a state (GSDP ÷

yo
Z/-Ræ+V 50%
its population). Accordingly, poorer states get more weight
^T_ Area: more area more weight 15%
Forest-Cover: more forest cover more weight because of

lp
(P-Z(+I Opportunity cost (State can:t allow industries there, else it could 8%
have obtained some taxes)

he
Based on above formula, Highest to Lowest was: Uttar Pradesh > Bihar > MP > WB > MH > Raj>
….. > Mizoram > Goa > Sikkim.

23.4.3 Finance Commissions & the fate of UTs of J&K & Ladakh
ill
w
Until 10 Finance Commission, the FC would also prescribe the revenue sharing formula between
th

the Union Government and Union Territories.

 But this practice stopped since 11th Enance commission i.e. Finance ministry itself decides how
d

much revenue will be shared with Union Territories based on its own discretion (WòöS*ØtH [RTSáGWá
go

•WHPTJÉt* RTP* vÉ= Wòö t+W*+ FJPT'((TW tTH/ W+H* vÉ. '(Ü Z/áu ¢t nò\᧠PvVGtWH*).
 Finance Commission no longer prescribed formula in this regard. But,
 31st October 2019: ∞e state of Jammu Kashmir was ozcially split into the union territories of
rs

Jammu Kashmir and union territory of Ladakh.

 Jammu and Kashmir Reorganization Act, 2019 mandates that:
he

o Whatever amount the former state of J&K was supposed to receive between 31/10/2019
to 31/3/2020 (as per 14th FC formula) …It will be distributed between these two new
union territories on the basis of population ratio and other parameters.
ot

o President of India shall require 15th FC to make award for UT of J&K.

o But, 15th FC report, no separate share is given in verticle / horizontal tax devolutions.
p

Simply 1% extra kept with Union to look aser J&K & Ladakh, compared to 14 th FC.
el

23.4.4 → ( ) Grants from Union to States : 14th FC

Apart from the tax devolution, FC would also suggest Union to give grant to the states (grant= NOT
H

loan, so need not return with interest). (FPQR*P= nH§\ +*ú t+W*+ PT(á JÉt* Wòö Wá (*Jt PvVGW+P*)
14th FC suggested following types of grants→
1. For All States: Grants for Panchayati Raj Institutions (PRI) and Urban Local Bodies (ULB) are
subdivided into two parts (JG)*/HV +*L ( Sv+V U*PV/ 'PW*/áGWT £§r FPQR*P Rá •v¶áGnò'(â*ÑLH)

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2B: Budget → Revenue → 15th FC, Black Money, Subsidies→ Page 381

KING R & QUEEN P Help others god will help you

 a. basic grant ([*,¿nW) and
b. (10-20%) performance based grants.([RS-P Z]*ü+H)
2. For All States: Disaster Management Grants. (ZJR* [\G]P FPQR*P)
3. For 14 States: Post-Devolution Revenue DeEcit Grants. (FGH+I-JK +*LM N*O* FPQR*P)

23.4.5 → ( ) Grants from Union to States : 15th FC

15th FC suggested following types of grants → Numbers NOT GREATLY IMPORTANT

u
yo
lp
he
ill
w
d
go
rs
he
ot
p
el
H

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2B: Budget → Revenue → 15th FC, Black Money, Subsidies→ Page 382

KING R & QUEEN P Help others god will help you

 Type Report#2 (2021-26)
1 Local Bodies Grants (U*PV/ 'PW*/ FPQR*P A)2.##Lcr Rural
B)1.##Lcr Urban
=total 4.36Lcr
2 !"Post-Devolution Revenue DeEcit Grants 2.94 Lcr
3 Disaster Management Grants (ZJR* [\G]P A) 68 kcr in Union ke Disaster

u
FPQR*P) funds
B) 1.22 Lcr in State ke Disaster

yo
funds
4 Sector SpeciEc Grants: (^T_-'(`Sa FPQR*P) with >1 lakh crore for (Sectoral grants
Health, Education, agricultural

lp
Performance-based incentives ('P¡*RP-Z]*ü+H
[á≠*vP) reforms, rural roads, Judiciary,

he
Statistics, Aspirational districts)
6 State speciEc grants for tourism, historical 49599 cr.
monuments, infrastructure, water etc.
7
8
Special Grants: ('(ST. FPQR*P)
Union Govt ke liye Defense and Internal Security Fund
ill N/A
2.38 Lcr
w
Total >10 lakh Cr
23.4.6 ♂Post-Devolution Revenue Descit Grants (j~gMK-\å M;>ç |;_; jAo=;A)
d
go

Figure 1: @ABC DE FGHI JC, @AIEK EILM NIOKBP QEFIR BK STU!

rs

Suppose (amt in écr) 2020-21

Andhra:s own State Budget: (-) 41 kcr
he

Revenue Expenditure -minus Revenue Income = Revenue DeEcit (+*LM N*O*)

Andhra:s share from Union:s taxes based on horizontal devolution (+) 35 kcr
ot

Andhra:s Post-Devolution Revenue DeEcit = 41-35=6 kcr.

So 15th FC will give Andhra extra 6 kcr as Post-Devolution Revenue DeEcit Grant (j~gMK-\å M;>ç
|;_; jAo=;A). Only 14 states eligible: Assam, Himachal Pradesh, Manipur, Meghalaya, etc eligible.
p

(Full list of all 14 States Not important)

el

FAQ: Give me full list of all 14 States1 Ans. I:d not loose sleep over it. Satisfy your PHD
H

curiosity with Page 297 here in this ozcial report

FAQ: On above logic/formula, wouldn:t a careless state govt spend truckload of money by
borrowing from market1 Ans. REF: Pillar2D: FRBM Act.

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2B: Budget → Revenue → 15th FC, Black Money, Subsidies→ Page 383

KING R & QUEEN P Help others god will help you

 23.4.7 15th FC: Special Grants: ( ⌫H@I jAo=;A)
Report#1 (2020-21)

 If a state receives less àà in (15th FC:s devolution + post revenue deEcit grants) in 2020-21
compared to 2019-20 (when 14th FC Rangarajan:s formula was in eoect),
 ∞en such State will get Special Grants just to prevent any µfeeling of injustice / bias: (Fu+ 14(ò'(Ü
Z/áu Wù FJT^* 15nòWn ¿n§ +v* vá Há Fb*/ / J^J*H WT Z+áJ tT\)PTWT £§r éP +*úáGWá '(ST. FPQR*P)

u
 Only 3 states eligible: Karnataka, Telangana and Mizoram. Total à6,764 cr for 2020-21
Report#2 (2021-26)

yo
- No such grant announced. (ƒt* Wáq '(ST. FPQR*P PvVG•R/* u/*)
23.4.8 15th FC: Local Bodies Grants (:;A<⇢ AL;⇢ jAo=;A)

lp
he
ill
w
d
go
rs
he
ot
p
el
H

Figure 2: img source: Lagaan Movie starring Amir Khan

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2B: Budget → Revenue → 15th FC, Black Money, Subsidies→ Page 384

KING R & QUEEN P Help others god will help you

 23.4.9 15th FC: Disaster Management Grants (⇡\=; àè~lA jAo=;A:)
Disaster Management Act, 2005 → Ministry of Home Aoairs (u≈v nG_*§/) looks aser the subject.
15th FC: recommend National Disaster Risk Management Fund State Disaster
kÅê;]MH@ (NDRMF: rPäVZ+rnrπ/+*añV/ ZJR* Lá∆ãn [\G]P Wá.) Risk Management
Fund (SDRMF)
Internal distribution  80% amt for National Disaster Response Fund Same pattern, change

u
ZGHü+W '(H+I (NDRF:rPäVZ+rπ/+*añV/ ZJR* tv*/H* Wá.) word from National
 20% amt for National Disaster Mitigation

yo
to µState:
Funds (NDMF:rPäVrnrπ/+*añV/ ZJR* [SnP Wá.)
ëëNotes on SDRMF:
1) How much will an individual state get1 Ans= depends on its past disasters, risk exposure (area &

lp
population wise) etc. ZJWT +*ú nòZJR* W* Lá∆ãn •WHP* vÉét •vt*\ tTWn / ú*R* JÉt* ¿n§T
2) Respective State Govt is also required to contribute some money in SDRMF.

he
23.4.10 15th FC: Sector Specisc Grants (z@m- ⌫íHì jAo=;A)-Malnutrition
-
ill
Report#1 (2020-21): 15th FC only recommended health → Nutrition grant (à7700+ cr Já.I
FPQR*P) to combat malnutrition (WQJá.I). Ministry of Women and Child Development (MoWCD:
w
n•v§* \*§ '(W*t nG_*§/) will oversee its utilization.
- Report#2 (2020-21): no special mention of Malnutrition grants. But, related to health are given
d
below in the following table:
go

23.4.11 15th FC: Sector Specisc Grants (z@m- ⌫íHì jAo=;A)-Health

Type Report#2: (2021-26) Amount
Sectoral Grant → Healthcare @Local (Rural and urban) Local Bodies given àà to 70kcr
convert Primary Health centres (PHC) into
rs

Bodies
\~X;⇢g< M;>/A⌧M\;ï`L;i~L à;wñhL ç;ó health and wellness centres (HWCs)
he

LÄp L ç;ó òM Lô;K LÄp hÄ\]M⌫ögg

LMA@L@ ï`Ü _õL }M L@ \bÅ;
Sectoral Grant → Health Critical Care hospitals i.e. facilities with 15kcr
ot

A;>oL =@ú};` L@ jùg;` ~L èA;A@L@ ï`Ü Intensive Care Unit (ICU) ventilator, kidney
\bÅ; dialysis etc.
p

Sectoral Grant → Health Training of Allied Healthcare workforce (lab 13kcr

ïXûLü; Å~`† h;A⌫ è` LÑ g;`<h L@ ï`Ü \bÅ@ technicians, radiographers, dieticians,
el

Physiotherapist, ASHA Worker etc)

H

Sectoral Grant → Health State government to run Doctor training 2kcr

í>`@L@ jùg;` ~hÄ°¢£M< g;`<h L@ L Å? courses in district hospital
LM⌫;A@L@ ï`Ü \bÅ;
Lo` ñh`;LM Total: 70kcr to local bodies + 30kcr as Sectoral 1.06
Grants = 1.06 Lakh cr. Lcr.

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2B: Budget → Revenue → 15th FC, Black Money, Subsidies→ Page 385

KING R & QUEEN P Help others god will help you

 ëë Healthcare sector Grants are unconditional i.e. not based on performance of a State Govt.

Additional Recommendations by 15th FC on Healthcare

 Union and State Government together should spend 2.5% of GDP on Healthcare sector by 2025.
(Wòö õ+ +*ú t+W*+ PT¿n§W+ M*« ^T_ nòt*(-L'PW ã)-Wá \»*W+ LVäVJV WT …*q ['HSH HW W+P* )*•vr)
 All-India Services Act, 1951: (presently we've IAS,IPS,Indian Forest Service) → make 4th All
India service: "All India Medical and Health Service" → UPSC to conduct recruitment. ∞is will

u
help addressing the shortage of doctor in backward states. Zqrrt/ZqJVrt Wù HL-J+ rW õ+ F∆ã§

yo
â*+HV/ tT(* \P*q L*r "F∆㧠â*+HV/ )•W≠* r(G M*« tT(*" H*•W 'JÀÃT+*úáGnòäÕŒ+áGWù WnV Wá Jx+* •W/* L* tWT
 Most of the medical colleges and super-speciality hospitals (e.g. Cancer) are concentrated in the
Western and Southern parts of India. Union and State government should make eoorts to

lp
address this.(JÑKnV/R`^IV +*úáGWT F§*(* (*§T'(w*+ nòâV Fœ– nT•äW§ WÕ§TL/F—H*§ \P*PTJ+ Lá+ •R/* L*r)

he
23.4.12 15th FC: Sector Specisc Grants (z@m- ⌫íHì jAo=;A)- Others(je)
Report#2: (2021-26) Amount
W≈'. ^T_ nòtQ]*+áGWT £§r -PV'H Z/áu ¨*+* Implementation of agricultural reforms e.g.
[w*'(H W*PxPáGWá J*ü+H W+P*, âxL§
ill
Passing the agricultural formula suggested by
w
tG(]-P, 'H§vP R*§ §WÃV é“*RáGWá Niti Aayog, Groundwater conservation, 45kcr
[á≠*vP, W≈'. 'P/*-H Wá \»áH+V Improving Oilseed pulses wood products,
d
agricultural export, ( Ref: HDT-Pillar#4A)
”*nVI tÃWáGWù n+ûH Maintenance of PMGSY roads (Pradhanmantri 27 kcr
go

Gram Sadak Yojana) ( Ref: HDT-Pillar#5-

Transport Infrastructure)
b*‘/W tQ]*+ -F'Hü+° b*/*§/ õ+ Judiciary: àà for Setting of extra courts and
rs

LLáGWù 'P/Q†° WT £§r JÉt*- ÑLtT5 t*§ judges to Enish the the property cases which are 10 kcr
/* éttTFØ]W '(§G'\H tGJ Ü/áGWT n*n§áG pending for 5 years or older, Civil cases of
he

W* 'PJO*+*, \’áGWT /ÅP Sá.I,uGâV+ marginalized people, POSCO cases (child sex
FJ+*] WT n*n§áGW* L÷V 'PJO*+* abuse) & heinous crimes
ot

é’ `S^* nò◊P§*¢P J»*q Wù Æ(U* Higher Education-For 1) developing online 6 kcr

H,* )•W≠* õ+ ¢GLV'P/ü+Gu WT Wát-Wá learning 2) translating medical engineering
[*RT̀SW â*.* nòFPQ(*•RH W+PTWT £§r courses in regional languages
p

ÿx§V `S^* School Education 4.8 kcr

el

t*G†|Wù/äTO* tG”v Statistics/Data collection >1000 cr

∞ese grants also include internal quota for performance based incentives i.e. Better performing
H

States will be given additional money. (¢P tâV FPQR*P nòWQÀ FGRŸPV/ZGHü+W WáO* váH* vÉ, ÑLtnòFØ]W Fœ*
[RS-P W+PT(*§T+*úáGWá FØ]W +Wn ¿n§ tWT)

23.4.13 Defence and Internal Security Fund for Union

For whomF Union Government (Wòö t+W*+ WT £§r)

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2B: Budget → Revenue → 15th FC, Black Money, Subsidies→ Page 386

KING R & QUEEN P Help others god will help you

 WhereF Public Account of India → Modernisation Fund for Defence and Internal Security
(MFDIS: §áW §Tã* 'PØ] WT FGHu-H +^* H,* ZGHü+W tQ+^* WT P(VPVW+I/Z]Q'PWùW+I WT £§r Wá. /*
'PØ]).
Type Non-lapsable Fund (∞e money in such fund will not lapse on 31st March, so it can
be used in future without getting another approval from parliament.) '\PÆJuH 'P]V
Amount à 2.38 Lcr (total for 2021-26)

u
MCQ. Find correct about 15th Finance Commission is/are correctF (EPFO-2023)
1. Basic (untied) grants can be used by rural local bodies for location- speciEc felt needs under the 29

yo
subjects enshrined in the Eleventh Schedule of the Constitution of India except for salaries and other
establishment costs.
2. Tied grants can be used for basic services of sanitation and maintenance of ODF status,

lp
management and treatment of household waste and human excreta.

he
3. It recommended 'Health Grants' to create diagnostic infrastructure in primary health care
facilities. Ans. Codes: (a) 1 only (b) 2 and 3 only (c) 1 and 3 only (d) 1, 2 and 3

23.5 ♂( ) FC: GIVING PERMANENT STATUS (U*/V RL*-RTP*)

Shised to Mains Handout.
ill
w
23.6 FC VS PC VS NITI: WHATDS THE DIFFERENCEF
d
go

Finance Planning Commission (PC) NITI Aayog

rs

Commission (FC) ⇢ >A; ⇡⇢ ⌧ National Institution

for Transforming India
he

Constitutional body Created by executive resolution, so neither constitutional non

statutory. Both headed by Prime Minister as the chairman.
1951: 1st FC setup under KC -1951: PC set up and over the years -2015: Formed.
ot

Neogy designed 12 Five Year plans -∞ree Year Action Agenda

(12th FYP: 2012-2017) (2017-20).
p

-2014: Dissolved by Modi -Seven Year Strategy Document.

Government. -Fiseen Year Vision
el

Document(2017-32).
- Taxes: Vertical 1. How much money should It is not in its scope of work to
H

Devolution and union give to each state for decide how much money
horizontal distribution implementation of Union:s should be given to each state.
among states. centrally sponsored schemes ∞at component is decided by
- + any other matters (CSS)1 the Finance Ministry.
referred by the President 2. How much money should - NITI:s primary objective is

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2B: Budget → Revenue → 15th FC, Black Money, Subsidies→ Page 387

KING R & QUEEN P Help others god will help you

 Finance Planning Commission (PC) NITI Aayog
Commission (FC) ⇢ >A; ⇡⇢ ⌧ National Institution
for Transforming India
in TOR union government give to the to serve as the think tank of
- Each Finance Eve year plans of the state the Government of India,
Commission arrived at governments1 - Helps in policy design.
its own methodology. To answer these Qs, PC would use - Helps in monitoring

u
E.g. 14th FC: 42% Gadgil Mukherjee formula schemes: through its

yo
vertical, and 5 factor (designed in 8TH FYP)- based on dashboard e.g. µSchool
formula for horizontal population, per capita income, Education Quality Index:,
distribution. special problems etc. of a state. µSDG India Index:, µDigital
Transformation Index:

lp
< More about Planning Commission and NITI Aayog in Pillar#4>

he
MCQ. In India, which of the following review(s) the independent regulators in sectors like
telecommunications, insurance, electricity etc. F (UPSC Prelims-2019)
1. Ad Hoc Committees set up by the Parliament.
2. Parliamentary Department Related Standing Committees
ill
3. Finance Commission (4) Financial Sector Legislative Reforms Commission (5) NITI Aayog
w
Answer Codes: (a) 1 and 2 (b) 1 , 3 and 4 (c) 3, 4 and 5 (d) 2 and 5
23.7 ( ♂ ) SPECIAL CATEGORY STATESF '(ST. ⁄TIV WT +*ú?
d
go
rs
he

Figure 3: @AIEI EIX YEZ[ @G, \HSTU @AK]^BIH BK STU B_` HEBIE aKbTY HKcKE HIEI FGHI JKaI dIe@U.
- 1952: ∞e National Development Council (NDC: +*aVñ/ '(W*t Jü+.R) was set up, with PM, CMs and
other representatives to approve FYP prepared by the Planning Commission.
ot

- Although NDC became obsolete with establishment of NITI Aayog.(πxO* €Z W*+Hxt \P )QW* vÉ)
- 1969: 5th FC recommended giving extra àà+ tax-relief to certain disadvantaged states. Over the
p

years, NDC added more states into the Special Category List based on
el

✓ (i) hilly and dizcult terrain (Jv*ÃV õ+ W•≤P âxâ*u)

✓ (ii) low population density and / or sizeable share of tribal population (Wn LPtG|*
H

NP‹ õ+ / /* LPL*HV/ LPtG|* W* \Ã* •v¶*)

✓ (iii) strategic location along borders with neighbouring countries (JÃátV RTSáGWT t*,
tVn*pGWT t*, +IPV'HW U*P)
✓ (iv) economic/infrastructural backwardness (Zî,W/F(tG+)P*ìW 'JÀÃTJP)
✓ (v) non-viable nature of state Enances. (+*ú '(Ü Wù uÉ+-'P•vH [W≈'H›)
(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2B: Budget → Revenue → 15th FC, Black Money, Subsidies→ Page 388

KING R & QUEEN P Help others god will help you

 - Examples: 8 North Eastern states and 3 Himalayan States (JK, Uttarakhand, HP). Although,
Post-370 removal, J&K is no longer in this list.
- Benests of Sp.Cat. StatesF ('(ST. ⁄TIV WT +*úáGWá å* ü+/*/HT/ §*â ¿n§HTvÉ?)
✓ Industrialists will be given beneEts in Union-taxes for setting up factories in these states.
(éfiáuJ'H Wá πÉŒñV §u*PTJ+ W+ nòÀxO/ ü+/*/H- H*•W (v 'JÀÃT+*ú nòL*PTWT £§r ZWfl.H vá )
✓ Union bears higher burden in Centrally Sponsored Schemes (CSS) e.g 90:10 ratio: (Wòö

u
[*/áÑLH /áLP*rG nòWòö t+W*+ FJPV LT\ tTú*R* FPQJ*H nòJÉt* RTH*)

yo
✓ FC & PC would assign more weightage in their formulas to give them more funds.
- 14th FC: Previous FC assigned extra weightage & funds to Sp.Cat states, but 14th FC stopped
- But, whenever elections are near, W.Bengal, Bihar and Andhra CMs would demand Sp.Cat.

lp
status & blame Union for µinjustice:. ()QP*( W+V\ vá- ét (‡ WQÀ +*ú P*¢Gt*πù Wù \*H W+HTv·)
- 15th FC: Some States have requested special category status. But it:s not part of our

he
mandate/Terms of Reference. ('(H‚Z/áu WT '()*+*,-'(./á nT/TvÉvV PvV!)
- So, at present, Sp.Cat states don:t get additional revenue/grants in FC:s formula. Although,
Union upon its own discretion continues to give them certain beneEts in CSS. ((H-n*P '(Ü Z/áu,

ill
¢P +*úáGWá F§u tTWáq JÉt* PvVGRTH›T •WGHQWòö t+W*+ M/G WT '((TW tT/áLP*pGnòú*R* JÉt* RTtWHV vÉ›)
w
24 TAXATION → BLACK MONEY & ALLIED ISSUES
d
go
rs
he
ot
p
el

Tax Planning / Tax When person invests money in LIC/PPF/Pension funds etc.in such manner
Mitigation that he can claim various deductions legally available in the Income Tax Act.
H

(W+-'P/áLP) It:s neither illegal nor unethical. (P vV F(É] õ+ P vV FPÉ'HW)

Black Money It is an income or transaction that is taxable yet NOT reported to the tax
(W*§* ]P) authorities concealed from the tax authority.
W*§*]P ƒtV Z//§TPRTP vÉLá Wù W+-J*_ vÉ, •W‰QW+-FØ]W*ü+/áGtT£ÀJ*q uq.
Parallel Economy ∞e economy that runs on black money. (tn*P*GH+ F,-Æ(U* Lá W*§T]P J+ )§HV vÉ)

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2B: Budget → Revenue → 15th FC, Black Money, Subsidies→ Page 389

KING R & QUEEN P Help others god will help you

 Tax Evasion When person hides income or transaction from tax authorities, and thereby
(W+ FJ(G)P evades paying taxes. It:s illegal. (W+*]*P /á Z/ /* §TP RTP Wá t+W*+ tT£ÀJ*P*)
W+-)á+V)
Tax Avoidance When person discloses his income and transactions to tax authorities but uses
(W+ Jü+v*+ legal loopholes to avoid paying taxes. E.g. Bollywood stars who register digital
W+-O*§P*) media companies in Tax Havens. It may not be illegal in every case, but still
unethical. (W+*]*P /á ZnRPV /* §TPRTP Wá t+W*+ tT£ÀJ*P* P•v, §T•WP Ê*PxP nT£ÀöáGWT

u
¢wTn*§ ¨*+* W+ Wá O*§P* L*P*› )

yo
Tax Haven Is a country that demands little taxes from foreigners and ooers legal
(W+ Mu-) loopholes for Tax Avoidance & opportunities for Tax Evasion. E.g.
rt* RTS Lv*GW+ O*§PT/ Liechtenstein, Mauritius, Marshall Islands, Cayman Islands, Panama, Nauru,

lp
Vanuatu etc. ∞ese countries are geographically small, & without viable
£ÀJ*PTWT £§r \€H F(t+
economy. So they ooer such mechanism to attract foreign investors and
¿n§HTv·

he
foreign tourists.
→ Money  When drug trazcking, ransom, corruption and other criminal activity
laundering generates substantial proEts, the criminal tries to spend / invest / hide the
money without attracting attention.
(⌧bML;AfA< gM<L@ Å@à;§
lA L ⌫bl èA;A;)
ill
 Money laundering (lAH lA) is the process of disguising the source of
w
money, as if it came from a legitimate activity, & then channelize it into
banks, share market and other Enancial intermediaries.
Hawala  Hawala is an illegal money transfer / remittance system. Money is paid to
d

uÉ+ W*PxPV ŸJ tTrW Luv an agent who instructs an associate in the relevant country or area to pay
go

tTRæt+V Luv JÉt* âTLP* the Enal recipient.

Although used by Indian workers in middle east because lower commission
than post-ozce/bank transfers, + better network in remote villages
rs

Shell srms, ∞ey do not have any active business operations. Created with sole objective
Post-box/ of money laundering/tax evasion/avoidance E.g. Mishail Packers and Printers
he

Letter-box Pvt Ltd. allegedly setup by Misa Bharti Yadav to launder à1.2 crores (as per
companies Enforcement Directorate). n*_ W+ )á+V WT £§r \P*q uq WGJ'P/*G
Panama Papers International Consortium of Investigative Journalists is a USA based
ot

(2016) nonproEt organization: released these incriminating documents from certain

Paradise Papers law Erms in tax havens & showed how big politicians, businessmen,
(2017) sportsmen, Elmstars have setup shell companies for tax evasion/avoidance
p

Mauritius papers across the world.

el

(2018) Putin, Sachin, Ambani, Amitabh Bachchan & Aishwarya Rai also named in
Pandora Papers these papers. (J_W*+áGW* rW (ÉÑÖW tGu≤P ÑLÁáGPTF§u F§u Rw*(T{ L*+V W+ t*'\H •W/*-
H

(2021) WÉtTR'ËP/* WT +txãR*+ §áu È{ó WGJ'P/*G\P*W+ W+ )á+V W+HTv·)

Tax Terrorism - Happens when tax authorities put undue pressure on an honest taxpayer
(W+ ZHGW(*R) to pay more taxes. (qn*PR*+ W+R*H* J+ OÉÍ FØ]W*+V FP*(ÎW R\*( / é“VÃP W+T)
: - Critiques have used this word in context of Vodafone & Cairn cases.
TDS/TCS Tax Deduction at Source (TDS) ÏáH J+ W+ WOÅHV
(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2B: Budget → Revenue → 15th FC, Black Money, Subsidies→ Page 390

KING R & QUEEN P Help others god will help you

 Tax Collection at Source (TCS) ÏáH J+ W+ tG”v
∞ese are the mechanism to discourage tax evasion. Ref:2A: IT Handout
PAN Card 10 letters alphanumeric numbered assigned to all taxpayers in India by
U*q ã*H* tG|*W Income Tax Dept. Ref: 2A: GST Handout for more.
24.1 ( ) BLACK MONEY → NOTABLE ORGANISATIONS

u
yo
FinMin → Department of Revenue → ED is a Specialized Enancial

lp
Enforcement investigation agency to enforce following laws
Directorate (ED: à⌫g?A 1. Foreign Exchange Management Act,1999 (FEMA)

he
A=@H;`⇢ ) founded in D56, 2. Prevention of Money Laundering Act, 2002 (PMLA)
HQ: Delhi. 3. Conservation of Foreign Exchange and Prevention of Smuggling
Activities Act, 1974 (COFE- POSA) to Eght against smugglers.

Directorate of Revenue
ill
FinMin → Department of Revenue → CBIC → DRI is an agency to
w
investigate Customs/Narcotics/Wildlife/Arms related smuggling & illegal
Intelligence
activities. (DRI: +*LM Ztx)P* 'PRTS*§/)
Dept of Revenue → CBIC → CBN (HQ: Gwalior). Also called National
d
Central Bureau of Opium Agency. (1) It supervises opium/poppy cultivation in Madhya
go

Narcotics (CBN) Pradesh, Uttar Pradesh and Rajasthan. (2) It Eghts against drug trazcking
using powers of Narcotic Drugs and Psychotropic Substances Act, 1985
Financial Intelligence It analyses the suspected Enancial transactions in domestic and
crossborder levels & reports directly to the Economic Intelligence Council
rs

unit (FIU-2004: ⌫⇠<⇢

⇡ÅfXA; ÜLL) (EIC: Zî,W Ztx)P* Jü+.R) headed by the FM
he

Deals with appeals in Union:s indirect taxes other than GST. (For GST,
Customs, Excise and there is separate tribunal, refer to previous handout)
Service Tax Appellate - Stage1: Junior Ozcers | Stage2: Commissioner
ot

Tribunal (CESTAT) - Stage3: Customs, Excise and Service Tax Appellate Tribunal
(CESTAT) | Stage4: HC → SC.
p

Financial Action Task - is a brainchild of G7, Combating Money laundering and terror
Force (FATF-1989: snance. India became member in 2010. HQ@Paris
el

HQ@Paris - Greylist: nations that safe haven for terror Enancing and money
⌫⇠<⇢ L;M?⌫;• L;⇢?=`: ¶Å@
H

laundering. E.g. Syria, Yemen, etc are on the grey list. (Update 2022:
è=h;H ßbM í®©@=;M =@H ~LÑ Mauratius & Pakistan REMOVED from this list)
ÅfX< èA;g; ^b>^;™lAH lA
- Blacklist: nations that are not cooperating in the global Eght against
òM ⇡g~LÑ ⌫⇠\ IK L@
money laundering, terrorist Enancing. Iran and N.Korea
´¨`;ê Å≠< A^<~^b)

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2B: Budget → Revenue → 15th FC, Black Money, Subsidies→ Page 391

KING R & QUEEN P Help others god will help you

 OECD (1961:  Organisation for Economic Co-operation and Development
HQ@Paris.  Works for International cooperation in the matters of economy and
⇡ÆwL Å^⇢ ⌧ gw; ⌫L;Å taxation. Known for Base erosion and proEt shising (BEPS) Norms.
Å~⌧ØA)  India is not a member of OECD, yet. HQ@Paris.
24.2 TAX EVASION (HIDING INCOME / TRANSACTION) (LM X M<)
24.2.1 Prevention of Money Laundering Act (PMLA-2002)

u
yo
]PSá]P 'P(*+I FØ]'P/n

lp
➢ 1998: UN General Assembly (UNGA) declaration on Money Laundering → 2002: India enacts
this law to combat money laundering with search-seizure-arrest-penalty. Main agencyF

he
Enforcement Directorate. (tG/Q° +*añt*n*b Jü+.R Wù Ná.I* WT \*R â*+H PTÊ*PxP \P*/* ,*)
➢ Cases heard @ PMLA Adjudicating Authority (b*/'PI-/P [*Ø]W*+V) → PMLA Appellate Tribunal
(FJV§V/ [*Ø]W+I) → High Court → Supreme Court.
➢ RBI, SEBI, IRDAI and other regulators to make norms for Banks/NBFCs.
ill
w
➢ E.g. RBI:s Know Your Customer (KYC) norms and Anti-Money Laundering (AML) standards.
2013: Online Magazine Cobrapost:s sting operation proved ICICI, HDFC and Axis Bank were
d
louting norms so RBI imposed a heavy penalties.
go

24.2.2 PMLA Reporting Norms to apply on Crypto-exchanges (2023)

➢ crypto-exchange is a platform where buying and selling of bitcoin and other crypto currency,
NFTs takes place. e.g. Unocoin, Coinswitch etc.
rs

➢ 2023: cryptoexchanges will have to perform the know your customer (KYC) guidelines i.e.
collect ID proof, PAN/Aadhar, veriEed the residential address etc. (FJPT”*vW Wá Jv)*Pá 'P/n*(§V W*
he

J*§P W+P* váu*)

➢ crypto-exchanges will have to notify any suspicious transactions to authorities. (tG•RÌ §TPRTP WT \*+T
ot

nòt+W*+ Wá tx)H W+P* váu*)

➢ Govt issued these directives using Prevention of Money Laundering Act (PMLA-2002)
p

24.3 BURDEN OF PROOF & PMLA

el

Burden of proof = responsibility of substantiating statements with evidence. (tQ\xH JTS W+WT Z+áJ Wá
H

t*'\H/Øtê W+P*›)

Burden of Proof (Åèfg L; è ∞) Reverse Burden of Proof (Åèfg L; ±≤;-è ∞)

On Police/Prosecution. ∞ey:ve to prove accused On Accused Person. He has to prove he
person committed crime. (JQ£§t/t+W*+V (Êù§ PTt*'\H didn:t commit crime. (Z+áJV J+ \áÄ váu* •W (v
W+P* váu* •W Z+áJV PT(á LQn-/FJ+*]/uQP*v •W/* vÉ) M/G t*'\H W+T étPTuQP*v PvVG•W/*›)

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2B: Budget → Revenue → 15th FC, Black Money, Subsidies→ Page 392

KING R & QUEEN P Help others god will help you

 Burden of Proof (Åèfg L; è ∞) Reverse Burden of Proof (Åèfg L; ±≤;-è ∞)
e.g. Present Indian penal code (IPC) / future - e.g. Terrorist and Disruptive Activities
Bharatiya Nay Sanhita (Prevention) Act (Sanjay Dutt case)
- Narcotic Drugs and Psychotropic
Substances Act, 1985 (SRK-son Aryan)
- Prevention Of Money Laundering Act,

u
2002 (Rahul - National Herald Case)

yo
24.3.1 PMLA Amendments via Finance Bill = Money BillF

lp
he
ill
w
d
go
rs
he
ot
p
el
H

- Between 2015-19: Govt amended the PMLA Act

- To increase the powers ED to summons, arrest, and raids. ([(H-P 'PRTS*§/ Wù S†°pGnò\»áH+V)
- Imposed µreverse: burden of proof on accused. So automatically it became near impossible to get
bail. ({n*PH §uâu FtGâ( åáG•W t\xH W* éÓ*-\áÄ Z+áJV J+ vV ä*§* u/*)
- ∞ese changes were made by amending PMLA via Finance bill (instead of directly amending the

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2B: Budget → Revenue → 15th FC, Black Money, Subsidies→ Page 393

KING R & QUEEN P Help others god will help you

 PMLA Act- to avoid Rajya Sabha scrutiny) (]PSá]P Ê*PxP nòtV]* tGSá]P PvVG•W/* (P*-+*ú tâ* Wù FPQn'H
§TPV JÃHV vÉ, õ+ +*útâ* nòét (° \VLTJV Wù \€n'H PvVG,V› ¢t£§r J+á^ ŸJ tT'(H‚'\§ nò£ÀJ*W+ •W/*›)
- So, case Eled in Supreme court against this for violation of fundamental rights of the accused
person (through reverse burden of proof).
- 2022: SC held Govt is right in doing this & Opposition parties/PIL-Walla are wrong.
- 2023: Chief Justice of India (CJI) D.Y. Chandrachud said he will constitute a seven-judge
Constitution Bench to revisit this matter. (¢t n*n§TWá •π+ tTRTãTuV tQ[Vn WáO-Wù tG(T]'PW ãGäJV≤ )

u
yo
24.3.2 Undisclosed Foreign Income & Assets Act (UFIA-2015)

lp
he
FÔ*H '(RTSV Z/ H,* Jü+tGJ Ü FØ]'P/n
➢ It requires Indian residents to disclose their foreign assets (e.g. bungalow in Dubai, Bank account
in Switzerland), and income coming from foreign sources (e.g. shell company in Cayman Island)

ill
in their income tax forms. ('(RTSV ZnRPV õ+ '(RTSV 'P(TS Wù L*PW*+V FJPTZ/W+ πÕn-nòRTPV váuV)
w
➢ Such foreign income will be subjected to 30% income tax. No deduction, exemption or rebate
➢ Violation = Penalty + upto 10 years jail time.
➢ If a company is found violating the Act, then every person responsible to the company shall also
d

be liable for punishment unless he proves that it was done without his knowledge.
go

➢ Empowers Union to enter into agreements with other countries for the tax info exchange.

24.3.3 Benami Transactions Prohibition Act (BTPA- 1988, 2016)

rs
he

 1988:s original act did not achieve much results → amended in 2016. Main AgencyF Income
ot

Tax Department. (\TP*nV §TPRTP ('P.T]) FØ]'P/n:)

 Benami refers to properties that buyer registers in the name of his relative, personal stao (Driver,
p

Gardner) or a non-existent/ Ectitious persons (W*'PW Ɔ°) to avoid tax authorities: attention.
el

 E.g. 2018: Misa Bharti Yadav (allegedly) bought farmhouse in the name of her brother-in-law
Nilesh Kumar.
H

 Cases heard @ PMLA-walli bodies. Violation = ConEscation of property + penalty + Jail

MCQ. ≥Prohibition of Benami Transactions ActD: snd correct statement(s):( Pre-2017)

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2B: Budget → Revenue → 15th FC, Black Money, Subsidies→ Page 394

KING R & QUEEN P Help others god will help you

 1. A property transaction is not treated as a benami transaction if the owner of the property is not
aware of the transaction. (/•R tGJ Ü W* n*£§W Wvò•W “nQLT§TPRTP WT \*+T nò PvVGJH* ,*” Há étWù tGJ Ü Wá \TP*nV
PvVGn*P* L*ru*)
2. Properties held benami are liable for conEscation by the Govt. (\TP*nV tGJ Ü Wá t+W*+ LÛ/ÊÙTnT§TuV)
3. ∞e Act provides for 3 authorities for investigations but does not provide for any appellate
mechanism. Answer Codes: (a) 1only (b) 2 only (c) 1 and 3 only (d) 2 and 3 only

u
24.4 ( ) TAX EVASION → GOVT ANNOUNCEMENTS

yo
24.4.1 Tax (Evasion) ¥Surrenderµ schemes

YgaI@ B[hT BEC / jk-HAFlm BEC nC BA LgAIlaI QEaI @CYI / LKT a@ZoLIaI @CYI

lp
Under such schemes, a tax-evader can declare his undisclosed income, pay the taxes and penalty.
∞en, Income Tax Department will not pursue case against him. (Although Police may still pursue

he
case if income is from narcotics, kidnapping, extortion etc.)
Income Declaration OEerF 45% of the undisclosed income shall be taken away by govt as (tax 30%
Scheme (IDS) + surcharge + penalty). ~67,000 cr black money was declared.
from 2016 JuntoSept
ill
w
Pradhan Mantri - ~50% of the undisclosed income shall be taken away by Govt. as Tax +
Garib Kalyan Penalty + Pradhan Mantri Garib Kalyan Cess.
d
Yojana (PMGKY) - Further, 25% of the undisclosed income shall be deposited in RBI:s
Launched aEer
go

µPradhan Mantri Garib Kalyan Deposit Scheme, 2016:. It:ll be a Exed

Demonetization
deposit for 4 years @ ZERO % Interest rate.
ValidityG
2016-Dec: - ∞e PM Garib Kalyan cess, and deposit will be used for schemes related to
rs

To 2017-April irrigation,housing,toilets,infrastructure, edu, health etc.

- ∞e scheme was not very successful, hardly ~ à 5000 cr. declared.
he

Sabka - Businessman accepts his fault, Tax ozcials gives a µdiscount/relief/waiver:

Vishwas L.D.S in the penalty/late-fees, and the matter is settled, instead of litigating in
ot

Scheme 2019 courts for years & years.

In budget-2019 - For pending cases in Service Tax & Excise Duty
p

24.4.2 Vivad se Vishwas Scheme for Direct Taxes ( Budget-2020)

el
H

Presently, >à9 lakh cr worth direct tax cases pending before Appellate Forums (FJV§V/ nG)áGWT tn^
§G'\H n*n§T) viz. IT Commissioner (Appeals) → Income Tax Appellate Tribunals (ITAT: Z/W+ FJV§V/
b*/*Ø]W+I ) → HC → SC. So, Budget-2020 → hDirect Tax Vivad se Vishwas Bill/Act, 2020i.

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2B: Budget → Revenue → 15th FC, Black Money, Subsidies→ Page 395

KING R & QUEEN P Help others god will help you

  Scope: Appeal related to Income tax or Corporation Tax, pending before a forum as of
31/Jan/2020. ∞en,
 Taxpayers can settle with IT dept by paying 50-100% of the disputed tax amount- depending on
the case-matter.
 he'll get a complete waiver/relief from interest+penalty (˜*L õ+ LQn*-P* tTn*πù).
 Above scheme is valid upto 31/March/2020, then Atma-Nirbhar Bharat extended it further.
 ∞is scheme is not applicable if:

u
o person is under prosecution for criminal activities. (FJ+*Ø]W n*n§T)§ +vTvá)

yo
o If black money is hidden in foreign countries. ('(RTS nòW*§* ]P £ÀJ*/* vá)

24.4.3 Dispute Resolution Committee (DRC) in Budget-2021

Budget-2021 Announced to setup this committee under the Income Tax Act (Z/W+ W*PxP WT

lp

FGHu-H '((*R 'PJO*P t¿n'H)
 Anyone with a taxable income up to à50 lakh and disputed income up to à10 lakh shall be

he
eligible to approach the Committee. Committee can reduce, waive any penalty or give immunity
from any ooence. (uQP*v W\x§ W+ §á /tnÄÅH* W+(*§á Há Wn LQn*-P* â+P* váu* / LT§ PvVGL*P* váu* ¢ô*•R)
 It will help the small taxpayers to settle tax matters without going through legal expenses & time

ill
wastage in the regular appellate process. (i.e. viz. IT Commissioner (Appeals) → Income Tax
w
Appellate Tribunals (ITAT: Z/W+ FJV§V/ b*/*Ø]W+I ) → HC → SC. (ÀáOTW+R*H* W* WáO-W)v+V nò
nQWRnò\*LV n·tn/ õ+ JÉtT\) L*ru*)
 It will be a faceless / online Committee to ensure ezciency, transparency and accountability.
d

24.4.4 TDS on in∂uencers / in∂uencer tax

go
rs
he
ot
p
el
H

24.4.5 Tax Evasion → Other Initiatives from older days (je L=h)
Banking Cash A 0.1% direct tax levied on cash withdrawals from banks. Started by
Transaction Tax Chidambaram but later withdrawn (2005-09). Objective was to encourage
(BCTT: 2005-09) less-cash economy and data mining of transactions.

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2B: Budget → Revenue → 15th FC, Black Money, Subsidies→ Page 396

KING R & QUEEN P Help others god will help you

 A proposal by a Pune based think-tank to Baba Ramdev that all the direct
and indirect taxes of the Union and states should be abolished and
(Suggested) Banking replaced with 2% tax on banking transactions.
Transaction Tax (BTT) Impracticable because such experiments were tried and failed in Australia
\·•WGu §TPRTP J+ W+ and other countries as people shised to using barter system, diamonds
and gold for transaction. 2017: Govt clariEed they are not considering any
such proposal. So NOTIMP

u
Chairman: Retd. SC Justice MB Shah, and senior tax ozcials. ∞ey
SCDs special investigation

yo
recommended various measures against Black Money hidden in India, in
team (SIT) on Black
overseas banks, P-Notes etc. SC ordered Govt to implement its
Money 2014
recommendations.
Operation Clean Money 2017: IT Dept. veriEed large bank deposits made Post-demonetization.

lp
Budget 2017 → Finance Act, 2017 →

he
1) if anyone accepts à 2 lakh /> CASH in a day / in multiple transactions
related to one µevent:, then Income Tax Dept penalty = 100% of the cash
received.
Restrictions on Cash
Banks, post ozce, govt organisations that receive cash = are exempted.
Transactions, 2017

ill
2) normally political party does not have to pay income tax. But if
political party accepts more than à2000 CASH as donation → political
w
party will have to pay income tax on such donation. (qis rule made to
encourage the use of cheque/ NEFT/ RTGS/ Electoral bonds in donation.)
d
Electoral Bonds, 2017 Ref: Pillar#1C: SEBI/Sharemarket handout
go

24.5 ( )TAX AVOIDANCE (W+ Jü+v*+ / W+ O*§P*)

Here, people will not hide the transaction, they:ll blatantly declare transactions in their ozcial
records, but will use legal loopholes (W*PxPV-ã*¿n/*) to avoid paying taxes.
rs

24.5.1 Double Taxation Avoidance Agreement (DTAA) & Round Tripping

he

➢ DTAA: It is a tax treaty signed between two or more countries.

➢ ObjectiveF A taxpayer resides in one country and earns income in another, then he need not pay
ot

(direct) tax twice in two countries for the same income.

➢ e.g. India Mauritius DTAA (1982): If a Mauritius person / company buy shares in India and sells
them at proEt, then he need not pay Capital Gains Tax (CGT) in India. Only the Mauritius
p

government can ask CGT from him. And vice-versa. (Ráv+* W+*]*P Jü+v*+ tnLÅH*)
el

➢ LoopholeF India has ~10-20% CGT whereas Mauritius ~0-3% CGT (depending on nature of
asset, how long the buyer kept asset before selling etc). So many Indian Politicians, Businessmen
H

and Bollywood actors would transfer the money using Hawala to their shell companies in
Mauritius → make those Mauritius Cos to invest back in Indian assets → avoid Indian CGT.
➢ ∞is process is called Round Tripping (+*éGä-•Oñ'JuG ) i.e. money that leaves the country through
various channels and makes its way back into the country as foreign investment.

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2B: Budget → Revenue → 15th FC, Black Money, Subsidies→ Page 397

KING R & QUEEN P Help others god will help you

 ➢ Similar loophole in India Singapore DTAA. 2016: Modi government amended the treaties = even
Mauritius and Singapore investments in India will be subjected to Indian taxes.

u
yo
lp
he
ill
w
d

24.5.2 International Law: Monism and Dualism & application of DTAA

go

Monism- j∏bg⌫;= Dualism- ∏bg⌫;=

A dualist system treats the international and
International law is superior to domestic law.
domestic systems of law as separate and
rs

(FGH+*-añV/ W*PxP N+T§xW*PxP WT ≥J+ vÉ/ t(¯J+V vÉ›)

independent (RáPáGvV F§u õ+ MHG_ vÉ)
If there in any conlict between the two laws,
he

then international law will prevail over the Not necessary.

domestic law.
ot

International law automatic applies to the International law will be applicable in a nation,
country without changing the local laws. ('\P* ONLY aser that nation amends its local national
+*añV/ w+ WT W*PxP nòWáq \R§*( •Wr FGH++*añV/ W*PxP WT laws. (L\ RTS WT ãQR WT W*PxP nòtQ]*+/tGSá]P •W/* L*ru*
p

[*(]*P tV]TvV ét RTS J+ §*ux/Fn§ vá L*rGuT› ) HâV étTRTS nòFGH++*añV/ W*PxP WT [*(]*P §*uxvá tWHTv·)
el

India doesn:t follow this system. India follows this system.

Why in newsF 2023: SC ruled DTAA applicable ONLY aser Indian government amends/notiEes
H

such DTTA under India:s own income tax act.

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2B: Budget → Revenue → 15th FC, Black Money, Subsidies→ Page 398

KING R & QUEEN P Help others god will help you

 24.5.3 Tax Avoidance through Non-Resident Status

Has to pay his IT on Has to pay IT on global income e.g.

If a person is
income coming from IndiaF income coming from the USA/ChinaF

u
Ordinarily
Yes Yes

yo
resident of India
Non-residents Yes No
If India has a double taxation avoidance agreement (DTAA) with other nation, then above things

lp
may dioer (e.g. recall erstwhile Mauritius CGT-roundtripping-walla example)

he
Table 2: Budget-2020 changed these desnitions
Desnition in Indian Tax laws Before Budget-2020 → Budget-2020
Ordinarily Indian Resident (t*]*+IH/* â*+HV/ 'P(*tV) 182 days/> in a year 120 days/>
= person who stays in India for →
Non resident (uÉ+ 'P(*tV)= person who stays outside ill
182 days/> in a year 246 days/>
w
India for →
 ImplicationsF Person will have to stay out of India for a longer period if he want to be treated as
d
hNon-Residenti to avoid taxes on his global income.
go

24.5.4 Place of EEective Management (POEM: \<i•Üh)

rs
he
ot
p
el
H

('(RTS nò\PV πLó WGJPV WT [\G]P W* (*w'(W U*P â*+H nò˘UH vÉHá â*+H t+W*+ étWT nQP*πT JTOT˙ n*GuTuV›)

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2B: Budget → Revenue → 15th FC, Black Money, Subsidies→ Page 399

KING R & QUEEN P Help others god will help you

 24.5.5 Base Erosion and Prost Shifting (BEPS: è<•\<ÜÅ)

u
yo
lp
he
ill
w
d
go

 When MNCs shis proEt from its source country to a tax-haven to avoid / reduce paying taxes, its
known as hBEPSi. (\€+*añV/ 'Pun ¨*+* nQP*πT Wá U*P*GHü+H W+P* H*•W â*+H nòétTOT˙ Wn â+P* JÃT)
 India signed the OECDDs joint Multilateral Convention to Implement Tax Treaty Related
rs

Measures to Prevent Base Erosion and ProEt Shising (commonly referred to as MLI) pqtVäV WT
\€J^V/ tnÄÅHTJ+ vw*^+ •Wr v·
he

24.5.6 Safe Harbour Rules (ÅoMπzg è~=M⌧;^ A⇢h)

It is a concept related to legal immunity (W*PxPV tG+^I).
ot

e.g. for social media e.g. for calculation of direct taxes

p

in certain type of transactions involving

if a user released pirated movie on Facebook →
el

transfer pricing and foreign investors →

govt will not take action against Facebook owner Indian tax o∫cers will not take action against
H

Mark Zuckerberg but government will take action those foreigners.

only against user.
See next section for transfer pricing.

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2B: Budget → Revenue → 15th FC, Black Money, Subsidies→ Page 400

KING R & QUEEN P Help others god will help you

 24.5.7 Transfer Pricing & Authority for Advance Rulings (AAR) (^ª;~gMK hfô)

u
yo
lp
he
Not really important› What above thing means 1 = explained in video lecture.
24.5.8 ( ) General Anti-Avoidance Rules (GAAR)
ill
w
Till now we learned how Indians and foreigners avoid tax payment in India through loopholes like
DTAA, POEM, BEPS, Transfer Pricing etc.
d
 So, UPA/Congress Govt setup economist Parthasarathi Shome panel who suggested General
Anti Avoidance Rules (GAAR: W+ Jü+(L-P +á]V Æ*JW 'P/n) → they were added Income Tax Act
go

 GAAR empowers Income Tax ozcials to send notices to both Indians and foreigners for
suspected Tax Avoidance. (For Tax evasion, we:ve separate laws- PMLA, UFIA, BTPA)
rs

 But critics alleged GAAR will result in tax terrorism, harassment, no ease of doing biz. So
successive Budgets kept delaying the GAAR- implementation. Finally done on 1/4/2017.
he

24.6 ( : ) RETROSPECTIVE TAX: VODAFONE

ot

 (Intro: Origin) To avoid paying capital gains tax in India, the foreign companies usually create
shell companies to indirectly transfer Indian assets. (â*+H nòJxGLVuH §*â W+ tT\)PTWT £§r '(RTSV WGJ'P/áG
¨*+* ST§ WGJPV \P*W+ â*+HV/ t˚ Ü/áGWù J+á^ ŸJ tT¸+VR '\˝ù Wù L*HV vÉ)
p

 e.g. 2007: Vodafone (Its Netherland subsidiary company) bought shares of CGP company
el

(Cayman Island based shell company) from HTIL Company (based in Hong Kong). ∞us,
Vodafone became (indirect) owner of Hutch (India) because CGP company owned Hutch India.
H

((áä*ÈáP PT¢tV H+v tTJ+á^ ŸJ tTâ*+HV/ WGJPV ‘v)’ Wá ¸+VR* ,*)

 Income tax dept demanded capital gains tax (CGT) → Vodafone went to Supreme Court. [Note:
In CGT: the administrative mechanism is such that IT dept will require buyer to deduct CGT &
Deposit. ∞at's why IT Dept asking Vodafone (buyer) for the CGT tax. For more watch lecture.]
 2012: Vodafone won the case. Indian Supreme Court ruled that presently Indian tax laws do not
allow taxation on non-Indian assets traded outside India. (t(¯’ b*/*§/ PTJ*/* •W ¢P ˘U'H/áGnòW+
(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2B: Budget → Revenue → 15th FC, Black Money, Subsidies→ Page 401

KING R & QUEEN P Help others god will help you

 n*uP* â*+HV/ W+*]*P W*PxPáGWT FØ]W*+ ^T_ tT\*v+ v·›)
 2012-May: UPA/Congress government amended the Income Tax Act 1961 with retrospective /
Ex post facto eoect that heven if non-Indian assets (e.g. Shares of Cayman Company) traded
among Non-Indians (Netherland and Hongkong walli companies), but IF the underlying value is
derived from Indian asset (Hutch) then then we can tax it.i (2012 nòt+W*+ PTÊ*PxP nòtGSá]P •W/* vÉ
H*•W 2007 Wù §TPRTP J+ Jx(-[â*(V/âxH§`^ ŸJ tTW+/OT^ n*u tWT)

u
yo
lp
he
ill
w
d
go
rs
he
ot
p

 (Desnition) Respective taxation= It is an act of demanding tax on a transaction that occurred in

el

the past, when such transaction was not taxable. e.g. in 2012- demanding tax on 2007:s event,
even though in 2007 it was not taxable as per law in 2007. (Jx(-[â*(V/âxH§^V W+*]*P /*PV Wù Wáq ƒtV
H

âxHW*§ Wù §TPRTP J+ W+ n*uP*, ÑLtJ+ ét âxHW*§ nòÊ*PxP ŸJtTW+ PvVG§uH* ,*)

 ∞en Govt issued fresh notices against Vodafone hnow any transactions that occurred aser 1962
are also taxable. So you pay tax + penaltiesh
 Separately, India had signed an investment treaty with Netherlands. Such investment treaties
allow the aggrieved investor to complain in the specialised international tribunals at Singapore,

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2B: Budget → Revenue → 15th FC, Black Money, Subsidies→ Page 402

KING R & QUEEN P Help others god will help you

 Netherland, etc So, Vodafone (its Netherlands subsidiary company) Eled case against Indian
Government in Netherlands. (•¨J^V/ 'P(TS tnÄÅHáGWT FGHu-H /•R '(RTSV 'P(TSW â*+H PTP*+*{ vÉHá (á 'P(TSW
'(RTS nòétWT \*+T nòWTt W+ tWH* vÉ. (áä*ÈáP WGJPV PTâ*+H WT ∆¸§*È PVR+§·ä nòWTt R*/+ •W/*.)
 ∞e then Gujarat chief Minister had Modi called it hCongress/UPA:s Tax Terrorism on
Companiesi (ét tn/ WT uQL+*H nQ|nG_V náRV PT¢tTW*G”Tt t+W*+ W* W+-ZHGW(*R \H*/* ,*)

24.6.1 ( : ) Retrospective Tax: Cairn Energy

u
Cairn Energy Company:s case is also similar to Vodafone Hutch case. Income tax dept was
demanding Capital Gains Tax. Cairn complained to Netherland Arbitration Court under the

yo
provisions of India Britain bilateral investment Treaty. (Such treaties allow the aggrieved investor to
complain in the specialised international tribunals at Singapore, Netherland, etc.)

lp
 2020-21: Netherland Arbitration Court had ordered Indian govt to pay $1.2 billion to Cairn
Energy for tax harassment. (PVR+§·ä Wù WáO-PTâ*+H t+W*+ J+ rW '\£§/P äÕ§+ tT⇤*R* W* LQn*-P* ä*§*)

he
 To recover this $1.2 billion compensation, Cairn company was trying to seize Indian Govt's
assets in foreign countries e.g. Air India planes parked on USA Airport, Indian Govt:s embassy
ozce/properties in Paris etc. (WGJPV nQZ({TWù (tx§V WT £§r â*+H t+W*+ Wù '(RTSáGnò˘UH tGJ Ü/áGJ+
ÊÙ*/PV§*nV )*vHV vÉ)

ill
o 2021-Aug: FinMin introduced a Taxation Laws (Amendment) Bill, 2021 to end
w
retrospective tax rule-( '(H‚nG_*§/ W* W+*]*P Ê*PxP tGSá]P FØ]'P/n ⌅⇧⌅⌃- ÑLtnòJx(-[â*(V/âxH§^V
W+*]*P Wá +⌥ •W/*)
d
o hIf indirect transfer of Indian assets occurred before May 28, 2012, then Indian
government will not demand taxes on it. (2012 tTJv§T€r ¢t [W*+ WT §TP RTP J+ Wáq âxH§^V
go

W+*]*P PvVGn*u* L*ru*›)

o however it requires that company need to drop the cases against Indian tax authorities,
Eled in the Indian and foreign courts. (v*§*•W ¢t ü+/*/H n·SH-/TvÉ, •W WGJPV PTâ*+HV/ t+W*+ WT
rs

∆¸§*È Lá Lá nQÊRnTâ*+HV/ õ+ '(RTSV FR*§HáGnòR*/+ •Wr v·, éÁò(*Jt §TP* váu*›)

 2021-Sept: Cairn agrees to drop cases Eled against India in France, Netherland, USA etc. And
he

government of India agreed to drop the (retrospective) tax demand against Cairn. Vodafone also
planning to do similar. (éP '(RTSV WGJPV/á PTâ*+H t+W*+ WT ∆¸§*È '(RTSV FR*§Há nòRL-•Wr WTtáGWá (*Jt £§/*)
ot

Which one of the following situations best re∂ects ¥Indirect Transfersµ often talked about in
media recently with reference to India F (Prelims-2022)
p

(a) An Indian company investing in a foreign enterprise and paying taxes to the foreign country on
el

the proEts arising out of its investment

(b) A foreign company investing in India and paying taxes to the country of its base on the proEts
H

arising out of its investment

(c) An Indian company purchases tangible assets in a foreign country and sells such assets aser their
value increases and transfers the proceeds to India
(d) A foreign company transfers shares and such shares derive their substantial value from assets
located in India

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2B: Budget → Revenue → 15th FC, Black Money, Subsidies→ Page 403

KING R & QUEEN P Help others god will help you

 24.7 : GLOBAL MINIMUM TAX (⌫bcdL efAgh LM)

 (Introduction: Origin) Tax Haven/Low Tax nations such as Luxembourg (Corporation Tax:

u
1.39%), British Virgin Island 0.07%, Cayman Islands 0.2 %. ∞ese countries are geographically

yo
small, & without a viable economy. So they ooer such a mechanism to attract foreign investors
and foreign tourists. (W+ Mu-ƒtTRTS v·Lv*GJ+ [ô^ W+áGWù R+ \€H Wn váHV vÉH*•W '(RTSV 'P(TS õ+ '(RTSV
J/-OWáGWá ZWfl.H •W/* L* tWT)
 Multinational corporations register their company here to transfer their proEts/avoid paying

lp
taxes to normal countries where they are operating. India is losing annually $100 cr, while USA
is loosing annually $500 cr by this. (\€+*añV/ WGJ'P/*GƒtTW+ Mu-Wù nRR tTW+-Jü+v*+/W+á Wá O*§HV vÉ.)

he
 USA: Former President Donald Trump decreased corporation tax from 35% to 21%. New
President Joe Biden aims to taxes for Corona-welfare schemes for Americans. Biden also
urged G20 group of countries to keep minimum level of Corporation taxes. (Given in next topic)

ill
w
24.7.1 : Global Minimum Tax: G7 Framework
G7 Summit-2021: ∞e theme is µBuild Back Better:. Venue: Cornwall, England. Members: US, UK,
d
France, Germany, Italy, Canada and Japan- with following outcomes:
go

 Companies need to pay in the countries where they do business.(WGJPV ÑLt RTS nò]G]* Æ*J*+ W+ +vV vÉ
(v*GétPTW+ RTPTváGu)T
 G7 framework/agreement for global minimum tax framework of 15%. (\€+*aVñ/ W˚'P/áGJ+ bxPHn
15 ['HSH W+/OTÍ)
rs

 In the past, countries engaged in a tax-reduction race, to attract FDI investments. ∞is needs to
be discouraged. ('(RTSV 'P(TS Wá ZWfl.H W+PTWT )क्क+ nòF§u F§u RTS FJPTW+á Wù R+T Wn •W/TL* +vT,T. ¢t
he

—]*-Wá +áWP* váu*)

 Later such treaty may be used for imposing sanction / international lawsuits /armtwist tax
havens to increase their taxes. ∞en it'll become dizcult for companies to avoid paying taxes.
ot

(â'( nò¢t [W*+ Wù tGØ] ¨*+* ÀxO-âÉ⌦TW+-Mu-RTSáGJ+ ['H\G] /RGä/FGH++*añV/ nQWRnT)§*r L*rGuT› H*•W (TâV FJPT
W+á Wù R+ò \»* Rò. FGHH: \€+*añV/ WGJ'P/áGWT £§r W+-Jü+v*+ nQë↵§ váu*›)
p

 2021-Jul: India supported the idea.

el

24.7.2 : G7-OECD ¥Twoµ Pillar Solution for Global Minimum Tax

For implementation of above G7 15% Global Minimum Tax Framework → OECD has given hTwo-
H

Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy.h

Pillar#1 Pillar#2
Applies toF - Applies to ~100 biggest and most Applies to any company with
proEtable multinational enterprises over 750 million EURO annual

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2B: Budget → Revenue → 15th FC, Black Money, Subsidies→ Page 404

KING R & QUEEN P Help others god will help you

 Pillar#1 Pillar#2
(MNEs). revenue
ImplicationsF - ∞ey need to re-allocates hX%i of their ∞ese companies would be
proEt to the countries where they sell subject to an minimum 15%
their goods/services. (So, such govt can tax (on their proEt).
count that proEt & demand Corporation
Tax on it.) Associated term / keyword:

u
- All member-nations to remove all Digital qualiEed domestic minimum

yo
Services Taxes. (e.g. India will have to top-up taxes (QDMTT)
remove equalisation levy/google tax. REF:
Handout Pillar#2A1- Direct Taxes.)

lp
MCQ. Quantised Domestic Minimum Top-up Tax' is a term related to _ _ _ _ . (EPFO-2023)
- (a) Global Anti-Base Erosion Rules - (b) Prevention of Money Laundering

he
- (c) Regulation of Crypto-currency - (d) Virtual Digital Asset Transactions
24.8 : REFORMS TO REDUCE TAX TERRORISM / HARASSMENT

ill
w
We learned about the reforms to Eght hTax evasioni → ban on cash transaction of à 2 lakh / >, -
d

Operation Clean Money etc. So, on one hand, Income Tax Department has to become strict /
go

coercive to Eght against Tax evasion. At the same time, IT dept. also needs to become more
friendly towards honest taxpayers, So, following measures taken→ (W+ ZHGW(*R é“VÃP)
rs

24.8.1 : Pre-slled online forms for Tax Payers

Income Tax dept extract your Enancial data from Banks, NBFCs , Stock exchanges, Mutual Funds,
he

EPFO, Employers: TDS submissions etc. → provides you with a Pre-Elled tax returns containing
your salary income, capital gains from share/bond, bank interests, etc. (Jv§TtTâ+* €Z πÕn-ZJWá RTRòu)T
ot

1) Income tax payers: time and energy saved. He:ll not have to consult Chartered Accountant for
every small matter on how to Ell form.
2) Accuracy of reporting income and paying taxes.
p

24.8.2 : Updated Return Form to correct errors- in Budget-2022:

el

- Sometimes, aser Elling up the Income tax form, the taxpayers may realize he committed mistakes
H

in reporting his income. So, Budget-2022 announced a new µUpdated Return Form: to provide
an opportunity to correct such errors, within two years of Elling the original details. (WâV WâV W+R*H*
ÈÕn-nòFJPV Z/ £§ãPTnòu§'H/*GW+H* vÉ› Há Rá t*§ WT âVH+ (á étTtQ]*+ W+ tWT, rt* P/* È*n-L*+V •W/* L*ru*)

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2B: Budget → Revenue → 15th FC, Black Money, Subsidies→ Page 405

KING R & QUEEN P Help others god will help you

 24.8.3 : Faceless interaction between Tax payers and Tax o∫cial
Personal interaction between the assessee (=tax payer) and Income Tax ozcial = more chances of
harassment / bribery. So, Government launched following reforms:
1) Cases will be allotted in random computerized lottery basis to IT ozcials without disclosing the
name, designation or location of the Ozcer.
2) faceless system (see next table)
Table 3: BE btuBIEZ DE BEJInI BK v[v AgTIBIn/HoFBl ][aI jBTa DE bFZT BIEl^IR

u
yo
Year Scheme Meaning
2019 Faceless - Example, taxpayer/assessee received a notice about discrepancy in
Assessment his reported income vs TDS submitted by his banker, then at initial

lp
stage assessee need not visit IT-ozce, simply give clariEcation in
web-portal. (πTt§Tt: '\P* [ô^/Ÿ\Ÿ nQ§*W*H WT 'P]*-+I)

he
2020 Faceless - So, even in appeal stage, assessee need not physically visit IT
Appeals commissioner / tribunal. It:ll be done online.
Scheme - all Income Tax appeals will be Enalised in a faceless manner. Except

ill
those related to serious frauds, major tax evasion, sensitive matters,
International tax etc. WT(§ \ÃTõ+ tGuVP n*n§áGnòvV Ÿ\Ÿ tQP(*q váuV
w
24.8.4 : Time limit on opening of past cases
Outdated for 2023 so deleting.
d

24.8.5 : Document Identiscation Number (DIN: =ª;⌫@® \^X;A Å~É;L)

go
rs
he

Whenever Tax ozcial sends letters to taxpayers regarding search authorisation, summons, arrest
memo, inspection notices etc. All such documents will have computer generated µDocument
IdentiEcation Number: (DIN).
ot

 2019: Both Central Board of Direct Taxes (CBDT) and Central Board of Indirect Taxes and
Custom (CBIC) started this practice.
DIN system benestsF
p

 It:ll create a digital directory of communication between tax authorities and taxpayers.
el

Transparency, accountability, ezcient and faster clearance of cases, because all the information
available at the click of a mouse. (J*+R SH*, L(*\ RTvV, W*/-R^H*, WTtáGW* ‹ü+H 'PJO*P)
H

 If a document doesn:t have DIN number, it:ll be treated invalid. ∞us, DIN system will prevent
the corrupt tax ozcials from sending fake notices to harass/blackmail taxpayers for bribes.
Sidenote: Director Identiscation Number (DIN): Director of every company is required to obtain
this number from the Ministry of Corporate AEairs under the provisions of Companies Act. It helps

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2B: Budget → Revenue → 15th FC, Black Money, Subsidies→ Page 406

KING R & QUEEN P Help others god will help you

 monitoring the company act provisions related to w1 person can⇠t be director in more than xx⇠ number
of companiesy etc.

24.9 TAXPAYERSD CHARTER IN BUDGET-2020 (LM=;g;i L; jklL;M\m)

u
yo
A citizens: charter (P*uü+W FØ]W*+J_) is a document of commitments made by a government agency
to the citizens in respect of the services being provided to them.

lp
 e.g Dept of Post's citizen charter reads, "we'll deliver speed post anywhere in India by 4-5 days
→ELSE complain online to this website & we'll solve it → if not solved in 90 days then complain

he
to Postmaster General → then to Chief Postmaster General.i
 Traditionally tax administrations paid limited attention to taxpayer service. JQ+*PTLn*PTnò/J*+GJü+W ŸJ
tTW+-FØ]W*+V "W+R*H* Wá Fœ– tT(* RTP*" FJPV ÑLûTR*+V PvVGtnÄHT,T. NnGä õ+ \Tरु¸V tTW*n W+HT,T

ill
 However, Modern times → demand for better services to the taxpayers → Govts across the
world, started framing charters and bill of rights for the taxpayers. v*§*G•W Z]Q'PW '(Ö nò¢t [W*+ WT
w
FØ]W*+ J_ õ+ W*PxP \P*r ur v·
1986 UK charters for taxpayers (W+R*H*pGW* FØ]W*+ J_) → more updated 2009
d

- 1991: citizen charter system started in UK by PM John Major

go

1991 - 1997: citizen charter introduced in Indian union ministries/departments.

(P*uü+WáGW* FØ]W*+ J_)
1988 USA Taxpayers: Bill of Rights (W+R*H*pGWT FØ]W*+áGW* '(]T/W/W*PxP)
rs

2007 Canadian taxpayers: Bill of Rights

Indian Budget-2020: CBDT will declare a Taxpayers: Charter. So, Tax payer
he

2020 will easily know what services / complaint redressal mechanisms (`SW*/H 'P(*+IHG_)
are available to him= taxpayer:s harassment (W+R*H* W* é“VÃP)
ot

24.9.1 (Indian) Tax Payers' Charter released in 2020-Aug

It promises following things to taxpayers: W+R*H*pGWá (*R* W+H* vÉ
1. You'll be treated in an impartial,courteous, professional manner. 'P¡^, '(P✏ õ+ JTST(+ H+VWT tTÆ(v*+
p

2. You'll be treated/ presumed to be honest, unless there is a reason to believe otherwise. ZJWá
el

qn*PR*+ n*P* L*ru*›

3. We will provide complete and accurate information about rules & complaint mechanism etc a
H

timely fashion.'P/n/`SW*/H RL-W+*PTt⇣⌘V L*PW*+V

4. We will collect only correct amount of tax. (WT(§ tvV +*`S §V L*ruV› {\+P ⇤*R* +*`S PvVG§V L*ruV›)
5. We will respect your privacy and conEdentiality 'PLH* (‚uáJPV/H* W* tû*P
6. We will hold our ozcers accountable for their wrongful actions. FØ]W*ü+p Wá u§H W*/¯ Wù tL* RòuT
7. You can appoint a representative / tax lawyer to Ele replies/complaints//cases on your behalf.

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2B: Budget → Revenue → 15th FC, Black Money, Subsidies→ Page 407

KING R & QUEEN P Help others god will help you

 n*n§TRL-W+PTWT £§r rW ['H'PØ] / W+ (Wù§ 'P/Q° W+ tWHTv·›
8. We'll reduce cost of compliance (e.g. number of forms to be Elled, photocopies to be submitted
etc) FPQJ*§P Wù §*uH Wn W+òuT- È*§HxnòRw*(T{á Wù RL-PáGWÕJV 'PW*§WT ÈÕn-WT t*, LáÃPTJÃT- rtTHn*ST\GR W+òu.T
9. +many other points but we have suzcient content for 250 words
It expects following things from taxpayers: Be honest, Pay taxes in time, Keep accurate records, be
informed, respond to notices in time when notices are given. (W+R*H*pGtT'P✓ FJT^* W+H* vÉWù (Tqn*PR*+
+vò, tn/ nòW+áGW* âQuH*P W+ò, tOVW ü+WÕä-+ãò, tx)H +vò, tn/t+ Pá•Ot W* L(*\ Rò)

u
yo
24.10 : ♂ ♂ TAX OMBUDSMAN IN ECONOMIC SURVEY 2021
µOmbud: is a Swedish term and refers to a person who acts as the representative or spokesman of
another person. 1809: ∞e institution of Ombudsman was Erst created in Sweden- to look into

lp
citizens grievances (§áWJ*§/§áW [v+V- P*uü+WáGWù `SW*/HáGWT 'P(*+I WT £§r)

he
Homework: READ about Lokpal and Lokayukta in Polity Book

24.10.1 : ♂ ♂Tax ombudsman: Indian experience

2003
ill
Direct Tax Ombudsman In India Started ([ô^ W+áGWT £§r W+-§áW[v+V/`SW*/H 'P(*+I FØ]W*+V)
w
2011 Indirect Tax Ombudsman In India Started (F[ô^ W+áGWT £§r)
2019 Above posts were abolished (RáPáGJRáGWá tn*Û W+ •R/*)
2021 Eco Survey recommends to setup tax ombudsman with statutory powers. More in the
d

Mains Handout.
go

24.10.2 : Reducing Tax Terrorism / Harassment: online portals/Apps

Aaykar Setu - 2017: CBDT:s mobile app for Income Tax, TDS refunds etc.
rs

Ease in paying Customs 1. Indian Customs Electronic Gateway (ICEGATE) webportal for e-
Duty services related to the Customs duty.
he

: 2. ICEDASH webportal: public can view daily data on customs

Portals/Apps by CBIC clearance at seaports and airports. (launched 2019-Nov)
3. ATITHI mobile app: for international travelers to Ele the customs
ot

declaration in advance (e.g. µwe are leaving or coming with hxi gms of
gold/diamonds/electronics etc on which y% customs duty is
applicable/exempted:). So, they don:t have to waste time at airport
p

queues in Eling such declarations. (launched 2019-Nov)

el

Transparent Taxation - 2020-Aug: PM Modi launched this webportal/online platform with

Honouring the Honest following components:
H

J*+RSó W+*]*P- qn*PR*+ W*  Taxpayers: Charter.

tû*P W+P*  Automated Random/lottery allocation of investigation cases.
 Faceless assessment & Faceless appeal. No requirement of physical
interface between taxpayers and the Income Tax department.
Turant Customs  By Central Board of Indirect Taxes and Customs (CBIC)

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2B: Budget → Revenue → 15th FC, Black Money, Subsidies→ Page 408

KING R & QUEEN P Help others god will help you

  Turant Customs initiatives= Faceless, Paperless, and Contactless
Processes / Application Forms, Assessment, Appeal etc for importers
and exporters
 It is to be implemented phase wise across India by 2021.

24.10.3 ITR / income tax return form – highest ever

- It is a prescribed form through which person/company needs to disclose income and pay direct

u
taxes.

yo
- ITR forms have dioerent form numbers such ITR-1 (Sahaj), ITR-4 (Sugam), ITR-2 etc.
depending on the type of taxpayer (salaried-employee, freelance-professional, company etc)
Year 2021-22 2022-23

lp
No. of ITRs sled 5.83 crores 6.77 crores (highest ever)

he
24.10.4 Income Tax : E-Governance Initiatives in Modi-Raj
- ∞is sosware monitors the TDS/TCS, e-commerce websites (e.g. Amazon
Non- Filers
se iPhone buying) etc. to identify the people who are doing high-value
Monitoring
System (NMS)
-
ill
transactions, but not Eling income tax return (ITR) forms.
- ∞en IT Dept issues notice to such people / tax-evaders.
w
- TDS Reconciliation Analysis and Correction Enabling System (TRACES) -
TDS: TRACES is a web portal of the Income Tax Department.
d
Portal / Refund - Helps in deposit & refund of TDS/TCS.
go

Banker SBI - Refund is delivered to tax payer via Refund Banker SBI via
NEFT/RTGT/Cheque.(Ref: Pillar#2A1: TDS and refund)
Income Tax Dept. hired L&T Infotech ltd to develop an integrated platform for
data mining & tracking tax evaders.
rs

Project Insight
(Related) Project Saksham 2016: CBEC/CBIC:s project for digital re-engineering
2017
related to GST. It:s not a µdrive against black money: but for µEase of Paying Taxes:.
he

- (Related) Aaykar Setu: CBDT:s mobile app to pay Income Tax.

- Computer Assisted Scrutiny Selection
CASS
ot

- Income Tax Department uses it to select cases for raid/prosecution.

p

24.11 TAXATION → GLOBAL TREATIES, AGREEMENTS & INDEXES

el

24.11.1 Tax Information Exchange Agreement (TIEA: W+ tx)P* '('Pn/ tnÄÅH*)

H

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2B: Budget → Revenue → 15th FC, Black Money, Subsidies→ Page 409

KING R & QUEEN P Help others god will help you

 ➢ India has signed such agreements with multiple countries. It enables mutual sharing of
information to detect tax avoidance and tax evasion. Example,
➢ 2019: India has notiEed a tax information exchange agreement (TIEA) with the Marshall Islands.
➢ From Indian side- CBDT is the the nodal agency for such agreements.

24.11.2 USADs Foreign Account Tax Compliance Act (FATCA-2010)

u
'(RTSV ã*H* W+ FPQJ*§P FØ]'P/n

yo
➢ USA:s FATCA Act requires foreign Enancial Institutions (such as Indian Banks, Pakistani
Insurance Companies, Chinese Mutual Funds etc) to report the assets held by Americans.
➢ ∞is helps US Tax authorities to detect tax avoidance / evasion by Americans

lp
24.11.3 Intl.Coop: Tax Inspectors Without Borders (TIWB)

he
- Joint initiative by United Nations Development Programme (UNDP) and Organisation for
Economic Co-operation and Development (OECD)
- For training and knowledge sharing of tax inspectors. (W+ 'P+V^WáGWT [`S^I õ+ Ô*P WT ZR*P-[R*P)
-
ill
India is a member & we are giving training to tax ozcers of the African country µEswatini: (old
name: Swaziland)
w
24.11.4 Global Financial Secrecy Index ((ÉÑÖW '(ÜV/ uáJPV/H* tx)W*GW)
d
➢ Prepared by London based ∞ink Tank µTax Justice Network (TJN):.
go

➢ It uses 20 indicators to measure the countries on their Enancial secrecy, opportunities for Tax
Avoidance, BEPS etc. 2022 Ranking: 1st rank: USA> Switzerland>Singapore,….then India@36.
➢ Its report says India is losing over $10 billion in taxes each year due to MNC:s tax abuse.
rs

24.12 BLACK MONEY → DEMONETISATION ('(nQöVW+I)

he
ot

DesnitionF Demonetization is the wholesale withdrawal of currency notes from circulation. (nQö*-
p

)§P nòtTWQÀ ã*t •W◆ Wù PáOáGWá vO* RTP*)

el

 RBI Act 1934: Every banknote is a legal tender. However, RBI Central Board can recommend
the Government of India to notify speciEc currency note(s) should no longer be treated as legal
H

tenders. ∞en FinMin → Department of Economic Aoairs makes ozcial gazette notiEcation.
 1946: à 500 Notes demonetized; 1978: à 1000, à 5000, à10000 Notes demonetized.
 2016-Nov-8th: Public was ordered to deposit the (old) Mahatma Gandhi series currency notes à
500 and à 1,000 (henceforth called hSpeciEed Bank Notes: SBNi) into Banks and post-ozces

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2B: Budget → Revenue → 15th FC, Black Money, Subsidies→ Page 410

KING R & QUEEN P Help others god will help you

 latest by 30th December 2016. And all the banks and post ozces where ordered to deposit such
SBN into RBI.
 Specised Bank Notes (Cessation of Liabilities) Ordinance:
- From 31st December 2016, RBI Governor not required to honour hI promise to pay…i
or exchange the SBN. Except for NRIs: deadline little bit relaxed, with certain caveats.
- Public prohibited from keeping SBN, except for research or numismatics or museum-

u
and that too in limited amount. ∞is ordinance became Act in 2017.

yo
 India is not the only country in the world to do demonetisation. Sweden ( 2013), European
Union ( 2016) and even Pakistan (2015) has done it for their currency notes.

lp
24.12.1 Why Demonetise é 500 & 1000F
 Demonetization is usually done in the asermath of hyperinlation, war & regime-change.

he
 India did it to combat Corruption, Black money, Counterfeiting and Terror Enance .
भ्रa*)*+, W*§* ]P, L*§V PÕO,ZHGW W* '(ÜJá.I

ill
 We had 12.04% Cash to GDP ratio, one of the highest in the world. Currency printing &
transportation cost alone was 1.7% of GDP.
w
 hSoil ratei is the rate at which notes are considered to be too damaged to use and returned to the
RBI. ('\uÃT/πOT€r PáOáGWá ü+L(-\òW nò\R§(*P*)
d

 For à 500 & 1000 SBN-notes, soil rate was much lower than the currency notes of à 10 to 100.
go

(implying that 500-1000 SBN were used for µstoring black money:, rather than in transactions.)
 So, experts made mathematical comparison of the foreign countries: economic development,
soil rates of their foreign currency notes etc. and arrived at a Egure à 3 lakh crores of Indian black
rs

money is stored in SBN (=2% of GDP).

he

 So if SBN were demonetised, the black money holders will not return their currency notes into
banks (fearing IT-RAIDS) and thus black money will be destroyed. (W*§* ]P M/G H\*v vá L*ru*)
 But in reality, ~99.30% of the SBN were returned back into the banking system, so hardly à
ot

10,720 crore of black money was destroyed by the demonetisation of 2016.

p

24.12.2 Demonetisation SC Verdict

el

- 2016: Congress Leader P Chidambaram and many others had petitioned in SC.
- 2023: Supreme Court upholds Demonetisation In 4:1 Verdict. (t(¯’ b*/*§/ PTt+W*+ WT WT LLáGPT
H

'(nQöVW+I WT 'PI-/ Wá 4–1 Wù \€n'H tTé )H//áÂ/tvV ≤v+*/* vÉ)

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2B: Budget → Revenue → 15th FC, Black Money, Subsidies→ Page 411

KING R & QUEEN P Help others god will help you

 u
yo
lp
he
ill
w
d
go
rs
he
ot

24.12.3 Tax: GDP – why low in India (};Mg L; LM:><°<\< jAo\;g úM;è ø ~^b?)
1) Lack of civic sense among people that paying taxes is a basic duty. (RTS WT ['H WH-Æ Wù â*(P* PvVG)
p

2) Presence of informal sector, parallel economy, cash based economy provides ample
el

opportunities of hiding income. (PuRV Z]*ü+H FPÅJ)*ü+W F,-HG_)

H

3) Low per capita income, high level of poverty. Concentration of income in the hands of few
people- who are greedy to engage in tax evasion & avoidance. (RTS Wù ú*R*H+ tGJ Ü )Q'PRG * §áuáGWT v*,áG
nòWò•öH, Lá §*§) nòW+ Ln* PvVGW+HT)
4) Election funding → source of corruption → black money. Politician-Builders-MaEa nexus.

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2B: Budget → Revenue → 15th FC, Black Money, Subsidies→ Page 412

KING R & QUEEN P Help others god will help you

 5) Due to political considerations, state govts and local bodies do not levy all the taxes authorised
by the constitution e.g. tax on agricultural income. So our (direct) tax base is narrow. [Tax base:
W+*]*+ means the total value of all the persons/income/property, etc. on which tax is charged.]
6) Loopholes in the tax laws encourage tax avoidance (W+ W*PxPáGnòã*¿n/*G)
7) Direct taxes like wealth tax, gis tax and estate duty suoered from loopholes, lax monitoring and
evasion. ∞ey didn:t yield much revenue. Hence even referred as µpaper taxes:, and had to be

u
abolished ultimately. (W*uLV W+ ÑLPtT(*w( nòP*n n*_ Wù ZnRPV váHV ,V)

yo
24.12.4 Tax: GDP ES19: ¥Use Behavioural Economics to improve Tax Complianceµ

lp
he
Shifted to Mains-QEP. (Above img-source: Taarak Mehta Ka Ooltah Chashmah)

ill
MCQ. Which of the following eEects of creation of black money in India has been the main
cause of worry to the Govt of IndiaF [L;`; lA };Mg ÅML;M L@ ï`Ü ïXg~ ; L; ⌫I⇢ ø ~^b] (Prelims-2021)
w
A. Diversion of resources to the purchase of real estate and investment in luxury housing [tGt*]PáGWá
Z§VS*P \Gu§Tã+VRPTWT £§r náà •R/* L*H* vÉ]
d

B. Investment in unproductive activities and purchase of precious stones, jewellery, gold, etc.[WùnHV
go

L(*v+*H táPTõ+ uÉ+é“*RW [(≈Ü/áGnò'P(TS váH* vÉ]

C. Large donations to political parties and growth of regionalism [+*LPV'HW J^áGWá \Ã* )GR* •R/* L*H* vÉ
õ+ [*GH(*R Wù (≈¿ê váHV vÉ]
D. Loss of revenue to the State Exchequer due to tax evasion [W+ )á+V WT )§HT+*LM ZnRPV Wn váHV vÉ]
rs
he
ot
p
el
H

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2B: Budget → Revenue → 15th FC, Black Money, Subsidies→ Page 413

KING R & QUEEN P Help others god will help you

 24.13 REVENUE SHORTFALL

u
yo
lp
he
Amt in Crores 2019-20 2020-21
ill2021-22 2022-23 2023-24
w
Budget Estimate (BE) 1962761 202092 221705 275782 3360858
6 9 0
d
Revised Estimate (RE) 1684059 202710 270931 304306 WAIT & Watch
go

4 5 7
Shortfall, if RE<BE Shortfall of 2.78 Lcr Surplus Surplus Surplus WAIT & Watch
rs

24.14 TAXATION: MISC. TERMS

he
ot
p
el
H

LaEer Curve - American economist Arthur Laoer: if (direct) tax rates are above a certain
(`êM ⌫¿): level, then tax revenue collection will because higher tax rates discourage

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2B: Budget → Revenue → 15th FC, Black Money, Subsidies→ Page 414

KING R & QUEEN P Help others god will help you

 people from working and/or encourage them to evade tax.
- So, tax-cuts could lead to tax revenue collections.
- Modi Budgets from 2017 onwards: ∞e lowest Income Tax slab was cut
from 10% to 5%; ∞e corporation tax on small sized companies was also
brought down from 30 % to 25% in a phased manner.
- Budget-2020: new optional Income tax slabs.
- USA Budget-2017: Corporation tax cut down from 35 % to 15%

u
Tax elasticity - If Erst income tax slab increased from say 5% to 15%, then in absolute terms

yo
(LM `ïX`;g;): how much more IT-revenue will be generated1

24.14.1 Tax buoyancy (LM ±¡;⌫Lg;):

lp
- Tax buoyancy measures the degree to which tax collections increase or decrease in response to
changes in GDP.

he
- If GDP grew by x%, then how much % Income tax collection will grow1
- E.g. if income tax collection growth rate is 11% when GDP growth rate is 10%, then Income
Tax:s tax buoyancy is 1.1
BUOYANCY INTERPRETATION
ill
EXAMPLE FROM ES23
w
>1 High buoyancy. Tax collection will increases e.g. GST =1.12
at a faster rate than the growth in GDP.
<1 Low buoyancy. e.g. pre-GST indirect taxes
d

(VAT, Services Tax etc) =0.99

go

24.14.2 Net Tax Revenue of the Govt (SQê W+ +*LM)

Sr. Budget → Revenue Receipts → Tax Receipts Budget 2023
A Gross Tax Revenue = Union:s Direct and indirect 33.60 Lakh Cr
rs

taxes, incl. cess and surcharge

B Union territories without legislature: their direct and 8400 cr
he

indirect taxes: '(]*PnGä§ +•vH tGN +*ú ^T_

C Gross Tax Revenue (=A+B) tW§ W+ +*LM 33.60 Lakh cr
D Minus the Tax devolution to States (W+ vw*GH+I) as
ot

(-) 10 Lakh Cr
per the Finance Commission
E Minus Contributions to National Disaster Response (-) 8700 cr
p

Fund in Home ministry∏∏

C-D-E Net Tax Revenue of Union (SQê W+ +*LM) 23 Lakh Cr
el

zzPublic Account → National Disaster Response Fund (+*aVñ/ ZJR* ['H•˝/* Wá.) is a statutory fund under
H

Disaster Management Act, 2005. Previously, called National Calamity Contingency Fund (NCCF).

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2B: Budget → Revenue → 15th FC, Black Money, Subsidies→ Page 415

KING R & QUEEN P Help others god will help you

 24.15 BUDGET → REVENUE PART → RECEIPTS → NON-TAX RECEIPTS

u
yo
lp
he
ill
w
Notable components are:
d
go

 Interest receipts (˜*L [* Û/*Greceived on Union:s loans to states, railways, CPSE, foreign
countries.) is a revenue receipt. [Had those borrowers repaid loan-principal, then that portion is
µCapital Receipt.]
 Dividends and proEts received from CPSE, PSBs, RBI. [Had Union sold its shares to a third party
rs

(disinvestment / privatization) → that:s µCapital Receipt:].

 Union:s income from (Dividend & ProEts) >> from Interests.
he

 Income from selling various goods & services such as railways, postal services, selling of India
Yearbook-, Yojana-Kurukshetra magazines, fees that CISF charges for giving protection to
ot

Private Airports, auction of spectrum & mining rights, selling of commemorative coins etc.
 Grant in Aid (FPQR*P)/ Donations received by Union.
 [If Union had received µloan:, it:ll be µCapital Receipt:.]
p

 Similar Non-tax revenue earned by UT without Legislature

el

25 BUDGET → REVENUE EXPENDITURE (M;>ç úX?/ √⇢)

H

- Expenditures spent on day to day functioning of the organs of the state =

- salaries & pensions, stationery, electricity bill, phone bill etc.
- in Executive, Judiciary, Legislature, Constitutional & Statutory bodies.
- Expenditures that do not create income generating assets or permanent assets or Enancial assets.

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2B: Budget → Revenue → 15th FC, Black Money, Subsidies→ Page 416

KING R & QUEEN P Help others god will help you

 - ∞us, money SPENT on loan-interests, subsidies, scholarships, grants etc. counted here
Notable Revenue Expenditures
Interest to be paid on previous loans is Revenue Expenditure. [Whereas Union repays loan-
principal, its µCapital Expenditure:]
- Finance Commission:s Grant-in-Aid (FPQR*P) to States & Local Bodies for Disaster
Management, Panchayati Raj Development etc.

u
- Grant = Amt doesn:t have to be returned with Interest. (Whereas If Govt gave µloans: to
States/CPSE/Foreign Countries then it:s an income generating Enancial asset = counted under

yo
Capital Expenditure).
Subsidies: 1) Food subsidies, 2) Fertilizer (Urea, Others), 3) Fuel (LPG, Kerosene)

lp
4) Interest Subsidies on loans: Farmers (highest), MSME, Aoordable Housing, LIC Vay Vandana
Yojana etc.: 5) Other (Price stabilization fund, Cotton & Jute etc.):

he
Pension to retired employees (who belong to old pension scheme-walli generation.)
➢ Economic services related revenue expenditure (Agriculture, energy, transport,
communication, Science technology)

ill
➢ Social services: revenue expenditure ( health, education, social security):
w
➢ Expenditure on Administrative machinery (Police, Jail, External Aoairs etc.), Elections,
Parliament, Judiciary:
Defence revenue expenditure (e.g. soldier salaries, fuel for tanks)
d
➢
➢ Revenue expenditures of UT without Legislature:
go

As per the Budget 2019-20, the maximum subsidy expenditure was likely to be on _ _ _ (CDS-
2020-ii) (a) urea subsidy (b) petroleum subsidy (c) food subsidy (d) fertilizer subsidy
( ) REVENUE EXPENDITURE → SUBSIDIES
rs

25.1
he
ot
p
el

Tax Subsidies
Tax is a compulsory contribution imposed by A subsidy is a beneEt given to an individual or
H

State. Refusal to pay the tax is punishable. Erm by the government to reduce some type of
W+= +*ú ¨*+* §u*/* L*PT(*§* W+ rW F'P(*/-/áuR*P vÉ› burden. A person may refuse to accept the
W+)á+V rW RGäPV/ FJ+*] subsidy, he will not be punished.
Tax doesn:t promise speciEc and direct A speciEc beneEt is promised e.g. 6000 to
goods/services to the taxpayer. (Mukesh farmers, idli@à 1 rupee in Amma Canteen
(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2B: Budget → Revenue → 15th FC, Black Money, Subsidies→ Page 417

KING R & QUEEN P Help others god will help you

 Tax Subsidies
Ambani:s car will still suoer from potholes) (Tamilnadu).

25.1.1 ( ) Types of subsidies with selected examples

1. Given in direct cash (or bank transfer): PM KISSAN 6k for farmers, LPG Pahal ~200 per
cylinder. PuR nò.
2. Given in kind: free school bags, uniform and books to the poor children, free medicines in

u
public hospitals, free insurance. nQ⇠ (wQ/* tT(* WT ŸJ nò

yo
3. Indirect subsidies (J+á^): cheap fees in government colleges, cheap kerosene, cheap urea, cheap
crop insurance premium etc. Here govt. is paying some money to an organization so they may
provide goods/services @cheap rate to the beneEciary.

lp
4. Implicit Subsidies (FGHflP•vH): Govt supresses the supply so to the prices to help a sector. E.g.

he
Indian govt banned import of American chicken/poultry/eggs. So, shortage of chicken helps
local Indian poultry industry to demand high prices from public. Here Indian poultry receiving
µimplicit subsidy: (from public), even though Govt is not paying them money. (More in
Pillar#3B -> WTO)

ill
5. Cross-Subsidization (˝Õt tv*‘/WùW+I): To keep rail travel cheap for the poor people, Railways
w
keeps the passenger tickets lower than its input cost. To compensate this loss, Railways keeps
freight (goods transport) prices higher. ∞is is called hCross subsidizationi (More in Pillar#5
d

Infra → Railways)
go

6. Regulatory ('P/*nW) subsidies: e.g. if State Electricity Regulatory Commission directs companies-
that electricity to farmers must NOT to be beyond à hxi per unit.
7. Procurement (ã+VR) subsidies: e.g. FCI purchasing at food grains from farmers at minimum
rs

support price (MSP). (More in Pillar#4A -> AGRO)

8. Interest (˜*L) subsidies / subvention: govt pays hx%i interest on agriculture, MSME, aoordable
he

housing loans.
25.1.2 Impact of Subsidies (tëíäV W* [â*(: tW*+*ìW r(G PW*+*ìW)
ot

- Merit Goods (`;}=;⇢L ⌫ªo¶)~ : Healthcare, education, scientiEc research, LPG, solar panels,
wind mills etc. Here subsidies can increase the positive externalities. (Cheap LPG → poors don:t
p

use Erewood → more trees & less indoor pollution.)

el

- But subsidies on diesel, kerosene =negative externalities (AL;M;ƒL è;≈g;) on environment.

- Urea subsidies to industries → cheap urea to farmers → excessive consumption → soil &
H

water pollution, algae-blooms. (/xü+/* é(-+W W* Fô*Ø]W éJ/áu LnVP J*PV nò[Ræ.I)
- Subsidy leakage: When ghost beneEciaries (non-existent persons propped up by corrupt
ozcials), and ineligible (rich) people are receiving subsidy. (tëíäV ü+t*(, ]*G]§V õ+ u\P)

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2B: Budget → Revenue → 15th FC, Black Money, Subsidies→ Page 418

KING R & QUEEN P Help others god will help you

 25.1.3 Past Economic Surveys on subsidy delivery JAM/DBT (⇡ÆwL Å⌫∆zK ~L@ ±\;⇢)
Shised to Mains Handout.

25.1.4 ♀ ♂National Recruitment Agency (NRA: M;ìõ<⇢ }g« Ü>ÄÅ<)

- Present: multiple recruitment exams conducted by multiple agencies at dioerent points of time
throughout the year..
- Future: NRA will conduct Common Eligibility Test for recruitment to Non-Gazetted personnel

u
in Government and PSBs. → SSC and IBPS will conduct Mains exams for respective posts →

yo
time and cost saved for both candidate and recruiting agencies.
- Budget-2020: we:ll set up NRA & open a (computerized) test centre in every district.
- Self-Study-Topics for GSM2/GSM4: 1) Lateral entry in IAS. 2) ∞ree years tour of duty in

lp
Army. Source1 Internet / Current Aoairs PDF/Lectures.
25.2 REVENUE XPDR → SALARIES→ 7TH PAY COMMISSION ((THP Z/áu)

he
Setup by Finmin → Dept of Expenditure. 1st: Srinivasa Varadachariar (1946). 7th: (Retd) Justice
AK Mathur (2014). Its recommendations became eoective from 1/1/2016. Major highlights were:
✓ New system of hPay Matrixi instead of previous system of pay band and grade pay.

ill
✓ Regulatory bodies salaries increased: Chairman à 4.50 lakh / month, members à 4l.
w
✓ Minimum pay in Central service increased to à 18k / per month (Group-D).
✓ Maximum pay: à 2.25 lakh per month for Apex scale (e.g. Secretary of a Dept.), and à 2.50l (for
d
Cabinet Secretary)
go

✓ It adopted Dr. Aykroyd formula to compute wages at periodic interval (formula tracks the
changes prices of the commodities used by a common man).
✓ So, critiques believe there will not be an 8th Pay Commission because salaries will be updated
rs

automatically at regular interval, using this formula.

✓ Various reforms for defence and CAPF services. (tSÏ tTP* /WòöV/ JQ£§t \§ WT £§r tQ]*+)
he

✓ stronger rules in Modised Assured Career Progression (MACP) system so lazy ozcials don:t get
promoted. (Z§tV õ+ 'PWûTFπt+áGWù JRá⇡'H Wá +áW* L*r)
ot

25.2.1 Pay Commission: Dearness Allowance (DA: h^~⌧;• }⇠;)

- Dearness Allowance (DA): It is an allowance given by government to (serving/non-Retired)
p

central government employees to protect them against the inlation. (PÅW+VSQR* Wnó/á Wá)
- Dearness Relief (DR): It is an allowance given by government to RETIRED central government
el

employees to protect them against the inlation. ('P(≈H Wnó◊ Wá)

H

- In 2020- Union govt had frozen DA&DR because Govt was struggling with money for Corona
relief. 2021-July: Govt resumed paying & DA&DR from 17% to 28%. Wá+áP*-(.-nòt+W*+ PT
t+W*+V Wn-)*ü+/áGWá nvu*q âÜ* PvVG•R/*, åáG•W t+W*+ Wá ãQR vV JÉtáGWù •Ê⇢H ,V, §T•WP F\ (*Jt SQŸ W+ +vV vÉ.

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2B: Budget → Revenue → 15th FC, Black Money, Subsidies→ Page 419

KING R & QUEEN P Help others god will help you

 25.2.2 Bonus to govt employees
Bonus is occasional extra money given to employees in addition to normal salary. ((THP WT F'Hü+° WâV
WâV WQÀ õ+ JÉt* •R/* L*r)
Productivity Linked Bonus (à=H?A ⇡l;]Mg) Non-Productivity Linked (=ad-hoc )
• e.g. how many Eles did employee clear1 e.g. Diwali Bonus. It doesn:t matter if
• how many trees did forest-guard plant1 employee worked hard or not for the
• did employee improve the sales in postal entire year.

u
dept/railways etc1

yo
25.2.3 Pay Commission: Misc. terms
- House Rent Allowance (HRA: nW*P •W+*/* âÜ*): rent allotted by the employer for employee's
accommodation (house).

lp
- Gratuity (”Tच्यQOV): It:s a lump sum amount hxi given by an employer to the employee for

he
rendering services continuously for hyi number of years. Usually given at retirement. Norms
governed under Payment of Gratuity Act, 1972
- One Rank One Pension (OROP): 2015- Modi govt. promised equal pension to military

ill
personnel retiring in the same rank with the same length of service, regardless of the date of
retirement. Some, Ex-servicemen unhappy about the base year & calculation formula.
w
25.3 SALARY REFORMS IN ATMANIRBHARAT 2.0 (OCT 2020)
d
To shopping/market demand during the festival season, FinMin launched two schemes:
go

25.3.1 Atma-Nirbhar 2.0: Festival Advance Scheme (» ^;M ~hÄÜ°⌫;~Å MLh)

- Govt will give à10,000 as interest-free advance to govt employees. Employee need to repay it
back in maximum 10 instalments. (•W⌧áGnò+Ên (*Jt )QW*PV váuV v*§*•W ˜*L PvVG§uTu*.)
rs

- Govt will not give this àà in cash form. but in form of a prepaid SBI Rupay Card known as "SBI
Utsav Card". ∞is card can be used like a debit card, for making purchases e.g. billpayment,
he

ECommerce websites etc. ( Ref: HDT-Pillar#1A1)

25.3.2 Atma-Nirbhar 2.0: LTC Cash Voucher Scheme
ot

Outdated technical topic. Removed from handout

25.4 ( < ) REVENUE DEFICIT & EFFECTIVE REVENUE DEFICIT

p

Shised to Pillar2D: DeEcit Handout.

el

NEXT BUDGET → CAPITAL → RECEIPTS & Expenditure

H

2A) Direct Taxes [ !2A2-Indirect Taxes & GST 2B) Black Money, 15th FC
2C) Subsidies, Salaries, Revenue Expenditure
2D) Disinvestment, DeEcit, FRBM Act, Fiscal Council, Budgeting-Railway budget, plan-non plan
budget, & scheme types etc.

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2B: Budget → Revenue → 15th FC, Black Money, Subsidies→ Page 420

KING R & QUEEN P Help others god will help you

 Pillar#2D: Disinvestment to Deficit to Budget & Scheme Types
Table of Contents

26 Budget → Capital → Receipts.........................................................................................424

26.1.1 Foreign Borrowing in Foreign Currency................................................................425
26.1.2 Budget-2023: Foreign Borrowing........................................................................426

u
26.2 " → → Budget Capital Receipts Disinvestment: *+*,+-.......................................426

yo
26.2.1 CPSE vs PSU vs PSB..........................................................................................................427
26.2.2 Ratna Companies = freedom to govt companies based on performing........................427
26.2.3 Government policy towards disinvestment before 2021...............................429

lp
26.2.4 Disinvestment & Privatization in the Modi Raj (2014-19)............................431

he
26.2.5 Privatization / Strategic Disinvestment in Modi Raj.................................431
26.3 → " New Public Sector Enterprise (PSE) Policy (2021)........................................431
26.3.1 National Monetisation Pipeline (NMP 2021).............................................................432
26.3.2
ill
National Land Monetization Corporation (NLMC-2022)........................................432
w
26.4 Budget → Capital Part → Expenditure (>?@ABCD EF)......................................................432
26.4.1 State CAPEX Loans..........................................................................................433
d

26.4.2 Budget → Capital Part → EIective Capital Expenditure.........................................433

go

26.4.3 Capital expenditure for a Company............................................................................433

27 Types of de,cits: KLM-N- ONLP...............................................................................................434
rs

27.1.1 Types of Budget- Surplus, DeRcit, Balanced...............................................................434

he

27.1.2 Yudhishthir Disclaimer on DeRcit Formulas..................................................................434

27.1.3 Budget DeRcit (TAM KLML)...............................................................................................435
ot

27.1.4 Fiscal DeRcit - formula Tamilnadu Textbook............................................................436

27.1.5 Fiscal DeRcit - formula NCERT Textbook (two formulas).......................................436
p

27.1.6 Gross Fiscal DeRcit (GFD) vs NET Rscal DeRcit........................................................437

el

27.1.7 Primary DeRcit (OLVWXN KLML)........................................................................................437

27.1.8 Gross Primary DeRcit (GPD: ZN[ OLVWXN KLML)...........................................................438
H

27.2 ( < ) Revenue De,cit (PLA\ KLML)..............................................................................438

27.3 ( < ) E/ective Revenue De,cit (O]L+B PLA\ KLML)......................................................438
27.3.1 Fiscal glide..........................................................................................................................439
27.4 Extra-Budgetary Resources (TAM-DP Z@ZL^,)...........................................................439
(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2D: Budget → Disinvestment & De#cits → Page 421

KING R & QUEEN P Help others god will help you

 27.5 Debt Composition: Amount-wise..................................................................................440
27.5.1 Debt Composition: Type-wise......................................................................................442
27.6 Financing the de,cit: its negative consequences on economy:....................................442
27.6.1 : Financing the DeRcit: Ricardian Equivalence.............................................443
27.6.2 : Ricardian Equivalence invalid for India says ES21............................444

u
27.6.3 Financing the deRcit: aCrowding Outc of private borrowers...................................444

yo
27.6.4 Crowding out of private investmentd ES21 Observations...............................444
27.6.5 Financing the deRcit: Printing More Money..............................................................446
27.6.6 Fiscal DeRcit = India sovereign rating .....................................................446

lp
27.7 Countercyclical policy (O*DefgF PLANhiBF ,B*D) .......................................................447

he
27.7.1 Countercyclical: IRGD & Debt Sustainability....................................................448
27.7.2 Countercyclical: Domar Condition of Debt Sustainability..............................449
27.8
27.8.1 ill
Side Note: Automatic Stabilizers (\eLj[D-klPBNLPB).......................................................450
Tax multiplier is a negative multiplier.............................................................................451
w
27.8.2 THREE Functions of Govt Budget..............................................................................451
d
27.8.3 EIects of Budget/Fiscal policy on Demand & Savings..............................................451
go

27.9 Misc Terms related to De,cit Financing.......................................................................452

27.10 Fiscal Consolidation / Prudence: PLANhiBF nNoBNPp / *++-N.....................................452
27.11 Fiscal stimulus (PLA\ OhqLr, >-N-A)...............................................................................453
rs

27.11.1 Manmohanss Fiscal Stimulus (2008-)..................................................................453

he

27.11.2 Modiss Atma-Nirbhar Bharat Economic Stimulus Package (2020)............454

27.11.3 Frontloading of Stimulus and Overheating in Economy..............................................454
ot

27.12 Fiscal Responsibility & Budget Management Act, 2003........................................454

27.13 FRBM: Trigger Mechanism (to) Escape (De,cit control) Clause..................................455
p

27.13.1 FRBM: Misc. Concepts...........................................................................................456

el

27.13.2 FRBM Act: Documents (tuL+-v)......................................................................456

27.14 Fiscal Federalism: Helping the States in ATMANIRBHAR...............................457
H

27.14.1 Helping States → Tax devolution and grants.......................................................458

27.14.2 Helping States → Statess Fiscal deRcit limits ..................................................458
27.15 Fiscal De,cit target for States..................................................................................458
27.16 Fiscal Responsibility: NK Singh FRBM Review Panel.......................................458
(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2D: Budget → Disinvestment & De#cits → Page 422

KING R & QUEEN P Help others god will help you

 27.16.1 : Budget marksmanship is Poor, says 15th FC ...........................................459
27.17 Fiscal Responsibility: Freebies / Revdi Culture..................................................460
27.18 Fiscal Responsibility: Misc Bodies......................................................................460
27.18.1 Expenditure Management Commission (2014)..................................................460
27.18.2 Public Debt Management Agency (PDMA): ZL+wA*,N xp OT@^, nAyZB............460

u
27.18.3 Fiscal Council (PLANhiBF >zPit)..........................................................................460

yo
27.18.4 Public Rnance challenges: Corona ex-gratia Yojana...............................................460
27.18.5 Challenges to Fiscal Federalism and Public Finance..............................................461
28 Types of budget: TAM N- ONLP.................................................................................................... 461

lp
28.1 Revenue versus Capital budget: PLA\ T,LX >?@ABCD TAM...........................................................461

he
28.2 General budget versus Railway budget ({X TAM T,LX P-[+-TAM)...................................461
28.3 Plan vs non plan expenditure budget:..........................................................................462
28.4
28.5 ill
Budgeting (TAM *,XLwp Ng O|fFL/ Pp,B*D)...........................................................................463
Gender Budget ([}WCN TAM).................................................................................................464
w
28.6 Tribal sub plan & SCSP.............................................................................................464
d
28.7 Output Outcome Framework for Schemes:..............................................................464
go

28.8 Cash vs Accrual Budgeting: ,CtB T,LX ~>eF TAM.............................................................465

28.9 Lapsable Funds & March Rush: E>CD *,^ ÄP XLewEuDL...........................................465
28.10 Non lapsable funds & No Rush: *T,E>CD *,^B.........................................................465
rs

28.11 Types of schemes (FhA,LÅ@N- ONLP)................................................................................466

he

28.11.1 Budget-2022: CSS rationalisation...............................................................................466

28.11.2 Ministry-wise Highest Allocation (amt in Ç lakh crore)..........................................467
ot

28.11.3 Govt Schemes: Result Based Financing instead of input based Rnancing.........467
28.11.4 Mains Questions...............................................................................................................467
p
el
H

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2D: Budget → Disinvestment & De#cits → Page 423

KING R & QUEEN P Help others god will help you

 26 BUDGET → CAPITAL → RECEIPTS

u
yo
lp
he
ill
w
Table 1: ()* → +,-). /01 → 203450-: Sub-classi#ed into two parts
Capital Debt Receipts Capital Non-Debt Receipts:
>?@ABCD xp OLÑÖFLÜ CáP-xp >?@AB OLÑÖFL@
d
Internal Borrowing: {@DzPN xp Loan Principal recovered (i.e. Union government
go

would have given loans to state governments,

- From RBI,
foreign countries, public sector companies etc.)
- From market (Banks, NBFCs)
so when they return Principal amount back that is
- From small savings (Post-Oàce Savings
counted here. (X?[^, Ng TPLXtCB)
rs

Accounts, Kisan Vikas Patra, etc),

- From Provident Funds (EPFO, PPF)
he

External borrowing: from foreign Disinvestment (*+*,+-.) i.e. Union selling its
countries & international institutions like IMF shares from Public Sector Undertakings (PSUs) /
World Bank, BRICS bank etc. TLåç/ *+t-.B xp Central Public Sector Enterprises (CPSEs).
ot

Bigger portion of Capital Receipts from this side Smaller portion

p
el
H

MCQ. Which of following is not a component of FCapital ReceiptsGH (IEnggS-2018)

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2D: Budget → Disinvestment & De#cits → Page 424

KING R & QUEEN P Help others god will help you

 (a) Market borrowings including special bonds
(b) External loans raised by the Central Government from abroad
(c) Receipts from taxes on property and capital transactions
(d) Provident Funds (State Provident Funds and Public Provident Fund)
26.1.1 Foreign Borrowing in Foreign Currency

u
yo
9:; <=90= 9> ?@A>B. CD 9E ?@A>B. FG;0 F:)G*0H>90 F<I0

lp
he
ill
w
d
Introduction (Origin): In the (Full) Budget-2019, FM Nirmala S. announced, "Indiass sovereign
external debt to GDP is among the lowest (~5%). ëe Govt would start raising a part of its borrowing
go

programme in external markets in external currencies."

Arguments in favor (IJKLM) Against (NOPQ RS TQUV)
1. In domestic market, the 'crowding 1. Exchange Rate Risk (*+*,XF tP NL AhìîX): If rupee
rs

out of private corporate borrowers' weakens against the dollar during the bondss tenure
he

will decline. ( more in 2D:Fiscal ($1: Ç 60 → Ç 70), the government would have to
DeRcit) return more rupees to pay back the same amount of
dollars. ëen the loan may turn out to be 'more
ot

2. Corporates will be able to mobilize

more funds from local market → expensive' than originally anticipated.
factory expansion, jobs, GDP 2. It's true that presently Indian Govt's external
p

borrowing is very low, but once this 'door' is opened,

growth
el

subsequent govts may get tempted to borrow more

3. In the advanced economies such as
and more from the foreign sources to Rnance their
H

USA, EU: the loan interest rates

(populist) welfare schemes, ultimately it can result
are very low, so our Indian govt
into crisis when rupee gets weaker. [hN[ó]L+, FhA,LÅ@
may be able to get cheaper loans.
N- j[n *+t-.B xp [-,-Ng ZPNLP Nh [D [C ZNDB rá
Zu-íLA >P
4. If we borrow a little more from 3. Better to the foreigners' investment limit in G-Sec

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2D: Budget → Disinvestment & De#cits → Page 425

KING R & QUEEN P Help others god will help you

 Arguments in favor (IJKLM) Against (NOPQ RS TQUV)
external sources it won't harm. VhòL (in Ç currency) and attract them to come to India,
ZL xp ôCP *+t-.h@Z-*+t-.B XóöL Xy[-j[FL rather than we going 'abroad' to get their money in $
Dh Nóõ AhìîX ,rB@ currency.
Conclusion: whether we should borrow in foreign currency or notd
 (Against) From the aforementioned analysis, it's evident that challenges outweigh the

u
potential beneRts. Noted economists such as Dr. Raghuram Rajan are apprehensive about

yo
sovereign borrowing from external markets in foreign currency. ëerefore, this idea, though
well-intended, requires more deliberation. (úZ OuL+ XyùLFt-NX ,óNZL, ûLtL |tî Pr-r}úZj[n úPLtL ,-N
rá[-|N, úZ >P ûLtL *+X.wNg {+üNDL rá)

lp
 = (In favor) Considering above points, sovereign borrowing from external

he
markets in foreign currency may not be a bad idea, provided that it's done in a judicious and
prudential manner. (Fr OuL+ TóPL ,rB@rá, *++-N >?pw†> Z-[LC?NP,L eL|rn)
26.1.2 Budget-2023: Foreign Borrowing

ill
w
d
go

 ES23: most of our foreign debt denominated in ÇÇ Currency. So need not worry much.

BUDGET → CAPITAL RECEIPTS → DISINVESTMENT: *+*,+-.

rs

26.2
ëere are THREE types of Commercial or industrial undertaking owned by the govt:
he

✉ Departmental Statutory Corporations Govt. Companies

Undertakings TQXPYZ[ \]^J Q_`PTMR TMYJ IaRPaZ Rb]TM[P
ot

Directly part of a ministry e.g. Created by an act of Parliament Registered under the
Postal, Railways, or state legislature. E.g. RBI Act, Companies Act, Govtss
ëey can be created easily SBI Act, LIC Act, FCI Act, shareholding is 51% or
p

because, no laws required, no EPFO Act. etc, SIDBI, more.Coal India ltd, GAIL,
Companies Act registration NABARD, NHB, EXIM etc. SAIL, NTPC, IOCL, BHEL &
el

required various Public Sector Banks and

H

NBFCs which are not statutory

corporations.
Risk aversion by oàcers. Middle of both sides More operational £exibility to
High level of ministerial oàcers. Less interference by
interference (X@oB Ng t°[ ¢LtL) Ministers
CAG will audit directly []LPD N- Some of these Acts provide for Companies Act requires them
(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2D: Budget → Disinvestment & De#cits → Page 426

KING R & QUEEN P Help others god will help you

 ✉ Departmental Statutory Corporations Govt. Companies
Undertakings TQXPYZ[ \]^J Q_`PTMR TMYJ IaRPaZ Rb]TM[P
*,F@oN ÄP XrL[-îL >PB•N \F@ internal audit & exclude CAG to produce audited reports.
*+]LCBF ~>fX N- |rZLT |NDLT NL [-îL from auditing the Corporation. CAG will empanel the (private)
>PB•p NPyC]- E.g. RBI, LIC. auditors for them.
ëeir earning will go directly in ëeir earning → proRt → dividend goes to shareholders.
Public Account / CFI

u
All three types of org are Answerable under the Right to Information Act, 2005

yo
Z?e,L ô^NLP NL,?,/ ô^*,FX N- ô@DCwD ú, Z]B Z@lL,h@,-AL,NLPB t-,B rhCB
ëeir employees are considered Not considered govt employees. ëeir service / discipline
government employee- conditions are governed by the respective organizationss internal

lp
subjected to service and manuals. ZPNLPB NßXFh@+L[-Z-+L ÄP ô,ó.LZ,/®.u N- *,FX ú,N- NX©Fh Nh
discipline rules framed by the [LC?,rB@rhD-.

he
government.
 Objective: Public interest & welfare through aIordable services, Development of infrastructure,
regional balance, prevent concentration of economic power in the hands of Corporates /MNCs.

ill
(~t-ü: A, |rD Xy ZuB Z-+Ln@, Tó*,FLtB ™L@eL, *+NLZ Xy•-oBF Z@Dó[,, T´PL¨≠BF N@>*,Fh@N- rLVh@Xy{ÆVN .Ø∞ Ng
N-±BNPp PhN,L)
w
 ChallengesH Political interference, lack of innovation & consumer responsiveness, employee
unions, loss making business. (PLA,B*DN ru•->, ,+LeLP Ng NXB, ~>]h∞L N- O*D A+LTt-rB NX, NXweLPBÅ Nh
d

NLX Z-ûLtL F?*,F,h@-TLAB ÄP ròDL[ Xyj[Ö Pr-,L, KLM-Xye[,L)

go

26.2.1 CPSE vs PSU vs PSB

 PSB: Public Sector Banks = Banks wherein Govt has majority shareholding.
rs

 Central Public Sector Enterprises (CPSEs: RdeZ[ IPQLfTMR gSh RS \]^J): Registered in Companies
act & Union Government has 51%/> shareholding. Commonly known as ≤Govt companiesG. ëe
he

word CPSE is mainly used to denote agovt companies other than Public Sector Banks, Public
Sector Insurance Companies and Public Sector NBFCsc.
 Public sector Undertaking (PSU: ZL+wA*,N •-o N- ~>fX) = collective term for all the govt
ot

companies owned by Union Govt + State Government + Local Bodies.

p

Note: Some book/internet may diIer in this deRnition. But we need not loose sleep over pedantry.
.¥]-t Xy>L@|µ∂ +L[B TL[ Ng îL[ *,NL[,-Ng Nh∑ A†PD ,rB@ráç
el

26.2.2 Ratna Companies = freedom to govt companies based on performing

 Ministry of Heavy Industries & Public Enterprises-> its Department of Public Enterprises (DPE)
H

decided Ratna Status. 2021: DPE shiπed to Finance Ministry (REF: Handout #2A for more).
 ëis is NOT for private owned companies like Tata, Infosys or Adani.
 aRatnac status-walli Govt Companies are given for the £exibility in their operations e.g. hiring
more professionals, acquisition of other companies etc. without requiring government approval

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2D: Budget → Disinvestment & De#cits → Page 427

KING R & QUEEN P Help others god will help you

 for every small decision. (ô∫L Ot.w, NP,-+L[B ZPNLPB N@>*,Fh@Nh ô>,B NLFwPB*D N- j[n \D@oDL t-,L. rP õhMB
eBA N- j[n ZPNLP Z-ô,óX*D [-,L A†PB ,rB@)
Category Condition and examples
✓ made proRts in the last 3 years continuously, further subdivision in Category-I &
Miniratna Category-II depending on how much proRt is generated.
Cat-I and ✓ Examples: National Film Development Corporation ltd, Mazagaon Dock ltd,
Cat-II Mishra Dhatu Nigam, NHPC ltd, WAPCOS, ONGC Videsh, Rail Vikas Nigam

u
✓ A Mini Ratna company fulRlling axc conditions OR

yo
Navratna ✓ Non-Mini Ratna Govt companies fulRlling ayc conditions such as Manpower cost
to total cost of production etc.
✓ Examples: Rashtriya Ispat Nigam ltd, Rural ElectriRcation Corporation ltd,

lp
Shipping Corporation of India ltd, Oil India ltd, National Aluminum Company
ltd, Neyveli Lignite Corporation ltd, Mahanagar Telephone Nigam ltd, Hindustan

he
Aeronautics ltd, Container Corporation of India ltd, Bharat Electronics ltd,
✓ Already a Navratna Company+ fulRlling azc conditions such as min. Ç 5000 crore
Maharatna proRt per year in last 3 yrs, listed at a Stock exchange, signiRcant global presence
✓ Very few here: 1)Bharat Heavy Electricals, 2)Bharat Petroleum Corporation,

ill
3)Coal India , 4)GAIL (India) , 5)Hindustan Petroleum , 6)Indian Oil
w
Corporation, 7)NTPC , 8)Oil & Natural Gas Corporation (ONGC), 9)Power Grid
Corporation, 10) Steel Authority of India (SAIL)
d
Above Ratna examples are taken on 1/1/2020. List may change aπerwards. Some companies
get privatized. We need not lose sleep over it too much, unless preparing for their speciRc
go

recruitment exam.# VhòL->ªh-{C--Tªh

 FAQ. Are Public Sector Banks (PSB) given Ratna StatusH Ans. No. While PSBS are a sub-
set of Government companies but Ratna status is for CPSEs who are NOT PSBs.
rs

 FAQ. Are Statutory Corporation like LIC, EPFO etc given Ratna StatusH Ans. No. Itss for
he

Central Govtss companies only. It is not for statutory corporation.

 FAQ. Are State GovtGs Govt Companies given Ratna StatusH Ans. No. It is for Central Govt
ot

owned companies only. F-Zùw Nyö ZPNLP Ng ZPNLPB Nº*,Fh N- j[n rá

 FAQ. Are Private sector Companies like Tata/Reliance given Ratna StatusH Ans. No. It is
p

for Central Govt owned companies only. ]L∑ F-Zùw Nyö ZPNLP Ng ZPNLPB Nº*,Fh N- j[n rá. úD,B {ZL,
ÄP ZB^B ZB TLD Nh {> Ωh@A|M[ NP Pr-rá!?
el

MCQ. Which among the following is designated with FNavratnaG statusH (CDS-2021-i)
H

(a) Indian Oil Corporation Limited (b) Gas Authority of India Limited
(c) Bharat Petroleum Corporation Limited (d) Bharat Electronics Limited

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2D: Budget → Disinvestment & De#cits → Page 428

KING R & QUEEN P Help others god will help you

 26.2.3 Government policy towards disinvestment before 2021

u
yo
lp
he
ill
w
d
go
rs
he

 Disinvestment: govt shareholding in a Government company but govt keeps atleast 51%
ot

shareholding with itself.

 Privatization / Divestment / Strategic Disinvestment (*,ABNPp/Pp,B*DN *+*,+-.): When govt sells
upto 50 per cent or more shareholding, along with transfer of management control. (DeRnition
p

as per DIPAM Dept)

el

 Arguments in favour: govt shareholding → Private investors will enter in the board of
H

directors → eàciency, innovation and autonomy. t•DL, ,+LeLP \LF¿DL

 Disinvestment proceeds can be used for welfare schemes, and Rscal deRcit.
 Argument Against: MNC monopolies, exploitation of worker, job loss.

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2D: Budget → Disinvestment & De#cits → Page 429

KING R & QUEEN P Help others god will help you

 u
yo
lp
he
Year Nationalization and Disinvestment related developments
1951  First Constitution Amendment Act: While 19(1)(g) gives citizen's right to
practice any profession. But Government can impose reasonable restrictions on

ill
it for interests of general public → this allowed for nationalization of pvt
w
industries e.g. Bank nationalization in Pillar#1B1 (ZPNLP A, |rD Xy*,AB N@>,BFh NL
PL¨≠BFNPp NP ZNDB rá.)
d
 ( NOTE: Rrst amendment act also contain some other provisions for SEBC, 9th
go

Schedule etc, but we are only focusing on the parts that are related with
nationalization/disinvestment)
1953  1953: Air Corporations Act: Govt nationalised nine airlines—Air India, Air
rs

Services of India, Airways (India), Bharat Airways, Deccan Airways, Himalayan

Aviation, Indian National Airways, Kalinga Airlines, and Air India International
he

 Above private sector companies were nationalised into two Public sector
Enterprises I) Indian Airlines II) Air India International.
ot

1991 ëe term 'disinvestment' was used Rrst time in Interim Budget 1991. aWe will reduce
shareholding in all Govt Companiesc- said PM Narasimha Rao.
1998Gs PM - In strategic sector (Railways, Defense, Atomic Energy)- wesll not do
p

Vajpayee disinvestment
el

- In Non-strategic sector = wesll do disinvestment in a phased manner (CáP-

Pp,B*DN •-o XyePpT¬ DPBN- Z-*+*,+-. NPyC-).
H

1999: PM Vajpayee set up Department of Disinvestment → privatisation of

-
Maruti Udyog, Hindustan Zinc, Bharat Aluminum and Videsh Sanchar Nigam
Limited (VSNL) etc. 12 govt companies.
UPA-1 (2004- Due to pressure from Leπist/Marxist coalition parties = No Disinvestment from any
09) government companies. If a government company is sick, we will try to revive it.

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2D: Budget → Disinvestment & De#cits → Page 430

KING R & QUEEN P Help others god will help you

 +LX>@VB / XLƒw+LtB C≈T@^, t[ N- e[D-*+*,+-. ,rB@
UPA-2 (2009-  All Govt Companies can be disinvested upto 49% = Govt will keep 51%
14) minimum and sell remaining shares.
 ÇÇ will goto National Investment Fund (NIF, in Public Account) → used for
Bank recapitalization, metro rail, nuke energy, EXIM-NABARD-RRB etc. PL¨B≠F
*,+-. Nhi
 Also launched CPSE-Exchange Traded funds (ETF): Ref Pill#1C:SEBI

u
26.2.4 Disinvestment & Privatization in the Modi Raj (2014-19)

yo
✓ Various methods of Disinvestment, depending on the Company
1. Converting Private Limited Company to public limited company and issuing Initial
Public OIers (IPOs) e.g. Indian Railway Catering and Tourism Corporation (IRCTC)

lp
and Rail Vikas Nigam Ltd (RVNL)

he
2. Exchange Traded Funds (ETFs): CPSE-ETF, Bharat-22-ETF (Ref: Pillar#1C)
3. Institutional placement Programme (IPP): oIer shares only to non-retail investors.
4. O/er for sale (OFS): Govt sells its existing shares to both retail and non-retail investors

ill
5. Share Buyback i.e. Govt company itself buys the shares owned by Govt, thereby
decreasing Government's shareholding portion viz a viz private sector's shareholding.
w
✓ Modi govt shut down many sick Govt companies such as HMT watches, Hindustan Photo Film
etc. (∆AZ-Nh∑ *,AB •-o NL ~«hC>*D îPBt NP e[L,L ,rB@eLrDL VL ~, TBXLP ZPNLPB N@>*,Fh@Nh T@t NP |tFL.)
d

✓ Budget-2016 renamed FinMinss Dept of Disinvestment into Dept. of Investment & Public Asset
go

Management (DIPAM: *,+-. ÄP ZL+wA*,N Z@>»¿ OT@^, *+]LC).

26.2.5 Privatization / Strategic Disinvestment in Modi Raj

rs

 Strategic Disinvestment (Pp,B*DN *+*,+-.): it means selling a substantial portion of Government

shareholding in a CPSEs along with transfer of management control to a private party.
he

 For this action, NITI Aayog prefers to use the term ≤strategic disinvestments, ≤strategic sales
instead of ≤privatizationG, lest the opposition parties create uproar about it.
ot

 Sometimes, press statement also uses the word aDivestmentc for it.
 Budget-2022: NINL (Neelanchal Ispat Nigam Limited) will be privatised
p

 ES23: Govt has done privatisation of 10 CPSEs - HPCL, REC, DCIL, HSCC, NPCC. NEEPCO,
el

THDC, Kamrajar Port, Air India and NINL.

26.3 → NEW PUBLIC SECTOR ENTERPRISE (PSE) POLICY (2021)

H

Strategic sectors (Jmn]opLgShq) Non strategic sectors

Example 1) Atomic energy, Space, Defence (>PXLpó…ALw, All the other sectors. (TLNg
ô+NL.,P•L,) DXLX •-oh@= CáP-XrÀ>?pw•-oh= Xy
2) Transport, Telecom (>zP+r,, tPZ@eLP) ∆AD,-]B ZPNLPB N@>*,FL@rá~, ZT

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2D: Budget → Disinvestment & De#cits → Page 431

KING R & QUEEN P Help others god will help you

 Strategic sectors (Jmn]opLgShq) Non strategic sectors
3) Power, Petroleum, Coal, other minerals Nh FL Dh *,ABNPp NP tyC-FL T@t NP
(…ALw, >-M≠hj[FX, NhF[L, î*,A,) tyC-)
4) Banking, Insurance and Rnancial services (
T}|N@C TBXL *+¿BF Z-+Ln@)
Will there be a
Minimum one government company will be No government company will

u
government kept. Remaining will be merged/ be kept. All the Existing
company privatized/shutdown (XrÀ>?pw•-oh XyZùw nN government companies will

yo
hereH ZPNLPB N@>,B Nh PîL ALnCL, TLNg Z]B ôÃ ZPNLPB N@>*,Fh@ be privatized/shutdown.
Nh ~Z Xy*+[B,/*,ABNPp/T@t NP |tFL ALn)
✓ Disinvestment targets previous budgets:

lp
Budget 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24

he
Target 80,000 cr 1.05 Lcr 2.10 lcr 1.75 lcr 65,000 cr 51,000/61,000*
AchievedH 65,000crs 37000 Cr 14,638 cr 60,000 cr WeGll see

 Õ51,000cr as per News Website like https://economictimes.indiatimes.com, and LiveMint

ill
 Õ61,000 cr as per Budget Excel Rle: indiabudget.gov.in/doc/Budget_at_Glance/bag5.xls
 ëen which number is rightd Ans. Isd tick answer as per the Budget excel Rle (61,000).
w
26.3.1 National Monetisation Pipeline (NMP 2021)
d
 Govt initiative for selling/renting/leasing the land/building/machine/assets of CPSE/National
go

Highways/Railways to mobilise Ç6 lakh crore by 2025. (PL¨≠BF Xœ|öNPp >Lú>[Lú, = úZ Xó|rX N- ô@DCwD
ZPNLPB N@>,B/rL∑+-/P-[+-Ng Z@>»¿Fh@Nh T-e,L/|NPLF->P t-,L- úZNg Xtt Z-– [Lî NPhò —>F-TMhP,-r})
 More a in Pillar#5- along with other associated topics like 1) National Investment and
rs

Infrastructure Fund (NIIF) 2) National Infrastructure Pipeline / GATI Shakti initiative etc.
he

26.3.2 National Land Monetization Corporation (NLMC-2022)

Refer to Handout Pillar2A1- Departments of Finance Ministry.
ot

MCQ. Why is Govt disinvesting its equity in the Central Public Sector Enterprises (PreG11)
1. ëe Government intends to use the revenue earned from the disinvestment mainly to pay
p

back the external debt.

el

2. ëe Government no longer intends to retain the management control of the CPSEs.

Ans Codes: (a) 1 only (b) 2 only (c) Both 1 and 2 (d) Neither 1 nor 2
H

26.4 BUDGET → CAPITAL PART → EXPENDITURE (]obfZYu v[)

TAM → >?@ABCD ]LC → EF: Its notable components in decreasing order are:
1. Capital assets for various schemes, ministries, departments (Building, vehicles..)

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2D: Budget → Disinvestment & De#cits → Page 432

KING R & QUEEN P Help others god will help you

 2. Giving debt/equity Rnance to PSUs & foreign institutes, giving loans to State Govt & Foreign
Govt.
a. Note: FinMin: Dept of Economic AIairs (DEA)ss Indian Development and
Economic Assistance Scheme (IDEAS) gives such ÇÇ to foreign nations.
3. Union repaying loan principal for Internal Debts ({@DzPN xp NL X?[^, +L>Z t-,L)
4. Union repaying loan principal for External Debts (TLåxp NL X?[^, +L>Z t-,L)

u
26.4.1 State CAPEX Loans

yo
 Special Assistance to States for Capital Expenditures/CAPEX scheme
 2020: Union to loan interest-free 50-year loan to states. Total amount approx. Ç12,000 cr for
capital expenditure like, health, rural development, water supply, irrigation, power, transport,

lp
education, urban development. (\L“, ”LXBp- .rPB *+NLZ, A[ {>?‘D, Ze @ L∑, *TA[B, >zP+r,, ®.•L N-
>?@ABCD °e’ N- j[n Nyö ÷LPL PLû ZPNLPh@Nh *T,L íLA N- [h,)

he
 Budget-2022:- State govts to get 1 lakh crore CAPEX loans with 50 year tenure, 0% interest.
 Budget-2023: wesll give capex loans & Some of these CAPEX loans will be linked to:

ill
o - Scrapping old government vehicles (>óPL,-ZPNLPB +Lr,h@Nh ◊á>/NTLòB Xy]-A,L)
o - Urban planning reforms (.rPB *,FhA, Zó^LP)
w
o - Financing reforms in urban local bodies reform so they can become Rnancially strong
enough to issue municipal bonds (.rPB lL,BF *,NLFh@XyZó^LPP)
d

o - Housing for policemen (>ój[ZNßXFh@N- j[n {+LZ)

go

o - Constructing Unity Malls- Ref Pillar#3A (nNDL Xÿ[ NL *,XLwp)

o - Children adolescentss libraries and digital infrastructure (TŸ-|N.hPh@N- >óuNL[F ÄP
|µ∆AM[ Tó*,FLtB ™L@eL/ô+Z@Pe,L)
rs
he

26.4.2 Budget → Capital Part → E/ective Capital Expenditure

ot
p
el
H

What does above chart meand Ans. Explained in the video lecture.

26.4.3 Capital expenditure for a Company

Capital Expenditures of a company = the amount of money invested by the company in (income
generating) assets such as:

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2D: Budget → Disinvestment & De#cits → Page 433

KING R & QUEEN P Help others god will help you

 Tangible Assets XwTuR Ib]xy[Pb Intangible Assets zJouLIb]xy[Pb
Patents for vaccines, copyright for
Land, Buildings, Vehicles,
books/music/movies/soπwares, Brand-logo, Trade secret
Equipment
formulas (e.g. KFC burger, Cocacola),
Raw material and Unsold inventory License fees (e.g Soπware, mining, telecom etc) (Ref:
(Rnished goods) Pillar#5- Infra)

u
Investments made in the

yo
Clientss database / mailing list
shares/bonds of other companies.
Accounts receivable (Ref#1C) Goodwill (Ref: Pillar#1C - eg Byjus buying Whitehall jr.)

lp
Cash & deposits in bank account Website domain name
We can further sub-divide these assets into current assets, Rnancial assets, Rxed assets. More of that

he
in Pillar7: Microeconomics.

MCQ. With reference to the expenditure made by an organisation or a company, which of the

1.
ill
following statements is/are correct H (Rb]MZ {PaP |R} Y} ~LRS ÄPaSJdImZ QPÅ ÇoÉÇq) (Prelims-2022)
Acquiring new technology is capital expenditure. (,∑ Oœ«hWCNg Nh °PBt,L >?@ABCD °ewrá)
w
2. Debt Rnancing is considered capital expenditure, while equity Rnancing is considered revenue
expenditure. (xp-÷LPL *+¿>hip Nh >?@ABCD °ewXL,L ALDL ráAT|N ú*⁄MB/.-FP *+¿>hip Nh PLA\ °ewXL,L ALDL ráç)
d
Codes: (a) 1 only (b) 2 only. (c) Both 1 and 2. (d) Neither 1 nor 2
go

MCQ. How many of the above are considered intangible investmentsH (Prelims-2023)
1. Brand recognition 2. Inventory 3. Intellectual property 4. Mailing list of clients
Codes: (a) Only one (b) Only two (c) Only three (d) All four
rs

27 TYPES OF DEFICITS: KLM-N- ONLP

he

27.1.1 Types of Budget- Surplus, De,cit, Balanced

ot

- If governmentss income >> its expenditure it will have a surplus budget/ ô^.-i TAM
- If governmentss expenditure == its income, it will be a balanced budget/ Z@Dój[D TAM
- If governmentss expenditure >> its income, itsll be a de,cit budget/ KLM-NL TAM
p
el

27.1.2 Yudhishthir Disclaimer on De,cit Formulas

H

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2D: Budget → Disinvestment & De#cits → Page 434

KING R & QUEEN P Help others god will help you

 u
yo
lp
he
ill
w
d
go

27.1.3 Budget De,cit (ÄfÑ ÖPÑP)

rs
he
ot
p
el
H

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2D: Budget → Disinvestment & De#cits → Page 435

KING R & QUEEN P Help others god will help you

 27.1.4 Fiscal De,cit - formula Tamilnadu Textbook
Fiscal DeRcit = Budget DeRcit plus Borrowing. Xis borrowing includes internal borrowing [such as
through Small Savings Scheme, and the G-Secs subscribed by Banks/NBFCs) + Borrowing from RBI] +
External Borrowing. (as per Tamilnadu TextBook & governmentss oàcial calculation method)

u
yo
lp
he
ill
w
27.1.5 Fiscal De,cit - formula NCERT Textbook (two formulas)
d
- 1) FD = Total expenditure – (Revenue receipts +Non-debt creating capital receipts).
go

- 2) FD = diIerence between the govtss total expenditure & its total receipts excluding borrowing
rs
he
ot
p
el
H

• Fiscal DeRcit related famous committee= Sukhmoy Chakravarti Committee (1997-98)

MCQ. Üe excess of total expenditure of Govt over its total receipts, excluding borrowings, is
known as _ _ _ (CDS-2021-i)
(a) Primary deRcit (b) Fiscal deRcit (c) Current deRcit (d) Capital deRcit
(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2D: Budget → Disinvestment & De#cits → Page 436

KING R & QUEEN P Help others god will help you

 27.1.6 Gross Fiscal De,cit (GFD) vs NET ,scal De,cit

u
yo
lp
he
ill
w
d
go

➔ Gross Fiscal De,cit = Net borrowing at home + Borrowing from RBI + Borrowing from
abroad (ZN[ PLANhiBF KLML)
rs

➔ Net Fiscal De,cit = Gross Fiscal DeRcit (GFD) minus the net lending of the central
government. (.ó¬ PLANhiBF KLML)
he

FAQ: RBI is also ≤at home in Indias so why show it separately in formulad Ans. NCERT given it
like that. so usve to prepare. NCERT didnst bother to explain aWHYc so I didnst bother to PHD
ot

27.1.7 Primary De,cit (NPKáJR ÖPÑP)

➢ PD = Fiscal DeRcit minus interest to be paid on previous loans (PLANhiBF KLM-XyZ->óPL,-xp/NAw
p

>P Ah íLA eóNL,L rá~Z-rML tB∆An.)

el

➢ 1993: Finance Minister Manmohan Singhss budget speech mentioned it.

➢ If the government continues to borrow year aπer year, it leads to accumulation of debt and
H

the government has to pay more and more interest. ëese interest payments themselves add
more burden to borrow next year. (>óPL,B [h, >P Ah íLA eóNL,L rá~Z PNX Nh KLM- Ng WC,DB Xy,rB@[-,L
eL|rn)

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2D: Budget → Disinvestment & De#cits → Page 437

KING R & QUEEN P Help others god will help you

 ➢ So, to get a clearer picture of how much is the government borrowing for new programs,
they look at another indicator: (DL|N ,n +iwXy*+NLZ N- NLX N- j[n úD,L +Lu*+N NAwj[FL AL PrL rá
~ZNL >DL e[-)

27.1.8 Gross Primary De,cit (GPD: IRà NPKáJR ÖPÑP)

Gross primary deRcit = Gross Rscal deRcit - Net interest liabilities

u
yo
lp
he
-
ill
FAQ : 1) diIerence between Primary DeRcit vs Gross Primary DeRcit. Ans. Read Yudhisthir
w
disclaimer on deRcit formulas.
- FAQ : 2) Formula for net primary deRcitd Ans. Same as above.
d
27.2 ( < ) REVENUE DEFICIT (aPfâ ÖPÑP)
go

 When govt spends more than its income in revenue account, it incurs …
 Revenue deRcit = Revenue expenditure – Revenue receipts. (EF ûLtL {Xt,B NX)
 Since most of revenue expenditure is ≤committeds (like Interest repayment on previous loans,
rs

staI-salaries & pensions which Govt canst ≤avoids), so diàcult to the revenue deRcit.
 So, when revenue deRcit ⇥, govt forced to borrow more money or expenditure in the capital
he

part (= less new schools, bridges and hospitals) → human dev, and lower economic growth
(less new bridges → demand of steel/cements → growth in those sectors).
ot

De,cit Formula
Revenue De,cit PLA\ KLML Revenue expenditure – Revenue receipts AT PLA\ îewPLA\ {F Z-ûLtL
E/ective Revenue De,cit Revenue DeRcit minus Grants for creation of capital assets
p

O]L+B PLA\ KLML

el
H

27.3 ( < ) EFFECTIVE REVENUE DEFICIT (O]L+B PLA\ KLML)

- Wesve counted Grant-in-Aid to States / Local Bodies as ≤Revenue Expenditures, but some portion
of that ÇÇ may have been spent by the States / Local Bodies for building Panchayat-Bhavans,
Disaster Management Training Institutes, Cranes & Bulldozers for Disaster rescue operations
etc. which are actually aCapital Assetsc. (>?@ABCD Z@>»¿FL@)

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2D: Budget → Disinvestment & De#cits → Page 438

KING R & QUEEN P Help others god will help you

 - ëerefore, Budget 2011 (Chidambaram) introduced a new concept:
- E/ective Revenue De,cit = Revenue DeRcit MINUS Grants to various bodies which were spent
for creation of Capital Assets

27.3.1 Fiscal glide

Fiscal glide refers to the gradual adjustment/decrease in Rscal deRcit over time to maintain economic
stability. (rh[ rh[ KLM-Nh NX NP,L, DL|N t-. Ng {ÆVN klPDL T,B Pr-ç)

u
yo
Year 20–21 21–22 22–23 23–24 24–25 Financial Year (FY) 25–26
Fiscal 9.2 6.7 6.4 5.9 6.4 Target below 4.5 (as per
DeRcit (%) Budget-2023)

lp
he
MCQ. Find Correct Statement(s) (Asked in UPSC-Pre-2017)
1. Tax revenue as a percent of GDP of India has steadily increased in the last decade.
2. Fiscal deRcit as a percent of GDP of India has steadily increased in the last decade.
Codes: (a) 1 only (b) 2 only
ill
(c) Both 1 and 2(d) Neither 1 nor 2
w
27.4 EXTRA-BUDGETARY RESOURCES (ÄfÑSua IbIP`M)
d
go
rs
he
ot
p
el

FExtra Budgetary ResourcesG (EBR) or FO/-budget resourcesG are loans taken by public sector
H

undertakings and Government organizations. (ZPNLPB *,CX Z@lL,h@÷LPL NAwj[FL AL,L)For example,
✔ Govt not releasing food subsidy to Food Corporation of India (FCI) & (thereby forcing) FCI to
borrow money from National Small Savings Fund (NSSF) for its food schemes. [Although
Budget-2021 announced to stop this practice].

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2D: Budget → Disinvestment & De#cits → Page 439

KING R & QUEEN P Help others god will help you

  Here repayment of the entire principal and interest is done from the Central Government Budget
eventually, behind the curtains. (>t›N- >Bõ- ZPNLP t-PB Z->áZL t-CB)
✔ EBR measures are announced aπer passing of budget so, they may escape the same general level
of media-reporting, parliament debate or audit = bad for Rnancial transparency & accountability.
XB|µFL-zP>hfiMC, Z@Zt TrZ FL fl|µM Z-jõ>,L = *+¿BF >LPt‡.DL ÄP A+LTt-rB N- j[n TóPLç

u
yo
lp
he
✔ 15th FC has termed aEBRc as ≤oI-budget borrowings through para-statal entitiess and asked

ill
Government to avoid it. (15+y*+¿ {FhC ,-]B ú, rPNDh@Nh T@t NP,-Ng Z[Lr tB rá)
w
✔ ES20 also criticised this practice ({ÆVN Z+›•p ,-ú, rPNDh@Ng {[he,L/*,t@ L Ng rá)
 ëese EBRs are not taken into account while calculating the Fiscal DeRcit but theysre counted
d
while calculating Government debt or public debt.
go

FISCAL YEAR 2020–21 2021–22 2022–23 & 2023–24

EBR (IN CRORES) 148000 121000 0
rs

27.5 DEBT COMPOSITION: AMOUNT-WISE

he
ot
p

Table 2: De#nition & DATA as per ES22 Vol1Ch2.

el

Outstanding Loan (ÄRP[P ãåL) 2019-20 2020-21 2021-22

i) Internal Debt ({@DzPN xp)- all the pending loans total 80 Lcr 99 Lcr 115 Lcr
H

A. Marketable debt = Government's dated securities (G-

Sec) and Treasury Bills, issued through auctions.
Investor can be easily resell it in secondary market
B. Non-marketable debt = special types of
securities/bonds issued by Union Govt to EXIM Bank
(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2D: Budget → Disinvestment & De#cits → Page 440

KING R & QUEEN P Help others god will help you

 Outstanding Loan (ÄRP[P ãåL) 2019-20 2020-21 2021-22
and other All India Financial Institutions (AIFI), State
Govts etc. It's diàcult/sometimes not possible to re-sell
such securities/bonds in the secondary market.
Majority of Govtss internal debt is marketable debt.
ii) External Debt (TLå xp) 5 Lcr 6.15 Lcr 6.59 Lcr

u
 Borrowed from other nations and multilateral

yo
institutions such as IMF, World Bank, ADB etc.
 At present Govt of India doesnst borrow directly
from the International Capital Market.

lp
A) Public Debt (ZL+wA*,N xp)= (i) + (ii) 85 Lcr 105 Lcr 121 Lcr
B) (Public Accounts): Other Liabilities such as Post Oàce 13 Lcr 12 Lcr 12 Lcr

he
Savings, Postal Insurance, Provident Fund etc. small
savings schemes ([KóTeD FhA,L) (More in Pillar#1D3)
C) Extra Budgetary Resources (ÄfSÑSua IbIP`M) 1.12 Lcr 1.39 Lcr 1.39 Lcr
Total Liability (Nó[ t-FDL) = A+B+C
ill 99 Lcr 117 Lcr 134 Lcr
w
MCQ. Find correct statements (Prelims-2022) :
1. A share of the household Rnancial savings goes towards government borrowings.
d
2. Dated securities issued at market-rates in auctions form a large component of internal debt.
go

Codes: (a) 1 only (b) 2 only (c) Both 1 and 2 (d) Neither 1 nor 2

FAQ: Why are above numbers not matching ,scal de,cit numbersççHH Ans. Fiscal deRcit number
rs

only shows loan taken in a single Rnancial year. Above is the cumulative (total) outstanding/unpaid
loans of successive Govt (Vajpayee, Manmohan, Modi…..etc) (F-Nó[ TNLFL NAw|tîL PrL rá)
he

FAQ: Why are above numbers not matching Extra Budgetary Resources numbers in previous
section ççHH Ans. same as previous FAQ answer.
ot

FAQ: Is EPFO/NPS amount included in aboveH Ans. EPFO/NPS invests money in 1) Pvt sector
company Shares, 2) private sector company Bonds and 3) G-Sec (=Loans to Govt). ëe G-Sec
p

components is included.
el
H

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2D: Budget → Disinvestment & De#cits → Page 441

KING R & QUEEN P Help others god will help you

 27.5.1 Debt Composition: Type-wise

u
yo
Out of loans majority (zx`Rua RåLéI NRPa RS mè) minority(Äêu mZ RJ RåLéI NRPa RS mè)

lp
Total Public Debt State Govt (70%) Union (30%)
Union Debt → Internal (94%) external/foreign (6%)

he
(Source)
Repayment Rupee Foreign Currency (Ah NAw*+t-.B XóöL Xy
Currency +L>Z NP,-r})
Union Debt → Fixed Interest (*,∆·D íLA tP)
ill Hardly 5% of Govt loans are '£oating
w
(Type of Interest interest rate' (e.g. may be tied with
Rate) LIBOR etc REF#1C). (e[LFXL, íLA tP
d
+L[-[h, T´D NX rá)
Tenure (zQx` RS
go

Long Term (tBKwô+^) Short Term ([Kóô+^)

|mIPÄ IS)
 Ratio of (External debt: GDP) = <3% (less than three percent)
 India's "debt to GDP" ratio is lowest among following group of countries: 1) G20 2) OECD 3)
rs

BRICS( Ref: HDT-Pillar#3B: International Organisations)

he

 Moreover, public debt for India has declined since 2003 and has been stable since 2011.
ot

27.6 FINANCING THE DEFICIT: ITS NEGATIVE CONSEQUENCES ON ECONOMY:

KLM-NL *+¿>hip: ôVwE+lL >-~ZN- ,NLPL„N >zPpLX
How to ,ll de,citH
p

Why problematic / impracticalH ÅP IJëP}b/vPQmPíaR ÅqbMmZbm_

el

1) Demanding  Taxes canst be beyond a point because it may force people to

more taxes A,DL >P evade taxes / discourage their motivation to work. (recall LaIer
H

ûLtL NP [Lt-ALn@ Curve). NPh NL uP T´D TòL |tFL Dh [hC NPehPB NPyC-
2) Borrowing  Ricardian Equivalence: Government borrowing → public
more money ZPNLP ÷LPL shopping = bad for economy. Although ES21 says this will not
ûLtL >áZL NAwXyj[FL ALn happen in India.

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2D: Budget → Disinvestment & De#cits → Page 442

KING R & QUEEN P Help others god will help you

 How to ,ll de,citH Why problematic / impracticalH ÅP IJëP}b/vPQmPíaR ÅqbMmZbm_
 Crowding out of the private borrowers Although ES21 says this
will not happen in India.
 Fall in the sovereign credit rating. Although ES21 says this will
not happen in India.

u
3) Printing  Although known as Monetising the deRcit- it results in
hyperin£ation (t-t,L t, ,hM õL> |tFL ALn Dh Xr@CL∑ T´D Tª ALnCB)

yo
More money

lp
he
ill
w
d
go

27.6.1 : Financing the De,cit: Ricardian Equivalence

rs
he
ot

✔ deRcit → Government borrows money → @Maturity (also called ≤Redemptions) of G-

p

Sec, Govt will have to return the principal and interest to the lenders.
el

✔ At that time, Govt may greatly increase taxes on people to arrange that amount.
✔ So, Economist David Ricardo argued that during high deRcits, people save more, because they
H

become precautious about future hike in taxes.

✔ Itss called ìRicardian equivalence: íaRPîï[M uñóuPc [& if people begin to spend less and save more,
then companies will face unsold inventories = new problems for economy]

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2D: Budget → Disinvestment & De#cits → Page 443

KING R & QUEEN P Help others god will help you

 27.6.2 : Ricardian Equivalence invalid for India says ES21
ES21 cited multiple Research about Indian Economy (1950s-80s) & found REP to be NOT
valid for India Because...

Ricardian Equivalence Proposition (REP) Assumes Why invalid for IndiaH XPau Jd[m xIVPbu Yàu
that (TMò `PapP}b ôQöR m_) ÅqbIPTÄu êô?
Citizens are perfectly rational and perfectly capable Shopping decisions also depend on

u
to think about Future income, future tax liability, emotional urges and psychological whims

yo
Rscal deRcit when making their consumption e.g. Marriage-DJ/iPhone/Foreign vacation.
decisions.µ-*+µ zPNLµ’ Ng DóÂDL Z¬L@D ZrB ZL*TD rh,-N- j[n ”LrN Z]B *,pwF DNwZ@CD T,NP ,rB@[-D-. ]L+,L„N
Z]B ,LCzPNh@NL DNwZ@CD ÄP TóW¬X¿L Z-Zhe *+eLP N- j[n Z•X {”r ÄP X,h+áÈL*,N Z,N ]B {> Nh îPBtLPB N-

lp
rh,L A†PB- |N ]*+Ê Xy~,Ng {Xt,B, NP-tLÁFÀ, PLANhiBF j[n ~¿-∆AD NPDB rá
îL^, ~>]h∞L XL@C |ND,B rhCB.

he
All citizens are paying taxes. µ-*+µ zPNLµ’ Ng DóÂDL Z¬L@D Tax Evasion, Black money, parallel
ZrB ZL*TD rh,-N- j[n Z]B ,LCzPNh@NL NPtLDL rh,L A†PB economy. ]P>?P XLoL XyNP ehPB, NL[L ^,

27.6.3
ill
Financing the de,cit: ìCrowding Outú of private borrowers
w
✔ If govt borrows money from households & Rnancial intermediaries (LIC, EPFO, Banks via
SLR), then that much less money will be available for loans to private corporate borrowers. = ì
d
Crowding Out EIectú on the private borrowers= harms factory expansion and job creation.
(NÿP>hP-M ~^LPNDLwÅ Nh xp TLALP Z-TLrP ^N-[ t-,L)
go

✔ If Govt forces SBI, LIC, EPFO to buy its G-sec using public deposits → depriving households of
the optimal return (Had the same money been invested in the corporate sector) = a Financial
Repression of the households.ú (KPh@/ NóMóÍh@NL *+¿BF tX,”.)
rs

✔ Govt (forced) NABARD to buy its Ç 15,000 crore Swachh Bharat Mission (Gramin) Bonds with
he

maturity period of 10 years. Govt (forcing) RBI and others to pay higher dividend. →
operational freedom of those organization is aIected.
ot

27.6.4 Crowding out of private investmentH ES21 Observations

ES21 found some evidence of "crowding out" of private companies in India during 1950s to
p

1990s. Mainly because (50 Z-90 N- t.N Xy*,AB •-o Ng N@>*,Fh@Nh —p-TLALP Z-TLrP ^N-[-AL,-N- ZT?D WX[-Ωh@|N:)
el

 [1) CRR and SLR were very high therefore PSB banks loanable funds supply was very limited
& due to politicized boards, they may have channeled most of the savings towards the govt.
H

(|µ>ÿ∆AM XyZ-ZB{P{P nZn[{P Nh rML,-N- TLt NAwXyt-,-FhÏ PNX +áZ-]B T´D NX PrDB VB)
 [2) Absence of large private sector banks (*,AB •-o N- Tò-T}Nh@NL {CX, ô]B TLNg VL)
 [3) Publics' earnings and savings were low. ([hCh@N- >LZ ]B {Xt,B ÄP TeD NX rB VB)
 [4) Capital market / share-bond Market was underdeveloped. (>?@AB TLALP, .-FP/TL@µ TLALP *+NZD
,rB@´{ VL → *,AB N@>*,Fh@N- j[n >?@AB rLZ[ NP,L XóÌÓ[)
(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2D: Budget → Disinvestment & De#cits → Page 444

KING R & QUEEN P Help others god will help you

 u
yo
lp
he
ill
w
d
go

ES21 Rnd no evidence of crowding out in India from 1990-2019. Because

1. the above factors have gradually faded. (90 N- t.N Xy~∞ TL^Ln@ NXAhP rh C∑ VB)
rs

2. if Govt borrows money for Infra-development (Health, Education, Transport, electricity,

he

Irrigation etc) → jobs & GDP → citizens' income → savings → more ÇÇ in banks,
NBFC, mutual fund, shares/bonds etc. So, "crowding out" may not happen because 'size of dish'
@ L∑ AáZB Tó*,FLtB ô+Z@Pe,L N- j[n ôCP ZPNLP NALw[-DB rá →
ot

will become larger. (®.•L \L“ >zP+r, *TA[B Ze

PhACLP ÄP {ÆVN +ÔW¬ X}TªhDPB → ,LCzPN Ng {Xt,B Tª-CB → ~ZNg TeD Tª-CB → ô>,-{> rB T}N-TeD .-FP
TL@µ ÷LPL N@>*,Fh@Nh ™-P ZLPL *,+-. WX[ ALnCL. ôD —p TLALP Z-N@>*,Fh@Nh TLrP ,rB@^N-[L ALnCL)
p

3. 1990-2019: in the population of youth / working age people ( demographic dividend)→

el

income & savings & banking habits → Loanable funds so "Crowding out" chances
H

({TLtB Xy,œA+L,h@Ng XLoL TªB → {Xt,B ÄP TeD Ng ]L+,L ]B TªB → NAwXyt-,-N- j[n PNX ]B TªB rá)
"Crowding out" assumes that the supply of savings is Rxed. But in reality, economic growth → the
size/quantity of savings (^LPpL Z-*+>PBD +Lu*+NDL XyTeD Ng PNX NL AÒL klP ,rB@rhDL. {ÆVN +ÔW¬ N- ZLV-
ZLV TeD-AÒ-Xy]B TªhDPB rhDB rá)

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2D: Budget → Disinvestment & De#cits → Page 445

KING R & QUEEN P Help others god will help you

 27.6.5 Financing the de,cit: Printing More Money

u
yo
✔ When central bank prints more money to pay for government's loans → called
aMonetizing the DeRcitú. (XóöBNÔD KLML: ZPNLPB NAwN- j[n zPA+wT}N ÷LPL t-t,L t, ,hM õL>-ALn)

lp
✔ It can result in hyperin£ation and the purchasing power of currency (if there is not
suàcient increase in the supply of onion, tomatoes & goods in the market. e.g. Germany,

he
aπer Treaty of Versailles in 1919. AL,->P Xr@CL∑ tP/XóöLÚg*D Nh ôO∂L®.D †> Z-Tª ALnCB)

✔ ëerefore, "Monetizing the DeRcit" is also called "inùating away of debt".

ill
FRBM Act prevents monetization of de,cit- with following provisions:

✔ Normally, RBI must not subscribe to the G-Sec in primary market from 2006-07 onwards.
w
[Refer Pillar1A2 Monetary policy for more on this matter.]
✔ Normally, Govt shall not borrow from RBI, except for Ways and Means Advances (WMA
d

Ref: Pillar#1C)
go

27.6.6 Fiscal De,cit = India sovereign rating

Table 3: classi#cation not important, subcient to know AAA=best.
Moody's sovereign rating (IaRPaZ NTuXoTu[qbRP aS†ÑYb /°SpZRap )
rs

Rating →
Prime z¢£J/\§uJ •f¶ Aaa (e.g. US Treasury Bonds)
he

High grade / \§ Aa1 to 3

investment grade: Upper A1
medium / JßJ
ot

investment grade: Lower medium Baa1 to Baa3. 2020-June: India rating reduced to Baa3.
because of weak Rscal position, rising Rscal deRcit
p

Non investment grade (junk / a®Z) BA1 to lower ranks like aCc.
el

So, now if Indiass sovereign rating any step further= junk status= ImplicationsH
 Next time when issuing fresh G-Sec, Govt will have to oIer more interest to investors to lure
H

them.
 Flight of Foreign Capital from India (]LPD Z-*+t-.B >?@AB NL ~ÛF,/*,CwX):
 Foreign investors may fear Indian govt will default in payment of previous G-Sec
 So theysll dump it to other investors and run away from India.
 =Flight of capital from India = $ strengthen, rupee weakens. (Whyd Ref: pillar3)
(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2D: Budget → Disinvestment & De#cits → Page 446

KING R & QUEEN P Help others god will help you

  However, ES21 suggested we need not worry about it. XD µPh ú,Z-ÄP t-t,L t, NALw[-[h

u
yo
lp
he
ill
w
d
go

27.7 COUNTERCYCLICAL POLICY (NTu^©[ aPfRq™Z[ MZTu)

rs

(Introduction: Origin) Indian Kings used to build palaces, temples, mosques etc during famines to
he

provide employment. ëus, during an economic slowdown, the Govt must spend more ÇÇ to achieve
a similar objective. (ôNL[ N- |t,h@XyPLAL XrLPLAL Xr[ X@|tP ÄP XÙıt T,+LD-, DL|N [hCh@Nh PhACLP WX[-. {ÆVN X@tB
N- ZXF XyZPNLP ,-]B Nóõ ˆZL rB NP,L eL|rn)
ot
p
el
H

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2D: Budget → Disinvestment & De#cits → Page 447

KING R & QUEEN P Help others god will help you

 u
yo
lp
he
Counter  During economic slowdown → Increase Fiscal expenditure to boost
cyclical Fiscal employment & GDP.
policy
 It helps in aCrowding-inc i.e. When govt spending increased → private
NTu^©[
aPfRq™Z[ MZTu investment
ill
e.g. Govt building highway in Arunachal → Private
w
entrepreneurs building petrol pumps & hotels → jobs GDP. {ÆVN X@tB N- tœPL,
ZPNLPB îewNh TªLFL ALn-DL|N *,AB •-o *,+-. PhACLP {ÆVN +ÔW¬ XyXtt.
d

 During economic boost: Decrease govt spending (So as to build reserves

go

for future emergency/future slowdown) {ÆVN D-AB XyZPNLPB îewNh NX |NFL ALn
DL|N ZPNLP ]*+Ê Ng X@tB N- tœPL, úu-XL[ NP,-FhÏ PNX Nh {P®•D Pî ZN-/AXL NP ZNy.
 USA, UK, Chile have done this in the past, but India has not done it.
rs

ES21 Suggested India to pursue this.

Pro-Cyclical
he

 During economic Boom, Fiscal expenditure

,scal policy
 efgF-ZXVwN PLANhiBF ,B*D {ÆVN D-AB N- tœPL, ZPNLP ûLtL >áZL îewNPy
ot

MCQ. ëe increase in private investment spending induced by the increase in Government

spending is known as (CDS-2021-i)
(a) Crowding in (b) DeRcit Rnancing (c) Crowding out (d) Pumping out
p
el

27.7.1 Countercyclical: IRGD & Debt Sustainability

 Interest Rate Growth Rate DiIerential (IRGD: †p-íLA-tP +ÔW¬-tP N- TBe ô@DP): It is the diIerence
H

between (loan) interest rate (paid by Govt to investors) and GDP growth rate in an economy.
 so if loan interest 6% - minus growth rate 9% = (-3)% negative IRGD Rgure basically hints that if
GDP Growth rate is higher than the loan interest rate paid by the govt, then Govt need not worry
much, because GDP → Tax collection → Enough ÇÇ to repay those loans. F|t ZPNLP ,-∆AZ

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2D: Budget → Disinvestment & De#cits → Page 448

KING R & QUEEN P Help others god will help you

 íLA tP >P NALwj[FL rá~Z-{ÆVN +ÔW¬ tP ûLtL rh DT DN ZPNLP ,-»eD@ L NP,-Ng A†PD ,rB@Ωh@|N {ÆVN +ÔW¬ N-
e[D-NP-{Xt,B XyTªhDPB rhCB → NALweóNL,-N- j[n ZPNLP N- >LZ PNX {DB Pr-CB.

u
yo
lp
he
Title Formula Comment
Interest Rate Growth Rate Loan interest minus GDP Negative number is good for
Di/erential growth: 6-9= Minus 2 economy.
Growth Rate Interest Rate
Di/erential
GDP growth minus Loan
Interest: 9-6 = Plus 2
ill Positive number is good for
economy.
w
d
go
rs
he
ot
p
el

 ES23: our growth-interest rate diIerential positive. Our government debt to GDP is
sustainable.
H

27.7.2 Countercyclical: Domar Condition of Debt Sustainability

 Economist Evsey Domar (1944) stated that, aPublic debt of a country will be sustainable, IF GDP
growth is greater than the public debt growth rate.

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2D: Budget → Disinvestment & De#cits → Page 449

KING R & QUEEN P Help others god will help you

  Otherwise government may default on loan-repayment.c (F|t t-. NL {ÆVN +ÔW¬tP, ~Z t-. N- ZL+wA*,N
Nvw+ÔW¬tP Z-¢LtL rhCL Dh ZL+wA*,N ˜vw+r,BF rh >LnCL, +P,L Dh ZPNLP |t+Lj[FL>, |tîL t-CB/ Nvw,rB@eóNL >LnCBç)

More on GDP Growth = Ref: HDT-Pillar#4C: GDP

27.8 SIDE NOTE: AUTOMATIC STABILIZERS (âP¨àu-≠ÆaZRPaZ)

u
yo
lp
he
ill
w
d
go

 Automatic stabilizers are mechanisms built into govt budget to address economic slowdown
automatically- by automatically increasing govtss spending and/or decrease publicss tax liability.
rs

[a\eLj[D-klPBNLPB’ - {ÆVN X@tB N- tœPL, ô>,-{> ZPNLPB °ewNh TªLDL ráFL A,DL Ng NP-t-FDL Nh NX NPDL rá]
 Automatic stabilizer does not require any change in the existing tax law or voting in the
he

Parliament- because it starts working automatically during slowdown. [~˘y|fFL˙˚D NP,-N- j[n
ô[C Z-,FL ˜L,?,/ Z@Zt Ng ô,óX*D [-,-Ng v†PD ,rB@rhDB. +h ô>,-{> rB |fFL˙˚D rh ALDL rá]
 Examples of Automatic Stabilisers: Income tax, Corporation tax, unemployment allowance,
ot

food subsidy and other Government schemes that are meant only for poor /lower middle class
people. [{FNP, *,CX NP, CPBT N- j[n [®•D îL« Z̸µB ÄP tZPB NÂLpNLPB FhA,Ln@- “\eLj[D-klPBNLPB’ rá]
p

Note: Countercyclical ,scal policy / ,scal stimulus = it requires the government to pass a new
el

budget / new law / permission of Parliament for some new initiatives. So, they are not automatic
stabilisers. ëey are discretionary stabilisers. [O*D efgF PLANhiBF ,B*D DVL PLANhiBF OhqLr, >áN-A N- j[n
H

ZPNLP ,-ô[C Z-*+.-i †> Z-,n TAM Xy∆vf NP,L rhCL Nh∑ ˜L,?, >LZ NP+L,L rhCL úZj[n +-*++-NL^B, klPBNLPB ráç]

MCQ. Which one of the following functions as an automatic stabilizer in the context of ,scal
and monetary policies of an economyH (UPSC-CAPF-2021)
(a) Personal income tax (b) Reverse repo rate of bank (c) Open market operation (d) Bond price.
(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2D: Budget → Disinvestment & De#cits → Page 450

KING R & QUEEN P Help others god will help you

 27.8.1 Tax multiplier is a negative multiplier

u
yo
lp
he
27.8.2 THREE Functions of Govt Budget

ill
w
d
Function Example / Meaning
Government provides certain goods and services which cannot be provided by the
go

Allocation market e.g. national defence, police, roads, railways etc. ëese are called public
goods.
Redistribution Collect more taxes from the rich and use it for welfare of the poor.
rs

During the economic slowdown, govt should spend more money to stabilise the
Stabilisation
economy. Read the acounter-cyclic Rscal policyc section for more.
he

27.8.3 E/ects of Budget/Fiscal policy on Demand & Savings

ot
p
el
H

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2D: Budget → Disinvestment & De#cits → Page 451

KING R & QUEEN P Help others god will help you

 27.9 MISC TERMS RELATED TO DEFICIT FINANCING
Table 4: need not do PHD on it unless Optional Subject=Public Administration

Methods for repaying debt (Øp ñRPMSRS zàY zàY uaZRS)

Redemption Repay the loan principal and interest at regular interval. Also known as
(]óCDL,) Terminal Annuity. zMñ∞PIM ]oQLR Joà`M ±a ≤Pf `ZaS-`ZaSQP]I ñRPMP

u
Govt creates a special fund & keeps depositing money in it regularly. So at the
Sinking Fund
time of G-sec maturity, it has enough ≤buIers money to honor the loan

yo
(*,•-> *,^)
repayment. First introduced in England.
>ó,Cw≈, : Converting old loan into new loan with modiRcations in interest /
Conversion / tenure. (>óPL,B [h, N- íLA tP FL ô+^ XyTt[L+ NP,L)

lp
restructuring 2020-Nov: Zambia became Africass 1st nation to default on its Euro loans due

he
to Corona. Experts believe some restructuring may be done.
Evergreening Taking new loan to repay the old loan (>óPL,B [h, eóNL,-,FL NAw[-,L)
Repudiation Govt does not recognize its obligation to repay the loan. E.g. Aπer Russian
(>zP∂LC / T|r˛LP)
RfLñRPMSIS
ill
Revolution (1917) Leninss Government refused to pay the loans taken by the
previous Czar regime from Britain & France. Although, in modern times not a
w
JMP Ra •SMP sound strategy because next time, no one will give you loans.

27.10 FISCAL CONSOLIDATION / PRUDENCE: PLANhiBF nNoBNPp / *++-N

d
go
rs

It involves reduction in government expenditure to control its Fiscal DeRcit. Such as

1. the leakages (íaIPQ) by targeted delivery of schemes and subsidies through direct beneRt
he

transfer (DBT) through JanDhan- Aadhar- Mobile (JAM) trinity.

2. the quantum (JPhP) of subsidies: e.g.
ot

a. Deregulation of Petrol prices (2010), Diesel (2013) (tLXh Nh *,F@op Xó∞)

b. 2016: Oil Ministry began to block LPG-Pahal subsidies to persons with annual taxable
p

income of Ç 10 lakh />

c. 2017: Oil Ministry asked oil companies to keep raising prices of subsidised kerosene by
el

25 paise every fortnight until the subsidy is eliminated.

H

3. Shutting down loss making PSU. E.g. Hindustan Photo Films, HMT Bearings, HMT Chinar
Watches, Tungbhadra Steel, Hindustan Cable & HMT Watches (2014).
4. Privatization of loss making Govt companies (*,ABNPp) e.g. IDBI, Air India.
5. 2014-16: Government setup an Expenditure Management Commission (v[ NÄb`M ô[qY) under
Bimal Jalan to suggest ways to reduce its Expenditure.

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2D: Budget → Disinvestment & De#cits → Page 452

KING R & QUEEN P Help others god will help you

 6. Austerity Measures (áJuv≥[uP RS \]P[) e.g.
a. 2018- W.Bengal govt issued directives to its departments banning £ower bouquets and
mementoes in public functions, banning oàcials meetings at private hotels, frequent
installation of AC, car purchases, oàce renovations etc. & restricting the no. of foreign
tours by Ministers / IAS etc., More use of video-conferencing instead of physical travel.
b. 2019: PMss Cabinet Committee on Investment and Growth (CCIG: *,+-. ÄP *+NLZ Ng

u
Ná*T,-M ZWX*D) ordered all Union ministries to reduce wasteful expenditure on travel, food

yo
and conferences by 20% (FLoL, ]hA, ÄP Zˇ-[, Ng |ùA?[ îe© X-NMœDB NPh).
c. 2021: Parliament canteen subsidy ended e.g. Masala Dosa will no longer be sold at Ç6 etc.
ëis will help saving Ç8cr

lp
MCQ. Üere has been a persistent de,cit budget year a¥er year. What can be done by by the

he
government to reduce the de,citH (Asked in UPSC-Pre-2015)
1) Reducing revenue expenditure 2) Introducing new welfare schemes
3) Rationalizing subsidies 4) Expanding industries
Answer Codes: (a) 1 and 3 only (b) 2 and 3 only (c) 1 only
ill
(d) 1, 2, 3 and 4
w
MCQ. In India, the price of petroleum products has been deregulated to _ _. (CDS-2013-II)
(a) reduce the burden of subsidies given to the oil companies
d
(b) discourage the exploration of oil reserves in the country
(c) discourage the demand for private vehicles
go

(d) curb the use of black money in the economy

27.11 FISCAL STIMULUS (PLA\ OhqLr, >-N-A)

rs
he

When govt taxes and/or public procurement (ZPNLPB îPBt) to demand & growth in economy,
ot

itss called aFiscal Stimulusc (PLA\ OhqLr, >-N-A).

27.11.1 ♂ ManmohanGs Fiscal Stimulus (2008-)
p

 Post-subprime crisis in USA, PM Manmohan announced Fiscal Stimulus (2008) such as

el

- (1) in the Excise duty & Custom Duty on exports

- (2) Businessman were given additional beneRts in Income Tax & Corporation Tax, if
H

they purchased new commercial vehicles.

- (3) Hiked the Minimum Support Prices (MSP) for farmers. More in Pillar#4A
 However, the economic surveys observed that such Fiscal Stimulus create new set of problems by
Rscal deRcit in the subsequent years.

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2D: Budget → Disinvestment & De#cits → Page 453

KING R & QUEEN P Help others god will help you

 27.11.2 ModiGs Atma-Nirbhar Bharat Economic Stimulus Package (2020)
 (Origin) 2020-March: Government of India initiated nationwide lockdown to prevent the spread
of Corona/COVID-19 pandemic. (NhPh,L XrLXLPB N- e[D-t-.EL>B DL[LT@tB)
 ëis lockdown aIected the income and livelihood of everyone from corporate companies to
common citizens of India. (ZTNg {AB*+NL Nh rL,B ´∑)

u
 ëerefore, to revive the economy, Prime Minister of India launched Atma Nirbhar Bharat

yo
stimulus package in 2020-May to revive the Indian economy. (ôVwE+lL Nh >ó,AB+, / OhuLr, NL
{ÆVN >-N-A)
 Itss centred on Rve pillars of – Economy, Infrastructure, System, Demand and Vibrant

lp
Demography (Ú?‘D[B A,ZL@Øख्यNg).

he
Table 5: (DATA) Atma Nirbhar Bharat consists of
Amt in lakh cr As per
DATE Components of Atma Nirbhar Bharat
(Originally) ES21
2020-Mar to May 1) RBIss monetary policies → (Ref#1A2) Ç8 lakh cr Ç13 Lcr

2020-Mar
2) PM GARIB KALYAN (PMGKY): Covid Relief
ill Ç1.70-1.90 lcr
Ç17 Lcr
w
Package →
3) FM Nirmala.S made new announcements made like
2020-May Credit guarantee for MSME, TDS rates, PM Matsya Ç11 lakh cr
d
Samda Yojana, Agri infra fund etc.
go

= Ç20 lcr approx. Ç30 Lcr = 15%

ATMANI = 1+2+3=Total Rñà áJàPRa fq∑Z Y[Z aRJ
(10% of GDP) of GDP
Note: Salient features of Atma-Nirbhar is spread across 6 pillars of Handout. Its criticism, how useful
in reviving economy & GDP growth, Nehru vs Modiss ideas of self-reliance etc. = Ref: Pillar#4C
rs

27.11.3 Frontloading of Stimulus and Overheating in Economy

he

Refer to Pillar 4D: GDP

MCQ. Which one of the following describes the ì,scal stimulusúH (UPSC-Pre-2011)
ot

1) It is a massive investment by the Government in manufacturing sector to ensure the supply of

goods to meet the demand surge caused by rapid economic growth
p

2) It is an intense aàrmative action of the Government to boost economic activity in the country
el

3) It is Governmentss intensive action on Rnancial institutions to ensure disbursement of loans to

agriculture and allied sectors to promote greater food production and contain food in£ation
H

4) It is an extreme aàrmative action by the Government to pursue its policy of Rnancial inclusion

27.12 FISCAL RESPONSIBILITY & BUDGET MANAGEMENT ACT, 2003

FRBM Act: PLANhiBF ~¿PtLÁFÀ ÄP TAM OT@^, ô^*,FX, 2003

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2D: Budget → Disinvestment & De#cits → Page 454

KING R & QUEEN P Help others god will help you

 Originally it required Union and States to control their deRcits with following targets:
- By 2008: Fiscal DeRcit
- For Union: 3% of GDP (GROSS DOMESTIC PRODUCT: ZN[ KP-[?~⇥Lt)
- For States: 3% of GSDP (GROSS STATE DOMESTIC PRODUCT)
- By 2008: Eliminate Revenue deRcit (=make it 0%) of their respective GDP or GSDP.

u
yo
lp
he
ill
w
d

While some of the state govts achieved them, but successive union govts struggled to meet these
go

targets so they kept amending the act to extend the deadlines and targets. ([⇤h@Ng ZXFZBXL Nh >Bõ-
^N-[D-Pr-). E.g. Amendment 2012: No need to have 0% Revenue deRcit. Instead it required 0%
EIective Revenue DeRcit by 2015. ëese deadlines extended even further in subsequent years.
rs

27.13 FRBM: TRIGGER MECHANISM (TO) ESCAPE (DEFICIT CONTROL) CLAUSE

he

FRBM Act Section 4(2): provides for a trigger mechanism to escape the deRcit control related clauses
in the act i.e. Government can overcross the targets in following situations (eó*,⌅L '|M≠CP' >zPkl*DFh@X-,
ot

KLM--*,F@op Z@T@^B ^LPLÅ@Z-Te ZND-r})

1. ⚔ National Security / Act of War (PL¨B≠F ZóP•L / Fó¬)
p

2. National Calamity (PL¨B≠F {>tL)

el

3. If agriculture output and farm incomes collapse (NÔ*i ~⇥Lt,, {F X->D,)

H

4. Fall in real output/ GDP growth rate beyond x% (*+NLZ tP Xyô∂L^N WCPL+M)
5. Structural reforms in the economy with unanticipated Rscal implications (ôVwE+lL XyZ@Pe,L„N
Zó^LPh@Ng PLANhi >-ôO∂L®.D ôZP rh.)

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2D: Budget → Disinvestment & De#cits → Page 455

KING R & QUEEN P Help others god will help you

 During above Ftrigger conditionsG (\∏ '†ÑπYa' ]ía≠ÆTu[qbJS)
 FRBM Act Section 4(2): Govt may overcross/deviate the Rscal deRcit target by upto 0.5% of
GDP, as recommended by NK Singhss FRBM review Committee. (KLM-Ng XFLwtL/[•FL@N Nh [L@K t-,L).
 Individual State Governments may also do similar (e.g. overcross by 0.5% of GSDP), but theysve
to amend their state FRBM Act accordingly with this provision.
 Budget-2020: FM cited trigger#5 (structural reforms…..) to escape the FRBM targets for 2019-

u
20 and 2020-21.

yo
Table 6: 50?H 9g h0*0 F>9*ij. kF<>H0 kE +0l1.'
Original target
Fiscal de,cit → Overcrossed A¥er Trigger Mechanism
(Joàu:)

lp
2019-20 3.3% 3.8%
2020-21 3% 3.5%

he
- Primary deRcit target 0% (2020-21): shiπed to 2022-23.
- Revenue DeRcit and ERD also over crossed but anyways FRBM Act has abandoned targeting
them since 2018ss amendment.
- 2020-Corona crisis: Govtss income and expenses
ill so deRcit rose to unprecedented level.
w
Budget-2021: FRBM amended to provide Rscal deRcit 6.8% (2021-22) and 4.5% (2025-26)-
because 4.5% target is recommended by 15th FC.
d
27.13.1 FRBM: Misc. Concepts
go

1) in 2018, instead of immediately reducing the Fiscal deRcit to 3.0% FM Jaitley promised to
reduce it to 3% in 2020-21 like a glider gradually descending on its landing target. Hence
subsequent Finance Ministers keep reiterating that wesll continue on that ≤Fiscal Glides (PLANhiBF
rs

ZPNL+) path. Although Budget-2020 FM Nirmala.S used FRBM-trigger to escape it,

temporarily.
he

2) Fiscal Proùigacy (ô@^L^ó@^ PLANhiBF îew/{+LPCB/ˆFL.B): ëis phrase is used to denote reckless
extravagance/wasteful expenditure of public money.
ot

3) If government has targeted to keep the Rscal deRcit within 3.3% percent of GDP, but if it
crosses that limit, itss called ≤Fiscal Slippages (PLANhiBF |ùZ[,).
p
el

27.13.2 FRBM Act: Documents (•OPQSå)

H

FRBM Act requires the Union Govt to present following documents along with the budget:
1) Macroeconomic Framework Statement (EL>N {ÆVN ™LÜeL *++Pp): to show economic data - GDP,
growth rate, import-exports, and governmentss receipts,expenditure etc.
2) Medium Term Fiscal Policy Statement (X⇧X ô+^ Ng PLANhiBF ,B*D *++Pp)

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2D: Budget → Disinvestment & De#cits → Page 456

KING R & QUEEN P Help others god will help you

 3) Fiscal Policy Strategy Statement (PLANhiBF ,B*D NLFw,B*D *++Pp): To explain how Govt. is controlling
the deRcits, and whether there is going to be any deviation from the target. Note: In real life,
Doc#2 and Doc#3 are published together as "Medium Term Fiscal Policy cum Fiscal Policy
Strategy Statement." (An<=0 o= j.<=0 Ap0@>) @0p@ F:l9 <0q, l9 k. r0sI F:A>A>j>kt)
4) Medium-term Expenditure Framework (X⇧X ô+^ EF ™LÜeL *++Pp) → Budget-2021, 2022, 2023
Government not presented this document in Parliament, due to Corona.

u
yo
lp
he
ill
w
Note: above DATA Table from Budget-2020. Later in Budget-2021 and Budget 2022, govt
d
not given such table because Nirmala.S said a#scal projections for the years 2022-23 and 2023-24 will
go

NOT be presented. We will amend the FRBM Act to allow this exemption.c

MCQ. According FRBM Act, the Govt is under obligation to present three statements before the
rs

parliament along with the Annual Budget. Which one of the following is not one of themH [CDS-2008-I]
(a) Macroeconomic Framework Statement (b) Fiscal Policy Strategy Statement
he

(c) Medium-term Fiscal Policy Statement (d) Statement showing Short term Fiscal Policy
MCQ. Along with the Budget, the Finance Minister also places FÜe Macro Economic Framework
StatementG. Üe aforesaid document is presented because this is mandated by (UPSC-Prelims-2020)
ot

[a) Long standing parliamentary convention

[b) Article 112 and Article 110(1) of the Constitution of India
[c) Article 113 of the Constitution of India
p

[d) Provisions of the Fiscal Responsibility and Budget Management Act, 2003
el

27.14 FISCAL FEDERALISM: HELPING THE STATES IN ATMANIRBHAR

H

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2D: Budget → Disinvestment & De#cits → Page 457

KING R & QUEEN P Help others god will help you

 27.14.1 Helping States → Tax devolution and grants
Corona = Unionss tax income but still Union has given the Tax Devolution and grants (NP
ô@DPp + ô,ótL,) to the states, as per the Rgures announced in the Budget and Finance Commission
report.

27.14.2 Helping States → StatesG Fiscal de,cit limits

u
 Constitution Article 239: States require union govt permission before borrowing money.
 Before: Union had kept states net borrowing ceiling @3% of Gross State Domestic Product

yo
(GSDP) (PLûh@N- ZN[ KP-[?~⇥Lt N- 3% Z-ûLtL NAwPLû ZPNLP ,rB@[-ZNDB)
 Aπer ATMANI: 3% → to 5% for 2020-21. PLû ZPNLP Ng PLANhiBF KLM- Ng XFLwtL Nh TªLFL CFLç

lp
State can borrow extra ªª
Sr if State Government does following reform
upto _ _ % of GSDP

he
1 No conditions /un-tied (*T,L .D⌃ N-) 0.50%
a) One Nation One Ration Card System( Ref: HDT- 0.25%
2
Pillar#)
3 b) Ease of doing business reform; ( Ref: HDT-Pillar#)
ill 0.25%
w
c) Urban Local body/ utility reforms; (.rPB lL,BF *,NLFh@CMP 0.25%
4
>L,B E+lL ú∂L|t XyZó^LP)
d
5 d) Power Sector reforms( Ref: HDT-Pillar#5) 0.25%
go

6 if any 3 of the above (a-b-c-d) reforms done ÕÕÕ 0.50%

Total extra borrowing limit (sum of above six rows) 2% of GSDP. Total for all
States=Ç4.27 Lcr
ÕÕÕ However, States who opt for GST compensation Option#1 Back2Backloans, will get
rs

unconditional relaxation. (CáP .D© õ?M) (Ref: More in Pillar#2A: GST compensation)
he

27.15 FISCAL DEFICIT TARGET FOR STATES

ot

State Govt 2020-21 2021-22 2022-23 2023-24

Fiscal 3% (increased
4% + extra 0.5% 3.5% + extra 0.5% 3% + extra 0.5%
De,cit as to 5% as given
depending on some for power sector for power sector
p

% GSDP above) conditions (=total reforms. (=total reforms. (=total

el

4.5%) 4%) 3.5%)

 GSDP = Gross State Domestic product.
H

 What are power sector reformsd Ref: Pillar:5- Energy infrastructure.

27.16 FISCAL RESPONSIBILITY: NK SINGH FRBM REVIEW PANEL

 Budget-2016: Finance Minister Jaitley felt FRBM Act targets were too rigid and did not allow any
room for the government to address any crisis. ([⇤ T´D rB Zख्त V-, ~˘y[eB[L T,L,-Ng A†PD)

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2D: Budget → Disinvestment & De#cits → Page 458

KING R & QUEEN P Help others god will help you

  e.g. farm loan waivers during drought period or unemployment allowance during global
Rnancial crisis are not possible if government strictly wants to control Rscal deRcit at 3% of GDP.
(ôNL[ Xy|NZL,h@Nh xp-XLùg, FL ,œA+L,h@Nh T-PhACLPB ]¿L t-,L ôZ@]+)
 So, FinMin constituted a panel under NK Singh to review the FRBM act.
 Isve deleted its recommendations / numbers because too outdated / NOT followed aπer corona.
 While UPSC asked some PYQ from NK Singh Report but WEsll NOT solve it. For same reason.

u
27.16.1 : Budget marksmanship is Poor, says 15th FC

yo
lp
he
 marksman = gunman who is skilled in shooting targets. (*,.L,-TLA)ill
w
 budget marksmanship = ability to keep income & expense within the budget targets/estimates.
however in reality...
d

2019-20 Budget estimate revised estimate Actual (,nalized

go

(presented on (presented on a¥er 31/3/2020)

1/2/2019) 1/2/2020)
Receipt → Taxes 16 Lcr 15 Lcr 13 Lcr
rs

Expenditure → Revenue (subsidies, 24.47 Lcr 23.49 Lcr 23.50 Lcr

loan interest repayment etc)
he

 ëus the union government is poor in budget marksmanship. (TAM *,.L,-TLAB XyNXAhP). Whyd
 Because generally the income is overestimated in budget presentation to show a rosy picture
ot

(XB|µFL ÄP *+>• N- ZLX,-Có[LTB »eo OuóD NP,-N- j[n {Xt,B N- {@Nòh@Nh +Lu*+N >zPkl*DFh@Ng ô>-•L ûLtL TªL
eªL NP |tîLFL ALDL rá)
p

 but, when the tax collection target is missed → it results in:

el

problem#1) Tax authorities engaging in tax terrorism / litigation (NP {D@N+Lt ÄP XóNtX-TLAB)

Year 2012 2020

H

Direct Tax dispute amount less than 3 lakh cr nearly 10lakh cr

problem#2) prediction error leads to ad-hoc expenditure management → A) excessive Reliance
on extra budgetary resources B) randomly cutting the scheme expenditure → not paying the
contactors on time → substandard quality of construction. (ô,óXL, XyˆZB C[*DFh@N- e[D-EF OT@^,

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2D: Budget → Disinvestment & De#cits → Page 459

KING R & QUEEN P Help others god will help you

 DtVw/ôlL∑ †> Z-|NFL ALDL rá, >zPpLX \†> FhA,LÅ@N- îewXyNMœDB NP tB ALDB rá, ≈-N-tLPh@Nh >áZL +∞ >P ,rB@
eóNLFL ALDL → +-NXAhP Cóp+¿L Ng ZòN XNL,h@NL *,XLwp NPD-r}ú∂L|t)

27.17 FISCAL RESPONSIBILITY: FREEBIES / REVDI CULTURE

 ≤Revdi Cultures is a term used by PM Modi to denote the bad habit of political parties to
announce freebies to win elections even if they are not Rnancially sustainable.

u
 Supreme Court also criticised this & asked the union govt to take action.

yo
 Topic is still developing, we will revisit in Mains Course separately.

lp
27.18 FISCAL RESPONSIBILITY: MISC BODIES

he
ill
w
27.18.1 Expenditure Management Commission (2014)
 FinMin setup under Dr. Bimal Jalan. (EF OT@^, {FhC)
d
 Gave suggestions on how to Rscal deRcit, how to subsidy bill etc.
go

27.18.2 Public Debt Management Agency (PDMA): IPQLfTMR Øp NÄb`M }fdIZ

Shiπed to Mains handout. Experts had suggested to set up this organisation, but it is not yet set up.
rs

27.18.3 Fiscal Council (aPfRq™Z[ ]ía™•)

Shiπed to Mains handout. Experts had suggested to set up this organisation, but it is not yet set up.
he

27.18.4 ⚰ Public ,nance challenges: Corona ex-gratia Yojana

 Disaster Management Act 2005ss Section 12: requires National Disaster Management Authority
ot

(a statutory body headed by PM) to recommend minimum standards of relief to person aIected
in a disaster. ({>tL OT@^, ˜L,?, Ng ^LPL 12 XyF-j[îL rá|N PL¨≠BF {>tL OT@^, OL^NPp ,-{>tL Z-O]L*+D [hCh@
p

N- j[n Ã?,DX ZrLFDL Kh*iD NP,B rhCBç)

 Home Ministry has notiRed Corona as a disaster. So, PIL in SC asking Govt to pay compensation
el

to the family of every dead person. (CÔr -X@oL[F >r[-rB NhPh,L XrLXLPB Nh {>tL Kh*iD NP eóNL rá, Dh Nóõ
H

[hCh@,-ZóOBX NhMwXyA,|rD FL»eNL tLFP Ng |N NhPh,L XyXP- Z]B [hCh@N- >zPA,h@Nh Xó{+vL |tFL ALn)
 2021-Oct: SC ordered Rs.50,000 for family of every person who died in Corona. ëis is posing
challenges to Govtss Rscal capacity.

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2D: Budget → Disinvestment & De#cits → Page 460

KING R & QUEEN P Help others god will help you

 27.18.5 Challenges to Fiscal Federalism and Public Finance
Shiπed to Mains Course.

28 TYPES OF BUDGET: TAM N- ONLP

28.1 REVENUE VERSUS CAPITAL BUDGET: PLA\ T,LX >?@ABCD TAM

u
Revenue budget: PLA\ TAM Capital Budget >?@ABCD TAM
associated with the income and expenditure that

yo
It is associated with the income and expenditure
are of long term nature and/or results into
that are of temporary in nature (1 year or less),
creation of permanent / capital /Rnancial assets,
and/or do not result into creation of permanent /
such as land, buildings, machinery, equipment,

lp
capital / physical / Rnancial assets.
shares, bonds, G-sec.

he
Taxation, revenue from selling goods and
services, interest payment on previous loans, Borrowings, disinvestment, and expenditure on
salaries, pension, subsidies and other non- assets creation.
developmental expenditure

ill
MCQ. Which is/are included in the capital budget of IndiaH (UPSC-Pre-2016)
w
1. Expenditure on acquisition of assets like roads, buildings, machinery, etc,
2. Loans received from foreign governments
d
3. Loans and advances granted to the States and Union Territories
go

Ans Codes: (a) 1 only (b) 2 and 3 only (c) 1 and 3 only (d) 1, 2 and 3

28.2 GENERAL BUDGET VERSUS RAILWAY BUDGET ({X TAM T,LX P-[+-TAM)
rs
he
ot
p
el
H

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2D: Budget → Disinvestment & De#cits → Page 461

KING R & QUEEN P Help others god will help you

 - 1920-21: Acworth Committee recommends separate Railway Budget. ëis practice continued
even aπer Independence, Rrst the railway minister would present the Railway budget in
parliament, and aπer a few days Rnance minister will present General Budget.
- NITI Aayogss Bibek Debroy committee recommends its abolition because
- 1) No constitutional requirement (Z@+á^L*,N †> Z-Fr ô*,+LFw,rB@rá)
- 2) During Coalition Governments, Rail budget was used for populism, cheap fares which eroded

u
the proRtability of Railways. (C≈T@^, ZPNLPh@Xy[hN[ó]L+,, ]LPB KLML)

yo
- 3) during the British time, railway revenue used to be quite large compared to other sources of
revenue, but aπer independence, Railway revenue is quite small compared to overall General
budget- So it does not deserve a special presentation.

lp
ëerefore, Modi govt merged Railway budget with General budget from 2017 (*+[B,BNPp).

28.3 PLAN VS NON PLAN EXPENDITURE BUDGET:

he
ill
w
FhA,L T,LX CáP FhA,L EF TAM: is a method of classifying the expenditure side
d
go
rs
he
ot
p
el
H

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2D: Budget → Disinvestment & De#cits → Page 462

KING R & QUEEN P Help others god will help you

 Plan (expenditure) budget: [qfMP Non-Plan (Expenditure) Budget: Y_a [qfMP
 Central Plans (the Five-Year Plans) - Expenditure related to general, economic and
 Central assistance for State Five Year Plans. social services of the government; Interest
 It is further subdivided into payments, defence services, subsidies, salaries
1) revenue expenditure (e.g. teachers and pensions.
salary under Sarva Shiksha Abhiyan) - It is also further subdivided into revenue

u
2) capital expenditure (e.g. new school expenditure (e.g. soldier salaries) and capital

yo
buildings to be constructed under expenditure (e.g. Building new aircraπ
Sarva Shiksha Abhiyan) carrier).

lp
Since Budget-2017, Modi govt stopped the practice of displaying the plan and non plan expenditure
separately because (1) No such constitutional requirement (2) Government had dissolved the

he
planning commission in 2014-15 (3) 12th Five Year Plan (FYP:2012-17) was ending in 2017 anyways.
(More about PC & FYP in Pillar#4C)

ill
w
28.4 BUDGETING (TAM *,XLwp Ng O|fFL/ Pp,B*D)
It is the process / strategy with which the budget is created.
d
Traditional / >LP@>zPN / [Lú,-{úMX TAM: Simply calculating the income and expenditure without
measuring the underlying beneRt or performance
go

Line-item
- Allot Ç 10,000/- to buy a new bed in government hospital
Budgeting
- Allot Ç 50,000 to buy a new computer in government department
Performance calculating income and expenditure tied with underlying beneRt or performance
rs

budgeting Ot.w, - Allot Ç 50,000 to buy a new computer with target that it should result in 30%
the faster clearance of RTI-applications compared to pen and paper
TAM
he

- Such budgeting helps measuring cost:beneRt and eàciency.

Zero based - In a traditional budgeting, the approach is aautomatic and incremental e.g.
ot

budgeting aLast year we allotted v 50,000 crore to educational schemes, so this year we
should allot 55,000 crores, lest the opposition parties create controversy.c
.?Ã {^LzPD TAM
- Whereas in Zero Based Budgeting the budget is viewed as a fresh exercise
p

from zero base. So, each department has to justify its budget demands to
el

Rnance ministry. E.g. if last year Ç 50,000 crores given to education schemes
but still 60% of class 5 kids cannot read class 2 books, then wesll delete / modify
H

that scheme.
Sunset - In a traditional budgeting, once a scheme is launched it runs perpetually, even
Budgeting aπer regime change e.g. MNREGA, Mid-day Meal.
- In a Zero Based Budgeting, schemes are reviewed every year and then they
Z?FLwu/ ZXFZBXL NL
may get discontinued or continued (with or without modiRcations).
TAM
- In Sunset Budgeting, scheme are announced with deadline. e.g. aXc subsidy for
(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2D: Budget → Disinvestment & De#cits → Page 463

KING R & QUEEN P Help others god will help you

 a period of two years starting from 1/1/2018. ëus, this scheme will self-
destruct aπer deadline just like the sun will set aπer the sunset.
28.5 GENDER BUDGET (àèáYR ÄfÑ)
Not required in Constitution / any law. But within general budget, this data presented since 2005.

u
yo
lp
he
ill
w
d

28.6 TRIBAL SUB PLAN & SCSP

go

From 70s, Govt required individual ministries to earmark funds for SC/ST within their overall funds:
A. ìScheduled Castes Sub-Plan (SCSP: ô,óZ?»eD AL*D ~>-FhA,L)ú → Social Justice Ministry monitors
via e-utthaan.gov.in
rs

B. ìTribal Sub plan (TSP: {|t+LZB ~> FhA,L)ú → Tribal AIairs Ministry monitors via stcmis.gov.in
which is not a fancy name so we need not memorize unlike e-utthaan.
he

Sidenote: Although not required by the Constitution, but Government also tables separate
documents showing 1) allocation for children 2) allocation for NORTH EASTERN AREAs.
ot

28.7 OUTPUT OUTCOME FRAMEWORK FOR SCHEMES:

p
el
H

FhA,LÅ@N- j[n ~⇥Lt, >zPpLX ™LÜeL

Started from Budget-2017 onwards, the FinMin uploads a document showing outlay output and
outcomes for each ministry and department. ëese are monitored by NITI Aayog. For example,

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2D: Budget → Disinvestment & De#cits → Page 464

KING R & QUEEN P Help others god will help you

 Ministry & Scheme Outlay Output (Deliverables) Outcome
MEITY → Pradhan Ç 400 Give computer training to Increased number of
Mantri Gramin Digital crores 5 crore persons in rural digitally literate persons in
Saksharta Abhiyan area rural areas
(PMGDISHA)
28.8 CASH VS ACCRUAL BUDGETING: ,CtB T,LX ~>eF TAM

u
Outdated/Faded technical topic. I am deleting it from latest handout.

yo
28.9 LAPSABLE FUNDS & MARCH RUSH: E>CD *,^ ÄP XLewEuDL
Appropriation act allows the government to spend funds from consolidated fund of India for a
period of one year (ending in 31st March).

lp
- If any allotted funds remain unutilised, then by the ≤ rule of lapse s, they must be returned (&

he
govt will have to again seek Parliament approval for the next Rnancial year using next
appropriation bill). So, in March, there is a rush among the Govt orgs to spend money (in a
haphazard / reckless manner) lest theysve to return it back.
-
ill
2017-18: Finance ministry issued directive that in wIn the fourth quarter (Jan to March) and in
the March-Month, Govt organizations shall not spend more than wx%| & wy%| of funds|. ëis
w
helps controlling the March Rush.
d

28.10 NON LAPSABLE FUNDS & NO RUSH: *T,E>CD *,^B

go

ëe money in such fund will not lapse on 31st March, so it can be used in future without getting
another approval from parliament. e.g. Dept of Economic AIairs → Nirbhaya fund → women
safety related projects.
rs

- CriticismH Since fund is non lapsable, Departments become very lax in utilising it. Budget
he

2013 started Nirbhaya fund in the aπermath of Dec-2012 Gangrape @Delhi. ëe successive
budgets kept adding Ç into it. By 2018: ~3000 crore but not even 50% utilized
ot

- 2018: Defence ministry demands a non lapsable defence modernization fundc, but Finance
ministry rejected for similar same reason. (money will remain unspent.)
- Although later 15th FC has recommended Modernisation Fund for Defence and Internal Security
p

(MFDIS) Ç 2.38 Lcr (total for 2021-26). (More in Pillar#2B: 15th FC)
el
H

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2D: Budget → Disinvestment & De#cits → Page 465

KING R & QUEEN P Help others god will help you

 28.11 TYPES OF SCHEMES (FhA,LÅ@N- ONLP)

u
yo
lp
he
ill
w
 For any Union Territory without Legislature: 100% funding by Union for any scheme in any
category. We will look at the schemess features in the respective pillars.
d

 To disburse scheme Ç & monitor it eIectively, FinMin →Dept of Expenditure Controller

go

General of Accounts (CGA) → Public Financial Management System (PFMS) webportal.

28.11.1 Budget-2022: CSS rationalisation

rs

Govt has reduced the number of CSS from 130 → 65. (FhA,LÅ@Ng Z@ख्यL XyNMœDB)
he

 Some schemes are Stopped e.g. Dairying ërough Cooperatives, National Dairy Plan-II and
National Dairy Plan. (T@t NP |tFL)
 some schemes are merged: e.g. (nNgNPp)
ot

 I] previously Woman Child development Ministry was running 19 scheme is now they are
compressed into just 3 viz A) Mission Shakti B) Mission Vatsalya C) Saksham Anganwadi and
p

POSHAN 2.0. (More in Pillar#6)

el

 ii] Ministry of Agriculture running 20 CSSs have been rationalised into three schemes: A)
H

Krishionati Yojana B) Integrated Scheme on Agricultural Cooperative C) Rashtriya Krishi

Vikash Yojana. (More in Pillar#4A)
eIective monitoring, duplication of eIorts → subsidy bill & deRcit (O]L+B †> Z-*,CPL,B,
FhA,LÅ@XyOF h@NL EVwthrPL+ , rh@, DL|N Z̸µB ÄP ZPNLPB KLM- NL Th⌦ NX rh ALn.)

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2D: Budget → Disinvestment & De#cits → Page 466

KING R & QUEEN P Help others god will help you

 28.11.2 Ministry-wise Highest Allocation (amt in ª lakh crore)

u
yo
lp
28.11.3 Govt Schemes: Result Based Financing instead of input based ,nancing

he
INPUT-BASED FINANCING RESULT-BASED FINANCING
 Government will pay money for  Govt will deRne results e.g. daily 15km
purchase of inputs. road constructed, minimum 80% of skill
 ëen oàcials/contractor will
built road/college, provide skill
ill
trainees must get job placement etc.
 if result not achieved then govt may not
w
training etc. pay full amount / cut penalty.
Budget-2023: for selected government schemes, wesll shiπ from ≤input-based Rnancings to ≤result-
d
based Rnancings. (Nóõ eó*,t@ L ZPNLPB FhA,LÅ@N- j[n, rX ‘ú,>óM-{^LzPD *+¿>hip’ Ng ACr, ‘>zPpLX-{^LzPD
go

*+¿>hip’ NL ôX[ NPyC-. FL*, Ng ZPNLP ÷LPL DF >zPpLX/Z?eNL@Nh@Nh ≈-N-tLP/ôùZP rL@Z[ ,rB@NP >LFL Dh >áZL ,rB@
WX[-CL/NLM |tFL )

28.11.4 Mains Questions

rs

Mostly centred around the – Challenges in public Rnance, how to curb black money, features of GST,
he

problems in GST, signiRcance of disinvestment, how to reduce subsidy burden, how to control Rscal
deRcit, how to increase the impact of government schemes etc. Covered separately in Mains Course.
ot

Next Handout: Pillar3A: Balance of Payment

p
el
H

(Batch:PCB10-Prelims) Mrunal⇠s Economy Pillar#2D: Budget → Disinvestment & De#cits → Page 467

KING R & QUEEN P Help others god will help you

 PILLAR#3A : Balance of Payment , International Trade, Currency Exchange
Table of Contents
30 Pillar#3A: Balance of Payment ( ⇥⇤⌅⇧⌃ ⌥⌅⇥ ⌃)....................................................................471
30.1 Academic Disclaimer.........................................................................................................471
30.2 Types of Economies............................................................................................................472
30.3 Intl. Trade & Circular ,ow of income- impact of import / export.............................472

u
30.3.1 Bene✓ts of international trade......................................................................................472

yo
30.4 Entry into international business - various modes/types..................................................473
30.5 Documents related to Import/export................................................................................474
30.5.1 Docx related to Loans - Bill of Exchange.........................................................................475

lp
30.5.2 Docx related to Loans - others..........................................................................................475

he
30.6 BoP- meaning / de4nition..................................................................................................476
30.7 RBI5s (Actual/real) method of classifying BoP..................................................................476
30.1.1 Notes about the Data Tables in this Handout Pillar#3A.................................................477
30.1.2
ill
Where is 2023)s Data BoP*................................................................................................477
w
30.8 Balance of payment → Current Account →................................................................477
30.9 Balance of Trade (BoT ⌦⇧↵⇧ ⇧ ⌥⌅⇥ ⌃)......................................................................478
d

30.1.3 Net Terms of Trade (NTT) or Commodity terms of trade.......................................478

go

30.1.4 Gross (Barter) Terms of Trade (GTT, ⌥✏⇣ ⌘✓◆  ◆ , ⌫⌅: ⇠⇡⇢ ⌧ ⌫⌃⇧ श्य )....479
30.1.5 Income terms of trade (ITT)........................................................................................479
rs

30.2 Top Import and Exports of GOODS for India:............................................................479

30.2.1 Notable Import / Export Goods as per ES23....................................................................479
he

30.2.2 Goods Export Before Corona: Notable items........................................................479

30.2.3 India)s TOP Agriculture Exports.................................................................................480
ot

30.2.4 SERVICES Import Export Before Corona.............................................................480

30.2.5 India)s trade partners: Import / Export as per ES23...............................................480
p

30.2.6 India)s trade partners: Trade Surplus / De✓cit With Notable Countries...........................481
el

30.3 Reports / Indices related to Export & Remittance........................................................482

Export Preparedness Index by NITI ( ⌃ ⇧⇣⌅ ⌅! ⇧ ⌧ ⌥"# ⇧ )................................................482
H

30.3.1 Global Survey on Digital and Sustainable Trade Facilitation by UNESCAP...........482

30.3.2 Report: Goods Trade Barometer Index........................................................................482
Remittance: World Bank)s Remittance Report ($ % &' ( )⌃✓*+ , ↵-.⇣)......................482
30.3.3 Indian migrants) key destinations - ES23.........................................................................482

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3A- BoP & Currency Exchange → Page 468

KING R & QUEEN P Help others god will help you

 30.3.4 Report: Misc....................................................................................................................483
30.9.1 Remittance /Migrant workers → Pravasi Bharatiya Diwas (PBD) ...............................483
30.10 Balance of payment → Current Account → Import of Oil............................................483
30.3.5 Domestic Oil Exploration Policies*.............................................................................484
30.3.6 : NELP)s primary limitations were →.....................................................................484
HELP Policy (⇡⇧/0- ⇧&⇣⌃ ⌫1*+ 2 ⌫⌃⇥345/ ⇧/⌥6⌥⇢⇤ ⌃⌧$⌅).........................484

u
30.10.1
India)s Strategic Oil Reserves ( ⇧ ⌅ ⌥⇧, ⌅ 7⇧ )...........................................484

yo
30.10.2
30.10.3 Crude Oil prices & OPEC ( 8⇧ ⌅ )..................................................................485
30.3.7 Crude Oil: Russia-Ukraine War (2022)..................................................................486

lp
30.3.8 Crude Oil: Ceory / GK *.........................................................................................486

he
30.3.9 BoP: Current Fall of Crude oil prices in negative ✓gure.......................................486
30.3.10 Price cap Russian oil (2022).......................................................................................487
30.3.11 Petrol & Diesel Prices & Taxes in India ...................................................................487
30.3.12
ill
Electric Vehicles, Ethanol Blending etc.........................................................................487
w
30.11 Balance of payment → Current Account → Import of Gold.........................................487
30.11.1 RBI)s 80:20 Scheme (2013-14)....................................................................................488
d
30.11.2 Sovereign Gold Bond Scheme (2015: 9+⇣&⇧: -;⌃⇧).......................................488
go

30.3.13 Gold Monetization Scheme (2015: 9+⇣⇥<⌧ + -;⌃⇧)..................................488

30.11.3 Indian (Sovereign) Gold Coins (2015: ⇧ ⌅⌧ 9+⇣ ⌥=)................................489
: Gold price in Corona ( - -⌃⇧ ⇡⇧⇧ ⌧
rs

30.3.14 > ⇧⌃ 9+⇣?(⌅6)....................................489

30.3.15 Gold import: customs duty (2022)............................................................................489
he

30.12 Gold related GK Data..........................................................................................................490

30.13 Lab Grown Diamonds (LGD: ✓ -⇤@⇧ ⇧ 6&⌃⇧ ⇤ ⇡⌧ )................................................490
ot

30.13.1 " BoP → Current → Export → GI Tag...........................................................................490

30.13.2 GI Logo.........................................................................................................................491
p

30.3.16 Unity Malls for selling GI, HandicraG etc. in Budget-2023...............................491

el

30.4 →BoP → Current → Exports SEZ...............................................................................492

Baba Kalyani report on SEZ.................................................................................................492
H

30.4.1 SEZ → DESH Hubs...................................................................................................493

30.4.2 Budget-2022 Announcements to CAD...................................................................493
30.14 BoP Current Foreign Trade Policy...............................................................493
30.15 4 pillars of FTP-2023.....................................................................................................494

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3A- BoP & Currency Exchange → Page 469

KING R & QUEEN P Help others god will help you

 30.15.1 FTP-2023 Pillar#1: Incentive to Remission ( .A ⇧B( ).........................................494
30.15.2 FTP-2023 Pillar#2: Ease of Doing Biz (⌦⇧↵⇧ 6⌥⇥⇤⌅⇧)........................................495
30.15.3 EoD: Bol Bachchan/ C# ⌃⌧ #⇥↵D⌧ &⇧⌅.......................................................................495
30.15.4 FTP-2023 Pillar3: Emerging Areas (E ⌅ FG)........................................................496
30.15.5 SCOMET & Dual use Export.....................................................................................496

u
30.15.6 E-Commerce Exports.................................................................................................496

yo
30.15.7 E-Governance initiatives......................................................................................................496
30.15.8 Merchanting trade @GiG City ( ⇧◆+HI ⌦⇧↵⇧ )..................................................496
30.15.9 FTP-2023 Pillar4: Collaboration of Stakeholders ( ⇠⇡⌅)⇧ J ⇧ ⌥⇡ -⇤)..............497

lp
30.15.10 Conclusion (Summarise - yes FTP-2023 greatly help).....................................498

he
30.16 Export Improvement -Misc. Schemes.........................................................................498
30.4.3 Interest Equalisation Scheme for Exporters (2015)........................................................498
30.4.4 Tax Credit for Exporters: MEIS/SEIS...........................................................................498
30.4.5
ill
Tax Credit for Exporters: RoDTEP*.............................................................................498
w
30.4.6 Port Logistics: Authorised Economic Operator (AEO)..................................................499
30.4.7 Krishi Udan Scheme v 2.0 (Civil Aviation Ministry, 2020)...........................................499
d

30.4.8 ES23 observation on Export Improvement......................................................................499

go

30.4.9 KAssemble in IndiaL | Production Linked Incentive Scheme (PLI).....................499

30.17 : BoP → Capital Account→ Investment→ FDI / FPI.......................................500
Foreign Portfolio Investors (FPI: $
rs

30.17.1 @⌧ ↵-.⇣✏-◆ - ⌃ @ )................................500

30.17.2 FDI: Inward vs Outward Direct Investment (ODI)........................................500
he

30.17.3 Foreign Direct Investment (FDI: ✓KF $ @⌧ ⌃ @)....................................501

30.4.10 FDI in India → Source Nation and sector-wise as per ES23 ....................502
ot

30.17.4 Foreign Investment 100% Automatic permitted in...................................502

30.17.5 Foreign Investment → Limits in Others sectors............................................503
p

30.17.6 : India5s FDI rules for E-Commerce........................................................503

el

30.4.11 : Hotmoney EAect by FPIs.......................................................................504

30.18 Investment: Misc Terms & Reports....................................................................505
H

30.18.1 Golden Visa (9+⇣ ⌧L⇧).............................................................................................505

30.18.2 UNCTAD's World Investment Report ($ % ⌃ @ , ↵-.⇣)............................................505
30.5 Yearbook: Ministry of Commerce and Industry ( ⇧◆+I 2 EM-⇤ G⇧ ):.................505

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3A- BoP & Currency Exchange → Page 470

KING R & QUEEN P Help others god will help you

 30.18.3 Commerce Ministry: Export Inspection Council (EIC)..............................................506
30.5.1 Budget-2020 : Medieval dictionary GK about Foreign Trade.......................................507
30.18.4 (2019) DIPP becomes DPIIT ($ ⇧⇤ ⇧ ⌃⇧ & ⇧ ⇤ ⇧).............................................507
30.18.5 (2017) FIPB Abolished ($ @⌧ ⌃ @ ⌫⌃⇥$⌅ ( ⌥N⇧ - ⇡.⇧ ⇧ ⇤ ⇧)........................507
30.5.2 BoP: Capital → Chinese FDI need Govt approval................................................508

u
30.18.6 Related Topic: Cabinet Committees..............................................................................508

yo
30.19 International Financial Services Centre (IFSC) / GIFT CitY................................509
30.19.1 : IFSC Authority Act, 2019................................................................................510
30.5.3 Budget-2023 on IFSCA Authority.....................................................................................510

lp
30.19.2 Foreign University @ GiG City.......................................................................................511

he
30.19.3 Data Embassy @GiG city in Budget-2023.......................................................................511
30.5.4 : Variable Capital Companies (VCC)@GiG city................................................511
30.20 BoP → Capital → Debt (Loans & Non Resident Bank deposits).............................511
30.5.5
ill
External Debt : Composition Govt vs Pvt. As per ES23...........................................512
w
30.5.6 External Debt : currency wise as per ES23.............................................................512
30.20.1 BoP → Capital Account → Misc. Concept: NIIP..................................................512
d
30.5.7 Asset liability ratio........................................................................................................513
go

30.5.8 BoP → Capital Account → Misc.: VOSTRO, NOSTRO, FCNR, NRE, NRO .......513
30.5.9 BoP: External Debt overhang Problem (O+ ( ⌫ ) ⌅⇧)......................................513
30.6 Next Handouts in Pillar3:..................................................................................................513
rs
he

30 PILLAR#3A: BALANCE OF PAYMENT (OPQRST UVRPWT)

Prelims P1 (GS 100 MCQs)
Economy: 6 PillarsTM
ot

2017 2018 2019 2020 2021 2022 2023

3_Intl_Trade, BoP 4 4 7 7 2 4 3 MCQ
p

30.1 ACADEMIC DISCLAIMER

el
H

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3A- BoP & Currency Exchange → Page 471

KING R & QUEEN P Help others god will help you

 u
30.2 TYPES OF ECONOMIES

yo
lp
he
ill
w
d
go

30.3 INTL. TRADE & CIRCULAR FLOW OF INCOME- IMPACT OF IMPORT / EXPORT
rs
he
ot
p
el
H

30.3.1 Bene4ts of international trade

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3A- BoP & Currency Exchange → Page 472

KING R & QUEEN P Help others god will help you

 Stakeholder Bene4ts
Earning of forex, jobs, GDP, e[cient use of resources (men, material),
To Govt
increase income → improved standard of living
To (exporting) more customers, more pro✓t, increased capacity utilisation, way out (escape)
Companies from intense competition within domestic market.
To Customers improved choices - in terms of quality and price.

u
What does above table mean* Ans. Explained in the video lecture.

yo
30.4 ENTRY INTO INTERNATIONAL BUSINESS - VARIOUS MODES/TYPES
Type Meaning / Example Challenges

lp
cost/risk of packaging-transport, Taxes,
simplest form of entry into

he
import export protectionism, exchange rate, geopolitical
intl. business
problems (Taiwan, Ukraine, Palestine)
e.g. Tata making iPhones
Contract Quality control. Contract manufacturer (Tata)
manufacturing /
for Apple
Godrej making Dettol soaps
ill
will not make as much % pro✓t as the original
w
outsourcing company (Apple)
for Reckitt and Colman.
1) Quality control.
d
Dominos Pizza (USA) → 2) Royalty fees/payment.
Franchising
go

JUBILANT FOODWORKS 3) Danger to the original brand that later on

(services)
(India). Franchisee may pirate/misuse the trade-
secrets/receipts to launch a similar product.
rs

Licensing
Pepsi → Varun Beverages Similar to Franchising
(goods mfg)
he

Hero Honda = Hero Group

- Leak of trade secrets
of India and Honda of
Joint venture - Clash of egos/ideas of the two companies)
Japan. (later on venture was
ot

top bosses.
terminated around 2010)
- Issues related to taxation, transfer pricing etc.
p

Standard Chartered Bank - Business stability depends on

Wholly Owned (India) is 100% owned by political/diplomatic relation between the two
el

Subsidiaries Standard Chartered Bank countries e.g. Canada/USA arrested Huawei top
(UK Parent). o[cial then China started taking action against
H

American companies in China (2019–21).

• FAQ1: what is the di`erence between contract manufacturing and licensing and joint
venture* Ans. Academic disclaimer on top of HDT3A. abcS-deb-fQg-heb.

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3A- BoP & Currency Exchange → Page 473

KING R & QUEEN P Help others god will help you

 • FAQ2: you mentioned the challenges, but what are the bene✓ts* Ans. Apply common sense
around how such partnerships or deals cud help in the capital/investment, risk-taking, innovation &
Idea exchange etc.

30.5 DOCUMENTS RELATED TO IMPORT/EXPORT

Document Meaning / example

u
quotation / proforma
I (Exporter) can supply you (importer) tea at X price on Y date.

yo
invoice
indent / Receipt of I (importer) agree with your (Exporter)s) quotation & I want buy _ _ _ kg
order tea at the price quoted by you.

lp
Indian importer/ exporters have to get this number / license/registration
Importer-Exporter
number from Directorate General Foreign Trade (DGFT, under

he
Code
Commerce Ministry)
Indian exporter may have to get this from Export Inspection Council of
Certi4cate of
India (EIC, under Commerce Ministry)- depending on the type of
Inspection
product.
ill
w
1) Suppose USA banned Chinese seafood. Cen Indian exporter need to
produce certi✓cate to USA-o[cials ke Kmy product is from India (and not
from China)L.
d

Certi4cate of origin 2) Suppose India signed free trade agreement (FTA) with Sri Lanka ke 0%
go

import tax (customs duty) on Srilankan Ink→ Srilankan seller need to

show certi✓cate to Indian o[cials ke Kmy product is made in Sri Lanka
(and not in China)
rs

e.g. If USA sells ✓ghter jets to Pak Airforce (PAF), then PAF has to certify
to France that we (=PAF/buyer) are the ✓nal recipient of the materials,
End-user certi4cate
he

and we are not planning on selling/transferring the jets to another party

(EUC)
e.g. Hamas/Taliban. EUCs are required by many governments to
restrict the kow of the materials to undesired destinations/organizations.
ot

Shipping/Courier e.g. carting order, cart ticket, mate)s receipt, bill of lading, airway bill:
related docx what do they mean* How do they work* not important.
p

Mundra Port owner (=Adani) will demand penalty fees from the
el

Demurrages importer/exporter/shipping company IF they cause delays in

loading/unloading cargo in the port.
H

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3A- BoP & Currency Exchange → Page 474

KING R & QUEEN P Help others god will help you

 30.5.1 Docx related to Loans - Bill of Exchange

u
yo
lp
he
ill
w
30.5.2 Docx related to Loans - others
Document Meaning / example
d

Export Credit Guarantee / NIRVIC Scheme: e.g. ECGC5s letter to SBI:-

go

Export Credit Insurance Dear@SBI please approve the loan to Indian Exporter. If he
(Ref: Pillar#1D) doesn)t repay loan, we)ll cover _ _ _ % losses.
rs

Letter of Credit / Letter of PNB (Mumbai Branch)5s letter to HSBC (HongKong):

Undertaking for importer Dear@HSBC Bank (HongKong) plz give foreign currency loan to
he

(Ref: Pillar#1B2-NPA) our client (Indian importer) Nirav Modi for import of diamonds.
If he doesn)t pay, we (PNB) will pay.
ot

FAQ: How are above two terms (export credit guarantee versus letter of credit) similar to
di`erent* Can)t we say X is a sub-topic of Y* Ans. If you are intelligent enough, then you will ✓nd out
p

that one of the product is primarily targeting importer and other is meant for exporter. But anyways
el

that)s Not imp4exam. abcS-deb-fQg-heb.

H

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3A- BoP & Currency Exchange → Page 475

KING R & QUEEN P Help others god will help you

 30.6 BOP- MEANING / DEFINITION

u
yo
lp
he
ill
w
- BoP is a systematic record of all economic transactions made between the residents and non-
residents of a country for a speci✓c time period, usually a year. lmUn ogp mg qTrSsUtbVuv Qwv-qTrSsUtbVmg
hnx lmy Qy UOn fzam WgTogT mS ym {vm|}~wÄ
d

- Central Banks of each country prepare BoP records as per the format given in IMF)s BPM-6
go

manual, all the ✓gures are expressed in Dollar$.

- Since any country)s debit (outgoing money) is a credit (incoming money) for another country →
World)s NET Balance of Payment is ZERO.
rs

- BoP is further sub classi✓ed into two parts → Current Account (xSWÇÉSRS) and Capital Account
(dÇVÑn ÉSRS), based on the nature of transactions.
he

30.7 RBI5S (ACTUAL/REAL) METHOD OF CLASSIFYING BOP

ot

Current Account Capital & Financial Account

Goods and services 1. Direct Investment (FDI)
p

Primary Income: wages, dividend, interest 2. Portfolio Investment (FPI)

el

Secondary income: remittance, giG, donation 3. Loans / External Commercial Borrowing

(ECB)
H

4. Non-resident)s investment in Bank,

Insurance, Pension schemes.
5. RBI)s foreign exchange reserve
However, for the purpose of learning, we)ll continue with the traditional classi✓cation given in the
textbooks (and in below image)

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3A- BoP & Currency Exchange → Page 476

KING R & QUEEN P Help others god will help you

 u
yo
lp
he
30.1.1 Notes about the Data Tables in this Handout Pillar#3A
- In most of the tables, I)ve used data of a stable/normal year 2018-19 to explain theory basics.
Because subsequent years) data trends have some abnormal trends due to economy slowdown
(in 2019), Corona (in 2020 & 21).
ill
w
30.1.2 Where is 20235s Data BoPM
 Financial Year will end on 31/3/2023 Cen RBI will publish BOP in 2023-June, aGer ✓xing
d

errors/omissions. So, Economic Survey 2023 (published on 31/Jan/23) only published partial
go

BoP data from April to Sept/Dec-2022, which is not very useful for PYQ/MCQs. So we will focus
on the general trend but not EXACT numbers.
 Cen wait for Free Win24 series for latest ✓gures in 2023-Feb.
rs

- Note: if I have not mentioned the data in a particular segment= means latest economic survey
2023 has not bothered to talk about it loudly, so I)ve not bothered to do self-google search. ÖQv
he

lmUn OSQ ÜáÜàTgWgâgä }SâS TnVlotS Rb ÜRWh lm ãmTbåÜm UrçTgéUghRSTgmè ÑÜR TnVmè.
ot

30.8 BALANCE OF PAYMENT → CURRENT ACCOUNT →

Component NET Amount in billion dollars 2018-19 2019-20 2020-21
Visible op~Tnt Trade in Goods -180 -157 -102
p

Invisible Öêë Trade in Services +82 +85 +88

el

Primary Income: Wages, Pro✓t, -28 -27 -36

Interest, Dividend.
H

Secondary Income/Transfer: +70 +75 +73

Remittance, GiG, Grants, Donations.
Net Current Account Balance (if negative: KDe✓citL) -57 Bn -24 Bn +24 Bn
(De✓cit) (De✓cit) (+0.9% GDP)
1) From 2001-04: We had Current Account Surplus (xSWÇÉSRS Ösìpgî) because, it was a time before
the USA)s subprime crisis when global economy boom had our exports). But then we started

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3A- BoP & Currency Exchange → Page 477

KING R & QUEEN P Help others god will help you

 to have de✓cit. India)s current account de✓cit averaged -2.2% GDP in the last 10 years.
2) 2020-21: Corona- imports compared to export (and we managed to export decently in the
Pharmaceutical and IT sector). So, India witnessed a Current Account surplus for the ✓rst time
(2020-21) aGer last 17 yearsï mbvbTS ÜSÜSvn r RSWShVon mg xWRgftSR ÜáOSvn åQvSrâ mg xWRgqdñWg17 USWbVÜá
dWn hSv xSWÇÉSRS óSâS TnV, xSWÇÉSRS Ösìpgî òf!
Year 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020-21 2021-22 2022-23

u
CAD as - - - - - - - - - +0.9% CAD CAD

yo
% of 4.3% 4.8% 1.7% 1.3% 1.1% 0.6% 1.8% 2.1% 0.9% (Reality) DEFICIT DEFICIT
GDP possible. possible.
1.2% #
3._%#
Final data yet to release, but these are projection (2021-22 & 2022-23) from BizStd Newspaper.
#

lp
he
30.9 BALANCE OF TRADE (BOT NOPOQ RO STUVWX)
(De✓nition) Balance of Trade is the di`erence between the value of import and export of _ _ _ .
- Of Goods (as per NCERT.)
- Of Goods and Services (as per IMF balance of payment manual)
ill
w
FAQ: So what to tick in MCQ. Ans. well depends on the context of the MCQ.
Balance of Trade Amount in Billion $ for Year 2018-19
d
Export Goods +330
go

Import Goods -510

Export Services +208
Import Services -126
rs

Balance of Trade (ONLY Goods) +330-510 = (-180) TRADE DEFICIT in GOODS

he

Balance of Trade (ONLY Services) +208-126 = (+) 82 TRADE SURPLUS in Services

Balance of Trade (Goods & +330 Goods + 208 Services-510 Goods – 126 Services= (-
ot

Services Combined) 98) = TRADE DEFICIT

p

30.1.3 Net Terms of Trade (NTT) or Commodity terms of trade

Value of export
el

'
NTT = ∗100=for India i t s<100(usually)
Value of import
Meaning ($ or value) wise we are importing more and exporting less.
H

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3A- BoP & Currency Exchange → Page 478

KING R & QUEEN P Help others god will help you

 u
yo
30.1.4 Gross (Barter) Terms of Trade (GTT, ZS[\ ]^_W` Ra _Wb, cU: deTfg cXOhiR)
quantity vol of import
GTT = ∗100=for India its <100 (Usually ).
quantity vol of export
So, in physical quantity (kg, litres) we are exporting more than importing. Cis is possible because

lp
exported Indian rice)s quantity (kg) could be large even though its value ($) will not be very large.

he
30.1.5 Income terms of trade (ITT)
Value of export
ITT = ( Value of import )∗( Quantum index of exportsQIE )=( Net terms of trade )∗( QIE )
ill
Formula not important. What is quantum index of export = not important.
w
For India and other developing countries, ITT is much relevant indicator for analysing their foreign
trade compared to previous 2 indicators. Why* Ans. not important.
d

30.2 TOP IMPORT AND EXPORTS OF GOODS FOR INDIA:

go

30.2.1 Notable Import / Export Goods as per ES23

NOTABLE EXPORTS NOTABLE IMPORTS
rs

Goods Petroleum products e.g. Naphtha Crude oil, electronic goods; coal,
Bitumen,Lubricants,Wax, etc), gems & machinery, gold, chemicals
he

jewellery, organic & inorganic chemicals,

drugs & pharmaceuticals
Services Telecommunications, computer and Business services, transport, travel,
ot

information services, transport, travel, fees paid for using intellectual

✓nancial services, ✓nancial services property (e.g. drug patents)
p

FAQ: Why not given Top-10, why gave only important namesM Ans. Feel free to sort data from
Statistical Appendix of Eco Survey: https://www.indiabudget.gov.in/economicsurvey/doc/Statistical-
el

Appendix-in-English.pdf poor cost bene✓t making top-10 list, apply logic/guesswork/skip.

H

30.2.2 Goods Export Before Corona: Notable items

EXPORTs Before Corona (i.e. 2018, 2019) Import Before Corona (i.e. 2018, 2019)
1) Petroleum Products (e.g. paint, polish, 1. Crude oil
asphalt) 2. Gold

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3A- BoP & Currency Exchange → Page 479

KING R & QUEEN P Help others god will help you

 EXPORTs Before Corona (i.e. 2018, 2019) Import Before Corona (i.e. 2018, 2019)
2) Pearl & Precious Stones 3. Petroleum Products
3) Drug & Biologicals 4. Pearl & Precious Stones
4) Gold Silver jewellery 5. Coal
5) Iron and Steel Metal 6. Electronics Components
6) Electric Machinery 7. Organic Chemicals

u
7) Chemicals 8. Plastic Raw Materials

yo
8) Products of Iron and Steel 9. Vegetable Oils
9) Marine Products 10. Computer Hardware, Peripherals
10) Aluminum

lp
30.2.3 India5s TOP Agriculture Exports

he
(1)Marine Products, (2) NON-Basmati Rice (3) Spices, (4) Sugar, (5) Bu`alo Meat, (6) Basmati-
Rice, (7) Cotton, (8) Wheat, (9) Castor Oil, (10) Misc. Processed Food

30.2.4 SERVICES Import Export Before Corona

Services Export Before Corona (i.e. 2018, 2019) ill
Import Before Corona (i.e. 2018, 2019)
w
 Telecom, computer, and information  business services -research development,
services consultancy services etc.)
d

 business services -research development,  Travel of persons (Indians going to

go

consultancy services etc.) foreign trip using foreign airline)

 Travel of persons  Transport of goods (e.g. Indian using
Transport of goods American Cargo Shipping company)s
rs


 Financial services service to deliver goods)
 intellectual property (Patent, Trademark)
he

 Construction Services
 Telecom, computer, information
services, Financial services
ot

30.2.5 India5s trade partners: Import / Export as per ES23

p

Top Destination of Indian Exports Top Sources of Indian Import

(OSvR mg mPW qTtS~R ÜáõSoSRv lúS) (OSvR mg mPW ftSR mS õSoSRv lúS)
el

1. USA 1. China
2. UAE 2. UAE (Gold, Crude Oil)
H

3. Netherland 3. USA
Other notable partners: Bangladesh, Hong Other notable partners: Saudi, Iraq,
Kong, Singapore, Netherlands, Britain, Switzerland, Hong Kong (Diamonds) ,
Belgium, Germany Indonesia (due to Palm Oil) , Singapore , South
Korea

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3A- BoP & Currency Exchange → Page 480

KING R & QUEEN P Help others god will help you

 30.2.6 India5s trade partners: Trade Surplus / De4cit With Notable Countries
Trade De4cit (i.e. India imports more but exports Trade Surplus (i.e. India imports LESS but
less to these nations) exports MORE to these nations)
We)ve large Trade De4cit: ùSdSv óSâS with We)ve Trade Surplus: ùSdSv Ösìpgî with
 China (cheap electronics, toys etc.) over 50 - USA (Chemicals, textile, services etc.),
billion$ - Britain, Netherlands, Turkey (Tea,
 Middle Eastern nations (Oil import esp Iraq, Spices, textile etc.),

u
Saudi, Qatar). - Bangladesh, Nepal (Food, medicine,

yo
 Switzerland (Gold, Luxury items), vehicles etc)
 S. Korea (mobile, TV, electronics)
- India)s top 4ve trading partners are USA, China, UAE, Saudi Arabia and Hong Kong (with

lp
whom we)ve largest value of import & export relations)

he
MCQ. je balance of payments of a country is a systematic record of (Pre-2013)
(a) All import & export transactions of a country during a given period of time, normally a year.
(b) Goods exported from a country during a year.

ill
(c) Economic transaction between the government of one country to another.
(d) Capital movements from one country to another.
w
MCQ. Which of the following does not form part of current account of BoPM [UPSC-CDS-2014-II]
(a) Export and import of goods (b) Export and import of services
d
(c) Income receipts and payments (d) Capital receipts and payments
go

MCQ. With reference to Balance of Payments, which of the following constitutes/ constitute the
Current AccountM (Asked in UPSC-Pre-2014)
1. Balance of trade. 2. Foreign assets. 3. Balance of invisibles. 4. Special Drawing Rights.
Answer codes: (a) 1 only (b) 2 and 3 (c) 1 and 3 (d) 1, 2 and 4
rs

MCQ. Among the following, which one of the following is the largest exporter of rice in the world in
the last 4ve yearsM (Pre-2019) (a) China (b) India (c) Myanmar (d) Vietnam
he

MCQ. Among the agricultural commodities imported by India, which one of the following accounts
for the highest imports in terms of value in the last 4ve yearsM (Pre-2019)
(a) Spices (b) Fresh fruits (c) Pulses (d) Vegetable oils
ot

MCQ. Since 2014-15, India has consistently run trade surplus with which one among the following
countriesM (UPSC-CDS-2020-ii) (a) China (b) Saudi Arabia (c) USA (d) Germany
p

MCQ. Find correct statement(s) about international trade of India at presentM (Prelims-2020)
1. India)s merchandise exports are less than its merchandise imports.
el

2. India)s imports of iron steel, chemicals, fertilisers and machinery have decreased in recent years.
H

3. India)s exports of services are more than its imports of services.

4. India su`ers from an overall trade/current account de✓cit.
Ans Codes: [a) 1 and 2 only [b) 2 and 4 only [c) 3 only [d) 1, 3 and 4 only
MCQ. Consider the following statements: (Prelims-2020)
1. Ce value of Indo-Sri Lanka trade has consistently increased in the last decade.

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3A- BoP & Currency Exchange → Page 481

KING R & QUEEN P Help others god will help you

 2. KTextile and textile articlesL constitute an important item of the trade between India and
Bangladesh.
3. In the last ✓ve years, Nepal has been the largest trading partner of India in South Asia.
Codes: [a) 1 and 2 only [b) 2 only [c) 3 only [d) 1, 2 and 3

30.3 REPORTS / INDICES RELATED TO EXPORT & REMITTANCE

u
Export Preparedness Index by NITI ( kXlO\U UmlOQg SnoROTR)

yo
 It ranks the Indian states based on State govt policies, infrastructure, transport connectivity, ease
of doing business etc. (vS† UvmSv mè TnqRtSV, hPqTtSon ÖrUVvxTS, d{vrT, ùSdSv ÜáUPQÜRS)
 Overall, most of the Coastal States are the best performers. (Rânt vS† Ur~°¢g £op~T)

lp
 Further sub-rankings for categories -§Coastal), §Landlocked), §Himalayan), and §UTs/City-States)).
But poor cost bene✓t preparing the whole list for exam.

he
30.3.1 Global Survey on Digital and Sustainable Trade Facilitation by UNESCAP
 By United Nations Economic and Social Commission for Asia Paci✓c)s (UNESCAP).
 It gives % score based on Govt)s e`orts for Transparency,
ill Formalities, Institutional
w
Cooperation, Cross-Border Paperless Trade. But Ranking NOTIMP.

30.3.2 Report: Goods Trade Barometer Index

d

 by World Trade Organization (More in Pillar#3B: International Orgs.)

go

 Cis index signals changes in world goods trade growth.

 If Index value > 100: . But less than 100 = . Current value is 96.1% (as of 2022-Dec)
rs

Remittance: World Bank5s Remittance Report (qr¶ hàm mè ìT£gîß {vdbâ~)

he

- Since 2008: largest amount of remittance received by 1) India 2) China 3) Mexico.

- World Bank also noted: remittances have a direct impact in poverty removal for many
households, (ìT £gîß UgQvnhn é®ÇWT ÜáÜoo åÜWRn w)
ot

30.3.3 Indian migrants5 key destinations - ES23

BEFORE (PeaWapqQ rOfO NOWADAYS (usRW ^hOSg `vfwQ pX faxyT`z
p

sOUata) rOfO sOUaem)

el

Destination Gulf nations USA,UK, East Asia,Singapore, Japan,

Australia, New Zealand
H

Type of low-skilled, informally high-skilled jobs in high-income

jobs employment countries

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3A- BoP & Currency Exchange → Page 482

KING R & QUEEN P Help others god will help you

 30.3.4 Report: Misc.
Report Organization
Migration and Development Brief World Bank
Global Migration Report International Organization for Migration (IOM, HQ:
Geneva, Switzerland) - a related organization of UN

30.9.1 Remittance /Migrant workers → Pravasi Bharatiya Diwas (PBD)

u
1915 9th January: Gandhi-ji returned from S.Africa to Bombay (India).

yo
2003 NDA-I (PM Vajpayee) decides to celebrate Pravasi Bharatiya divas (PBD) annually every
9th January. First summit @New Delhi. Presently organized by Ministry of External A`airs
2015  NDA-II (PM Modi) converts PBD into KbiennialL event i.e. grand festival every second

lp
year (Où é©r/vVQSvVQ mSt~™Ü v o´Uvg USW)
 every other year, only a small event in India, & regional PBD event in a foreign country

he
2020 @New Delhi. But just a small scale video conference type of event.
Où vVQSvVQ mSt~¨Ü Tn lmtS, ≠blm rb Rb v o´Uvg USW mvRgwÄ
2021 Ceme: "Contributing to Aatmanirbhar BharatL. It was held virtually due to Corona

ill
Chief Guest: Mr. Chandrikapersad Santokhi, President of Suriname.
w
2022 just a small scale video conference type of event.
Où vVQSvVQ mSt~¨Ü Tn lmtS, ≠blm rb Rb v o´Uvg USW mvRgwÄ
d
2023 @Indore, MP. Ceme is "Diaspora: Reliable partners for India's progress in Amrit KaalL.
go

Self StudyM Indian Polity: Citizenship → di`erence OCI vs PIO

30.10 BALANCE OF PAYMENT → CURRENT ACCOUNT → IMPORT OF OIL

rs
he
ot
p
el
H

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3A- BoP & Currency Exchange → Page 483

KING R & QUEEN P Help others god will help you

 ➢ Govt)s target of oil import by 10% by 2022 (compared to 2015).
➢ Cerefore, boosting domestic oil exploration & production is necessary. So, …..
30.3.5 Domestic Oil Exploration PoliciesM
 Nodal* Directorate General of Hydrocarbons: Sã}∞bmSh~T ÜSqTogpm (DGH) Ministry of Petroleum
& Natural Gas.dgâ∞b±WtÜ uv £Sm≤qRm QwU ÜV≥SWt
 Before the 1991)s LPG reforms, only ONGC and other Public sector companies were allowed to

u
explore the oil, gas and hydrocarbon reserves in India. But under 1991)s Liberalization norms,

yo
this sector was opened for the private sector players as well. (dWgmgrW UvmSvn m¥qTtSVmv UmRn an.
SWSµlm hSo ÜáqTÑn ∂g≥ mè m¥qTtbVmb On éoSvnmvß TnqR mg ÖVRQ~R ÖTPÜqR on Q∑ w)
 1997: New Exploration Licensing Policy (NELP: Ttn Ö∏gîß ÖTPπ∫ª TnqR) to award contract to

lp
public and private sector companies using bidding / auction system.

he
30.3.6 : NELP5s primary limitations were →
Separate license required for each type of hydrocarbon.
NELP worked on production sharing contract (PSC: éºSoT USΩSmvß ÖTPhVì), wherein the Oil Explorer
will pay a share to Govt from the pro✓ts from production. However,

ill
 Indian producers allegedly exaggerated their production costs to show less pro✓t. → Govt
w
earned less, and will do more §inspector raj) to check account books → No ease of doing Biz.
(éªSo Éx~mb heS xeS mg loÉStS ÑSRS RSlm ÜPTSæS mÜ loÉg)
d

HELP Policy (eOp}~yRO\X cÄaÅÇ ÉQ cXVÑÖÜ/WOpSzZSTá XgkU)

go

30.10.1
In 2016, NELP was replaced with Hydrocarbon Exploration and Licensing Policy (HELP).
 Single uniform license su[cient to explore and produce all type of hydrocarbons from the given
area. (oil, gas, coal bed methane, shale gas, tight gas and gas hydrates etc)
rs

 Govt to receive a share from gross revenue from sale of oil / gas etc, irrespective of company)s
he

pro✓t. (qh¨è UglúS ogTS bQS, UvmSv mb fdmg ÜPTSæg Ugmb∑ WgTSogTS Tn)
 Government not to interfere in the marketing and pricing of the oil and gas.
ot

 Relaxed norms for exploration in o`shore areas, because they have higher risk and higher cost
of production. (UÜPø ÜáRâ Ugo´v ∂g≥bVÜáÉbÑ mg ±Wy UPQÜ ÜSToV})
 Open Acreage Licensing Policy (OLAP) → company can pick and choose the blocks from the
p

designated area, even if no speci✓c bids are invited by Govt before. Cen Govt will invite other
el

companies for auction.

 2019-July: Govt ✓nished auctioning process of HELP-OLAP round 2 and 3.
H

30.10.2 India5s Strategic Oil Reserves (àOQU Ra SO`âQR UaW àäOQ)

ObjectiveM (When crude prices are low) India should buy and store crude oil for strategic-cum-
bu`er stock → use during war & other emergency. oSÜ U¿gxW vgb Rh, Évno mg OV}Svß mv WgTS xSly

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3A- BoP & Currency Exchange → Page 484

KING R & QUEEN P Help others god will help you

 - Ministry of Petroleum & Natural Gas → Govt petro companies → places such Visakhapatnam
(Andhra), Chandikhol (Odisha), Padur & Mangalore (Karnataka) etc.
- Cey)re stored in underground rock cavern facilities = more secure / safe during airstrikes, more
economical and environmental friendly than conventional §Above Ground Storage Tanks)

30.10.3 Crude Oil prices & OPEC (RãO UaW)

 1961: Organization of the Petroleum Exporting Countries (OPEC: dgâ∞b±WtÜ qTtS~Rm ogpbVmS UVQ¡T) is

u
a group of oil producing countries Saudi, UAE, Venezuela, Iran, Iraq etc.… total 14 members.

yo
HQ: Vienna city of Austria.
 Qatar withdrew from 1/1/19. Russia is NOT a member. (v¬ptS/ √U ãUmS Uoƒ TnVw)
Depending on following factors of supply versus demand, there have been ups and downs in the oil

lp
price movement in the last 3 years: fdÇ≈R uv ÜSVQ mg mSvmbVmg xWRgm∆gRgW mg oSÜ mÜ/†SoS bRgà

he
Crude Oil Supply Side Factors (uPnåU) Demand Side (`OTá)
Price up When Supply Decreases When Demand Increases
UaW R `eTáO  Whenever OPEC + Russia agreed to  When economic growth in USA,
ey sOUO em reduce their oil production
 2019: Houthi (a Shia rebel group of ill China, EU → demand for
w
petroleum, plastic industry
Yemen with Irani support) Drone-
 Post-Corona unlockdown →
attacked oil ✓eld of Saudi Arabia
d
travel → Oil demand
→ Oil production down.
go

Price When Supply Increases When Demand Decreases

down  When OPEC+Russia can't agree for  When economic slowdown →
R SçO production cuts demand for petroleum
rs

ey sOUO em
 When Saudi Arabia supply to  Corona: Travel Ban
he

reduce global prices to harm Iranian  Chinese imposing more Taxes on

Oil export business. imported American/Japanese cars →
 When USA pressurizes Nigeria, Iraq car sales → oil demand in
ot

etc to produce more oil China

 When USA also increases its own
p

domestic oil and Shale Gas

el

Production
 2021-Feb: India's biggest oil suppliers: 1) Iraq 2) USA 3) Saudi. Saudi Arabia ranked shiGed from
H

#2 to #3 because Saudi has been cutting down its production to raise prices.
 2021-Saudi minister (rudely) tells India, 5if you do not like our expensive oil, then use oil from
your own strategic reserves.7 Indian Petroleum Minister calls it an §undiplomatic) comment.
 2021-Mar: Indian Oil Companies decided to import from Saudi Arabia -to teach Saudi a

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3A- BoP & Currency Exchange → Page 485

KING R & QUEEN P Help others god will help you

 lesson (U«on Övh mS óÜV} RbcTgmg ±Wy rSµUgÜTgm∆S RgW ftSR mvTS abcS mÜ lmtS w).
 2021-April onwards: OPEC+ decided to gradually the production. Cus daily news keeps
going on....If any MCQs asked, solve through 50:50 from above Table. # abcS-deb-fQg-heb

u
yo
lp
Figure 1: Oil Barrel Prices in U$D

he
30.3.7 Crude Oil: Russia-Ukraine War (2022)
 Oil prices has skyrocketed in February 2022 due to Russia Ukraine were but 2022-March: OPEC
producers UAE and Iraq the oil production → oil prices fell by 17% (UAE RaS ãvS» TgmS lm Ü

ill
ÖdTgÖdTgm∆gRgW mè éºSoT/fdÇ≈R mb heSyVQgãUmg hSo m∆gRgW mè »èÜRbVÜáåQvSrâ)
w
 India)s STATE-OWNED OIL marketing companies (OMCs) are set to procure crude oil from
Russia at a discount, to the Russia-Ukraine conkict, Russia wants money urgently. (OSvRnt UvmSvn
RgW mVdqTtbVmb √U UgU¿gÜám∆S RgW åÜWgQSÄ)
d
go

30.3.8 Crude Oil: jeory / GK M

Cartel is an association of manufacturers who collude to keep prices high, and keep
the competitors away. (More in Pillar#4Z-Microeconomics)
rs

Sweet Crude Oil Low Sulphur content. Sour crude = High Sulphur content.
BRENT Index is an index to measures crude oil price, mainly in North West Europe.
he

1 barrel Contains approx. 159 liters of oil

30.3.9 BoP: Current → Fall of Crude oil prices in negative 4gure

ot

 USA)s crude oil prices are monitored through West Texas Intermediate (WTI) contracts.
 Long story cut short: Oil demand due to Corona lockdown on vehicle/aviation tra[c. But,
p

American oil drilling companies can)t stop production because it)s more expensive to §restart) the
el

production aGer shutting it. ÉPoS∑ mb dÇß~√d Ug…åQR lmtS Rb rSdU pP√ mvTgÜáhòR WSQR Éx~fRS w
 And merchants/intermediaries can)t hold stock because their storage capacity is limited.
H

 2020-April: sellers were (temporarily) paying $$ to buyer to take the stock of oil barrels. Hence
negative minus $40 per barrel price. (ÖÜvnmè qr¨gRS mg dSU RgW vÉTgmè ÑQ édWÀ Tn, ãU±Wy ÃSm mb
USÜTgUgdwUS ogmv ÜSW é¡rS vgwÄ)
 India did not bene✓t much, since we mostly imported from the middle-east and not the USA.

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3A- BoP & Currency Exchange → Page 486

KING R & QUEEN P Help others god will help you

 MCQ. Term éWest Texas Intermediate5, sometimes found in news, refers to a grade of_ _
(Prelims-2020) [a) Crude oil [b) Bullion [c) Rare earth elements [d) Uranium

30.3.10 Price cap Russian oil (2022)

u
yo
lp
he
 2022-G7 group of nations (Canada, France, Germany, Italy, Japan, United Kingdom, United

ill
States) agreed to cap the price of Russian oil to reduce Russia's ability to ✓nance its war on
w
Ukraine. (√Un m∆gRgW mè ÜÕÜ Évno mèÜR dv UnÜSyV WQS∑Ä)
 India rejected this proposal. 2023: however, India managed to save only $2 per barrel even aGer
Russia)s §deep discounts), due to cost of transportation and cargo-insurance. ( SWSVlm rS¿r ÜáhòR U¿S
d
åÜWS TnVw- d{vrT uv hnÜS Éx~mg xWRg.)
go

30.3.11 Petrol & Diesel Prices & Taxes in India

(Covered in Pillar#2A: Indirect Taxes Handout)
rs

30.3.12 Electric Vehicles, Ethanol Blending etc.

(Covered in Pillar#5A: Energy Infrastructure)
he

30.11 BALANCE OF PAYMENT → CURRENT ACCOUNT → IMPORT OF GOLD

ot

From 2010 onwards, Indian economy was su`ering from high level of inkation (8-12%)
 So households earned §Negative Real Interest Rate: TmSvSŒm rS¿qrm œSÑ ov) on their bank
p

deposits → started investing in gold. (More in Pillar#1C: in,ation Indexed Bonds)

el

 But, gold consumption → trade de✓cit, current account de✓cit → Indian rupee gets
weaker. Gold transactions also help in the storage of black money and tax evasion. India is the
H

second largest consumer of Gold aGer China. (UbTgÜá†SoS qTrgp Ug–dtS mÜÑbv. mv xbvn r mSWS ìT)
Cerefore, RBI and Indian government launched following schemes to reduce gold consumption:

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3A- BoP & Currency Exchange → Page 487

KING R & QUEEN P Help others god will help you

 30.11.1 RBI5s 80:20 Scheme (2013-14)
- RBI mandated that minimum 20% of the imported gold must be exported back. Until then the
Jeweller/ bullion dealers will not get permission to (convert their rupees into dollars / foreign
currency) to import next consignment of gold.
- RBI gets this power under Foreign Exchange Management Act (FEMA: qrogpn ÜPøS £hVìT ÖsìqTtÜ).
Although, 2014: Scheme was stopped as the gold craze had declined.

u
30.11.2 Sovereign Gold Bond Scheme (2015: êÇ\OT} lysXO)

yo
(Covered in Pillar#1C: Share Market)
30.3.13 Gold Monetization Scheme (2015: êÇ\`VëgRQÇ lysXO)

lp
he
ill
w
d
go

- Under this scheme, RBI allows commercial banks accept customers) idle gold / jewellery for 1
year to 15 years tenure. (2019- RBI also allowed Charitable Institutions and Central Govt to
rs

deposit their gold in the commercial banks)

- Commercial Banks pay the depositor ~2% interest.
he

- Min. 30gm to maximum any amount of gold can be deposited.

- Gold goes to → Metals and Minerals Trading Corporation of India →
- Gold sold to jewellers, electronic circuits companies and
ot

- Some of the gold used for Minting KIndian Gold Coin.L

- Upon maturity you can redeem deposit in the form of gold coin/bars or cash equivalent. Ce
p

pro✓t exempted from Capital Gains Tax. (ãU U¥“Õ qTrgp mg ÜPTS”g dv ù‘’ dv dÇVÑnQR WSO mv TnVWQRS)
el

MCQ. Main objectives of Gold Monetization Scheme is _ _ _. (IEnggS-2018)

H

1. To monetize gold holdings in the country 2. To increase export of gold from the country
3. To reduce India)s import bill 4. To meet the targets of reduction in ✓scal de✓cit
Answer Codes: (a) 1 and 4 only (b) 2 and 4 only (c) 2 and 3 only (d) 1 and 3 only
MCQ. What is/are the purpose/purposes of Government's 'Sovereign Gold Bond Scheme' and
'Gold Monetization Scheme5M (Asked in UPSC-Pre-2016)

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3A- BoP & Currency Exchange → Page 488

KING R & QUEEN P Help others god will help you

 1.To bring the idle gold lying with Indian households into the economy.
2. To promote FDI in the gold and jewellery sector.
3. To reduce India's dependence on gold imports.
Answer codes: (a) 1 only (b) 2 and 3 (c) 1 and 3 (d) 1, 2 and 3

30.11.3 Indian (Sovereign) Gold Coins (2015: àOQUgl êÇ\ZSìa)

Issued by a Govt company KMetals and Minerals Trading Corporation of IndiaL.

u
- Available in denominations of 5, 10, 20 grams.

yo
- Cese gold coins are not ✓at money because not issued under the powers of Coinage act, they
don)t bear any markings indicating rupee denominations. Ceir markings only indicate gold
grams. And since they)re not §✓at money) → so, not §legal tenders). (More in Pillar#1a1)

lp
- Bene✓t* Trusted Purity → Easily resold → Easy liquidity, and Pro✓t (if) gold price .

he
30.3.14 : Gold price in Corona (RyQyXO `eO`OQg Ra fîQOX êÇ\ïñ`Uz)
As such, Govt)s economic surveys don)t talk much about daily ups/downs of gold price movement.
UPSC also never asked anything like that. So, we need not PHD.
ill
w
 Indian banks ✓xed deposit interest rates. People shiGing towards gold investment for a better
"positive real" interest rate. (Recall Pillar1)
 Mutual funds = not good pro✓t aGer ILFS crisis (Ref: Pill1B2) → some investors prefer gold
d

 Geopolitical tensions like Iran-US, China-US, India-China, Russia – Ukraine have negative
go

impact on sharemarket → some investors prefer gold

 2020 Corona-Crisis: Shares and bonds have become risky due to heavy losses faced by
companies. Investors prefer a 'safe assets' = demand of gold → prices.
rs

 Corona→ workers @gold mines / re✓neries → gold production → price

he

 However, vaccination = investors expect business revival so they)ll sell gold to invest in shares so
again gold prices fallen from ÷56000 per 10gm in (2020-Aug) to ÷45000 (2021-March) =
ot

÷11,000 .… + other 500 angles on Dollar currency exchange rate, Bond yields, some investors
shi=ing to Bitcoin etc=poor cost-bene?t. Apply logic/50:50.# ABCD-EFB-GHI-JFB
p

30.3.15 Gold import: customs duty (2022)

el

Customs duty on gold hiked (increased) from 7.5% → 12.5% to discourage imports.
 FAQ: but u told that more taxes on gold= smuggling. Cen isn)t this customs duty hike
H

contradictory/counter-productive*
 Ans. Govt will increase surveillance to prevent smuggling. Just because there is danger of
smuggling so government should not increase the taxes = then it is di[cult to run the country/
arrange money for poverty welfare schemes/ manage CAD.

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3A- BoP & Currency Exchange → Page 489

KING R & QUEEN P Help others god will help you

 30.12 Gold related GK Data
Domain Leading names (source: wikipedia/internet)
Nevada Gold Mines (U.S.A), Muruntau (Uzbekistan), Grasberg
Mines
(Indonesia), Olimpiada (Russia), Pueblo Viejo (Dominican Republic) ]
Producers China, Australia, Russia, Canada, United States
Exporters Switzerland, United Kingdom, USA, South Africa, Australia

u
Gold as in Central

yo
USA, Germany, Italy, France, Russia
Bank reserve
MCQ. Consider the following statements:[Pre23-SET-A-Q086]
Statement-I: Switzerland is one of the leading exporters of gold in terms of value.

lp
Statement-II: Switzerland has the second largest gold reserves in the world.
Which one of the following is correct in respect of the above statements*

he
(a) Both Statement-I and -II are correct and Statement-II is the correct explanation for Statement-I
(b) Both Statement-I and -II are correct and -II is not the correct explanation for Statement-I
(c) Statement-I is correct but II is incorrect. (d) Statement-I is incorrect but Statement-II is correct

30.13 LAB GROWN DIAMONDS (LGD: ^lyáxOWO `zXOb áb egQa) ill

w
NATURAL DIAMONDS (^ORôkUR LAB GROWN
/RVfQUg) DIAMONDS (LGD)
d

Formation Formed in the Earth)s mantle with high Grown in a laboratory using
go

temperature and pressure. advanced technology

Production Time billions of years Weeks
Chemical & Physical Pure carbon in a crystalline form, very Same as natural diamonds
rs

Properties hard, very high refractive index

Cost Very Expensive Less expensive than Natural
he

Ethics and Deforestation, child labour in African More ethical and sustainable
environment mines (ÉTT mg ±Wy r≤∂ ñgoT, hSW ÜÑo´vn ) (TwqRm uv lâmS«Ä)
Budget-2023: (1) we)ll promote LGD, its seeds, its machinery- via tax cuts and subsidies. (2) we)ll
ot

give grant to an IIT for LGD research and development.

p

30.13.1 BOP → CURRENT → EXPORT → GI TAG

el
H

 A Geographical Indication (GI: O◊Qb±Wm UVmgRm) is a sign used on products with speci✓c
geographical origin and unique qualities due to that origin. E.g. Darjeeling tea from W.Bengal- It
was the ✓rst to obtain GI tag from India.

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3A- BoP & Currency Exchange → Page 490

KING R & QUEEN P Help others god will help you

  Bene4tM GI tag adds premium-ness to a product, helps fetching higher prices in the
international market → better income for farmers and artisans. qrogpn ÃSm éUgéÿS lmŸ mè UÜΩ mg
uv †SoS dwUS ogTgmg ±Wy vSÑn b UmRS w

GIs are governed under:

 WTO)s Trade Related Intellectual Property Rights Agreement (TRIPS: more in Pill#3B) and

u
 India)s Geographical Indication of Goods Act, 1999. Once a product gets GI tag, it)s valid for 10

yo
years (and can be renewed further.) GI name cannot be used for products that are manufactured
outside of the designated region, else party can be punished under the law
 International Nodal* UN)s specialized agency World Intellectual Property Organization

lp
(WIPO; qr¶ h◊å⁄m UVdoS UVQ¡T), HQ @Geneva,Switzerland
 Indian Nodal* Commerce ministry → Controller General of Patents, Designs and Trademarks

he
→ Geographical Indications Registry in Chennai.
Self StudyM For UPSC interview, your state)s GIs from ipindia.nic.in/registered-gls.htm

ill
MCQ. éKandhamal Haldi5, which received GI tag is indigenous to _ _ _ _. (CAPF-2019)
w
(a) North Bengal(b) Southern Odisha(c) Sangli, Maharashtra(d) Alleppey, Kerala

30.13.2 GI Logo
d

Commerce Ministry has created a logo for GI products with tag éInvaluable Treasures of Incredible
go

India5 to make them more attractive to foreign buyers. (qrogpn ÃSmbVÜáxSR heSTgmg ±Wy)

30.3.16 Unity Malls for selling GI, Handicraö etc. in Budget-2023

rs

 Union to give loans to States to set up a Unity Mall in their state capital / best tourist city /
✓nancial capital. (ymRS / tÇqTân Ü|W hTSTgmg ±Wy máø uv vS† mb mÑS~ogQS)
he

 Unity mall be sell State)s ODOPs (one district, one product), GI products, handicraG products.
Even other states) products will be sold @Unity mall.
ot
p
el
H

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3A- BoP & Currency Exchange → Page 491

KING R & QUEEN P Help others god will help you

 30.4 BOP → CURRENT → EXPORTS → SEZ
õmú àQXO PùUO emdR XegT? Ordinary area SEZ area
Mfg pe → Excise / GST N/A (TnVWQRS tgâw€)
Import Exports pe → Customs Duty N/A (TnVWQRS tgâw€)
Pro4t pe → Corporation Tax/ Income Tax N/A‹‹ (TnVWQRS tgâw€)
 Special Economic Zones (SEZ: qrpgî fzam ∂g≥) is a speci✓cally demarcated area of India which is

u
deemed as foreign territory for the purpose of Tax laws and Trade laws. (OSvR mg mv mSTÇT rSVOSvR

yo
mg Ö› £ogpbVmè UÜST TnVWSQÇbRgÄ éfiámvb ÜáñÇâ/{vtStR on ÑSRn w)
 Cus, exempted from aforementioned taxes (OR)/ subjected to lower rate of taxes of Union and
State Govts. Cis relief is for a speci✓c time-period only, which is called KTax holidayL (mvSìST Ug

lp
ñPfln, ym UnåÜR UÜt mg ±Wy n bRn w, ÖTVR mSW mg ±Wy TnV).
‹‹SEZ Sunset clause in Income Tax Act (ftmv mSTÇT ÜáUÇtS~¿ £SrìST)

he
 Income Tax Act (Section 10AA) provides for a tax-holiday for SEZ ✓rms for a period of KXL
years only. Corona = Economists suggest this deadline should be extended to attract more
foreign companies in India. Exact norms & deadline* NOTimp# abcS-deb-fQg-heb

ill
Bene4ts given to SEZ
w
 Cey get single window clearance for various import / export licenses / permissions
 Government will bear the cost of developing the roads, sewage, a‡uent treatment, weighing-
d
packaging-labelling etc infrastructure within the SEZ.
go

 Cey are regulated under SEZ policy (2000) and Special Economic Zone Act, 2005. State Govt
forwards the proposal to create SEZ → Union)s Commerce Ministry approves.
 1965: Asia's ✓rst SEZ was set up in Kandla, Gujarat (At that time it was called Export Processing
rs

Zone/EPZ). Currently we)ve 220+ SEZ in India.

 Bene4tM More exports, employment, economic growth.(qTtS~R,vb·QSv uv fzam r≤å⁄ mg ÖrUv)
he

 ChallengesM SEZ entrepreneurs use legal loopholes → Tax avoidance, Workers deprived of
EPFO/ESIC/Maternity bene✓t. When entrepreneurs) Tax holiday is over in one SEZ, they
ot

shutdown operation and move to another SEZ with new name/registration. Agricultural and
forest lands diverted to build SEZs → future challenges in food security, pollution control and
p

climate change.(mv d{vSv, Ü·o´vbVmS pbîß, m≤qî ·ÜnT mÜ bTS Oqr‚ ÜáÉS„ UPv∂S, £o´îß mg Ñb‰ÉÜ)
el

SolutionM 2018: Commerce Ministry had setup Baba Kalyani committee to look into SEZ issues.
Baba is the Chairman of Bharat Forge ltd.
H

!"Baba Kalyani report on SEZ

ShiGed to Mains Handout.

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3A- BoP & Currency Exchange → Page 492

KING R & QUEEN P Help others god will help you

 30.4.1 !"SEZ → DESH Hubs
Budget-2022: Development Enterprise and Services Hub (DESH) Bill, 2022 to replace the
existing SEZ law of 2005 with following features:
 DESH hubs will focus to mfg & services for both domestic market and export market.
 Single window clearance e.g. pollution, ✓re-safety etc.
 Easy norms for voluntary liquidation / exit (REF: Pillar1B2)

u
 Promote research & development, infrastructure facilities, Input tax credit for indirect taxes –

yo
GST, Customs.
Which Asian country established the 4rst Export Processing Zone (EPZ) in 1965M (UPSC-
Geologist-2020) a. China b. India c. South Korea d. Japan

lp
30.4.2 Budget-2022 Announcements to CAD

he
 Customs duties on imported daily use items such as umbrellas, headphones, earphones,
loudspeakers, and imitation jewelry ( ftSR bTgrSWgñRvn g}”bT WSé}Ânmv uv T»Wn QTbVdv ftSR-mv


mS”è heStS QtS wÄ)

ill
Tax bene✓ts given to Bizmen for buying imported capital goods machineries e.g. textile
w
machine, bulldozer, mining equipment etc. (So they'll be forced to buy India-made machines)
 Banned the import of Drone except for defense and research development. (ftSqRR }∞bT dg£qRhVì)
d

 68% Defense purchase will be made from India made products (earlier 58% last year).
go

 Unblended fuel shall attract an additional di`erential excise duty of Rs. 2/ litre (To encourage
blending of bio-ethanol.) → this will help import of crude oil.
 Hackers are releasing the data of Indian importers/exporters price details and client details then
rs

Chinese importers and exporters may connect with those foreign clients o`ering better
deals/prices than Indians. Cis is harming Indian exporters. So Budget-2022 proposed new
he

provision in Customs Act for penalising illegal sharing of export-import data (mOn mOn wmU~OSvRnt
qTtS~RmbVmS }gâS }Sm~Tgâ dg hgx ogRgàÊÑUmè Üoo UgxnT mg ùSdSvn éT qrogpn ÃSmbVmS UVdm~ mv éfiáOn U¿S hSv loÉSmv
ot

ÖdTS ÜSW hgx ogRgàRb t OSvR mg » ÜáTnVwÄ ãU±Wy Ty hÑâ ÜáUnÜS-pPÁ »STÇT ÜáUVpbìT: Örwì Rvn»g UgftSR
qTtS~R mS }gâS USΩS mvTgdv oV} mg £SrìSTÄ)
p

 Special Economic Zones Act will be replaced with a new law for §Development of Enterprise and
Service Hubs (DESH)).
el
H

30.14 BOP CURRENT FOREIGN TRADE POLICY

NodalM Director General of Foreign Trade (DGFT) under Ministry of Commerce.
Year Policy

2018 Agri export policy. ref Pillar4A for more.

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3A- BoP & Currency Exchange → Page 493

KING R & QUEEN P Help others god will help you

 Year Policy

Foreign Trade Policy. Now replaced with new policy. India's export in goods and
services in 2013-14 was ~$465 billions. Cis FTP Policy (qrogp ùSdSv TnqR) aimed to
2015-20
almost double it to $900 billion by 2020.
2022: Exports India crossed $400-billion exports in goods.
2023

u
new Foreign Trade Policy. given in next section below
onwards

yo
30.15 4 PILLARS OF FTP-2023

lp
he
ill
w
 Incentive to Remission (e.g. RODTEP, EPCG, Advance Authorisation etc)
d
 Ease of doing business, reduction in transaction cost and e-initiatives
go

 Emerging Areas – E-Commerce Developing Districts as Export Hubs and streamlining

SCOMET policy.
 Export promotion through collaboration - Exporters, States, Districts, Indian Embassies abroad
rs

30.15.1 FTP-2023 Pillar#1: Incentive to Remission (õaü `O†ñ )

he

We are already running the schemes. We will continue them and make them better.
ot
p
el
H

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3A- BoP & Currency Exchange → Page 494

KING R & QUEEN P Help others god will help you

 Remission Scheme Description
Remission of Duties and Taxes on Exported Products (RODTEP) to
RODTEP provide refunds to exporters for various taxes paid on inputs. (more
details given in separate section)
- Export Promotion capital Goods Scheme: 0% Customs duty import of
capital goods (machinery) for export production.

u
EPCG / Duty free - Such machines are also exempted from iGST and GST compensation

yo
import of capital goods cess.
(ulOkUU `xgXQg PQ õmú - FTP2023: Will give some extra bene✓ts to Textile factories in PM
`O†ñ ) MITRA Parks, Dairy, Green Hydrogen, Battery Electric Vehicles (BEV),
Vertical Farming equipment, Wastewater Treatment, Rainwater

lp
harvesting system.

he
0% customs on import of raw materials for manufacturing export items.
Advance Authorisation
e.g. oil, catalyst, etc., required for manufacturing export product.
Scheme (AAS) (ulOkUU
DGFT has designed a list of such raw material. Cis list is called Standard
Rãa`OW PQ õmú `O†ñ )
Input-Output Norms (SION) list.

ill
mPW åÜWSmv é’ UOn tbÑTS VÜáqTtS~Rm mb ÖdTgm∆gÜSW, ÜpnTvn ãËSlo dv Ñb âw€ OvTgbRgàéUÜáñÇâ on ÑSRn w
w
FAQ: Isn5t RODTEP and AAS overlapping with each otherM Ans. Cey)ve internal technical rules
ki if imported item is raw material then AAS but if imported item is not raw material but required for
production, then RODTEP.
d
go

30.15.2 FTP-2023 Pillar#2: Ease of Doing Biz (NOPOQ `zSVá`UO)

One-time Amnesty Scheme on Default on Export Obligations (qTtS~R oSÈtÍbVÜáxÇm dv vSÑ∂ÜS)
rs
he
ot
p
el

30.15.3 EoD: Bol Bachchan/ _oRXg oVPùg OUa

H

 Our policy is based on principles of §trust) and §partnership) with exporters.

 we)ll take feedback from Industry to update FTP, from time to time.
 Process Re-Engineering and Automation, paperless, online environment, Reduction in fee
structures, eliminating the need for manual interface. (mSQÑ vlR ÎTWSãT £ßSWn, dVÑnmvß ”èU Üá
mâ◊Rn, é„bQÑQR UgUPΩSr Wgmg qr¶SU r OSQnoSvn/UtbQ UgmSÜ mváQgÄ)

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3A- BoP & Currency Exchange → Page 495

KING R & QUEEN P Help others god will help you

 FAQ: what does about things mean* How does it work** Ans. NOTIMP. Whatever few fancy key
words, you can remember → write them in Mains.

30.15.4 FTP-2023 Pillar3: Emerging Areas (°àQUa¢a£)

FTP-2023 will focus on emerging areas such as SCOMET, Dual Use goods, E-Commerce and
Merchanting Trade.

30.15.5 SCOMET & Dual use Export

u
• SCOMET = Special Chemicals, Organisms, Materials, Equipment and Technologies. (qrpgî

yo
vUStT, Ñnr, USÜÃn, édmvß uv £◊„båQlmtSV)
• Dual-use High end goods e.g. night vision/thermal scanner, drones etc. (obvg édtbQ mg USÜST)
• FTP-2023: we)ll promote their export.

lp
30.15.6 E-Commerce Exports
• Integration of Courier and Postal exporters with ICEGATE portal of CBIC. (ICEGATE

he
portal is for import-export related documents/clearance/taxes)
• outreach and training activities for rural artisans, weavers, garment manufacturers, gems-
jewellery designers to help them export via E-Commerce platforms (ÃSÜnß hPTmvbV, mSvnQvbV,

ill
·bvn mb ÎTWSãT-ùSdSv Ïgâ”SÜ~/m¥qTtb mg USa ÑbcáQ,g RSlm rgOn ÖdTS ÜSW ogp-oqÌTtS mb hgx UmgÄ )
w
30.15.7 E-Governance initiatives
App/Portal Developer/Function
d
CBIC → Single Window Interface for Facilitating Trade (SWIFT) for
SWIFT importers and exporters through icegate.gov.in. Within that, e-
go

governance modules like E-Sanchit, Turant etc for approval etc.

India Trade webportal by Commerce Ministry & FIEO (Federation of Indian Export
and Niryat Mitra App. Organisations)
rs
he

30.15.8 Merchanting trade @Giö City (hO•Ç¶ßR NOPOQ)

ot
p
el

(De✓nition) when a company buys goods from one country and then sells them to a buyer in another
country without bringing the goods into their own country.
H

It)s essentially acting as a middleman in the international trade of goods. e.g. Companies Dubai,
Singapore and Hong Kong. FTP-2023 will promote this in GIFT city IFSC.

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3A- BoP & Currency Exchange → Page 496

KING R & QUEEN P Help others god will help you

 30.15.9 FTP-2023 Pillar4: Collaboration of Stakeholders (deUqOQRyTRO Selyá)

u
yo
lp
he
Stakeholder

ill
How to use them for export promotionM
Commerce ministry WAS running two initiatives
w
 1) Districts as Export Hubs (DEH)
 2) One District One Product Initiative (ODOP)
d
 Now, both 1+2 merged together and called ODOP.
District
go

 It seeks to select, brand, and promote products/services from

(eQ •vWaSabR °®Of RO kXlO\U)
each district for exports
- District Export Promotion Committees (DEPCs) have been setup
rs

in 739 districts to focus on agriculture, GI-products, Toys,

handicraGs etc. (Ê·WS qTtS~R £b©ST UåÜqRtSµ)
he

- Four new towns, namely Faridabad, Mirzapur, Moradabad, and

Town Varanasi, designated as Towns of Export Excellence (TEE), in
(xeQyT`zkXlO\U Ra _Wb VkXlOfg addition to the existing 39 towns.
ot

chSTQoXO RO kX`O\Ç) - Govt will give them funding for export infrastructure e.g.
warehouses, transportation, packaging facilities etc.
p

Indian mission/embassy
we)ll give them funding under Market Access Initiative (MAI) to
el

abroad (khfaxg ©OeRyTRñ

do research/survey of Country speci✓c customer
PSTf/XOPSTf RO Sh™¢Ç fwUOhOSy ´OQO
likes/dislikes/product preferences.
H

RQhOlzáa)
: Exporters - Exporters will be given Star rating/Status based on export
(PVQOXa/cXVàhg kXlO\UR XîZS¨≠lyTRy performance. 2Star/higher exporters will give training/mentoring
UOWg` fzáa) to new/fresh exporters.
- Niryat Bandhu Scheme (2013): Govt mentors the new and

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3A- BoP & Currency Exchange → Page 497

KING R & QUEEN P Help others god will help you

 Stakeholder How to use them for export promotionM
potential exporters and mentor them through training, counselling,
orientation programmes with help of IIFT & other orgs.

30.15.10 ✍Conclusion (Summarise - yes FTP-2023 greatly help)

Cus, with tax relief, ease of doing business, collaboration with stakeholders and focus on the new

u
emerging areas such as e-commerce and SCOMAT - the FTP-2023 will greatly help in export

yo
promotion, job creation and GDP improvement for India during the AMRIT KAAL. (ãU £mSv, mv
vSR, ùSdSv mvTgÜáfUSTn, lRìSvmbVmg USa UtbQ uv ∑-m|ÜU~uv Ó|Ügâ ÑwUgTy éOvRg∂g≥bVdv ·bv ogmv y”ândn-
ÔÔÒ TnqR OSvR mg ÖÜ≤R mSW Üávb·QSv U≤ÑT, qTtS~R r≤å⁄ r fzam r≤å⁄ ÜámS”è Üoo mvgQnÄ)

lp
30.16 EXPORT IMPROVEMENT -MISC. SCHEMES

he
30.4.3 Interest Equalisation Scheme for Exporters (2015)
LOAN INTEREST SUBSIDY Bene4ciaryM
5% for MSME manufacturing exporters
3%
ill
For other (non-MSME) exporters
w
Started from 2015. Valid upto 31/March/2024 on Bank loans.
d
30.4.4 Tax Credit for Exporters: MEIS/SEIS
Boss* Commerce Ministry WAS running two tax-incentive schemes to boost exports
go

 Services Exports from India Scheme (SEIS: OSvR UgUgrSyV qTtS~R tbÑTS).
 Merchandise Exports from India Scheme (MEIS: OSvR UgùSdS{vm ÜSW qTtS~R tbÑTS)
Cese schemes provide tax credit to exporters, which they can use for paying Union)s Customs Duty.
rs

AFTER RODTEP is noti✓ed fully, the MEIS scheme will be STOPPED.

he

30.4.5 Tax Credit for Exporters: RoDTEPM

2020-21: govt announced Remission of Duties and Taxes on Exported Products (RoDTEP: qTtS~R
ot

éºSobVdv pPÁ uv mv mè ñÇâ). Boss* Commerce Ministry

MEIS RoDTEP
Exporter gets Customs Duty ITC given for following taxes Exporter paid:
p

Input Tax Credit 1. Customs Duty

el

(ITC) for 2. Transport fuel (petrol diesel) Excise and VAT

3. Agriculture raw material pe State Mandi tax (it)s
H

not a §tax) but rather a FEES charged by APMC

Mandi.)
4. Stamp duty on Commodity trade (Ref:2A)
5. Electricity pe electricity duty (Ref: 2A)
WTO allowed itM No, so WTO ordered Yes (or atleast PM Modi claims so.)

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3A- BoP & Currency Exchange → Page 498

KING R & QUEEN P Help others god will help you

 MEIS RoDTEP
to stop it. RoDTEP will replace MEIS scheme.
30.4.6 Port Logistics: Authorised Economic Operator (AEO)
 Ösìm≤R fzam UVxSWm: An importer/exporter/cargo company can apply to the Central Board of
Indirect Taxes and Customs (CBIC) to get this §status).
 Subject to conditions like 1) minimum 3 years experience 2) never ✓led bankruptcy 3) never

u
caught in fraud / smuggling etc.

yo
 Bene4tsM Faster clearance times, fewer physical examinations on cargo etc.
 At International level, World Customs Organization (WCO, HQ: Brussels, Belgium))s KSAFE
FrameworkL guides this program.

lp
30.4.7 Krishi Udan Scheme v 2.0 (Civil Aviation Ministry, 2020)

he
To help farmers to transport/export perishable food products within India and Abroad
2021: version 2.0 launched to focus on hilly areas, North- Eastern states, and tribal areas e.g.
King Chillies, Burmese Grapes & Assamese Lemon Gauwahati
Jackfruit Tripura
Litchi
ill Darbhanga
w
30.4.8 ES23 observation on Export Improvement
Reforms to improve India's Exports as per ES23
d

 Reduce the time/cost of logistics/transport (d{vrT mS UÜt/ Éx~mÜ mvbÄ)

go

 Sign more Free Trade Agreements (FTA: More in pillar3C-WTO) ( ÜP’ ùSdSv UÜΩ◊RgmvbÄ)
 Diversify the export destination. Focus towards the consumers in Africa, S.America, Central Asia
etc. (qTtS~R WÚ …STbVÜáqrqrìRS WSyVÄ)
rs

Competitors to India5s exports- as per ES23:

 Bangladesh & Vietnam giving tough competition to Indian Textile
he

 Vietnam: machinery and equipment; computers, electronic products, certain agriculture

products etc. giving tough competition to Indian exporters.
ot

 However, India will win eventually in the race due to 1) Younger workers 2) Large scale
production with big geography and big worker base. (OSvRnt qTtS~R mb hSVÛSogp uv qrtRTSÜ âÙv / mcn
ÂìS~ogvgàÄ SWSµlm onóS~rsì ÜáOSvR Tgn ÑnRTS w, ≠bVlm ÜSvg dSU õSoS T◊ÑrST Ü·o´v àuv hcgdwÜSTgdv éºSoT)
p

mvRgàÄ
el

30.4.9 ÆAssemble in IndiaØ | Production Linked Incentive Scheme (PLI)

H

Ref in Pillar#4B: Sectors of Economy → Mfg

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3A- BoP & Currency Exchange → Page 499

KING R & QUEEN P Help others god will help you

 30.17 : BOP → CAPITAL ACCOUNT→ INVESTMENT→ FDI / FPI
30.17.1 Foreign Portfolio Investors (FPI: khfaxg Pyõ\[y_Wly kXhaxR)

 It is a foreign entity registered @SEBI, and who buys upto 10% in equity / shares of an Indian

u
Company. [For Corporate Bonds and G-Sec these % are diNerent.]

yo
 Originally, these were called Foreign Institutional Investor (FII: qrogpn UV…SQR qTrgpm) and
Quali✓ed Foreign Investors (QFIs), but in 2013 SEBI merged them all into a single category- FPI,
based on the recommendations of K.M. Chandrasekhar committee.

lp
 FPI)s primary objective is make money from buying and selling of shares through the capital

he
market / share market. Cey even help the SEBI-non-registered foreign investors by issuing them
Participatory notes (P-Notes) [ Ref: 1C: SEBI handout].
 FPIs are not involved in the actual operations / production / management / business policy

ill
making of a company (unlike Walmart is for Flipkart). mVdTn mS ıtV UVxSWT Üá–“x TnV
 If FPI investor is hopeful to get better returns in the other countries) share/bond market, he may
w
quickly sell his Indian securities and run away. Ce kight of such money is called §hot money
(oWOl`OX `VëO)', It results into weakening of Indian Rupee and falling of Sensex.
d
go
rs
he
ot
p
el

30.17.2 FDI: Inward vs Outward Direct Investment (ODI)

H

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3A- BoP & Currency Exchange → Page 500

KING R & QUEEN P Help others god will help you

 u
yo
lp
he
30.17.3 Foreign Direct Investment (FDI: ^±¢ khfaxg kXhax)
 FDI is the (more than 10% equity / share) investment made by a foreign entity into an Indian

ill
company, with the objective to get involved in the management / production of that Indian
company. OSvRnt mVdTn mg UVxSWT/ éºSoT ÜápSåÜW bTgmg éˆgë Ug10% tS éUUg†SoS pgtv ÉvnoTS
w
 (e.g. 2018: Walmart-USA bought 77% stakes in Flipkart @$16 billion.)
 Foreign Investment is prohibited in atomic energy, railway operations (except Metro & infra
d

dev.); Tobacco Products, Real Estate Business, Farm Houses, Chit Funds, Nidhi Companies,
go

Betting Gambling Casino & Lottery.

 For the remaining sectors, Foreign Investment is permitted either through:
A. !"Automatic Route: ıxS±WR ÜSQ~ i.e. Foreign entity doesn)t require Indian Govt)s
rs

approval.
he

B. Government Route: UvmSvn ÜSQ~i.e. prior to investment, they)ve to get approval from
the Govt of India)s respective Administrative Ministry/ Department (+ Commerce
Ministry).
ot
p
el
H

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3A- BoP & Currency Exchange → Page 501

KING R & QUEEN P Help others god will help you

 u
yo
lp
he
ill
w
d
go

30.4.10 FDI in India → Source Nation and sector-wise as per ES23

Sector wise Nation Wise
1. Computer SoGware & Hardware 1. Singapore
rs

2. Services Sector 2. Mauritius

3. Trading 3. UAE
he

4. USA (WAIT For latest data in Win24)

ot

30.17.4 FOREIGN INVESTMENT → 100% AUTOMATIC PERMITTED IN

✓ Agriculture, Animal Husbandry, Plantation Sector, Food Processing companies
✓ Asset Reconstruction Companies (ARC), Credit Information Companies, Core Investment
p

Company, White Label ATM Operation and Other Financial Services

el

✓ Pharma & Biotechnology(Green✓eld), Healthcare (Green✓eld), Medical Devices

✓ Broadcast of non-NEWS TV Channels, Printing of scienti✓c and technical magazines; Wholesale
H

Trading, Single Brand Retail, E-Commerce (market-place)

✓ IT and Business process management (BPM); Township Construction, Housing, Infrastructure;
Gems & Jewellery, Duty Free Shops, Tourism & Hospitality
✓ Leather, Textiles & Garments, Manufacturing, Capital Goods, Industrial Parks

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3A- BoP & Currency Exchange → Page 502

KING R & QUEEN P Help others god will help you

 ✓ Mining and Exploration of metal and non-metal,
✓ Petroleum & Natural Gas, Chemicals, Coal & Lignite, Cermal & Renewable Energy
✓ Civil Aviation (‹‹Selected services), Airports (Green✓eld & Brown✓eld)
✓ Ports and Shipping, Railway Infrastructure, Roads & Highways
✓ Direct to Home (DTH) TV/Cable services e.g. Tatasky, DishTV
✓ 2019: Insurance intermediaries (e.g. agents, brokers, surveyors, 3 rd party admin etc)

u
✓ 2019: Coal mining, coal sale & associated activities; Contract manufacturing.

yo
✓ 2021: Public Sector Oil Gas Re✓neries e.g. Bharat Petroleum Corporation Ltd (BPCL). Cis is
done to facilitate disinvestment/privatization via foreign companies participation. (Ref Pillar:2D)
✓ 2022: State owned/public sector Life insurance corporation i.e. LIC: 20% FDI allowed.

lp
he
30.17.5 FOREIGN INVESTMENT → LIMITS IN OTHERS SECTORS
Sector → Foreign Investment limits Automatic With Govt
mPñ lmúbVÜáıxS±WR ÜSQ~Ug. mPñ lmúbVÜámáø UvmSv mè ÖTPÜqR WgTn Ñ√vn uptoM approvalM
Banking - Public Sector
State owned/public sector Life insurance corporation i.e. LIC
ill N/A
20%
20%
Not Required.
w
 Printing / Publishing newspaper, current a`airs magazines; N/A 26%
 News/Current A`airs through Digital Media
d
Broadcasting of News TV-channels, FM-Radio N/A 49%
go

Multi Brand Retail Trading N/A 51%

REITs / InvITs Infrastructure Companies N/A 49%
Banking (Private Sector) Upto 49% >49 upto 74%
Telecom Services, Private Security Agencies, Upto 49% ABOVE 49%
rs

Air Transport Services

Insurance Company (earlier 49% then Budget-2021 to → ) Upto 74% Not Required.
he

[Pension sector % = Insurance sector so it shd be 74% as well]

Note: this limit is not applicable on LIC.
ot

1) Defense (2020-Sept: FDI in Defense limit from 49% to 74%) Upto 74% ABOVE 74%
2) Brown✓eld projects in Pharma, Biotech, Healthcare
Satellite operation N/A 100%
p

For future updates, refer to https://www.investindia.gov.in/foreign-direct-investment

el
H

30.17.6 : INDIA5S FDI RULES FOR E-COMMERCE

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3A- BoP & Currency Exchange → Page 503

KING R & QUEEN P Help others god will help you

 De4nitionM E-commerce means buying and selling of goods and services over digital & electronic
network. Two subtypes
1. Inventory based (ã∏áâvn fìS{vR) model of e-commerce: Company sells the inventory of goods
and services, which is owned by them to consumers directly. E.g. primeabgb.com (A computer
hardware site). FDI is not permitted here.
2. Marketplace based (hSÑSv fìS{vR) model of e-commerce: Company merely provides a

u
webportal/app to act as a facilitator between buyer and sellers. E.g. Amazon, Flipkart. 100% FDI
allowed here.

yo
FAQ: What are E-Commerce Rules by Govt M Ans. More in Pillar#4B: Services Sector

lp
30.4.11 : HOTMONEY EFFECT BY FPIS

he
ill
w
d
go
rs
he

2018-19 (Bn. USD) (+) In,ow (Credit) (-) Out,ow (Debit) NET in,ow
FPI + 256.9 - 257.5 -0.6 (=outkow)
FDI + 64 - 34 + 30
ot

Foreign investment in India: OSvR Üáqrogpn qTrgp → + 30 (approx.)

 From the above table you can see large amount of money comes via Foreign Portfolio Investors
p

but because it is speculative and volatile in nature (HOT MONEY), so it does not stay for long in
Indian market so in KNETL terms its lower than FDI. (qrogpn dbâ~æb±Wtb qTrgpm UflghSÑ éˆgë Ug˜…v √d Ug
el

dwUS OSvRnt hSÑSv ÜáqTrgp mvRgàuv qTmSW mv WgÑSRgàãU±Wy ¯US dwUS WVhn Örsì mg ±Wy OSvR ÜálâmRS TnVéUgÜ
H

|â ÜTn/ QvÜ ÜPøS mRgw)

 2018-19: there was net §outkow) of FPIs (i.e. more FPI money leG India than the amount of FPI
money that came into India) which shows the Hot Money e`ect.
 2020 onwards: FPI situation given in chart. ES23 also repeated same problem

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3A- BoP & Currency Exchange → Page 504

KING R & QUEEN P Help others god will help you

 30.18 INVESTMENT: MISC TERMS & REPORTS

30.18.1 Golden Visa (êÇ\hgvO)

 It is a special type of visa given for a investor/ property-buyer/celebrity / sportsman / scientist /
very bright student. System prevalent in Spain, UAE (Sanjay Dutt-2021) etc.
 Bene✓t* Helps the nation to attract investors and talented persons.

u
30.18.2 UNCTAD's World Investment Report (kh≥ kXhax âQPyõ\)

yo
 United Nations Conference on Trade and Development (UNCTAD, HQ- Geneva Switzerland,
1964) → report: World Investment Report

lp
 Global FDI kows will by 40% in 2020 because of the Corona.
 India was the 9th largest recipient of FDI in 2019-20 in the world.

he
 2021: it published a report but nothing noteworthy from exam point of view.

MCQ. Both Foreign Direct Investment (FDI) and Foreign Institutional Investor (FII) are related to

ill
investment in a country. Which one of the following statements best represents an important diAerence
between the twoM(Asked in UPSC-Pre-2011)
w
A. FII helps bring better management skills and technology, while FDI only brings in capital.
B. FII helps in increasing capital availability in general, while FDI only targets speci✓c sectors.
d
C. FDI kows only into the secondary market, while FII targets primary market.
D. FII is considered to be more stable than FDI
go

MCQ. Find correct major characteristics with reference to FDI in India (Prelims-2020)
[a) It is the investment through capital instruments essentially in a listed company.
rs

[b) It is largely non-debt creating capital kow.

[c) It is the investment which involves debt-servicing.
he

[d) It is the investment made by foreign institutional investors in the Government securities.

Which of the following can be included in Foreign Direct Investments in India [Pre-2021]
ot

1) Foreign Currency Convertible Bonds 2) Foreign Institutional investment with certain conditions
3) Global depository receipts (GDR) 4) Non-resident external deposits
Codes: a) 1, 2 and 3 b) 3 Only c) 2 and 4 d) 1 and 4
p

MCQ. An Indian buys shares in a British car company. jis will be re,ected in: (CAPF-2023)
el

(a) Balance of Trade, but not in Balance of Payments. (b) Balance of Payments, but not in Balance of Trade.
(c) both Balance of Payments and Balance of Trade. (d) neither Balance of Payments nor Balance of Trade.
H

30.5 YEARBOOK: MINISTRY OF COMMERCE AND INDUSTRY (hO•Çß ÉQ °¥yá `T£OWl):

Cis ministry looks aGer Internal and External Trade, WTO, Dumping, SEZ, FDI & Intellectual
property rights (IPR) related issues.
<List not exhaustive- ÜV≥SWt Üáuv On UV…SyV b UmRn wWglmT UOn mè UÇxn ÜàTgTnVon >

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3A- BoP & Currency Exchange → Page 505

KING R & QUEEN P Help others god will help you

 Dept. • Department for Promotion of Industry and Internal Trade (DPIIT)
Attached • Directorate General of Foreign Trade (DGFT: qrogp ùSdSv ÜSqTogpSWt) for promotion
offices of foreign trade. → he issues Importer Exporter Code (IEC) unique-id number to
STWµ bizmen engaged in foreign trade. HQ- Delhi. Implement WTO agreements in India,
ROlO\Wl
decides 'rules of origin', 'anti-dumping issues'.
• Directorate General of Trade Remedies (DGTR) to impose anti-dumping duty on

u
foreign products - as per the policy/rules made by DGFT.

yo
• Directorate General of Commercial Intelligence and Statistics
• Economic Adviser to DPIIT- responsible for publishing Wholesale Price Index
(WPI)- more in Pillar4C: Inkation. abm ܵQS∑ UÇxmSVm

lp
Govt  Export Credit Guarantee Corporation of India (ECGC: NIRVIC scheme-walle)
Companie  MMTC ltd. (Gold-coin-walle). Although 2020-Jan approved for Strategic

he
s disinvestment [Oqr‚ ÜáãUmS qTÑnmvß b ÑSTS w]
 National Investment Promotion and Facilitation Agency of India. Commonly known
as KInvest IndiaL: A §not for pro✓t) company by commerce ministry + FICCI +

ill
NASSCOM + other in 2009. Note: FICCI and NASSCOM are not-for-pro✓t
w
associations made by businessmen, mainly to lobby/highlight their demands to
Government.
d
Statuto. 1. Agricultural and Processed Food Products Export Development Authority (APEDA:
bodies m≤qî uv UVUSsìR ÉS„ éºSo qTtS~R qrmSU £Ssìmvß), under its statutory act. APEDA helping
go

⇠⇡⇢त्त Kashmir valley start-ups to export high-value Kashmir Sa`ron (GI-tag) to Middle
⌧ ⇡⇢/
East, EU, and North America.
!"⇡#
2. Marine Products Exports Development Authority (MPEDA)
rs

3. Statutory Commodity Boards → Tea Board, Spices Board, Tobacco Board, Co`ee
he

Board, Rubber Board. Controversy* Some newspapers suggesting these boards may
be closed / merged. So farmers are opposing.
4. Export Inspection Council (EIC): details given in separate section. scroll down.
ot

Autonom Indian Institute of Foreign Trade (IIFT, Delhi)- a KDeemed UniversityL that o`ers MBA,
ous PHD & other programs.
Other Export Promotion Council:
p

- Cese Councils are registered as non-pro✓t organizations under the Companies Act/
el

Societies Registration Act.

- Total 14 such councils looking aGer sectors such as Chemicals, Plastics,
H

Pharmaceuticals, Cosmetics, Leather, Sports Goods, Gem and Jewellery Exports,

Cashew, Oil Seeds etc.

30.18.3 Commerce Ministry: Export Inspection Council (EIC)

➢BossM Commerce ministry
➢TypeM Statutory body under Export (Quality Control and Inspection) Act, 1963

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3A- BoP & Currency Exchange → Page 506

KING R & QUEEN P Help others god will help you

 ➢HQ in Delhi. Its ✓eld o[ces of Export Inspection Agencies (EIAs) @Mumbai, Kolkata, Kochi,
Delhi and Chennai
➢FunctionM ensures quality and safety of products exported from India.

EIC certi4cates description / examples

Compulsory for ✓sh, dairy, honey, egg products, meat, Gelatine, crushed bones, Ossein
(ckXhOl\em) (collagen of bones)

u
Voluntary for

yo
(1) food items not mentioned in above list. (2) non-food items
(êm∂∑R em)

FAQ: What is attached o∏ce / autonomous bodyM Ans. Self-Study through

lp
https://unacademy.com/lesson/mrunals-yearbook-ministries-and-departments-forms-of-
government-organisations-in-hindi/7KCEZHT4/

he
MCQ. Find correct about ÆTea BoardØ in India:
1. Ce Tea Board is a statutory body.
2. It is a regulatory body attached to the Ministry of Agriculture and Farmers Welfare.
3. Ce Tea Board)s Head O[ce is situated in Bengaluru.
4. Ce Board has overseas o[ces at Dubai and Moscow.
ill
w
Codes: (a) 1 and 3 (b) 2 and 4 (c) 3 and 4 (d) 1 and 4

30.5.1 !!Budget-2020 : Medieval dictionary GK about Foreign Trade

d

In Indus script- KTakara Kolimi=Tin smitheryL, K Sreni K= Guild ,L SethiL= wholesale merchant,
go

KPoddarL= Assayer of metal into treasury. ( Medieval dictionary GK sometimes asked in MCQ so
memorize.)

"!(2019) DIPP becomes DPIIT (khàOá RO XO` fWO álO)

rs

30.18.4
 Interim-Budget- 2019: Govt renamed Commerce Ministry)s Department of Industrial Policy
he

and Promotion (DIPP: u„båQm TnqR uv UVrì~T qrOSQ) → Department for Promotion of Industry
and Internal Trade (DPIIT: é„bQ uv fVR{vm ùSdSv mb heSrS ogTgmg ±Wy qrOSQ ).
ot

 It)ll function under Ministry of Commerce and Industry

 DPIIT5s ObjectivesM Promotion of internal trade, including retail trade; welfare of traders and
their employees; matters relating to ease of doing business; and startups.
p
el

30.18.5 (2017) FIPB Abolished (khfaxg kXhax cXV`kU Rñ STπO Ry eõOlO álO)
H

- Foreign Investment Promotion Board (FIPB: qrogpn qTrgp UVrì~T hb}~) was a non-statutory body in
the Department of Economic A`airs in the ✓nance ministry.
- FIPB processed the FDI applications where government approval was required. If investment
amount exceeded ÷ 5,000 crore → application forwarded to Cabinet Committee on Economic
A`airs (CCEA: fzam ÜSÜWbVmè ÜVå≥ÜV}Wnt UåÜqR).

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3A- BoP & Currency Exchange → Page 507

KING R & QUEEN P Help others god will help you

 u
yo
lp
- 2017: Govt announced FIPB)s abolition. Now, individual ministries/departments are empowered
to clear FDI proposals in consultation with Commerce Ministry. e.g. FDI in Pendrive factory →

he
MEITY + Commerce Ministry. (if proposal above ÷5kcr →CCEA)
- FIPB)s webportal was renamed into KForeign Investment Facilitation PortalL and transferred to
Commerce ministry.

ill
However, Only Home Ministry will clear FDI proposals coming from Pakistan and Bangladesh; and
w
FDI proposals related to private security agencies, small arms manufacturing.

30.5.2 BoP: Capital → Chinese FDI need Govt approval

d
Before From 2020-April
go

If any FDI proposal coming from Pakistan and  If any FDI proposal from any country that
Bangladesh, it required approval from shares border with India → Indian Govt
Government of India. approval required
rs

 Means, Pakistan, Afghanistan, China,

Nepal, Bhutan, Bangladesh and Myanmar
he

 Govt decided this because: Corona-led slowdown = Indian companies su`ering from losses.
China may mis-use this opportunity to takeover such Indian companies @very low share price
ot

→ will harm our strategic & economic interests. (xnT, ÜSvn OSvRnt mVdqTtb mS ÖsìÃß mv WgQS Rb ÜSvg
vßTnqRm uv fzam lRbVmb TPmUST b UmRS w)
 Criticism* China says this is violation of WTO norms related to foreign investment. Although
p

Australia and Germany also announced similar restrictions on China for similar reasons (More
el

on WTO in Pillar#3B)
H

30.18.6 Related Topic: Cabinet Committees

Table 1: For more PHD you may refer- https://cabsec.gov.in/writereaddata/cabinetcommittees/english/1_Upload_3017.pdf

Cabinet Committee on Boss∫ Notes

1) Appointments qTtP‘’ qrîtm PM ✓nalizes the name for top level appointments like

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3A- BoP & Currency Exchange → Page 508

KING R & QUEEN P Help others god will help you

 Cabinet Committee on Boss∫ Notes
mgqhTgâ UåÜqR Cabinet Secretary, Indian ambassadors to each
nation etc. Cis Committee has only 2 persons-
Modi & Shah.
2) Accommodation frSU HM Giving house allocation to politicians, top o[cials
3) Economic A`airs PM FDI approval, Agri-MSP approval (Pillar#4A),
fzam ÜSÜWg Bank merger,disinvestment etc grand things

u
4) Parliamentary A`airs Defense Defense Minister Rajnath Singh made boss for his

yo
UVUont mSt~ Minister acumen in parliamentary matters

5) Political A`airs, 6) Security PM Self-explanatory. If PM is in a cabinet Committee,

5) vSÑTnqRm ÜSÜWg, 6) UPv∂S he automatically becomes its chairman

lp
7) Investment and Growth PM Cese two are new committee formed aGer 2019's

he
8) Employment and Skill General Election. 7) qTrgp uv qrmSU
Development 8) vbÑQSv uv m◊pW qrmSU

30.19 INTERNATIONAL FINANCIAL SERVICES CENTRE (IFSC) / GIFT CITY

ill
w
d
go
rs
he
ot
p
el
H

 International Financial Services Centre (IFSC) is a place having high concentration of ✓nancial
institutions such as Banks, Stock Markets, Insurance ✓rms, Fund Managers, FinTech ✓rms, etc.,
 A nation will not apply its local taxation and investment norms in its IFSCs (ÖVRvS~˙∞nt qrÕnt UgrS
máø:) E.g. UAE → Dubai)s IFSC centre: 100% FDI allowed in any sector. 100% Capital Account
Convertibility (i.e.Invest & pullout money as & when you please in any currency of your

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3A- BoP & Currency Exchange → Page 509

KING R & QUEEN P Help others god will help you

 choiceï), 0% income tax for 50 years. DTAA with most countries. Independent judiciary not
bound with local laws. Quick Visa etc. (mvb ÜáOSvn ñÇâ, …SqTm mSTÇTbV UgÜP‘’)
 ResultM Such place becomes a hub / base of operation for international ✓nancial companies
and investment bankers. It also creates trickle down bene✓ts for local people e.g. Chartered
Accountants, Hoteliers, Golf club owners, Taxi operators etc.
 London, New York, Hong Kong and Singapore to have also grown by setting up such centres.

u
Taking their example, India too has set up Gujarat International Finance Tec (GIFT) city

yo
international ✓nancial services centre (IFSC) near Ahmedabad. (2015)
 Although GIFT city not yet attracted good number of international ✓nancial companies because
the tax bene✓ts are not as great as Singapore, Hong Kong etc.

lp
 Cis §green4eld5 GIFT city was developed by 50:50 Joint venture of (the infamous) IL&FS +

he
Gujarat Urban Development Company Limited (GUDCL). Together they were responsible for
the construction, electricity, water, sanitation and other responsibilities of running this city. But
post IL&FS crisis, Govt of Gujarat has bought IL&FS)s 50% shareholding.

Corporation Tax for 10 years ill
Budget-2019: Companies operating from GIFT-city-IFSC given 100% exemption from
w
30.19.1 : IFSC Authority Act, 2019
d
 IFSC (such as GIFT city) are setup under the SEZ Act.
go

 IFSC get relief / exemption in the Indian tax laws. Further, RBI, SEBI, IRDAI and other
regulators) norms also apply in relaxed manner. E.g. Bank branches in GIFT-city-IFSC are
exempted from RBI)s CRR-SLR-PSL etc. norms.
rs

 2019)s Act aim to setup a statutory International Financial Services Centres Authority (ÖVRvS~˙n∞t
qrÕnt UgrS máø £Ssìmvß), with
he

- One Chairperson+ One member each nominated from RBI,SEBI, IRDAI, PFRDA
- + few other members from Finance ministry etc
ot

- Tenure* 3 years. Re-appointment* Yes, possible.

 Ce IFSC Authority will regulate all ✓nancial services, products, institutions in International
Financial Services Centres of India.
p

 2020-April: Government announced its headquarter will be at Gandhinagar, Gujarat. (Since

el

Gandhinagar is the only place with an IFSC at present, i.e. GIFT City)
H

 ControversyM Maharashtra political out✓ts demanding HQ should be in Mumbai.

30.5.3 Budget-2023 on IFSCA Authority

 We)ll give more powers to IFSCA Authority. Cis will help reducing problem of dual regulation
between IFSCA Authority vs other (State/Union) Authorities under SEZ Act. (qTtV≥ß mg ùa~obvSr

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3A- BoP & Currency Exchange → Page 510

KING R & QUEEN P Help others god will help you

 mb vbmTgmg ±Wy f∑yæyUUn UV…S mè p‘’tbVÜáhebRvn mváQg)
 We)ll setup a single window IT portal for Banks)/NBFCs) registration to IFSCA, SEZ authorities,
GSTN, RBI, SEBI and IRDAI. (dVÑnmvß mg ±Wy ymW f∑ân ‰Écmè mS qTÜS~ß)

30.19.2 Foreign University @ Giö City

 2023: Deakin University (Australia) has become the 1st foreign university to to set up an
International Branch Campus (IBC) in GIFT City, Gujarat.

u
 Such foreign Uni in GIFT city will not be regulated by India)s University Grants Commission

yo
(UGC). Cey)ll be regulted by IFSC Authority.

30.19.3 Data Embassy @Giö city in Budget-2023

 A data embassy is a place where a country stores its important data in a secure location in

lp
another country

he
 Bene✓t* To protect sensitive data from disasters or cyber-attacks.
 It's like having a backup of your important info in a safe place outside your home or o[ce.
 Budget-2023: we)ll encourage setting up Data Embassy @GiG city.

30.5.4 : Variable Capital Companies (VCC)@Giö city ill

w
 VCC is a special type of company dealing with several collective investment schemes e.g.
investing in shares/bonds/real estate/startups, Acting as FPI in other nations etc
d
 VCC has greater operational kexibility than traditional Mutual Fund, Hedge Funds, REITS,
go

Limited Liability Partnerships (LLPs), Private limited companies etc (REF Pillar1C).
 VCCs are prevalent in Singapore, UK, Luxembourg and other global ✓nancial centres.
 2021: International Financial Services Centres Authority had constituted a Committee under
rs

K.P. Krishnan to see the feasibility of allowing VCCs in IFSC. Krishnan Committee
recommended allowing them in India.
he

Beyond this, VCC pe PHD NOT REQUIRED, irrespective of how many Faaltu-MCQs set by
inexperienced private quizmasters.# abcS-deb-fQg-heb
ot

MCQ. Who among the following was the Head of the Expert Committee on Variable Capital
Company in India which has submitted its report recently3 (UPSC CAPF-2021)
(a) K. P. Krishnan (b) Ketan Dalal (c) J. Ranganayakulu (d) Bobby Parikh
p
el

30.20 BOP → CAPITAL → DEBT (LOANS & NON RESIDENT BANK DEPOSITS)
H

NET in,ow in (Bn. USD) →qTrW fÜo 2018-19

Foreign Investment (FPI & FDI) +30
 External borrowing: Pvt. Sector borrowing >Govt. +16
 Further, majority of India)s external debt is in U$D currency >
Indian Rupee > IMF)s SDR > (Yen, Euro, Pound Sterling, etc)

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3A- BoP & Currency Exchange → Page 511

KING R & QUEEN P Help others god will help you

 NET in,ow in (Bn. USD) →qTrW fÜo 2018-19
Non-Residents) Deposits in Indian Banks [Foreign Currency Non- +7
Resident FCNR accounts] & other misc. components of Capital
Account
NET balance in Capital Account (approx.) + 54

30.5.5 External Debt : Composition Govt vs Pvt. As per ES23

u
TYPE OF EXTERNAL DEBT AMOUNT (IN BILLIONS OF % OUT OF

yo
US DOLLARS) TOTAL
A) Public/Govt Sovereign External Debt $124.5 20.4%
B) Private sector Non-Sovereign External $486.0 79.6%
Debt (or external commercial borrowing)

lp
Total External Debt (A+B) $610.5 100%

he
30.5.6 External Debt : currency wise as per ES23
EXTERNAL DEBT REPAYMENT DENOMINATED IN (%)
Loans taken by Indian Govt and Private sector combined
US Dollar
Indian Rupee
55.5%
30.2% ill
w
Other Currencies 14.3%
Total 100%
d
go

FAQ: In pillar 2D according to ES most of our foreign debt is in rupee currency but in pillar 3
we studied majority of India5s external debt is in U$D currency. how can this happenM
Ans. Bhai dhyaan se padhoïï Pillar2D Talked about only govt loans. Here pill3 talking about loans
taken Both by (A) government plus (B) private sector (Adani/Ambani etc). And since pvt parties
rs

borrowed more foreign money than Indian govt so data will change.
he

30.20.1 BoP → Capital Account → Misc. Concept: NIIP

 Net International Investment Position (NIIP)= value of overseas assets owned by a nation minus
ot

the value of domestic assets owned by foreigners.

 Positive NIIP value = creditor nation (WgToSv vS˙)∞
p

 Negative value = debtor nation (mÑ~oSv ogp). USA highest, India at 8th place (in 2018)
el

CATEGORY BILLION $ AS PER ES23

Sr1. Indian residents5 overseas 4nancial assets (+) 847.5
H

Sr2. Foreigners5 investment in India (minus) 1,237.1

Net claims of non-residents on India = Sr1- (minus) 389.6
Sr2
Note that the result is negative, indicating that non-residents have a net claim on India.

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3A- BoP & Currency Exchange → Page 512

KING R & QUEEN P Help others god will help you

 30.5.7 Asset liability ratio
 In above table divide sr1/sr2 = 69% = It is less than <100%. Means India has lesser foreign assets
(847) compared to liability of India towards foreigners (1237).

30.5.8 BoP → Capital Account → Misc.: VOSTRO, NOSTRO, FCNR, NRE, NRO
Refer to Pillar3B: Currency Exchange, internationalization of Rupee Topic.

u
30.5.9 BoP: External Debt overhang Problem (ºÇ Rñ cZqRUO)

yo
ES21: Cere is a KLa`er CurveL like relationship between foreign debt and GDP growth:
 Up to a certain level, more External borrowing → economic growth (Because that foreign
money can be used for expanding the local factories, jobs, production).

lp
 But beyond a certain level it will become unsustainable. (Just like in Original La`er Curve:

he
direct tax% → tax collection but then it'll reduce tax collection Because high level of direct
taxes will encourage laziness and tax evasion/blackmoney. Recall Pillar#2B) (ym o Rm qrogpn mÑçUg
OSvRnt mS Öa~RV≥ Üár≤å⁄ mè ÑS UmRn wWglmT ym o mg hSo r Ö˜…vRS dwoS mvRS w)

ill
 Because too much debt = then all of your new (monthly/yearly) income will be gone in repaying
w
the previous loan installments. Cis phenomena is known as debt overhang. (tlo fdmè USvn mÜS∑
WbT mè lm¿ xPmSTgÜáxWn ÑSy Rb mSÜ mvTgmS é©S On xWS ÑSRS w)
d
o Debt overhang destroys enthusiasm and motivation to work harder.
o Debt overhang increases the chances of loan default e.g. Argentina, Ecuador, Belize,
go

Lebanon, Suriname and Zambia – have defaulted on their sovereign debt in Corona.
 ES21 and ES22 observed that Presently India's external debt to GDP is at the optimal
rs

level. (In other words we should not let this ratio increase anymore.)
MCQ. Find correct statement(s): (UPSC Pre-2019)
he

1. Most of India)s external debt is owed by government entities.

2. All of India)s external debt is denominated in US dollars.
ot

Codes: (a) 1 only (b) 2 only (c) Both 1 and 2(d) Neither 1 nor 2
MCQ. Which of the following constitute Capital AccountM (UPSC-Pre-2013)
1. Foreign Loans. 2. Foreign Direct Investment. 3. Private Remittances. 4. Portfolio Investment.
p

Answer codes: (a) 1, 2 and 3 (b) 1, 2 and 4 (c) 2, 3 and 4 (d) 1, 3 and 4
el

30.6 NEXT HANDOUTS IN PILLAR3:

H

 3B- BoP, Currency Exchange, SDR, Forex, NEER, REER

 3C- WTO & other intl. org & Agreements.

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3A- BoP & Currency Exchange → Page 513

KING R & QUEEN P Help others god will help you

 Pillar3B: BoP, Currency Exchange, Forex, SDR, NEER, REER, PPP
Table of Contents
31 BoP, Currency Exchange, Forex, SDR, NEER, REER, PPP..........................................................515
31.1 : BoP → summing up................................................................................................516
31.1.1 Sterilization ( स्थ⌫⇠⇡⌫⇢)⌧................................................................................................................................517
31.1.2 : Mundell-Fleming Trilemma (()*+ ,-.(/) ⇡0 .1-234(⇠ 567894)..............................................................518

u
31.2 ( > ) India(s Balance of Payment crisis (1991).......................................................519

yo
31.2.1 ( > ) Disequilibrium in BoP: Factors responsible ( BC)DE+F ⇡- ⇡4⌫⇢).....................................................520

31.3 RBI(s Forex Reserve: ⇥⇤⌅⇧⌃ ⌦↵ ⇥✏.......................................................................................521

31.3.1 Forex Reserve: goes up or down: when / how⌧.................................................................................521

lp
31.3.2 SigniNcance of Foreign Exchange Reserves ((PQ).......................................................................................522
31.3.3 Indicators to Nnd forex adequacy- as per IMF.............................................................................................522

he
31.3.4 Negative implications of Large Forex Reverse (F⇡4⌫4W⇡ 234().....................................................................523
31.3.5 Weak Currency = Non-Tradable sector neglected.........................................................................................523

32 Currency Exchange Rate: ⌦↵ ⇥ ⇣ ⌘ ⇤ ........................................................................................524

32.1
ill
Exchange Rate Regime: .eory.............................................................................................525
32.1.1 Fixed / Pegged System → Challenges: Study of SriLanka (2022).......................................................525
w
32.1.2 Managed Float System→ Challenges ⌧...................................................................................................526
32.1.3 Currency War 2018 ((E\4 3E])............................................................................................................................526
32.1.4 Reverse Currency war⌧...................................................................................................................................526
d

32.2 So/ vs Hard Currency............................................................................................................527

go

32.2.1 So^ currency - factors a_ecting.........................................................................................................................527

32.2.2 So^ Dollars vs Hard Dollars..........................................................................................................................528

32.3 Bad Money drives out good money.......................................................................................528

rs

32.3.1 Bad Money vs good money - Modern world examples..................................................................................529

32.4 Exchange Rate Regime: Historic.......................................................................................529

he

32.4.1 Fixed exchange rate system → Gold Standard; CdF-⇡- (4F⇡/ e⇢f(4F (1870-1914).....................................529
32.4.2 Fixed exchange rate system → Bretton Woods System (1946-1971).................................................530
ot

32.4.3 Currency Exchange in India...........................................................................................................................531

32.5 IMF Special Drawing Rights (SDR: ⇥⇧⌅✓ ◆ ⌫⇠⇡↵ ).........................................................532

32.5.1 IMF SDR Formula weightage reforms 2022.................................................................................................533
p

32.5.2 IMF Quota Reform..........................................................................................................................................534

el

32.5.3 IMF Governors................................................................................................................................................534

32.6 Currency Convertibility ( ⌦↵ ⇢ ⇥ ✏⇣⌃⌘ ↵)..........................................................................534

H

32.7 RBI restriction on convertibility of rupee: ⌧⇢⌘⌅⇡ ⇢ ⇥ ✏⇣⌃⌘ ↵.............................................534

32.7.1 Full convertibility of Rupee :hi3-⇡0 ij⇢fik⌫8DfF⇠3D4?............................................................................................536
32.7.2 m Convertibility → S.S. Tarapore Committee (1997)...........................................................................537
32.7.3 m Convertibility → RBI reforms (2004-2019).......................................................................................537
32.7.4 FEMA Rules for Indian residentos overseas investment (2022-Aug)..................................................538
32.7.5 (Prepaid) Forex Card⌧........................................................................................................................................538

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3B- BoP & Currency Exchange → Page 514

KING R & QUEEN P Help others god will help you

 32.8 LRS: TCS on Foreign: trip / shopping / investment (2023-Oct)...............................538
32.8.1 TCS Rates from 1/October/2023.......................................................................................................................539
32.8.2 TCS on LRS: Objectives......................................................................................................................................539
32.8.3 TCS FAQ by Zhande-walle Babushone: .................................................................................................539

32.9 FCRA Act................................................................................................................................ 540

32.9.1 FCRA on donations..................................................................................................................................................540
32.9.2 FCRA on remittance.................................................................................................................................................541

u
32.10 Currency War →Fall of Indian > & RBI(s Response........................................................541

yo
32.11 RBI's Currency Swaps ( ⌦↵ स्व⇢/ ⇤ ↵!⇤ ⌃ " #$ ↵)......................................................................541
32.11.1 RBIos Currency Swap Agreement with Japan ((E\4 eti/B5+4u5+⇠ C(vwD4)............................................................541
32.11.2 RBI Currency Swap with Indian Bankers.......................................................................................................542

lp
32.11.3 Challenges to Indiaos BOP by ES22 and ES23.....................................................................................................543
32.11.4 →Currency Exchange Rate Attracting Dollars: VRR and FAR..............................................................544

he
32.11.5 RBI-Govtos measures to prevent fall of Rupee (2022-Jul-Aug)................................................................544

32.12 Rupee Rouble Agreement.................................................................................................545

32.12.1 Nostro Vostro Accounts- settlements with Russia and SriLanka...............................................................545
32.12.2
32.12.3
ill
Internationalisation of Indian rupee (z4⌫D⇠3 hi3-⇡4 B)D⌫⌫4{⇠|3⇡⌫⇢ )........................................................................546
Yuan as global currency⌧....................................................................................................................547
w
32.12.4 Dollar- the Global Currency & DE-Dollarization⌧ ( 8tÄÅ⇡-2⌫ÇÉD-(E\4)....................................................547

32.13 Misc. Concepts: Quantitative Easing and Federal Tapering..........................................548

d
32.13.1 Strong dollars squeezes global credit.....................................................................................................549
32.13.2 Misc. Concepts: Helicopter Money & Zero interest rate regimes...........................................................550
go

32.14 Exchange Rate → Miscellaneous Terminologies................................................................551

32.14.1 NEER and REER⌧ (Hindi not imp because only prelim relevant)..............................................................551
32.14.2 Afghan Currency is the Best Performing Currency in the world⌧ (2023)...................................................554
rs

32.14.3 Purchasing Power Parity: Ñ3 ÖÜá C(D4 (PPP)....................................................................................................554

32.14.4 Mock Questions for Mains:.........................................................................................................................555
he

31 BOP, CURRENCY EXCHANGE, FOREX, SDR, NEER, REER, PPP

ot
p
el
H

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3B- BoP & Currency Exchange → Page 515

KING R & QUEEN P Help others god will help you

 31.1 : BOP → SUMMING UP

u
yo
lp
he
Sr Approx Bn. USD 2018-19 2020-21 2022: Apr-Dec
1Current Account DeNcit: à4+jâ4D4 ä4ã4 - 57 +24
ill -67
w
2Capital Account Surplus: ij)ç⇠ â4D4 + 54 +64 (+) 53
Bé9Ö-è
d
3 Errors & Omissions: 1Eêã34)ë⌫ àj⇡ -0.486 -0.3 -0.1
4 Overall Balance: C(í C)DE+F/ Ö-è (-) 3 bn +87 (+) 14
go

5 Oìcial Reserve Transactions or (+) 3 bn (-)87 [Meaning (-) 14

Monetary Movements in RBI's [Meaning RBI bought this
Foreign Exchange Reservesïï RBI sold $$ much $$ from
rs

(k⌫ñ8fuó⇡ òô⌫-ö u4ç4⌫ C-*ô+⌫ ⇡0 â⌫⇠5⇠ 34 from its market]

7uÑ0 ⇡⌫-/⇠ D4ê⇡ 787F(3 5⌫ (õ स्थ⌫D4 ⌫P-) reserves]
he

NET Balance of Payment for India 0 (ZERO) 0 (ZERO) 0 (ZERO)

- Sr. no 1 to 4 are called Autonomous transactions because they occur independently on their own
ot

without RBIos involvement. (3P +-F5-F e43ü †i C-, BiF-2i P⇠ Pd ç4D⇠ Pt, k⌫ñ8fuó⇡ ⇡- ⇡PF-i⌫ FP⇠)PdD⇠)
- Sr. no 5 is called Accommodating transaction, bcoz RBI will do it based on whether we are
p

having surplus or deNcit due to previous 4 items (so that RBI can accommodate NET BoP to
ZERO). (3P BiF-2i FP⇠)Pd ç4D4, k⌫ñ8fuó⇡ F-BiF4 ê5(4/ +/4⇡⌫ ¢C⇡d ⇡⌫F4 i£D4 Pt)
el

- Column for 2018-19: (+) sign indicates RBI supplied/sold that many $$ from its forex reserve,
ïï
H

else $ becomes stronger= m becomes weaker bad for importers. Here (+) Sign indicates in
RBIos forex reserve (since RBI sold dollars) [k⌫ñ8fuó⇡ ⇡0 7Dçd⌫⇠ (õ¢DF-*ô+⌫ ⇡0 (414 ⇡( §•]
- ##
Column for 2020: (-) sign indicates RBI purchased $$ from market, else m rupee becomes
stronger= bad for exporters. (-) Sign in sr.5 row indicates in RBIos forex reserve (since RBI
bought dollars) [k⌫ñ8fuó⇡ ⇡0 7Dçd⌫⇠ (õ¢DF-*ô+⌫ ⇡0 (414 uß ç4®/⇠].

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3B- BoP & Currency Exchange → Page 516

KING R & QUEEN P Help others god will help you

 31.1.1 Sterilization (HIJKLJM)N

u
yo
lp
he
ill
w
d
go
rs
he
ot
p
el

 If there is a BoP situation, wherein RBI has to sell m to buy $ to get the NET answer ZERO then…
H

Such RBI action would result in supply of rupee currency in the Indian market → it can cause
in™ation if there is not suìcient supply of goods for purchase.
 So, RBI must ´absorbo that excess rupee currency back. RBI will do it through Open Market
Operation (OMO: REF-1A2) → sell govt securities to buyback Indian rupees. ¨is process is

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3B- BoP & Currency Exchange → Page 517

KING R & QUEEN P Help others god will help you

 called Sterilization. k⌫ç8fuó⇡ F-3ê5 *ô+⌫ â⌫⇠5F-⇡- ≠+® u4ç4⌫ (õhi® ê5® Dd ÆØ⇠)hi3d)⇡d 84iC C-z⇠ àjC +-F4
à4êP®, 8⌫F4 (P)/4• Pd C⇡D⇠ Pt→ ¢C≠+® k⌫ç8fuó⇡, C⌫⇡4⌫⇠ ∞7Dzj7D34)z-ç⇡⌫ u4ç4⌫ m àjC +-D4 Pt¢C- स्थ⌫⇠⇡⌫⇢ ⇡PD-Pó

MCQ. Which one of these activities of the RBI is considered to be part of 'sterilisationN (Preo23)
(a) Conducting Open Market Operations (b) Oversight of settlement and payment systems
(c) Debt and cash management for the Central and State Governments

u
(d) Regulating the functions of Non-banking Financial Institutions

yo
31.1.2 : Mundell-Fleming Trilemma (OPQR STUOPV LW XY-Z[\OK ]^_`a\)
¨eory by economists Robert Mundell and Marcus Fleming (1960s). It argues that three things can't

lp
be accomplished together: k⌫ç8fuó⇡ D⇠F à⇠çõ®⇡ C4± FP⇠)⇡⌫ C⇡D-

Trilemma (XY-Z[\OK ]^_`a\) Example situation in Corona

he
1) Keep capital account open / relax Corona:- large foreign FPI,FDI in™ow towards Indiaos
capital account convertibility to boost pharma-IT/Tech sectors. ⇡d⌫dF4 ⇡- 5w⌫4F z4⌫D ⇡- ëèé9 D±4
economy. ij)ç⇠ â4D-(õ≥jã: z4⌫D (õ785-Ö⇠ hi34 CjàF4 ∞wµd./⇡0 É-1 (õ∂-⌫ C4⌫⇠ 785-Ö⇠ ij)ç⇠ 2•
+4F-- +-ç4F-i⌫ u§D ¥454 i4u)5⇠ F4 Pd, D4ê⇡
ill
w
B±fD)1 ⇡d ußdD⌫⇠ .(+ C⇡-
2) Keep exchange rate stable 785-Ö⇠ (E\4 FPI,FDI → so, in™ow of Dollar$ → then rupee
d
787F(3 5⌫ ⇡d स्थ⌫ ⌫â4 ç4®
will become stronger → exchange rate will not remain
go

stable & exporters will su_er due to stronger rupee.

785-Ö⇠ (E\4 ⇡- z4⌫D (õBé9⇡ (414 (õ2F-C-hi34 (çujD PdD4 Ptçd
7F34fD⇡d)⇡- ≠+® B∑∏ u4D FP⇠)
3) Keep monetary policy independent
rs

 Stronger rupee will be bad for exporters → RBI

(from what is happening elsewhere in
should purchase dollars & sell rupees → Rupees
he

the world / solely focusing on In™ation

supply → In™ation if there are not suìcient goods
- target) (wê\⇡ F⇠D⇠ eD)1 †i C-à+4• ç4
in the market. k⌫ñ8fuó⇡ hi34 u-à⇡⌫ *ô+⌫ â⌫⇠5F4 ÖE† ⇡⌫õ Dd
C⇡--7uF4 i⌫84P ê⇡® ê⇡ 787F(3 5⌫ (õ785-Ö⇠
ot

D4⇡Dd)/⇡4⌫⇡d ⇡- à+D-π4 B स्थ⌫D4®∫ Pd ⌫P⇠ Pt. u4ç4⌫ (õhi3-⇡0 (414 uß ç4®/⇠ çd (P)/4• ƪº ⇡⌫ C⇡D⇠ Pt
 So if RBI try to control the exchange rate volatility,
then RBI will end up creating in™ationΩ 34F⇠ ⇡0 787F(3
p

5⌫ ⇡0 B स्थ⌫D4 ⌫d⇡F-⇡- àæ⌫ (õ(P)/4• ƪº Pd /•

el

 Corona-2020: amount of $$ in™ow so high,

sterilization game (Ref: previous section) was
H

diìcult. So, in™ation inevitable. स्थ⌫⇠⇡⌫⇢ 84+4 â-+4

u§D (Eø¿+ πd)ê⇡ *ô+⌫/†i3-(414 u§D ¥454 ±⇠.

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3B- BoP & Currency Exchange → Page 518

KING R & QUEEN P Help others god will help you

 u
yo
lp
he
ill
w
In this trilemma, What did RBI do⌧

Way Forward: Description did RBI implement this solutionN

d
Control the exchange RBI should buy dollars & YES. P4∫3P⇠)ê⇡34 /34
rate volatility, prevent sell rupees. k⌫ñ8fuó⇡ F-*ô+⌫
go

Rupee from becoming â⌫⇠5 ë⌫ hi34 u-àF4 à4êP®

stronger →hi34 ⇡d
(çujD PdF-C-⌫d⇡d
rs

Control the inbation ¨en RBI should not buy No. Because RBI felt that in™ation will
the dollars and sell the
he

→ ()P/4• ⇡d ⇡4uj(õ⌫âd
increase irrespectively, because of the
rupees. Dd *ô+⌫ (D â⌫⇠5d),
Corona lockdown related supply-demand
hi34 (D u-àd, D4ê⇡ u4ç4⌫ (õhi®
mismatch. +ô⇡*4ÆF (õ(P)/4• Dd 8tC-z⇠ PdF⇠ ±⇠
ot

⇡4 ç¡4 F4 uß-, (P)/4• F uß-

8¬E√ )⇡0 2ijƒD (õ./⌫48ã ⇡- à+D-. ¢C≠+® k⌫ñ8fuó⇡
F-hi3-⇡0 787F(3 5⌫ ⇡d स्थ⌫ ⌫âF4 ¥454 ç†⌫⇠ C(v4.
p

31.2 ( > ) INDIA(S BALANCE OF PAYMENT CRISIS (1991)

el

Nowadays India usually has ≈DEFICIT in current account (due to crude oil imports), but there is
usually suìcient ≈SURPLUS in capital account (thanks to FDI & FPI) to counter/o_set that Current
H

Account DEFICIT. (C4(4« †i C-à4+jâ4D-(õä4ã4, ë⌫ ij)ç⇠ â4D-(õBé9Ö-è PdD4 Pt)

- But in the pre-1991os Nehruvian Socialist Economy, many sectors were nationalised (banking
insurance) and / or reserved for the public sector companies only = mismanaged & ineìciency.

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3B- BoP & Currency Exchange → Page 519

KING R & QUEEN P Help others god will help you

 Private sector industrialists were allowed only in selected sectors, and were subjected to Licence-
Quota-Inspector Raj → competition, innovation = low exports.(Ref: Pillar#4B)
- And our policy makers restricted foreign investments (FDI /FPI) fearing that
- Itoll bring USA-CIAos invisible hand in Indian A_airs,
- Our Swadeshi industries & our ´Non-Alignment Movement (NAM)o will be harmed.
- End resultN High level of ≈DEFICIT in Current Account and not enough surplus in Capital

u
account to counter/o_set that DEFICIT. ¨e situation could be like this:

yo
1991 → imaginary cgures for illustration only (defg h]\iJM LT jRk L\l_mL ZPLnT) (Bn. USD)
Current Account (DeNcit) [à4+jâ4D-(õudPdD u£4 ä4ã4] - 100
Capital Account (Surplus, but itos insuìcient surplus) [ij)ç⇠ â4D-(õBi34f» Bé9Ö-è] + 50

lp
Errors & Omissions 0

he
Overall Balance - 50
Monetary Movements in RBI's Foreign Exchange Reservesïï + 50
NET Balance of Payment for India 0
ïïHere plus (+) indicates RBI must sell dollars from its forex reserve to keep Indiaos BoP at ZERO

ill
level. If they canot do it then shortage of dollars in Indian market to pay for our import bills →
w
results in heavy weakening of Indian rupee (e.g. $1 =m 60 → $1= m 6000) then it becomes even more
expensive to import oil. hi34 u§D ⇡(çd⌫ §2 Dd ⇡…4 D-+ 234D ⇡⌫F4 ë⌫ (P)/4 Pd/4
d

- In 1991, RBI didnot have enough forex reserves to get Indiaos BoP zero → we had to pledge our
go

gold to IMF to borrow dollars. CdF4 ./⌫8⇠ ⌫â⇡⌫ *ô+⌫ ⇡- +dF ≠+®
- IMF also imposed certain conditions which required India to open up its economy through LPG
rs

reforms (Liberalisation, Privatisation, Globalisation: Æ54⌫⇠⇡⌫⇢, 7Fç⇠⇡⌫⇢, 8tÅ⇠⇡⌫⇢). Self-study

from (new) NCERT Class11:Indian economic development → Ch3.
he

- 2022: SriLanka facing similar problems but weore not preparing for SrilankiPSC so boycott-PHD.
ot

31.2.1 ( > ) Disequilibrium in BoP: Factors responsible (pePqrRm LT L\JM)

When Credit (Receipt, income money) = Debit (Payment, outgoing money) then BoP will be ZERO.
p

If, not then BoP is in disequilibrium. ¨is can happen because of:
el

 Development disequilibrium (78⇡4C ⇡4 BC)DE+F): poor nations have to import more grains,
medicines etc. = adverse BoP.
H

 Secular or Long-term Disequilibrium (5⇠äfB8é9 D⇡ ⌫PF-84+4): newborn nation is usually poor &
backward so imports >> Export. E.g. Nehruos India until it matured in the 90s.
 Consumerism and Demonstration E_ect: Rich Indians try to copy westernized lifestyles. So,
import of Switzerland wristwatches + Sports Cars = adverse BoP. (Æizdá4845, ê5â484 ⇡⌫F-⇡0 à4P

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3B- BoP & Currency Exchange → Page 520

KING R & QUEEN P Help others god will help you

 → ¥454 234D ⇡- à+D-zE/D4F C)DE+F â⌫4u PdD4 Pt)
 Structural Disequilibrium =if transport, electricity infrastructure is poor or Technological
Backwardness = exports canot improve. (C)⌫àF4W⇡ ë⌫ D⇡F⇠⇡0)
 Cyclical Disequilibrium (àÑ03 BC)DE+F): When two countries may be passing through di_erent
phases of business cycle (Boom, slowdown...D-ç⇠ ë⌫ ()5⇠ ⇡4 àÑ) , so there will be mismatch in
imports, exports, FDI etc. I

u
yo
I
31.3 RBI(S FOREX RESERVE: _`]TtK Oru\ vJw`g
-

- -

¨e Forex Reserve component(s) are =

---

lp
1) Foreign Currency Assets (includes foreign currencies & G-Sec/bonds of foreign Govts)
2) ·
Gold (e⇢f)

&

he
3) Reserve Tranche Position (RTP) in the IMF. Also called11
-
-@
-
Gold Tranche (What is it⌧ = NOT IMP.)
- x

- o-
4) Special Drawing Right (SDR) of International Monetary Fund (IMF)
-

ill
w
d
go

e
Largest forex: 1) China ($3 Trillion) 2) Japan 3) Swiz >> 6) India (As of 2022-Nov as per ES23)
rs

-
- -- -

-O -O
USA is not in the top-10 list, it barely keeps ~$250 billions in reserve. Because USA has ™oating
he

-
-

-
exchange -
rate so USA central -
bank doesnot worry about currency exchange.

MCQ. Which is included in India's foreign-exchange reservesN (UPSC-Pre-2013)

ot

A. Foreign-currency assets, Special Drawing Rights (SDRs) and loans from foreign countries.
B. Foreign-currency assets, gold holdings of the RBI and SDRs.
C. Foreign-currency assets, loans from the World Bank and SDRs.
p

D. Foreign-currency assets, gold holdings of the RBI and loans from the World Bank.
el

MCQ. xGold Tranchey (Reserve Tranche) refers to _ _ (UPSC-Pre-2020)

H

[a) A loan system of the World bank [b) One of the operations of a central bank
[c) A credit system granted by WTO to its members
⑳
[d) A credit system by IMF to its members

31.3.1
·
Forex Reserve: goes up or down: when / howN
-
& I

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3B- BoP & Currency Exchange → Page 521

KING R & QUEEN P Help others god will help you

 u
yo
lp
he
Factor / Variable Forex Reserve goes up when Forex goes down when
When RBI has to sell dollars to
in situation when RBI has to buy dollars
BoP accommodating get net BoP=0. e.g. when
transaction
to get net BoP =0. e.g. when Both current
account and capital account are surplus. ill
Current account deNcit number
w
is very high.
RBI interventions when RBI has to buy dollars to keep when RBI has to SELL dollars to
d
vJw`g{|L LW ]}R rupee stable. keep rupee stable.
go

when the market value of the forex assets reverse. Refer to the chart for
Valuation E~ect
increases (çu k⌫ç8fuó⇡ ⇡0 òô⌫-ö C)iÀü3d)⇡4 fall in value of gold and Euro
(ePdÄ[ÅPLT OÇÉ LW peJ)
u4ç4⌫ (jà uß ç4®) during 2023-Oct-Week1.
rs
he

31.3.2 Signiccance of Foreign Exchange Reserves (OiÑ)

 To maintain the exchange rate stability ((E\4 5⌫ (õ स्थ⌫D4 ⇡- ≠+® 785-Ö⇠ (E\4 z)*4⌫ ñ†⌫⇠Õ)
 To absorb external-shocks (u4Œ 8tÄÅ⇡ vã⇡d)C-z4⌫D⇠3 B±fD)1 ⇡d C)z4+F4)
ot

 To help economy in situations where foreign loans are very expensive/unavailable e.g. in
situations similar to Pakistan/SriLanka. (çu 785-Ö⇠ œdDd)C-⇡ñfF .(+ ⌫P4 PdÕ)
'Capit
e-
~
p

31.3.3 Indicators to cnd forex adequacy- as per IMF

-
el

Indicators Description / examples

(ÖÇmqO ÜLqm\ _`]TtK Oru\ áPQ\J vJà`g{|L mTJ}m\ â\Üik?)
Ratio of-
H

forex-reserve - RBI(s S.S.Tarapore committee- Shd be Large enough to pay for 6

- -

to imports
- monthso imports (≥– (P⇠F-⇡- 234D ⇡4 —à4fÆ“4 C⇡- ÆDF4 ”d⌫-É z)*4⌫ PdF4 à4êP®)
Ratio of forex-reserve - IMF(s Guidotti–Greenspan rule: Shd be Large enough to cover
to external debt short-term external debt of upto 1 year tenure (+äEB8é9 ⇡- 785-Ö⇠ ‘⇢ àE⇡4
C⇡- ÆDF4 ”d⌫-É z)*4⌫ PdF4 à4êP®)
Ratio of forex-reserve - e.g. Forex / M3. (What is M3 = refer Pillar1A2)

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3B- BoP & Currency Exchange → Page 522

KING R & QUEEN P Help others god will help you

 to monetary aggregates - what's the ideal number⌧ Ans. Eco Survey didn't mention, so, I
didn't google.

MCQ. Adequacy of foreign exchange reserves of a country is captured by which indicatorsN (CAPF-
2023) 1. Reserves to import ratio 2. Reserves to external debt ratio
3. Reserves to GDP ratio 4. Reserves to monetary aggregates
Codes: (a) 1 and 3 only (b) 1, 2, 3 and 4 (c) 2, 3 and 4 only (d) 1, 2 and 4 only

u
31.3.4 Negative implications of Large Forex Reverse (mL\J\åL Z[\O)

yo
 if large forex reserve is built through exchange rate manipulation / deliberate weakening of local
currency e.g. China = then weak currency → imported in™ation in crude oil etc. (òd⌫-ö z)*4⌫ ⇡d
uß4F-⇡- ≠+® 3ê5 ⇡õ\⇠3 uó⇡ ç4Fujv⇡⌫ स्थ4F⇠3 (E\4 ⇡d ⇡’.1( †i C-⇡(ñd⌫ ⌫âD⇠ Pt→ 234D (P∫/⇠ Pd ç4D-PóÕ)

lp
 ¨e excess money thus locked into forex reserve → not available for other activities e.g. health,

he
education, poverty removal, infrastructure. (ë⌫ ÷i⌫ C-, 8d C4⌫4 itC4 ”d⌫-É z)*4⌫ (õò∫C ç4D4 Pt→ 8P itC4
ÇÖÉ4, e4◊, ÿ⌫⇠u⇠ 7F84⌫⇢ uE7F345⇠ B8C)⌫àF4 2ê5 ⇡- ≠+® Æi+Ÿ FP⇠)⌫PD4Õ)

31.3.5 Weak Currency = Non-Tradable sector neglected

NON-TRADABLE SECTOR TRADABLE
ill
w
(è\\J / _m[\gq p[Åê ëTY) (EASILY EXPORTABLE)
Healthcare, Education, Construction Manufacturing, IT, Food Processing
 If a country excessively focuses on exports → central bank will try to keep local currency weak
d

and the government will focus more on giving tax cuts, subsidies and cheap loans to ´tradableo
go

sectors e.g. Manufacturing, IT, Food Processing

 But consequently, the non-tradable sectors (health, education) receive less funding/attention →
possible loss of social /human development. (7F34fD ⇡d uß4F-⇡- ≠+® 3ê5 C⌫⇡4⌫ B)949E)9 ê⁄€ C-⇡-8+ 7F34fD
rs

3d‹ É-1d)i⌫ P⇠ ãtö ⇡0 ⇡ãwD⇠/ Cø›*⇠ 5-/⇠ → Dd B)D (õÿt⌫-7F34fD 3d‹ É-1 çtC-ÇÖÉ4, e4◊, (⇡4F-7F(4f⇢ 2ê5 i⌫
C⌫⇡4⌫ ⇡( itC4 —àf⇡⌫D⇠ Pt→ ÄçCC-(4F8 78⇡4C ⇡d P47F PdD⇠ PtÕ)
he
ot
p
el
H

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3B- BoP & Currency Exchange → Page 523

KING R & QUEEN P Help others god will help you

 32 CURRENCY EXCHANGE RATE: (E\4 787F(3 5⌫

u
yo
lp
he
ill
w
d

Currency Exchange Rate Indian Exporter of Tea Indian Importer of Dell Laptops
go

Weaker > = Stronger $  (assuming no  . (-⌫- ⇡d 234D ⇡⌫D-8⇡D fi454
($1=60 → 80) change in in(ation) ç¡-(õitC4 5-F4 Pd/4!
Stronger > = Weaker $  (-⌫- ⇡d 7F34fD ⇡⌫D-8á 
rs

($1=60 → 40) ⇡( ç¡-(õitC4 .(+-/4Õ

(De*nition) ¨e price of one currency in terms of the other currency is called exchange rate. E.g. $1
he

= m 70. Meaning, it costs m 70 to buy one dollar (or $0.014 to buy m 1).

- ¨is is also called Nominal Exchange Rate because it does not take into consideration in™ation
ot

or purchasing power in the respective countries. (ëià4k⌫⇡ 787F(3 5⌫, (P)/4• ⇡d Fç⌫B)54ç ê⇡34)
- ¨e place where currencies are exchanged is called Foreign Exchange Market (785-Ö 787F(3 u4ñ4⌫).
p

¨eir dealers are called Authorized (Forex) Dealers (AD). ¨ey can be banks or non-banks. ¨ey
el

have to get registered with RBI under the Foreign Exchange Management Act (FEMA: 785-Ö⇠ (E\4
∞u)9F Bé97F3( ⇡- B)D/fD 785-Ö⇠ (E\4 ⇡- 5+4+d)⇡d k⌫ç8fuó⇡ C-BFE(7D +-F⇠ PdD⇠ Pt).
H

- ¨ese dealers keep separate prices for buying and selling, to make proNt in between e.g. ICICI:
$1 Dollar buying price m 67.95 and $1 selling price is m 72.76. (¢F 5+4+d)⇡4 *ô+⌫ â⌫⇠5F-⇡4 54( B+/
ë⌫ u-àF-⇡4 54( B+/ PdD4 PtD4ê⇡ u⇠à (õÆF⇡4 (EF4ò4 ⌫P-)
- Such currency transaction service is also subjected to GST, however the tax depends on the
amount of currency exchanged. (e.g. upto m 10 lakh exchanged in foreign currency then only ~m

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3B- BoP & Currency Exchange → Page 524

KING R & QUEEN P Help others god will help you

 3000 of that 10 lakh will be taxable in GST → 18% of 3000 → m 540 GST Tax. GST will not be
levied on the entire 10 lakh rupees)

32.1 EXCHANGE RATE REGIME: THEORY

-
O
It is the set of rules governing the exchange of domestic currency with foreign currencies.

u
-- - - -
- -

yo
- -

lp
he
O
-
- -
- -

& >
-

ill
-
w
d
go

MCQ. Under bexible exchange rate system, the exchange rate is determined by [CDS-2015-II]
(a) predominantly by market mechanism (b) by the Central Bank
rs

(c) as a weighted index of a group of currencies (d) by the World Trade Organization
he

32.1.1 Fixed / Pegged System → Challenges: Study of SriLanka (2022)

ot
p
el
H

FAQ: Why doesn(t Srilankan Central bank supply dollars from its Forex ReserveN Ans. Bhai ¨ey
donot have enough forex. ¨ey're begging to IMF. More in Mains HDT- Debt Trap Diplomacy.

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3B- BoP & Currency Exchange → Page 525

KING R & QUEEN P Help others god will help you

 32.1.2 Managed Float System→ Challenges N
1. Currency speculation and interest rates (e.g USA Fed Tapering – refer to Pillar: 1A2.)
2. Currency Manipulation/ (E\4 çd£-Dd£: usually occurs when a central bank keeps buying dollars to
create artiNcial scarcity of $ in the forex markets → dollar becomes expensive → local currency
becomes weak → boost to exports.
US Department of the Treasury publishes a semi-annual report to track such nations. China,

u
S.Korea, India etc have been kept in (´Watch listo) citing the (alleged) lack of transparency and

yo
consistency in their respective Central banks operations. (¢F 5-Öd)⇡0 ⇡õ\⇠3 uó⇡, (E\4 787F(3 5⌫ ⇡d 7F3).1D ⌫âF-
⇡- ≠+® çd êÑ34®) ⇡⌫D⇠ Pt, ÆC (õi4⌫5‚ÖD4 FP⇠), ¢C≠+® B(-k⌫⇡4 ÆF i⌫ (E\4 çd£-Dd£ ⇡4 ¢„4( +/4D4 Pt)

lp
32.1.3 Currency War 2018 (Oru\ [rî)
2005: Chinese authorities announced they donot manipulate/control Yuan exchange rate. ¨ey only

he
intervene if Yuanos exchange rate varies more than +/- 4% from previous day.

- 2018: USA alleges that China is deliberately keeping Yuan weak to make Chinese product more

ill
cheaper in global trade. Trump accused Russia and Japan of playing similar ´Currency Waro
against him.(à⇠F i⌫ BiF⇠ (E\4 ç4Fujv⇡⌫ ⇡(ñd⌫ ⌫âF-⇡4 2⌫di)
w
d
go
rs
he
ot
p

32.1.4 Reverse Currency warN

el

I donot Nnd it important for exam, until future Economic Surveys talks about it however you can
satisfy your intellectual curiosity by watching my lecture on YouTube: https://youtu.be/OFj-oz-DeQI
H

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3B- BoP & Currency Exchange → Page 526

KING R & QUEEN P Help others god will help you

 32.2 SOFT VS HARD CURRENCY

u
yo
lp
Type Hard currency So/ currency

he
Volatility in currency high volatility
low volatility (=more stability)
exchange rate (=less stability)
Dollar, Pound, Euro etc currencies of currencies of the poor
Examples
the developed nations
ill countries in Africa & Asia
w
32.2.1 So/ currency - factors a~ecting
1) Income of customers 2) Demand vs Supply of Forex
d
3) Interest Rate Arbitrage 4) Speculation.
go
rs
he
ot
p
el
H

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3B- BoP & Currency Exchange → Page 527

KING R & QUEEN P Help others god will help you

 32.2.2 So/ Dollars vs Hard Dollars
¨is is a technical concept associated with American Sharemarket mutual fund commission. Not
very imp for our exam. But some Babushonas will come to drink my blood (a^er they out-of-
trend mock-MCQs from inexperienced quizmasters) - so here is the answer:

u
yo
lp
he
in above chart, Who is the paying purple box commission to the brokerN
 - if Mutual fund is paying from his own proNt / own pocket called Hard Dollars

ill
 - if Investor is paying it (via hidden charges imposed by Mutual Fund) called So/ Dollars.
w
 Note: ¨is concept is from American Sharemarket, and not Indian Sharemarket. I've used Indian
brand photos/logos for easier visualization. now plz don't come to ask me IF there is similar
d
concept of "Hard Rupee vs So/ Rupee" in India's Mutual fund = waste your time in ChatGPT.
go

32.3 BAD MONEY DRIVES OUT GOOD MONEY

rs
he
ot
p
el
H

 - ≈Bad money drives out good money. ¨omas Greshamos law (Britain)
 - ≈Good money drives out bad money Adolphe ¨iersos law (France)

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3B- BoP & Currency Exchange → Page 528

KING R & QUEEN P Help others god will help you

  - People stop using currencies that they consider to be of poor quality and adopt currencies that
are found to be of better quality. AND/OR
 - People hoard/store the currency that they Nnd to be of better quality.

FAQ: arenot these two laws contradictory- one says good money drive bad money whereas
other statement says bad money drives out good money⌧ Ans. Depends on the context/MCQ
Statement.

u
32.3.1 Bad Money vs good money - Modern world examples

yo
 2008: Zimbabwe ki local public prefers to use American dollars over their local currency due to
heavy in™ation. Once the price of a loaf of bread = 10 million Zimbabwe dollar currency units.
So, it was more convenient to carry American dollars in pocket (=good money), than Zimbabwe

lp
currency in a truck/cart (=bad money). → ≈Good money drives out bad money Adolphe

he
¨iersos law (France)
 2022: Zimbabwe launched Gold coin currency called ñMosi-oa-Tunya( (priced at 1 coin =
$1,800) because their public doesn't trust the local paper currency due to hyper-in™ation.
 2022: Foreigners DONOT ACCEPT the FIXED exchange rate of Srilankan Rupee Because Sri-

ill
Lankan Rupee at Nxed exchange rate (Dollar=200) is BAD MONEY for them.
w
FAQ: I've 500 jaat ke counter argument / doubts ke why X didn't happen in Y⌧ and why "A"
d
should be called "B"⌧ or can we say "C" also is example of "D" ⌧ Ans. NOTIMP4exam / waste ur time
in chatGPT & mere ko maaf karo. I'm Nnished from exam point of view.
go

32.4 EXCHANGE RATE REGIME: HISTORIC

rs

32.4.1 Fixed exchange rate system → Gold Standard; eÅmTLT O\mL/ òMgO\m (1870-1914)
he
ot

- USA would issue $1 note, if only it has 14 grams of gold in reserve, whereas England would issue
one pound note if only it has 73 grams of gold in its reserve. Accordingly, their exchange rate will
p

be 1 Pound =73/14 = ~5 USD.

el

- And, each Central Bank Governor has promised to convert their currency into gold at a Nxed
amount. So, a person could walk with paper currency & demand gold coins/biscuits in return.
H

- When the gold mining production declined, nations gradually shi^ed to ´bimetallism( e.g. $1
promised with 14 gm gold or 210 gm of silver whichever available with their Central Bank.
¨is system collapsed during the First World War (WW1) because the nationos currency printing
capacity was limited by their gold reserve, but their governments where more eager to print more
money to Nnance the war (soldierso salaries, ri™eso ammunition etc.)

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3B- BoP & Currency Exchange → Page 529

KING R & QUEEN P Help others god will help you

 32.4.2 Fixed exchange rate system → Bretton Woods System (1946-1971)

u
yo
lp
he
ill
w
d
Here, USA agreed to Nx price of its $1 = (1/35) ounces of gold. [1 ounce = 28 grams]. USA allowed
go

free convertibility of Dollar to Gold. So if a person walked into the US Federal Reserve with $35, their
chairman (Governor) will give him one ounce of gold.

 ¨en IMF Nxed the exchange rate of every country's currency against USA. e.g.m 1= $0.30 =
rs

~0.24 grams of Gold. So, that implied India canot issue more currency If Indian RBI does not
have proportionately suìcient gold reserve of its own. Still if RBI issues more m currency,
he

International Monetary Fund (IMF: B)D⌫⌫4{⇠|3 (E\4 ⇡dè) will order India to devalue its rupee
exchange rate against dollar.
ot

 American Economist Robert Triôn claimed this system will collapse eventually because gold is
a Nnite commodity and its price will continue to rise (from 1 ounce of gold = $35 to $40). So
p

there is always danger of people converting the local currency into dollars and then converting
dollars into gold @$35, then selling it in open market @proNt, then US Feds Chairman canot
el

continue honouring his promise. It was called xTriôn Dilemma: XYöfm ]_õ`a\y. He therefore
H

suggested an alternative SDR (Paper gold) system for IMF. (e⇢f⇡4 ç¡4 B(34fê5D FP⇠)Pt¢C≠+® 3P
Á8स्थ4 ®⇡ ê5F Du4P Pd ç4®/⇠)
 1971: USA President Robert Nixon pulled out of Bretton Woods gold convertibility system,
mainly because he wanted freedom to print more dollars to Nnance the Cold War (Ö⇠D 3E]) and

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3B- BoP & Currency Exchange → Page 530

KING R & QUEEN P Help others god will help you

 arms race against the USSR. You may read more about the Cold War in NCERT PolSci-I
Class12ch1: http://ncert.nic.in/ncerts/l/leps101.pdf
 ¨us, USA shi^ed to ≈Floating Exchange System. Eventually most of the nations also shi^ed in
that either ™oating / managed-™oating system. (B(-k⌫⇡4 F-*ô+⌫ ⇡4 787F(3 5⌫ u4ç4⌫ i⌫ ≥d£ ê534 Pt)
 2000: Ecuador adopted Dollarization i.e. it abandoned the domestic currency and adopted the
US dollar as their oìcial currency. (⇡E≥ 5-ÖdF-B(-k⌫⇡0 *ô+⌫ ⇡d P⇠ BiF⇠ 8t947F⇡ (E\4 (4F +⇠ Pt)

u
yo
32.4.3 Currency Exchange in India
We need not waste time looking at what was the system in India before 1995. But for reference of
non-UPSC Exams:

lp
Towards Fixed Exchange Rate: 7FÄËD 787F(3 5⌫ ⇡0 √⌫ →

he
➢ 1860 onwards: Fixed Fiduciary System. i.e. British Indian Govt can issue Rs.10 crore notes on
Nduciary (≈trust) backed by G-Sec. Beyond that every note must be backed by gold / silver.
British govt Nxed exchange rate between Rupee currency with Pound.

ill
➢ 1923: Dr. Bhimrao Ambedkar's doctoral thesis "¨e Problem of the Rupee" analyzed the
w
economic consequences of the British colonial government's policies on the Indian currency. He
argued that the exchange rate between the Indian rupee and the British pound was unfavorable
d
to India
go

➢ 1935 onwards: Proportional Reserve. RBI must keep ~40% gold to the value of currency issued.
➢ 1946 onwards: Bretton Woods / IMF system of Nxed exchange rate. Wherein m price was Nxed
(pegged) against dollar, and dollar price was Nxed (pegged) against gold.
rs

➢ 1956 onwards: While RBI could issue any amount of Indian currency but that has to be balanced
by the Assets of the issue department (Recall M0). Of course, if RBI printed too much currency
he

backed by only Indian G-sec but (without adequate Gold / Forex Reserve, then IMF may force m
devaluation against Dollar). So, we adopted ≈Minimum Reserve System i.e. RBI must keep m
400 crore of foreign currency/security + m ´xo crore worth gold.
ot

Towards Managed Floating Exchange Rate →

p

✓ 1995 onwards: ≈Minimum Reserve System; «jFD( 2⌫ÇÉD ∞⇢4+⇠ is continued but RBI is required
to only keep m oxo crores of gold. No compulsion for RBI to keep additional 400 crore worth
el

foreign currency or foreign securities. RBI can print as much currency it wants as long as its
H

balanced by the Assets of Issue Dept. (such as Indian G-sec, Foreign Securities, Gold etc.)
System Minimum Reserve system Managed Float system
How much money [M0] can RBI
ObjectiveN How will currency exchange rate decided⌧
generate⌧

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3B- BoP & Currency Exchange → Page 531

KING R & QUEEN P Help others god will help you

 System Minimum Reserve system Managed Float system
RBI ê⇡DF4 i-C4 ≥4i C⇡D⇠ Pt, ÆCC-çE£4 §2 (E\4 787F(3 5⌫ ⇡tC-D3 PdD4 Pt? ÆCC-çE£4 §2 concept
concept PtÕ PtÕ

32.5 IMF SPECIAL DRAWING RIGHTS (SDR: 78Ö-è 2P⌫⇢ Bé9⇡4⌫)

u
A^er the collapse of Bretton Woods Exchange Rate System, IMF was converted into a type of

yo
´deposit banko, where the members would deposit currencies in the proportion of quotas allotted to
them (depending on size of their economy, openness etc).

- IMF will pay them a small interest rate for their deposits. And IMF would lend this money to a

lp
member facing balance of payment crisis. To operationalize this mechanism, IMF would allot an

he
artiNcial currency / accounting unit called SDR to the members based on their deposits. (CÈ 5-Ö
Í4⌫4 ç(4 ⇡0 /3⇠ ⌫4ÇÖ ⇡- C4(F-ÆC-®⇡ ⇡’.1( (E\4 / +-â4 ¢⇡4• 5⇠ ç4D⇠ Pt, ÄçC-®C*⇠2⌫ ⇡PD-Pt)

ill
w
d
go
rs
he
ot

- Initially the price of SDR was Nxed against the amount of gold but present mechanism:
p

Currency Basket Weight Exchange rate against $N

el

U.S. Dollar 43.38% $1=$1

Euro 29.31% 1.13
H

Chinese Yuan (Renminbi úadded in 2015) 12.28% 6.7

Japanese Yen 7.59% And so on
Pound Sterling 8.09 And so on
- By applying a formula involving (weight ï exchange rate), IMF will obtain value of 1 SDR = how
many dollars⌧ Presently, 1 SDR = $1.40 = m 98 (assuming $1 is trading @m 70).

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3B- BoP & Currency Exchange → Page 532

KING R & QUEEN P Help others god will help you

 - SDR is called ñPaper Gold( because itos merely an accounting entry or artiNcial currency, without
any gold involved. (¢C⇡0 i⇠≥- ⇡d• e⇢fFP⇠)Pt, ⇡-8+ ®⇡ êPC4u ê⇡D4u ⇡0 ®⇡ ∞êÑ34 Pt)
- SDR can be traded among the members, it can be converted into memberso currencies as per
above method & be used to settle their Balance of Payment Transactions / Crisis.
- If the BoP crisis is so big, that a countryos entire SDR quota exhausts, then member country may
borrow more SDR from IMF (and then convert it into dollar etc to pay o_ the import bill), but

u
eventually member will have to repay this loan to IMF with interest.

yo
- Individual nationso central Banks keep some of the SDR as Reserve Tranche Position (RTP):
What that means and how does that work is not important. # ±d£4-ißd-2/--ußd

lp
he
ill
w
d
go
rs

FAQ/MORAL Outrage: Why Indian Rupee currency is not in SDR formulaN

he

ANS. IMF reviews the SDR formulaos currencies every Nve years -with two conditions
[A) Country must be among the Top exporter Nations.
ot

[B) Countryos currency need to be ≈freely usable (= capital account convertibility rules shd be
easy/liberal.).
p

32.5.1 IMF SDR Formula weightage reforms 2022

el

Latest weighting Previous weighting

U.S. Dollar 43.38% 41.73%
H

Euro 29.31% 30.93%

Chinese Yuan (Renminbi úadded in 2015) 12.28% 10.92%
Japanese Yen 7.59% 8.33%
Pound Sterling 7.44% 8.09%
Total 100% 100%

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3B- BoP & Currency Exchange → Page 533

KING R & QUEEN P Help others god will help you

 Reason for reform: IMF directors felt this reform was needed based on international trade and
Nnancial market developments from 2017 to 2021.

32.5.2 IMF Quota Reform

- 2016: ¨e total SDR increased, and Indiaos quota was increased from 2.44% to 2.76%
- India is 8th largest quota holder a^er USA (~18%), Japan (~7%), China (~6%)... India (2.76%)
- 2021: IMF members approved adding extra $650 billion dollars worth of SDR to IMF. Indiaos

u
likely to get 2.76% of 650 billion = Approx. 17to18 billion dollars worth of SDR.

yo
32.5.3 IMF Governors
- In IMF, a memberos voting power depends on his SDR quota.

lp
- For India, this voting power is exercised by Indiaos Finance Minister – who acts as the ex-oôcio
Governor in IMFos Board of Governors. (78ü ()1⇠ PdD-Pt2•®(®ò ⇡- i5-F / i5 ⇡- êPC4u C-/8Ff⌫)

he
- If Finance Minister absent, then RBI Governor can vote as the Alternate Governor during the
IMFos meetings. (78ü ()1⇠ ⇡0 /t⌫P4ç⌫⇠ (-8t⇡øÎ⇡ /8Ff⌫ ⇡- †i (õk⌫ñ8fuó⇡ ⇡- /8Ff⌫ 8dã 5-F-ç4 C⇡D-Pó)

ill
MCQ. Recently, which one of the following currencies has been proposed to be added to the basket of
w
IMF's SDRN (UPSC-Pre-2016) (A) Russian Rouble (B) South African Rand (C) Rupee(D) Renminbi
d
32.6 CURRENCY CONVERTIBILITY ((E\4 ik⌫8DfF⇠3D4)
go

Presently, India has managed ™oating exchange rate system wherein, currency exchange rate is
determined by the market forces of supply and demand, however, during high level of volatility RBI
will intervene to buy / sell m or $ to stabilize the exchange rate.
rs

- But if people are allowed to convert the local and foreign currency in an unrestricted manner →
so much volatility that RBI will not be able to manage. (B(34fê5D †i C-+d/d)⇡d (E\4 ik⌫8ƒDD ⇡⌫F-5⇠ Dd
he

787F(3 5⌫ (õ¢DF⇠ z4⌫⇠ B स्थ⌫D4 Pd/⇠ ÄçC-k⌫ç8fuó⇡ ⇡4ujFP⇠)⇡⌫ i4®/4 )

- So, RBI puts certain restrictions on the convertibility of Indian rupee to foreign currency using
ot

the powers conferred under

- Foreign Exchange Regulation Act, 1973 (FERA: 785-Ö⇠ (E\4 787F3(F Bé97F3()
p

- FERA was later replaced by Foreign Exchange Management Act, 1999 (FEMA: iE⌫4F-⇡4FjF
el

(õ(ñ4 FP⇠)2 ⌫P4 ±4 Dd C⌫⇡4⌫ F-F34 ⇡4FjF uF434- 785-Ö⇠ (E\4 ∞u)9F Bé97F3()

32.7 RBI RESTRICTION ON CONVERTIBILITY OF RUPEE: hi3-⇡0 ik⌫8DfF⇠3D4

H

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3B- BoP & Currency Exchange → Page 534

KING R & QUEEN P Help others god will help you

 Convertibility on Capital Account Transactions: ÇPwK }\q\ RTm]Tm J

BoP → Capital Account → Borrowing → External commercial borrowing (ECB)

- u4P⌫⇠ 84Ç⇢Ï¥⇡ Æ94⌫: RBIos ECB ceiling is up to $1.50 billion (or equivalent other currency) per year
for Indian Companies. [z4⌫D⇠3 ⇡)i7F34)∞7D8èf¢C (414 C-¥454 ⇡çf785-Öd)C-FP⇠)+4 C⇡D⇠]

u
- ¨at means even if Bank of America was willing to lend $3 billion to Reliance ltd, Mukesh

yo
Ambani canot bring all those dollars (or its converted rupee equivalent) in India.
- If he tries through illegal methods like Hawala, then Enforcement Directorate (ED ∞8DfF 7F5ÌÖ4+3 )
will take action for FEMA violation.

lp
he
ill
w
d
go
rs
he
ot
p
el
H

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3B- BoP & Currency Exchange → Page 535

KING R & QUEEN P Help others god will help you

 BoP → Capital Account → Investment → FPI

- An FPI canot invest in more than 5% of available G-sec in the Indian market and more than 20%
of the available corporate bonds in the Indian market.
- So, even if Morgan Stanley or Franklin Templeton investment fund has billions of dollars they
canot bring them all to India because of above restrictions.

u
- Similar restrictions on FDI as well. Govt decides FDI policy → RBI mandates the forex dealers

yo
accordingly to convert or not convert foreign currency into Indian currency. E.g. Las Vegasos
Flamingo Casino company canot convert $ into m to invest in Goaos Casino (Because FDI
prohibited in Casino). If they manage to ´smuggleo rupees through Hawala / MaNa-don-walla

lp
boats then again ED will take action for FEMA violation.
¨us, Indian rupee is not fully convertible on capital account transactions.

he
Convertibility on Current account transactions: L↵ MN↵ ↵ ⌅⇣⇤⌅⇣ ⇢

BoP → Current account → Trade → import (of Gold)

ill
 During 2013 to 2014, RBIos 80:20 norms mandated min.20% of the imported gold must be
w
exported back.
 Until then Jeweller/bullion dealers will not get permission to (convert their rupees into
dollars/foreign currency) to import next consignment of gold.
d

 However, if we disregard such few rare examples/restriction, Indian rupee is considered fully
go

convertible on current account transactions (i.e. Import and export, remittance, income transfer
gi^ and donations) since 1994. à4+jâ4D4 +-F5-F i⌫ hi3-⇡0 ik⌫8DfF⇠3D4 CÓj⇢fPtÕ
rs

32.7.1 Full convertibility of Rupee :û[TLW ÇMgvJ`qgmK[q\?

he

MeaningN India should permit unrestricted conversion of Indian m to foreign currency for both
current account and capital account transactions. → more FDI investment in India → NPA
problem solved, new factories, jobs, GDP growth, rivers of honey and milk will ™ow.
ot

Anti-Arguments:
p

 Before 1997, East Asian ≈Tiger economies: (South Korea, Indonesia, Malaysia, ¨ailand,
el

Vietnam Philippines etc.) allowed full capital account convertibility to attract FDI.
 But 1997: ¨eir automobile & steel companies Nled bankruptcy → ¨e foreign investors
H

panicked, sold their shares and bonds → got local currency → converted into $ and ran away.
¨e ™ight of this ñHOT MONEY( resulted into extreme depreciation of local currency $1 = 2000
Indonesian Rupiah → $1= 18,000 Indonesian Rupiah → heavy in™ation in petrol diesel →

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3B- BoP & Currency Exchange → Page 536

KING R & QUEEN P Help others god will help you

 social unrest, riots and political instability. None of their central banks had enough forex reserve
to combat this crisis. (3ê5 z4⌫D (õ¢C⇡0 BFE(7D 5⇠ Dd 5ÇÉ⇢ ⇡dk⌫34 ë⌫ ¢)*dF-ÇÖ34 çtC⇠ C(Ô4 Pd C⇡D⇠ Pt)
 So, in 1998, their GDP growth rates fell in negative territory e.g. Indonesia (-13.7%) Because of
their mistake of allowing full currency convertibility. Whereas India and China grew at 6-8%
because we had not allowed it.

u
32.7.2 > " Convertibility → S.S. Tarapore Committee (1997)

yo
He suggested India to allow full Capital Account Convertibility (CAC) only when the fundamentals
of our economy become strong enough, such as: ( D4⌫4iE⌫ C.(7D ⇡- êPC4u C-3ê5 z4⌫D⇠3 B±fD)1 ⇡0 uE7F345
®⇡5( (çujD Pd ç4® Dd ij⇢fik⌫8DfF⇠3D4 BFE(7D ⇡0 5-F⇠ à4êP®)

lp
 RBI must have enough forex to sustain 6 monthso import

he
 Fiscal deNcit must not be more than 3.5% of GDP
 In™ation must not be more than 3-5%
 Bankso NPA must not be more than 5% of their total assets. And so forth. So, time is not yet ripe
for allowing full CAC.
ill
w
MCQ. Convertibility of rupee implies:(Asked in UPSC-Pre-2015)
d

(a) being able to convert rupee notes into gold.

go

(b) allowing the value of rupee to be Nxed by market forces.

(c) freely permitting the conversion of rupee to other currencies and vice versa.
(d) developing an international market for currencies in India.
rs
he

32.7.3 > Convertibility → RBI reforms (2004-2019)

While RBI has not permitted full convertibility of Indian rupee (on Capital Account), but over the
years it has liberalised the norms, such as (ij⇢f†i C-≥jã Dd FP⇠)5⇠, +-ê⇡F Æ54⌫⇠⇡⌫⇢ C⌫+⇠⇡⌫⇢ ê⇡34 Pt)
ot

 2004 → Liberalised Remittance Scheme (LRS: Æ54⌫⇠⇡’D 78∞-è⇢ 3dçF4) for each Nnancial year, An
Indian resident (incl. minor) is allowed to take out upto $2,50,000 (or its equivalents in other
p

currencies) from India.

el

 He may use it for either current account or capital account transaction as per his wish. (e.g.
H

paying for college fees abroad, buying shares, bonds, properties, bank accounts abroad.)
 ControversyN Panama papers allege certain Bollywood celebrities used LRS window to shi^
money from India in their shell companies in tax havens → later used those shell companies for
tax avoidance. [Ref: Black Money Handout for more]
 2016 onwards: RBI began relaxing the norms for External Commercial Borrowing (ECB),

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3B- BoP & Currency Exchange → Page 537

KING R & QUEEN P Help others god will help you

 Before-2016 2016 onwards 2022 onwards
ECB limit → more strict relaxed to $750 million per $1.50 billion per
company per year. company per year.
( Although ECB is prohibited in certain categories e.g. purchase of farm house, tobacco, betting,
gambling, lottery etc. ⇡E≥ É-1d (õ785-Ö⇠ ⇡çf+-F-⇡0 (F4•)

32.7.4 FEMA Rules for Indian resident(s overseas investment (2022-Aug)

u
 No Indian resident can invest in foreign companies who are doing gambling biz or real estate biz.

yo
 Wilful defaulters need to get a No Objection CertiNcate (NOC) from Indian authorities (RBI, ED
etc) before making any ´Nnancial commitmento abroad (e.g. taking new loan from USA)
 plus many other technical things but not very IMP for Exam.

lp
32.7.5 (Prepaid) Forex CardN

he
e.g. HDFC Hajj Umrah Card (Saudi Riyal Currency)

• pay Rs.2.65 lakh to HDFC to get Prepaid Forex card worth 12000 Saudi Riyal balance.
• need not carry physical foreign currency to Saudi. Swipe the card for shopping in Saudi.

ill
w
32.8 LRS: TCS ON FOREIGN: TRIP / SHOPPING / INVESTMENT (2023-OCT)
d
go
rs
he

 Under the RBIos LRS scheme, an individual can remit up to USD 2.5 lakh annually overseas
ot

without approval of the RBI. (2.50 lakh Dollars= 2.07 crore Rupees; when 1Dollar=83Rs)
 Remittances beyond the USD 2.5 lakh or its equivalent in foreign currency require approval from
p

the RBI.
 If Indian resident spending money abroad, his banker/NBFC/Forex supplier in India is required
el

to collect TCS in following rates:

H

Foreign Payment Debit Card/ Forex Card/

Credit Card
Method Bank-transfer
No. Money spent via credit card is not Yes. Rates given below in next
TCS applicable
counted under LRS quota table:

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3B- BoP & Currency Exchange → Page 538

KING R & QUEEN P Help others god will help you

 32.8.1 TCS Rates from 1/October/2023
Type of transaction upto >7 lakh beyond >7 L
Foreign tour package, foreign shopping 5% 20%
overseas investments in foreign companies( shares, bonds,
0% 20%
real estate etc.

u
Education / medical treatment 0% 5%

yo
Any other purpose e.g. donation, pilgrimage, gi/ing etc. 0% 20%
Note: there are many terms-conditions here e.g. medical trip ke liye separate rules, education loans
ke liye separate TCS rules but weore not for Chartered Accountant exam, basic is enough.

lp
32.8.2 TCS on LRS: Objectives

he
 Discourage Indians from too much shopping abroad (because more foreign shopping = higher
CAD= not good for BoP/ exchange rate stability).
 Data surveillance on Tax evaders.

ill
 Note: TCS is not additional tax. - it is adjusted against the income tax liability- just like TDS.
(Ref: Pillar#2A1 for more)
w
32.8.3 TCS FAQ by Zhande-walle Babushone:
d

I am putting FAQ here So even the other newcomers can train their brain ke how to not think like
go

Zhande-walle Babushone when studying economy– IF u really want to Nnish syllabus in time
FAQ Ans.
bhai dhyaan se handout padho na.
rs

TDS = when banker 'pays' you interest on your

in Pillar2A1 u said bankers cut TDS but here
deposits.
he

you're saying banker cut TCSüüüüüüNNNN WHY

TCS = when banker is 'selling' you foreign
currency / selling currency conversion services.
ot

If I swipe debit card to pay seller 10 lakh rupees

abroad, how much money will be chargedN
TDS gets 'cut' from payment.
p

Option: 8 lakh to seller + 2 lakh TCS = 10 lakh

TCS gets 'added' to the payment.
OR
el

So ans is Option-B, but not imp4exam.

OptionB: 10 lakh to seller + 2 lakh TCS = 12
H

lakh.
If tour package is 8 lakh then whole 8 lakh pe
show me one PYQ where UPSC asked such
20% or 7 lakh tak 5% and then remainder 1
faaltu-ki-real life / practical dilemmas.
lakh pe 20%N

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3B- BoP & Currency Exchange → Page 539

KING R & QUEEN P Help others god will help you

 FAQ Ans.
Notimp4Exam because govt did not explicitly
give oìcial reason. My guess is
1. ¨ere was heavy social media outrage credit
Why foreign spending using Credit cards card users against TCS on credit card so perhaps
exempted from TCSN govt did not want to lose the voters among upper

u
middle class / elite people.

yo
2. For CBDT, it is easy to trace credit card data,
EVEN without cutting TCS.
Youore making khichdi of concepts. Donot mix

lp
up photo frames pillar2A1 with Pillar 3. We are
here talking only about foreign spending. nd we

he
if I buy luxury car using credit card within
are not for Chartered Accountant exam. If
India, then TCS applicableN
something not explicitly mentioned in Press
statement or newspaper articles, I donot search

ill
for its answers.
w
I am Nnished with this topic. Mere ko maaf karo.
other 500 jaat ke doubts/FAQs on this matterN
±d£4-ißd-2/--ußd.
d
go

32.9 FCRA ACT

Sr No. MATTER RULES/LAWS APPLICABLE→
1 is Indian sending money abroad for current Yes→FEMA Act→ LRS
rs

account or capital account transactionsN (liberalized remittance scheme)

2 is foreign money coming to India for Indian Yes→ FEMA Act
he

export earning payment, FDI/FPI etc cnancial

investment, ECB loans etc N
3 is foreign money coming to India for matters Yes→ FCRA Act
ot

other than cell#2. e.g. inward-donation, inward-

remittance to India etc.
p

32.9.1 FCRA on donations

el

1) Foreign Contribution Regulation Act 2010 (FCRA -785-Ö⇠ B)Ö54F 787F3(F Bé97F3().
2) if NGO (Non-Governmental Organization) / Universities were allowed to accept foreign
H

donations in an unrestricted manner, they may become puppets of ISI / Pakistan / China / CIA.
3) So, Ministry of Home A_airs (MHA) requires them to ´registero and furnish annual reports.
4) Organizations who fail to comply with it, are prohibited from accepting foreign donations.
(z4⌫D (õ⇡4( ⇡⌫ ⌫P-C(4çC-8⇠ C)स्थ4F/ 3j7F8Cã⇠ ¢Ò4ê5 B/⌫ 785-Öd)C-à)54 +-D-PóDd ÆØd)F-/’P ()14+3 C-i)ç⇠⇡⌫⇢ ⇡⌫84F4
PdD4 Ptë⌫ C4+4F4 k⌫idãfç(4 ⇡⌫F-PdD-Pó.)

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3B- BoP & Currency Exchange → Page 540

KING R & QUEEN P Help others god will help you

 32.9.2 FCRA on remittance
BEFORE A/er 2022-reform
How much money can Indian receive from his relatives m1 lakh m10 lakhs
abroad without informing the authorities.
BeneNt⌧ Ease of receiving foreign money without legal-paper-work → more $ to India→ prevents
more fall of rupee. (7uF4 C⌫⇡4⌫ ⇡d CjÀàD ê⇡® C4+4F4 10 +4â hi3-D⇡ ⇡0 ⌫⁄( 785-Ö (õ⌫PD-BiF-k⌫Ú-54⌫d)C-2i (∫/84
C⇡D-Pó.)

u
yo
32.10 CURRENCY WAR → FALL OF INDIAN > & RBI(S RESPONSE

lp
he
ill
w
d
go
rs
he
ot
p
el

What does this mean⌧ How does it work⌧ Ans. Watch Video Lecture.
H

32.11 RBI'S CURRENCY SWAPS (Oru\ ò£/p]R\{]RK eO§•q\)

32.11.1 RBI(s Currency Swap Agreement with Japan (Oru\ ò£/p]R\{]RK eO§•q\)

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3B- BoP & Currency Exchange → Page 541

KING R & QUEEN P Help others god will help you

 u
(img source: Taarak Mehta Ka Ooltah Chashmah)

yo
e.g. Central banks of India and Japan signed Currency Swap Agreement of $75 billions i.e. either
party can use that much dollar currency from other partyos forex reserve during the crisis.

lp
32.11.2 RBI Currency Swap with Indian Bankers
2022-March: RBI done $5 bn dollar-swap with Indian Bank/NBFCs to dollar supply in Indian

he
market, to prevent weakening of Rupee.

ill
w
d
go
rs
he
ot
p
el
H

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3B- BoP & Currency Exchange → Page 542

KING R & QUEEN P Help others god will help you

 u
yo
lp
he
ill
w
d
FAQ: will this change in money supply - not cause XYZ problem- in inbation, loan interest rate
etcN Ans. look at one photo frame at a time. Do not make Birbal Khichdi unnecessarily.
go

32.11.3 Challenges to India(s BOP by ES22 and ES23

 ES22 has identiced following challenges: 1) Fed Tapering: risks of global liquidity
rs

tightening 2) In™ation in global commodity prices 3) high freight costs 4) Geo-political crisis in
Ukraine 5)
he

 Challenges to Indiaos BoP as per ES23

 USA Fed Tapering impact on India→ 1) tightening of dollar supply 2) share market volatility 3)
ot

out™ow of FPI money (B(-k⌫⇡0 ò-* ã-ik⌫)/ ⇡- à+D-z4⌫D (õ*ô+⌫ 2ijƒD (õD)/⇠/⇡ãwD⇠, ®òi⇠2• ⇡4 7F⇡+ z4/F4,
Ö-3⌫ u4ç4⌫ (õ./⌫48ã)
 Local Currency depreciation (स्थ4F⇠3 (E\4 ⇡4 ⇡(çd⌫ PdF4)
p

 Slowdown in global growth and trade ( 8tÄÅ⇡ 8’.] ë⌫ Á4i4⌫ (õ()5⇠)

el

 In™ation in global commodity prices and food prices ( 8¬Eë⌫ â4µ à⇠çd)⇡- 8tÄÅ⇡ 54(d)(õ(P)/4•)
 Russia-Ukraine con™ict and other geopolitical crisis. (zj-⌫4çF⇠7D⇡ C)⇡ã)
H

 COVID-19 new variants.

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3B- BoP & Currency Exchange → Page 543

KING R & QUEEN P Help others god will help you

 32.11.4 Currency Exchange Rate → Attracting Dollars: VRR and FAR
Voluntary Retention Route (VRR: : etø∑⇡ B894⌫⇢ (4/f) and Fully Accessible Route (FAR: CÓj⇢fD: CE/Û
(4/f) are technical rules / systems of RBI to encourage foreigners to buy Indian companieso Bonds and
Indian Govtos G-Sec. how exactly they work⌧ Ans. Technical stu_, NOT IMP for Exam. Just accept
and move to next topic.

BenectN Investors will convert $ & other foreign currency into m to buy Bonds and G-Sec= more $

u
$ coming towards India = helps keeping BoP and currency exchange rate stable during crisis.

yo
Note: RBI frequently / in FPI investment quota/limits in G-sec, depending on how RBI wants
to shape bond-yield, ™ow of dollars & available quota of G-sec for local investors to play its repo &

lp
OMO games. But that ball by ball chase is NOTIMP. 8d Cu i)à4D P(4⌫- ⇡4( ⇡0 FP⇠).

he
32.11.5 RBI-Govt(s measures to prevent fall of Rupee (2022-Jul-Aug) APT

 RBI Exempts Foreignerso deposits in Indian bank from CRR and SLR. ¨is will encourage
bankers to o_er attractive deposit interest rates to such clients → dollar ™ow → stable rupee /

ill
prevent weakening of rupee (in the a^ermath of US Fed Tapering). How⌧ Ref this Video for
w
more: https://youtu.be/KoiXkAreWoA (785-Ö⇠3d ⇡- ÙàD â4Dd)i-z4⌫D⇠3 uõ⇡d F-C⇠2⌫2⌫ 8 ®C®+2⌫ FêP
7Fz4F4 Pd/4Õ D4ê⇡ ÆF â4Dd)i⌫ z4⌫D⇠3 uõ⇡⌫ 785-Ö⇠ ÁÜá ⇡d fi454 ı4ç-5⌫ 5-C⇡- ë⌫ 785-Ö⇠ +d/ 2⇡ƒèD Pd⇡⌫ ∂-⌫
d
C4⌫4 785-Ö⇠ 9F z4⌫D (õ+-⇡⌫ 2®Õ)
go

 (2) RBI increased with the limit of external commercial borrowings (ECB) from present 750
million dollars to to $1.5 billion per Nnancial year.
 (3) RBI relax to the guidelines related to FPI investment in G-Sec and Bonds.
rs

 Govt: Foreign Contribution (Regulation) Act, 2010os donation limits amended allowing
Indians to receive upto 10 lakh a year from their relatives abroad without informing the
he

authorities. (¨e previous limit was 1 lakh) (7uF4 C⌫⇡4⌫ ⇡d CjÀàD ê⇡® C4+4F4 10 +4â hi3-D⇡ ⇡0 ⌫⁄( 785-Ö
(õ⌫PD-BiF-k⌫Ú-54⌫d)C-2i (∫/84 C⇡D-Pó)
ot

 Govt: Customs duty on gold hiked to 12.5 per cent from 7.5 per cent to discourage imports.
(785-Öd)C-234D PdF-84+-CdF-i⌫ +/F-84+⇠ C⇠(4 ÖEˆ (õußdD⌫⇠ ⇡0 /• PtÕ)
p
el
H

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3B- BoP & Currency Exchange → Page 544

KING R & QUEEN P Help others god will help you

 32.12 RUPEE ROUBLE AGREEMENT

u
yo
lp
he
ill
w
d
 2018-Dec: India signed pact with Iran to pay crude oil bill in rupee currency. National Iranian
go

Oil Co (NIOC) will open a bank account in Indiaos UCO Bank (a PSB). Indian oil companies will
make payments there in m currency. ¨en Iran used this m income to pay for Indian Tea & Rice
purchase → helps the demand of dollars. ( However later, due to American pressure, govt
rs

of India stopped this arrangement).

 2022: Russian banks banned from the SWIFT messaging system that enables international
he

Nnancial transactions. (Ref: Pillar1B2)

 So, Russia proposed ≈Rupee-rouble trade agreement. (´Roubleo sometimes also spelled as
ot

´Rubleo. 1 Ruble = 100 kopeks. Just like m1= 100 paisa)

 In such agreement, India pays for Russian imports in rupee currency and then Russian
companies will use that money to import goods from India.
p

(z4⌫D †C C-⇡…4 D-+ 234D ⇡⌫-/4 Du zE/D4F hi34 (E\4 (õ⇡⌫õ → ÆF hi3d)C-†C⇠ C⌫⇡4⌫⇠ ⇡Ó7F34)- z4⌫D C-BF4ç-
el

584¢34)¢Ò4ê5 —⌫⇠5-. †C i⌫ ˜e¯ã 78ü⇠3 C)5-Ö ∞⇢4+⇠ ⇡0 i4u)ê53d)⇡- à+D-8d ®C4 C(vwD4 ⇡⌫F-⇡d u-D4u PtÕ ®⇡ ñ(4F-(õ
z4⌫D F-•⌫4F ⇡- C4± z⇠ ⇡E≥ ˘C4 P⇠ C(vwD4 ê⇡34 ±4Õ)
H

32.12.1 Nostro Vostro Accounts- settlements with Russia and SriLanka

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3B- BoP & Currency Exchange → Page 545

KING R & QUEEN P Help others god will help you

 u
yo
lp
he
ill
w
 Picture is worth 1000 words. What it means⌧ Explained in video.
d
 India has begun utilising such accounts for doing import from Russia, SriLanka, Malaysia etc.
go

32.12.2 Internationalisation of Indian rupee (á\JqK[ û[TL\ pPqJJ\¶ßK[LJM )

CURRENCY SHARE IN GLOBAL FOREX RESERVES AS PER ES23
US dollar (USD) 88%
rs

Indian rupee (INR) 1.6%

he

Minimum % required to be 4% (as per ES23) (B+/-B+/ 5-Öd)⇡- ⇡õ\⇠3 uó⇡ ⇡- òô⌫-ö 2ijƒD
called ñinternational currency( z)*4⌫d)(õ, çu «jFD(/⇡( C-⇡( 4% ç¡4 z4⌫D⇠3 hi® ⇡4 Pd/4- Du z4⌫D⇠3
(E\4 ⇡4 B)D⌫⌫4{|⇠3 ⇡⌫⇢ Pd àE⇡4 Pt˘C4 (4F4 ç4®/4Õ)
ot

Internationalization means increasing the use of Rupee for current & capital transactions, and in
forex reserve of other nations. (à4+jâ4D-ij)ç⇠ â4D-, 8˙B« 5-Öd)⇡- òd⌫-ö z)*4⌫d)(õhi® ⇡4 à+F uß4F4)
p

Benect (f\[]T) Challenges (ârm•_q[\P)

el

reduces the dependence of dollars India does not have enough export products that attract
& currency exchange rate Russians. So, once Ukraine war is over, Russians will not do
H

volatility (*ô+⌫ i⌫ 7Fzf⌫D4 D±4 787F(3 such deals. India need to increase Quality and variety of its
5⌫ ⇡0 B स्थ⌫D4 ⇡( ⇡⌫-/4) exports.
[†éC3d)⇡d iC)5 Pt˘C⇠ u§D C4⌫⇠ à⇠ñõz4⌫D uF4D4 FP⇠)¢C≠+® 3jÑ-F 3E] —W
PdF-⇡- u45 Pd C⇡D4 Pt†C⇠ P(4⌫- C4± ˘C4 C(vwD4 ⌫˚ ⇡⌫ 5-]
reduces the danger of ≈imported if Russian Exporter uses his rupee payment to invest in

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3B- BoP & Currency Exchange → Page 546

KING R & QUEEN P Help others god will help you

 Benect (f\[]T) Challenges (ârm•_q[\P)
in™ation that happened with Indian share market….but when/IF he suddenly quits by
expensive dollar → expensive panic-selling those shares, itoll crash Indian sharemarket. [†C⇠
petrol. (*ô+⌫ (P∫/4 PdF-i⌫ z4⌫D (õi-ã|d+ 7F34fD⇡ ÄçC-z4⌫D⇠3 hi3-(õitC4 .(+4 Pt8P ÆØõhi3d) ⇡d z4⌫D⇠3 Ö-3⌫ u4ñ4⌫
(P∫/4 Pd ç4D4 PtÆC 2347DD (P∫/4• ⇡- (õ7F8-Ö ⇡⌫-/4Õ +-ê⇡F çu ®⇡ ê5F 8d Bà4F⇡ C-ÆF Ö-3Cf⇡d i4F⇠ ⇡- z48 utà
—D⌫- ⇡d ⇡( ⇡⌫-/4) ⇡- z4/ ç4®/4, Du z4⌫D⇠3 Ö-3⌫ u4ñ4⌫ ./⌫ C⇡D4 Pt]

u
reduces Indiaos vulnerability to Increases Indiaos vulnerability to how Russian/Sri Lankan,

yo
global-shocks like US Fed Non-Indian exporters/investors react to such global
Tapering/ Taper Tantrum (B(-k⌫⇡0 situations. (785-Ö⇠ 7F34fD⇡ ÄçØõz4⌫D⇠3 hi34 (õitC4 .(+4 Pt8P 8tÄÅ⇡
ò-* ãtik⌫)/ çtC⇠ 8tÄÅ⇡ äãF4√)(õz4⌫D ⇡0 äãF4√)i⌫ ⇡tC-8DfF ⇡⌫D-PóÆC i⌫ z4⌫D ⇡0 ztµD4 uß-/⇠)
ztµD4 ⇡d ⇡( ⇡⌫-/4)

lp
Some more benectsN

he
 makes it easier for India to trade with countries that are banned by USA and western powers /
SWIFT messaging system e.g. Russia, Iran. [B(-k⌫⇡0 ë⌫ iÄË(⇠ (P4Cü4√)F-†C •⌫4F çtC-5-Öd)i⌫ çd i4u)ê534)
+/43⇠ PtÆC⇡- u48çj5 z⇠ z4⌫D ÆF uêP¸’D 5-Öd)⇡- C4± Á4i4⌫ 2C4F⇠ C-⇡⌫ i4®/4Õ]

ill
reduces the cost of doing business because Indian businessmen does not have to pay
w
fees/commission to forex agent for converting rupee currency into dollars. [785-Ö⇠ (E\4 ik⌫8ƒDD ⇡⌫F-
84+-®çõã ⇡d ”0C FP⇠)5-F⇠ Pd/⇠, ¢C≠+® 9)94 ⇡⌫F-⇡0 +4/D —àf⇡( Pd/⇠]
d
Conclusion: ¨ere are risks but they are unavoidable if India wants to be an ´Atma-Nirbharo
go

economic superpower.

32.12.3 Yuan as global currencyN

 2015: Yuan added in SDR basket of currency. → It acceptance of Yuan in global economy.
rs

 China is also loaning Yuan to other nations for infra. development in One Belt One Road
he

Initiative (OBOR: ®⇡ É-1 ®⇡ (4/fiP+), via AIIB and BRICS bank, and even via Panda Bonds.
 In future, China may have to be less dependent on dollar$ while importing oil, missiles, metal
and food commodities- as other nations begin to happily accept Yuan.
ot

 Such Yuan dominance may pose strategic challenges to USA and India.
p

32.12.4 Dollar- the Global Currency & yDE-DollarizationyN (`£®©L-ZJ™ëq-Oru\)

 Foreign exchange reserves of 150 nations- internal composition is: 55% US dollars, 30% euros,
el

2% Yuan (Renminbi, Chinese currency) and 13% Misc. other currencies. ¨at shows majority of
H

the nations keep large % of their forex reserve in US dollar. 78Å ⇡- fi454D⌫ 5-Öd)⇡- 785-Ö⇠ 2⌫ÇÉD 7Fé9
⇡dè (óu§D43D †i C-*ô+⌫ (E\4 (õ¢F itCd)⇡d ⌫â4 ç4D4 PtÕ
 ¨us US dollar is presently the ≈Global Reserve Currency. (*ô+⌫ ⇡d 8tÄÅ⇡-2⌫ÇÉD-(E\4 (4F4 ç4D4 PtÕ)
 ≈de-dollarisation = Attempts to the domination of $ in forex reserve and in international
transactions. e.g. 2021: Russian Central Bank reduced dollar-denominated assets to 16% in its

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3B- BoP & Currency Exchange → Page 547

KING R & QUEEN P Help others god will help you

 forex reserve. (785-Ö⇠ (E\4 z)*4⌫ (õD±4 B)D⌫4f{|⇠3 +-F5-F (õB(⌫⇠⇡0 *ô+⌫ ⇡4 ∞zEQ ⇡( ⇡⌫F4)
 Can Indian rupee become global reserve currency⌧ Ans. In a very long future yes if, India adopts
full capital account convertibility, keeps in™ation, Nscal deNcit, currency exchange rates under
control and becomes a sizeable exporter and global economic superpower. (hi34-(E\4 ˘C4 5ç4fP4éC+
⇡⌫õ/⇠ çu 3ê5 ij∫ç⇠-â4D-(õC)ij⇢f†i C-ik⌫8DfF⇠3D4 5⇠ ç4®, (P∫/4• ⁄4uj(õ⌫P-, ⌫4ç⇡dè⇠3 ä4ã4 ⁄4uj(õ⌫P-, (E\4 787F(3 5⌫
⁄4uj(õ⌫P-, ë⌫ z4⌫D ®⇡ u£4 7F34fD⇡ ë⌫ 2±⇡ (P4Cü4 uF⇡⌫ ê5â4®- Dd êò⌫ ®C4 Pd C⇡D4 P-Õ)

u
yo
lp
he
ill
w
d
go
rs
he
ot
p

32.13 MISC. CONCEPTS: QUANTITATIVE EASING AND FEDERAL TAPERING

el

 2007-08: Subprime crisis in USA → Borrowers unable to repay home loans → American Banks
H

NBFCso bad loans / NPA / toxic assets increased → to help them, US Federal Reserve printed
new dollars & used $ to buy those toxic assets/bonds (also known as mortgage-backed securities
(MBS) → dollar supply in the system. Known as ≈Quantitative Easing ((414W⇡ 2C4F⇠).
 2013: American Central Bank (US Federal Reserve) gradually cut down its toxic asset
purchasing program → less quantity of dollars issued → called ≈Fed Tapering (C)ä⇠3 ã-7i/) ).

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3B- BoP & Currency Exchange → Page 548

KING R & QUEEN P Help others god will help you

  ResultN= (perceived) shortage of dollars in USA → Loans% become more expensive in USA→
American investors began selling shares/bonds in other countries, and took their dollars back to
USA (to lend to local businessmen). ¨is phenomenon was called ≈Taper Tantrum. It resulted
into weakening of other currencies against USD. [/t⌫ B(-k⌫⇡0 5-Öd)⇡0 (E\4®) u§D ⇡(çd⌫ Pd /• ±⇠]

u
yo
lp
he
ill
w
 2020: During Corona, American Central Bank again started purchase of Bonds to increase
money supply in market. (⇡d⌫dF4 (õB±fD)1 ⇡d iEFç˝78D ⇡⌫F-⇡- ≠+® 84iC 3-D(4Ö4 ÖE† ê⇡34 ±4)
d
 .en what happenedN Is explained in above chart, also in Pillar1A2 (MonPolicy) and 1C
go

32.13.1 Strong dollars squeezes global credit

(çujD *ô+⌫ C-8tÄÅ⇡ ⇡çfÆi+ŸD4 ⇡d 7Fàd£ ⇡- ⌫â 5-D4 Pt
rs
he
ot
p
el
H

MCQ. Statement I: A very strong US Dollar squeezes global credit. (UPSC-EPFO-2023)

Statement II: Many countries and companies outside America borrow in Dollars.
(a) Both statement I and II are correct and statement II is the correct explanation for I
(b) Both statement I and II are correct and statement II is not the correct explanation for statement I
(c) Statement I is correct but II is incorrect (d) Statement I is incorrect but II is correct

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3B- BoP & Currency Exchange → Page 549

KING R & QUEEN P Help others god will help you

 32.13.2 Misc. Concepts: Helicopter Money & Zero interest rate regimes

u
yo
lp
he
ill
w
d
go

MCQ. Find Correct Statements (Prelims-2022)

1. Tight monetary policy of US Federal Reserve could lead to capital ™ight. (B(⌫⇠⇡4 (õC)⇡EàF 845⇠ (wê\⇡ F⇠7D ⇡-
à+D-z4⌫D (õC-ij)ç⇠ ⇡4 /(F Pd C⇡D4 Pt)
2. Capital ™ight may increase the interest cost of Nrms with existing External Commercial Borrowings
rs

(ECBs). (ij)ç⇠ /(F ⇡- à+D-ÄçF ⇡)i7F3d)F-785-Ö⇠ 84Ç⇢Ï¥⇡ ⇡⌫ ≠+34 PtÆF⇡- ı4ç ⇡4 —à4fuß C⇡D4 Pt)
3. Devaluation of domestic currency decreases the currency risk associated with ECBs. (स्थ4F⇠3 (E\4 ⇡d ⇡(ñd⌫
he

⇡⌫F-C-785-Ö⇠ 84Ç⇢Ï¥⇡ ⇡ñf⇡- C4± çE£-(E\4 çd˛â( ⇡( Pd C⇡D-Pó)

Codes: (a) 1 and 2 only (b) 2 and 3 only. (c) 1 and 3 only. (d) 1, 2 and 3
ot

MCQ. In the context of India, which of the following factors are contributors to reducing the risk of a
currency crisisN ( Prelims-2019)
1. ¨e foreign currency earnings of Indiaos IT sector.
p

2. Increasing the government expenditure.

el

3. Remittances from Indians abroad.

Answer Codes: (a) 1 only (b) 1 and 3 only (c) 2 only (d) 1,2 and 3 only
H

MCQ. Which one of the following is not the most likely measure the Government/RBI takes to stop the
slide of Indian rupeeN (Prelims-2019)
(a) Curbing imports of non-essential goods and promoting exports
(b) Encouraging Indian borrowers to issue rupee denominated Masala bonds
(c) Easing conditions relating to external commercial borrowing

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3B- BoP & Currency Exchange → Page 550

KING R & QUEEN P Help others god will help you

 (d) Following an expansionary monetary policy

MCQ. .e price of any currency in international market is decided by: (Pre-2012)

1. ¨e World Bank.
2. Demand for goods/services provided by the country concerned.
3. Stability of the government of the concerned country. [ÆC 5-Ö (õC⌫⇡4⌫ ⇡0 स्थ⌫D4]
4. Economic potential of the country in question. [ÆC 5-Ö ⇡0 2±⇡ É(D4]

u
Answer codes: (a) 1, 2, 3 and 4 (b) 2 and 3 (c) 3 and 4 (d) 1 and 4

yo
MCQ. If another global cnancial crisis happens in the near future, which of the following
actions/policies are most likely to give some immunity to IndiaN (Prelims-2020)
1. Not depending on short-term foreign borrowings [+äEB8é9 ⇡- 785-Ö⇠ ⇡çfi⌫ 7Fzf⌫ F ⌫P4 ç4®]

lp
2. Opening up to more foreign banks [Bé9⇡ 785-Ö⇠ uó⇡d ⇡d Ö4â4®∫ âE+F-5⇠ ç4®]
3. Maintaining full capital account convertibility [ij)ç⇠ â4D-i⌫ ij⇢f†i C-ik⌫8DfFÖ⇠+D4]

he
Codes: [a) 1 only [b) 1 and 2 only [c) 3 only [d) 1, 2 and 3

MCQ. Consider the following actions which the Government can take: (Prelims-2011)
1. Devaluing the domestic currency. [5-C⇠ (E\4 ⇡d ⇡(çd⌫ ⇡⌫õ]
2. Reduction in the export subsidy. [7F34fD-Cø›*⇠ ⇡( ⇡⌫õ]
ill
w
3. Adopting suitable policies to attract greater FDI and Flls. [785-Ö⇠ 7F8-Ö ⇡d ußdD⌫⇠ 5õ]
Which of the above can help in reducing the current account deNcit⌧
Codes: A) 1 and 2 B) 2 and 3 C) 3 only D) 1 and 3
d
go

.e e~ect of devaluation of a currency is that it necessarily _ _ _ . [Pre-2021]

1. improves the competitiveness of the domestic exports in the foreign markets
2. increases the foreign value of domestic currency [स्थ47F⇡ (E\4 ⇡- 785-Ö⇠ (jà (õußdD⌫⇠ Pd/⇠]
3. improves the trade balance [Á4i4⌫ C)DE+F u-PD⌫ Pd/4]
rs

Codes: a) 1 Only b) 1 and 2 c) 3 Only d) 2 and 3

he

32.14 EXCHANGE RATE → MISCELLANEOUS TERMINOLOGIES

ot

32.14.1 NEER and REERN (Hindi not imp because only prelim relevant)
In real life we are not just trading with USA but other countries, using foreign currencies other than
US dollars (Euro, Pound, Yen, Yuan etc).
p
el
H

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3B- BoP & Currency Exchange → Page 551

KING R & QUEEN P Help others god will help you

 u
yo
lp
he
ill
w
 ¨erefore, only tracking $1=60, $1=70 will not give a full picture. So, RBI also calculates
geometric average of rupeeos exchange rate against upto 36 types of foreign currencies. ¨e
d
formula will give weightage to each of those 36 foreign currencies depending on their trade-
go

volume with India.

rs
he
ot
p
el
H

 ¨e result is called ≈Nominal e~ective exchange rate (NEER).

 When NEER is mathematically adjusted as per the CPI-in™ation price-levels in India and those
foreign countries, itos called ≈Real e~ective exchange rate (REER).

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3B- BoP & Currency Exchange → Page 552

KING R & QUEEN P Help others god will help you

  REER interpreted as the quantity of domestic goods required to purchase one unit of a given
basket of foreign goods, says NCERT.

u
yo
lp
he
ill
w
d
 NEER vs REER values help Nnding whether a currency is really weakening (depreciating) against
foreign currencies or not, thus helps to know our international competitiveness in exports.
go

 For example: REER = foreigners will Nnd our export prices attractive. REER = foreigners
will Nnd our export prices less attractive. Says ES20. How⌧NotIMP
 2018os analysis reveals that though Indian rupee weakened against dollar $1=m 63 → m 74, but
rs

rupee has not so greatly weakened against other foreign currencies.

NEER EXCHANGE RATE
he

PERCENTAGE CHANGE as per ES23

USD (NEER) +7.8%
INR (NEER) -4.8%
ot

So, ES23 said: it is not that the INR has weakened, but it is the US dollar that has strengthened.
(˘C4 FP⇠)Ptê⇡ z4⌫D ⇡4 hi34 ⇡(çd⌫ §2 Ptuøˆ *ô+⌫ (çujD §2 Pt3P ⇡PF4 ÆÀàD Pd/4)
p
el

MCQ. Find Correct Statements (Prelims-2022)

1. An increase in Nominal E_ective Exchange Rate (NEER) indicates the appreciation of rupee. (F⇠⌫
H

uß4 Dd (D+u 3P itC4 (ñujD §2)

2. An increase in the Real E_ective Exchange Rate (REER) indicates an improvement in trade
competitiveness. (k⌫⌫ uß4 Dd (D+u Pt78Å Á4i4⌫ ∞7Dˇ94f((õz4⌫D⇠3 ƪ45d)⇡0) स्थ7D u-PD⌫ §•)
3. An increasing trend in domestic in™ation relative to in™ation in other countries is likely to cause
an increasing divergence between NEER and REER. (3ê5 z4⌫D (õB« 5-Öd)⇡- (E⁄4u+-(P∫/4• uß-/⇠ Dd ⇡-

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3B- BoP & Currency Exchange → Page 553

KING R & QUEEN P Help others god will help you

 F⇠⌫-k⌫⌫ ⇡- u⇠à fi454 â4• ê5â-/⇠)
Codes: (a) 1 and 2 only (b) 2 and 3 only (c) 1 and 3 only (d) 1, 2 and 3

32.14.2 Afghan Currency is the Best Performing Currency in the worldN (2023)

u
yo
lp
he
ill
w
d
go
rs

32.14.3 Purchasing Power Parity: ≠[ tÆØ eOq\ (PPP)

he
ot
p
el
H

 Hypothetical concept that tries to compare two currencieso exchange rate through their
purchasing power in respective countries. (®⇡ C(4F 8¬E®∫ —⌫⇠5F-⇡- —àf⇡- BFEi4D (õ787F(3 5⌫)
 So, If 1 cup of co_ee in India = m 20 whereas 1 cup of co_ee costs $2 in USA then Dollar to Rupee

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3B- BoP & Currency Exchange → Page 554

KING R & QUEEN P Help others god will help you

 exchange rate (PPP) should be $1 = m 10. (According to OECD: exact Ngure is $1=m 17@PPP).
 ¨is (hypothetical) exchange rate can happen in real life, if both the countries have Floating
Exchange Rate without any intervention of the respective Central banks; and if the bilateral
trade is free of protectionism (= without tari_ or non-tari_ barriers).
 GDP is the total market value of all goods and services produced in a country within a year.
When we convert these GDP values from local currencies into PPP $ exchange rates, the largest

u
economies of the world (GDP, PPP wise) are 1) USA 2) China 3) India 4) Japan 5) Germany

yo
Big Mac Index  ¨e Economist magazineos informal index to measure PPP exchange rate using
the price of one McDonald burger in USA vs the respective country.
Twin Deccit  Itos the term used when both Current Account DeNcit and Fiscal DeNcit are

lp
]ÅiJ\ ∞\±\ high : à4+jâ4D4 ä4ã4 ë⌫ ⌫4ç⇡dè⇠3 ä4ã4
MCQ. Find correct statement(s) (UPSC-Prelims-2020)

he
1. Purchasing Power Parity (PPP) exchange rates are calculated by the prices of the same basket of
goods and services in di_erent countries.

Codes: (a) 1 only (b) 2 only ill

2. In terms of PPP dollars, India is the sixth largest economy in the world.
(c) Both 1 and 2(d) Neither 1 nor 2
w
32.14.4 ✍ Mock Questions for Mains:
d
Centered around the themes of – measures taken by government/RBI to reduce current account
go

deNcit, stabilise the rupee exchange rate, reforms taken in the FDI and its implications. Etc ¨eyore
shi^ed to the Mains Handout.
rs

Next HDT: Pillar3C: WTO & other International Economic Orgs, Trade
Agreements, Protectionism and burning issues.
he
ot
p
el
H

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#3B- BoP & Currency Exchange → Page 555

KING R & QUEEN P Help others god will help you

 PILLAR #3C: INTERNATIONAL ORGANIZATIONS & AGREEMENTS RELATED TO ECONOMY
Table of Contents
33 Pillar #3C: Bretton Woods Organizations.......................................................................559
33.1 Bretton Woods 1) World Bank, Washington, 1945, Jul.........................................560
33.1.1 World Bank President'.............................................................................................561
33.1.2 World Bank: Controversy'..................................................................................561
33.2 (Non-Bretton Woods) → Multilateral Development Banks.......................................561
33.2.1 BRICS Bank and AIIB.............................................................................................................561
33.2.2 Multilateral Development Banks → Others...........................................................563
33.3 Bretton Woods → 2) IMF, Washington, 1945, Dec......................................................564
33.3.1 IMF LOAN WINDOWS: RFI, SBA EFF............................................................564
33.3.2 IMF bailout loans to Pakistan (2019) and SriLanka (2022).............................565
33.4 0eories of International Trade........................................................................................565
33.4.1 Mercantilist 9eory: व्य⇥⇤⇥⌅⇧ ⌃⌥द्ध⇥⌦.......................................................................................565
33.4.2 Adam Smith:s 9eory of Absolute Cost Advantage (1776)................................................565
33.4.3 David Ricardo:s 9eory of Comparative/Relative Cost Advantage (1817).......................566
33.4.4 Heckscher and Ohlin:s Factor - Proporations 9eory (1919)...........................................566
33.5 Bretton Woods → 3) GATT → WTO (Geneva)...........................................................566
34 World Trade Organization: ↵ श्व व्य⇥⇤⇥⌅ ⌥ ✏⇣................................................................567
34.1 WTO → functions (⌘✓◆ ⇥ ⌅⌫⇥ ⌫⇥ ⇠⇥⌫⇡).......................................................................567
34.1.1 : TariA Barriers against international trade.............................................................568
34.1.2 Non-TariA Barriers against international trade.....................................................569
34.1.3 Non-Tarrif Barrier: Laptop import ban / license by Indian govt (2023)......................569
34.2 : WTO → Notable Agreements................................................................................570
34.3 WTO Disputes involving India................................................................................572
34.3.1 WTO:s Appellate Body (AB) Crisis...............................................................573
34.3.2 WTO Multiparty Interim Arbitration (MPIA) mechanism.......................573
34.4 : WTO negotiations / summits / packages...............................................................573
34.4.1 Most Favoured Nation (MFN)- ⇢त्य⇥⌃⌧⇠ ⌅⇧⌫⌦⇥ ⇥   ......................................573
34.4.2 Least Developed Countries (LDC: ⌥ ⌥⌥⇠ ↵ ⇠⌃⌥⌦  )..................................574
34.4.3 Doha Development Round (Qatar 2001)...................................................................575
34.5 WTO ministerial conferences (MC)- notable list.................................................................576

(Batch: PCB10-Prelims) Mrunal’s Economy Pillar#3C- Intl.Org & Agreements → Page 556
 34.5.1 Food subsidies & peace clause: !⇥" ⌅⌫⇥⌫⌦#$⌅ ⇥%& ⇢⇣'( /)⇤⌧⇥⌅⇥.............576
34.5.2 Food subsidies: Cairns Group................................................................................577
34.5.3 Bali Package & Trade Facilitation Agreement / TFA (2013)...................................577
34.5.4 Social and development subsidies.....................................................................................577
34.5.5 Nairobi Package & SSM (2015)...................................................................................578
34.6 WTO Summit 2022 @Geneva→ Notable Outcomes.............................................................578
34.7 WTO Fish Subsidies ( * ⌥+,-⇧ ⇤⌅ ⌥ ./⌦⇥).....................................................................579
34.8 Conventional Gravity Model (⇤⇥⌅⇤ ⌅⇠ 0
' 1⇥⇠2⇡3 4- )...................................................580
34.9 Trade Agreements Types: व्य⇥⇤⇥⌅ ⌥ ./⌦⇠ 5⇠⇥⌅..................................................................581
34.9.1 FTA: India Mauritius FTA/CECPA, 2021 ( 4 ⌅ ⌥ ⇠ ⌥⇥6 7
' व्य⇥⇤⇥⌅ ⌥ ./⌦⇥)............582
34.9.2 FTA: India UAE CEPA, 2022...........................................................................................582
34.9.3 FTA: India Australia ECTA (8⌃69⇠ ⌥:⇠⇥⌅ $⌅ व्य⇥⇤⇥⌅ ⌥ ./⌦⇥)................................583
34.9.4 Interim (early harvest) trade agreement ( ⇥ ⇧ ⌥⇤: ⌥ ⇥;).......................................584
34.10 Free Trade agreements → TPP, TPP11, TATIP, IPEF, RCEP..................................584
34.10.1 Transatlantic Trade and Investment Pact (TTIP) #NOT-yet-Signed...............584
34.10.2 U.S.-E.U. Trade and Technology Council (TTC) (2021)...........................................584
34.10.3 Atlantic Declaration - USA-UK (2023-June)................................................................585
34.10.4 Trans PaciFc Partnership (TPP: <⇥⌥ ⇤=⌃⌥>?⇠ ⌥⇥. ⇥⌅⇧) #FAIL.........................585
34.10.5 TPP-11 or CPTPP...................................................................................................585
34.11 Indo-Paci>c Economic Framework (IPEF).................................................................585
34.12 Regional Comprehensive Economic Partnership (RCEP)........................................586
34.12.1 Introduction to RCEP......................................................................................................586
34.12.2 RCEP: Why didn't India join in 2019-Nov' (@⇥⌅⌦ #AB :C⇥D⌅ ⇣:E >⇠F).....587
34.12.3 RCEP: Counterview: India made a mistake by not joining ( @⇥⌅⌦ ⌥ ⌦⇧ G; :=)......587
34.12.4 RCEP: Conclusion' (H⇣I2⇡)...........................................................................................588
34.12.5 Why FTA increasing as per ES23....................................................................................589
34.12.6 India-ASEAN to review FTA by 2025......................................................................589
34.12.7 Budget-2020: FTA Jrules of origin: ()JKL ⇠ H⇣⌫ ).....................................................589
34.12.8 Commerce Ministry: CertiFcate of Origin ( ) 5 ⇥3 ⇤M)......................................590
34.12.9 Economic survey: Observations abt India:s Trade Agreements............................590
34.12.10 Trade agreements losing shine → NAFTA & SAFTA......................................590

(Batch: PCB10-Prelims) Mrunal’s Economy Pillar#3C- Intl.Org & Agreements → Page 557
34.13 Burning issues in International trade.........................................................................590
34.13.1 Protectionism, Trade war: ⌥⌅D3 ⇥ , व्य⇥⇤⇥⌅ ⌫'द्ध.................................................591
34.13.2 " : → Protectionism Indian Govt procurement ( ⌥⌅⇠⇥⌅⇧ !⌅⇧ )..............591
34.13.3 USA:s Special 301 report....................................................................................592
34.13.4 USA:s Generalized System of Preferences (GSP) list......................................592
34.13.5 Global System of Trade Preferences.................................................................592
34.13.6 BREXIT = BRITAIN EXIT & How will aAect India'...............................................592
34.13.7 India UK Roadmap 2030 (Held in 2021-May).........................................................592
35 Other Notable Groupings related to economy....................................................................593
35.1 Groupings: Indian subcontinent...............................................................................593
35.1.1 Mekong- Ganga Cooperation (2000).................................................................594
35.2 Groupings: ASEAN vs SCO..........................................................................................594
35.2.1 Afghanistan 6+2+1 group for redevelopment of Afghanistan..................................595
35.3 Groupings: Ocean-rim walla........................................................................................595
35.4 Groupings: BRICS.........................................................................................................596
35.4.1 BRICS Johannesburg Declaration (2023)...............................................................596
35.5 Groupings: BRICS, OECD, OPEC & JAI..........................................................................597
35.6 G20 Summit at India.....................................................................................................598
35.6.1 G20: 3 tracks..............................................................................................................598
35.6.2 G20 Summit- 2023: 18th Summit @New Delhi, India: theme and logo......................598
35.6.3 G20 Summit- India's priorities (SIX:6)............................................................................599
35.6.4 G20 Summit-2023: Outcomes / New Delhi declaration (2023)...................................599
35.6.5 G20 2023 Outcome India-Middle East-Europe corridor (IMEC)......................599
35.6.6 G20 2023 Outcome Global Biofuel Alliance (GBA).............................................599
35.6.7 G20-2019: Osaka Declaration on free Qow of data India refused to sign...........599
35.6.8 G20- Truckload of PYQs - ⌘✓⌥⇠N ⇠O; P⌦:⇥ ⇣:E...........................................................600
35.7 Groupings led by Gora (Whites) → G7.........................................................................600
35.7.1 G7 - Group of Seven (1975)..........................................................................................600
35.8 Tech Related Alliance........................................................................................................ 601
35.8.1 Bletchley Declaration o AI Safety (UK-2023)............................................................601
35.8.2 D10: 5G club proposed by UK (2020)....................................................................601
35.9 Minerals related groupings.......................................................................................601

(Batch: PCB10-Prelims) Mrunal’s Economy Pillar#3C- Intl.Org & Agreements → Page 558
 35.9.1 RISE by World Bank and Japan..........................................................................601
35.9.2 Minerals Security Partnership (MSP: ⇢↵⌦ :1⇤Q3⇡!H⇣✓B ⇠ R F
@⇥ ⇧ ⇥⌅⇧/⌥:⌫O )..................................................................................................................................601
35.10 Infrastructure related notable groups/initiatives.......................................................602
35.11 Groupings: Middle East: GCC vs OIC.........................................................................602
35.11.1 Abraham Accords (2020-Sept).............................................................................602
35.11.2 I2U2: Middle Eastern / West Asian QUAD (2021-22).......................................602
35.12 Misc groupings / org → World Economic Forum (1971).............................................603
35.13 Misc groupings / organizations Others...........................................................................603
35.14 Export control / Non-Proliferation regimes...............................................................604
35.15 Russia related org/agreements.............................................................................................604
35.15.1 Black Sea Grain Initiative (2022)..........................................................................604
35.15.2 CTBT Nuke Treaty: Putin Exit (2023)......................................................................604
35.15.3 USA related Arms Treaties....................................................................................605
35.15.4 Mock Questions for Mains GSM2 (Intl. Org Related to Economy)......................605

33 PILLAR #3C: BRETTON WOODS ORGANIZATIONS

 Conference was held in Bretton Woods town, New Hampshire in USA aSer the WW2 (1939-45)
to restore the global economy. (TUVWX TVYZX [\Y]]^_Z̀a T\b^Xc\d^ ef)
 Total 44 nations participated, incl. India. It proposed 3 international institutions:
Outcome Relationship with United Nations (UN)
1) International Bank for Reconstruction and 9ese two are considered gSpecialized Agencies
Development (IBRD), commonly known as of UN (T\ahi ]^_`dj klmn_ oepqTa^\)r
World Bank.

(Batch: PCB10-Prelims) Mrunal’s Economy Pillar#3C- Intl.Org & Agreements → Page 559
 Outcome Relationship with United Nations (UN)
2) International Monetary Fund (IMF).
3) (Proposed) International Trade WTO is considered gRelated organization of
Organization (ITO). But could not UN (T\s\qtY T\uvX)r because it doesn:t fulFl all
materialize due to American opposition. requirements of UN charter on specialized
Instead, nations later setup GATT → WTO agencies

33.1 BRETTON WOODS → 1) WORLD BANK, WASHINGTON, 1945, JUL

 klx syd originally focused on reconstructing war-torn European countries. ASer 1950s focusing
on poor countries of Asia and Africa.
 World Bank = IBRD + IDA.
 World Bank Group = comprises of 5 institutions, namely
1) International Bank for Reconstruction and
Development (IBRD) Gives development loans with interest.
!"#$% &'()(*!+, - ./0!1 230
Assists the poorest countries via interest-free
2) International Development Association (IDA)
loans (= gConcessional Loans: z]a^aYZ {|r or
!"#$% ./0!1 16
gsoS loansr).
3) International Finance Corporation (IFC) !+: supports enterprise of developing countries.
;#$% ./< .(=* Known for its Masala Bonds. (Ref Pillar1C)

(Batch: PCB10-Prelims) Mrunal’s Economy Pillar#3C- Intl.Org & Agreements → Page 560
 oAers (foreign) investors insurance against non-
4) Multilateral Investment Guarantee Agency
commercial risk (such as political instability,
(MIGA)
regime change etc.). 9is helps 3rd world
2B&C$% .(/DE FG%!HI. JKL1$
nations attract foreign investment.
Helps in dispute resolution related to foreign
5) International Centre for the Settlement of
investment / foreign companies in 3rd world
Investment Disputes (ICSID)
countries. India is not a member of this
.(/DE 12O$ .//!PQ 0D .(&;!( 0! !+:;#$% 0DRS
organization.
Voting powerI
➢ In the Frst four organizations, voting power depends on the share capital provided by a
country. USA highest, followed by various European giants.
➢ 5th is gdispute settlementr body, so concept of Jeach country:s voting power: does not apply
33.1.1 World Bank PresidentI
➢ Since USA and European powers collectively command large shareholding in World Bank &
IMF, so their informal arrangement is- USA:s favourite will be picked as World Bank chief,
while European countries: favourite will be picked as IMF Chief.
➢ 2023: New President : Ajay Banga (USA) to replace David Malpass (USA).
➢ World Bank ReportsI World Development Report, Ease of doing business Index (More
in Pillar4B), Remittance & Migration Report, Global Economic Prospects report

33.1.2 World Bank: ControversyI

1. (2021) World discontinued the release of gEase of Doing Business reportr aSer an allegations
that IMF Chief Kristalina Georgieva (who was previously CEO of World Bank) had pressurized
the World Bank staA to give better ranking to China. (}V~^ pÄVÅÇ^XZ d]dV, ÉZX dc Ñ^Ö^]-ThuY^ z]Öc~Üp
[áV Xà] âVXVd^ ä]cÖã)
2. (2019) Trump demanded World bank should stop loaning to China because China has Jlots of
money:. World Bank clariFed, gAs countries grow richer, we reduce loaning to them, and the
same is being done with China.r ([Z] âVnc\dc å d deÜâpuãV ÉZX dV T^ç éZ låZ Ñlå^] åcu^ã)

33.2 (NON-BRETTON WOODS) → MULTILATERAL DEVELOPMENT BANKS

A multilateral development bank (MDB: sèÖêZa kld^T syd) is an institution, created by a group of
countries, that provides Fnancing and professional advising for the purpose of development. Apart
from World bank, the other notable examples are →
33.2.1 BRICS Bank and AIIB
BRICS Bank: New Development AIIB: Asian Infrastructure Investment
Bank (NDB) Xë kld^T spd Bank omna^ë [lT\]ÉX^ kXlVn syd
Started in 6th BRICS Summit in Fortaleza 2015-16
(2014) members signed treaty
Members Founding members: Brazil, Russia, China, India, UK, Switzerland, >100 nations

(Batch: PCB10-Prelims) Mrunal’s Economy Pillar#3C- Intl.Org & Agreements → Page 561
 BRICS Bank: New Development AIIB: Asian Infrastructure Investment
Bank (NDB) Xë kld^T spd Bank omna^ë [lT\]ÉX^ kXlVn syd
India, China, South Africa as of 2020.
originally each of above founding
members had 20% shareholding,
later diluted to 18.98% aSer
addition of some new members.
Voting power 2023-Nov. new shareholding Based on share capital contributed:
Shareholding pattern to be- ➢ China largest shareholding ~27%,
pattern - Brazil Russia India China South ➢ India second largest
Africa (18.98% each) shareholding~7%.
- + Bangladesh (1.79%) ➢ Asian countries control about 75%
- + UAE (1.06%) shareholding
- + Egypt (2.27%) ➢ 25% with non-Asian nations.
- Uruguay added as prospective
members but not yet have
shareholding. ## <read FAQ>
HQ Shanghai, China Beijing, China
Corona $1 billion. (2020-Apr) $750 million (2020-June)
loan2India
- BRICS member have also setup $100 billion BRICS Contingent Reserve Arrangement: (ädóòd
z]elÜÑlb^) to help members during BoP crisis- similar to IMF.
- BRICS nations also planning to setup their BRICS payment system parallel to SWIFT (ref: Pill1:
NPA handout), and BRICS rating agency (ref: 1C: SEBI-Share Market)

FAQ: If Bangladesh is not a member of the BRICS group, then how could it became the member
in the new development bankI Ans. it is not compulsory for a country to be member of the
BRICS group to become member of the BRICS:s new development bank (NDB). Any country who is
a member of the United Nations can join the NDB.

FAQ:Total 6 new members were added in BRICS in 2023- Argentina, Egypt, Iran, Saudi Arabia,
Ethiopia, and UAE. Yet above NDB Bank table is not showing the names of all of those membersI
Ans. I have taken the data on 07_Nov_23 from oöcial website. Perhaps some of the new
members of BRICS group are yet to join the bank.

MCQ. Find correct statement(s) about AIIB: (UPSC-Prelims-2020)

1. AIIB has more than 80 member nations.
2. India is the largest shareholder in AIIB.
3. AIIB does not have any members from outside Asia.
Codes: (a) 1 only (b) 2 and 3 only (c) 1 and 3 only (d) 1, 2 and 3 only

(Batch: PCB10-Prelims) Mrunal’s Economy Pillar#3C- Intl.Org & Agreements → Page 562
 MCQ. Which one of the following countries is not a founding member of the New
Development BankI (CDS2019-II) (a) Brazil (b) Canada (c) Russia (d) India
MCQ. Find correct statement(s):(Asked in UPSC-Pre-2016)
1. New Development Bank has been set up by APEC.
2. 9e headquarters of New Development Bank is in Shanghai.
Answer Codes: (a) 1 only (b) 2 only (c) Both 1 and 2(d) Neither 1 nor 2

33.2.2 Multilateral Development Banks → Others

BIS: Bank for ➢ 1930: setup in BASEL, Switzerland.
International ➢ Made up of 60 countries: Central Banks. Its committee on
Settlements banking supervision set norms in 1988 (I), 2004 (II), 2011(III)
LMNOOPQRST UVWXPV YZ [\] ^_Y
to ensure global Fnancial stability.(Ref: Pill1:NPA handout).
African Development ➢ 1964: setup in Abidjan in Ivory Coast
Bank ➢ India is a member, also gets loans.
Asian Development ➢ 1966: setup in Manila, Philippines
Bank (ADB) ➢ India is a member, also gets loans.
]`aTV UbYPc ^_Y
➢ Corona loan2India $1.5 billion (2020-Apr) then more
loans for various projects but
European Bank for ➢ 1991: setup at London.
Reconstruction & ➢ India became member (shareholder) in 2018. India will not be
Development (EBRD) eligible for loans from EBRD but India can initiate joint loan
ÖhXõX^Ü| ú] kld^T dV ùWo
proposals for Asian, African, European nations for its soS-
aû]cÖZa syd
diplomacy. (usually India does it for winning poor nations
friendship. so they vote in favour of India during Kashmir-
Arunanchal etc resolutions in UN General Assembly)
IDEAS  2005: Indian Development and Economic Assistance Scheme
é^]Y ü^]^ kld^TnZW âVnc\dc (IDEAS) to give loans to Developing countries. Ministry of
kld^T ú] ä†çd Tå^aY^ dV
External AAairs selects the loan-projects → FinMin's Dept of
ùWo deÜpÖ°T^ âVX^ã
Economic AAairs will release the loan ®® to the recipient country.
ä¢kXéÜ] é^]Y pXë nYÜdj
W^é^ç£ âVn XVdeÜdj ]d dV  Atma-Nirbhar 3.0= EXIM Bank to give loans to [Lines of
YZX ɧç^ë •å¶VpTVé^]Y TV Credit (LOC)] to developing nations under IDEAS scheme.
åZ lßhú] TVl^ Ç]ZâXZ åcuZ  9ese loans will be given Road-Railways, power, auto components,
sugar projects. WITH the condition that the borrower nation must
use a minimum 75% of the loan amount for importing goods and
services from India.

(Batch: PCB10-Prelims) Mrunal’s Economy Pillar#3C- Intl.Org & Agreements → Page 563
33.3 BRETTON WOODS → 2) IMF, WASHINGTON, 1945, DEC

 International Monetary Fund (IMF) helps in global currency exchange stability, helps against
balance of payment crisis. ([\Y]^Ü_£̀a h´^ dc¨: h´^ klkXa â] ≠b]Y^ éhuY^X T\YhWX T\d~ pââ )
 Acts as a reservoir of the currencies of all the member countries, from which a borrower nation
can borrow the currency of other nations- using the Special Drawing Rights (SDR) mechanism.
(Ref: Previous Handout on Currency Exchange.)
 IMF important decisions need to be passed with 85% majority. USA has 16.52% voting power so
it can eAectively block/veto it. ([Vz]d^ å] Tht^] Æß^l dc ]cd TdY^ å°)
 What is SDR' (More in Pillar#3A)
 IMF ChiefI
o 2019: Christine Lagarde (France) resigned to become chief of European Central Bank
(ECB, HQ Frankfurt, Germany). 9en,
o Kristalina Georgieva (Bulgarian economist, previously CEO of the World Bank)
becomes the second woman IMF Chief aSer Christine Lagarde, for Fve years tenure.
 IMFe Chief Economist (CE)I Gita Gopinath, an Indian-American economist, she became the
Frst woman to be the Chief Economist of IMF (2019 to 2022-Jan). Previously Raghuram Rajan
has also served in this position. (hØ [çÜn^∞Z)
 2022: Gita Gopinath promoted to the post of First Deputy Managing Director (FDMD).
 Notable reportsI Global Financial Stability Report, World Economic Outlook
 United Nations (UN) has 195 members, whereas IMF has 189 members. But pursuing this type
of KBC GK = poor cost:beneFt for UPSC # çcÅ^-Ö±c-äuV-s±c

33.3.1 IMF LOAN WINDOWS: RFI, SBA EFF

Rapid Financing Instrument Stand-By Extended Fund
IMF loan windows
(RFI) Arrangement (SBA) Facility (EFF)
Duration Short- 3-6 months Medium: 1-2 years Longer: 3 to 5 years
How much loan Upto 145% of SDR Upto 435% of SDR
Upto 50% of SDR quota
givenI quota quota
sudden and unexpected balance short-term
Given when medium-term buAer
of payments need. stabilization
Some other notable IMF Loan windows are: Flexible Credit Line (FCL), Catastrophe Containment
and Relief (CCR), High-Access Precautionary and Liquidity Line (HPCL).

(Batch: PCB10-Prelims) Mrunal’s Economy Pillar#3C- Intl.Org & Agreements → Page 564
33.3.2 IMF bailout loans to Pakistan (2019) and SriLanka (2022)
 ShiSed to Mains Handout

MCQ. Rapid Financing Instrumentf & gRapid Credit Facilityf are given by _ _ . (Pre-2022)
(a) Asian Development Bank (b) International Monetary Fund
(c) United Nations Environment Programme Finance Initiative (d) World Bank
MCQ. Who publishes 'Global Financial Stability Report'I (Asked in UPSC-Pre-2016)
a) European Central Bank b) IMF c) IBRD d) OECD
MCQ. Who publishes 'World Economic Outlook'I (Asked in UPSC-Pre-2014)
(a) IMF (b) UN Development Programme (c) World Economic Forum (d) World Bank

33.4 THEORIES OF INTERNATIONAL TRADE

33.4.1 Mercantilist 0eory: jPWPOS kclPMN

- From the 16th to 18th century, economists believed in mercantilism i.e. 9e amount of wealth in
the world is static. A nation's wealth and power were best served by exports and receiving
payments in gold, silver and precious metals. (äa^Y d]XVTV]^_Z̀a T\Ö≤≥ d^ êa åcY^ å°¥T^ ^XYVçV)
- 9erefore, any import was seen as loss of nation:s wealth in gold payment.
- So, colonial powers tried to Qood their colonies with readymade goods but always prevented
entry of goods in their home country. (úÖkXlVmnd nµia^∂é^]Y dc uhW^ sX^XVWuZ)
33.4.2 Adam Smithes 0eory of Absolute Cost Advantage (1776)
Output per one laborer → India China
Wheat 30kg 10kg
Rice 10kg 15kg
 India has an absolute cost advantage over China in wheat production. (T\Öû|ÜW^uY W^é)

(Batch: PCB10-Prelims) Mrunal’s Economy Pillar#3C- Intl.Org & Agreements → Page 565
 So, India should focus on producing more wheat, and import rice from China. India should not
try to be a Jrice production specialist:. (é^]Y dc ec d^ TåZ TVd]X^ äY^ å°lå d]X^ É^•åo ÉZX dj XdW XåZ\)
 Adam Smith:s theory assumes 1) there are no production costs except labourers 2) no transport
cost 3) there is free trade (no taxes on import exports)
33.4.3 David Ricardoes 0eory of Comparative/Relative Cost Advantage (1817)
YhWX^¢d W^é qT∑^\Y
How many workers required to produce → 1-meter textile 1 bottle of wine
France 10 workers 12 workers
England 9 workers 8 workers
 Here, we can see England requires less workers than France to produce wine and textiles. So, as
per Adam Smith:s absolute cost advantage, England should not import anything from France∏
 But, if plotted on graphs, it:ll appear for England per unit labour cost to produce 1 meter textile is
(relatively) cheaper than 1 bottle of wine.(π\uWp} dV ùWo dÖÅ^ sX^X^, n]^s sX^XVTVYhWX^¢d ∫ÖTV Tß^ å°ã)
 So, England should shiS domestic English wine workers towards textiles. England should export
textile to France and import wine from France. England should not try to become a JWine
production specialist:. (π\ª}y pTßZ W^uY Ö] dÖÅ^ sX^ dV kXa^ÜY d]p ú] n]^s dc äa^Y d]pã Çhâ n]^s X sX^o)
 Based on Ricardo:s theory, Economists prepare Revealed Comparative Advantage (RCA) index,
which can help monitoring which commodities should a country export'
 ES21: India:s top RCA (Relative cost advantage) export commodities are mainly
o Labour-intensive products [such as cotton, carpets, textiles- similar case in Bangladesh]
o some capital /technology intensive products [such as Indian pharmaceuticals.]

33.4.4 Heckscher and Ohlines Factor - Proporations 0eory (1919)

 Capital-abundant country will export the capital –intensive goods. E.g. USA:s Boeing company
exporting Jet planes. Ωc\•d kl^X sX^XVpeâæ] d ú] Öû\eZ ø^â^ É^•åo. [Vz]d^ dV Ö^T eâæ] d ú] Öû\eZ
klÖhW ^¿^ på°
 Labour-Abundant Country will export labour-intensive goods. E.g. India exporting cotton (and
imports jet planes from USA). Ωc\•d dÖ^T dV ¡¬^âX pÖû\eZ d ú] eâæ] ø^â^ É^•åo, é^]Y dV Ö^T eâæ]
klÖhW ^¿^ på°.

33.5 BRETTON WOODS → 3) GATT → WTO (GENEVA)

 Initially, Bretton Woods conference proposed set up the International Trade Organisation (ITO)
But USA opposed → the idea could not materialize ([Vz]dj kl]ct dV ÉWYVsX XåZ\Ö^a^)
 1948: General Agreement for TariAs and Trade (GATT: ~°z]√/nhƒ ú] Ñ^Ö^] dV ùWo T^^≈ T∆§Y^)

(Batch: PCB10-Prelims) Mrunal’s Economy Pillar#3C- Intl.Org & Agreements → Page 566
 1986-1993: Uruguay Round of GATT negotiations → set up a permanent institution to
encourage international trade in goods & services and Intellectual Property Rights (IPR) TVl^ ú]
lßh« \d^ Ñ^Ö^] Yç^ s§»∑d T\Öâ^ [qtd^].
 1994: Marrakesh treaty → WTO started functioning from 1/1/1995 at Geneva, Switzerland.
India is a founding member. (é^]Y od b^Öd Tâ…)

34 WORLD TRADE ORGANIZATION: klx Ñ^Ö^] T\uvX

✓ Supreme Decision-Making body.

✓ Usually meets once every two years, deliberates on trade agreements.
✓ One country = one vote. (unlike IMF & World Bank, where the money power
Ministerial
Conference → shareholding → determines the voting power)
nMoS cpZ\V ✓ Appoints Director General (DG: å^kXând ) to look aSer administrative work.
✓ 2021: WTO new DG is Ngozi Okonjo-Iweala, replacing Brazil's Roberto
Azevêdo. She is a former Fnance minister of Nigeria, First woman and Frst
African WTO chief. She previously worked in the World Bank
General ✓ Day to day decision making body @Geneva.
Council ✓ Implements the decision of ministerial conferences
cPnPq
✓ Has representative from each member country.
WrOst
has two bodies, with separate chairmen
1. Dispute settlement body: kll^â kXÖ~^X kXd^a → Appellate Body
2. Trade policy review body: Ñ^Ö^] XZkY TZê^ kXd^a
Below general council, there are committees on individual agreements and annexes
e.g. Anti dumping, Subsidies & countervailing measures (SCM) etc.
34.1 WTO → FUNCTIONS (`upZtPrOTPMTP YPTv)
Today all countries try to protect domestic industries against foreign imports by creating two types
of barriers against the international trade:

(Batch: PCB10-Prelims) Mrunal’s Economy Pillar#3C- Intl.Org & Agreements → Page 567
34.1.1 : Tariw Barriers against international trade

Tariw Barriers: nhƒ s^t^o\: Increasing the taxes, duties, cess, surcharge, on imported goods and
services e.g. Trump imposed 25% custom duty on imported steel.
CVD Anti-Dumping Duty: ÆkYÖ^~X nhƒ
two scenarios when foreign goods will appear - If China exports goods to India at a price below
cheaper to Indians than domestic goods: their normal price in domestic Chinese market
- If foreign country is giving subsidies to their or at a price below their cost of production-
exporters AND / OR then it is termed as gDumpingr
- If Indian government imposes higher - 9en, India's commerce ministry →
amount of taxes, cess or surcharge on the Directorate General of Trade Remedies : Ñ^Ö^]
locally manufactured products ¡ÖÉ^] å^kXân^Wa (DGTR) investigates →
recommends Finance ministry to impose
THEN Indian Govt tries to protect local gAnti-Dumping Dutyr on such imported
(domestic) industry by imposing items.
Countervailing Duty (CVD: ÆkYd^]Z nhƒ), - E.g. $185 on every one tonne of imported
Special Countervailing Duty, Additional Chinese Steel, 9en its prices will become
Customs Duty on imported items on imported equivalent to India Steel, thus Indian steel
items. Internal diAerence NOTIMP industry will be protected.
➢ Commerce Ministry → DG foreign trade (DGFT) launched JARTISe portal (Application for
Remedies in Trade for Indian industry and other Stakeholders). Applicants can Fle
complaints against dumping.
➢ Budget-2020: Puri>ed Terephthalic Acid (PTA) is used in manufacturing (synthetic)
textile Fbres and yarns. Cheap PTA = boost to Indian textile sector, so we:ll no longer charge
Anti-dumping duty on it.

(Batch: PCB10-Prelims) Mrunal’s Economy Pillar#3C- Intl.Org & Agreements → Page 568
34.1.2 Non-Tariw Barriers against international trade

u°] nhƒ s^t^o\: if USA does not increase import taxes but plays other tricks like:
1. Subsidies to domestic industries: Giving free electricity to Detroit car manufacturers. OR USA
govt. giving tax beneFts & free car-insurance to USA residents for buying American made cars.
2. Public Procurement: T^lÜekXd Ç]Zâ/Æ^ÕŒ : Making rule that only American companies can Fll up
tender for supplying stationery, school bags etc. in government schemes.
3. Technical Barriers to Trade: Ñ^Ö^] dV ùWo YdXZdj s^t^o\: e.g. imported mango must have 0%
pesticides residue, imported cars must have airbags for each passenger.
4. Quota system: e.g. not >50 metric tonnes of steel can be imported from a single foreign country.
WTO aims to reduce such tariA and non-tariA barriers to encourage international trade through its
agreements and dispute settlement body.

34.1.3 Non-Tarrif Barrier: Laptop import ban / license by Indian govt (2023)

(Batch: PCB10-Prelims) Mrunal’s Economy Pillar#3C- Intl.Org & Agreements → Page 569
34.2 : WTO → NOTABLE AGREEMENTS

Objective Agreement(s)
tariw barriers 1. General Agreement on TariAs and Trade (GATT) for goods- nhƒ ú]
Ñ^Ö^] Ö] T^^≈ T∆§Y^
nhƒ s^t^o\
2. General Agreement on Trade in Services (GATS): TVl^«\dV Ñ^Ö^] Ö]

(Batch: PCB10-Prelims) Mrunal’s Economy Pillar#3C- Intl.Org & Agreements → Page 570
 Objective Agreement(s)
T^^ŠTƤY^
non tariw 1. For non-food: Agreement on Technical Barriers to Trade (TBT: Ñ^Ö^] p
barriers YdXZdj s^t^ap) e.g. talcum powder should not have more than x% of
asbestos.
u°] nhƒ s^t^o\ 2. For food: Agreement on Sanitary and Phytosanitary Measures (SPS:
œáY^ ú] Ö^âÖ ¡Ö^a) e.g. Jx: food item must not have more than y%
pesticides residue.
non tariw 1. For non-food: Subsidies and Countervailing Measures (SCM:T–—}Z ú]
barriers → d^¡\~]lVùWu\ ¡Ö^a)
Subsidies
2. For food: Agreement on Agriculture (AoA: d“k¨ Ö] T∆§Y^)- which aims
to regulate the subsidies on agriculture through its Jbox: mechanism.
a. Subsidies that are classiFed in Green & Blue box category- are
allowed (e.g. Research, Cattle-Vaccination).
b. Amber (oà]) box category subsidies will be subjected to
quantitative limits (e.g. Fertilizer, Electricity, Diesel, MSP.)
Misc. measures to 1. Trade-Related Aspects of Intellectual Property Rights (TRIPS: s§»∑d T\Öâ^
encourage global [qtd^]c\dV Ñ^Ö^]-T\s\qtY ÖåWû) → related topics: Compulsory licensing,
trade, protect
environment pharma-patents. More in Pillar4B: IPR
2. Trade-Related Investment Measures on Foreigners. (TRIMs: klâVmnac\Ö]
Ñ^Ö^] TVT\s\qtY kXlVn dV ¡Ö^a)- it applies to foreign investment norms related
to goods only. Doesn:t apply on foreign investment norms on services.
3. WTO's Agreement on Fisheries Subsidies (AFS-2022): to curb 'harmful'
subsidies that promote overFshing.
4. Plurilateral agreements (sèÖêZa T∆§YV): 9ey are not signed by all the
members of WTO e.g. Agreements on aircraSs, dairy product, bovine
meat, Information Technology Agreement (ITA) TéZ Tâ… ]^_c̀\XVπT Ö]
åß^ê] XåZ\•do
With reference to Trade-Related Investment Measures (TRIMS), which of the following
statements is/are correctI (UPSC-Prelims-2020)
1. Quantitative restrictions on imports by foreign investors are prohibited.
2. 9ey apply to investment measures related to trade in both goods and services.
3. 9ey are not concerned with the regulation of foreign investment.
Ans Codes: [a) 1 and 2 only [b) 2 only [c) 1 and 3 only [d) 1, 2 and 3
MCQ. In the context of which of the following do you sometimes >nd the terms 'amber box,
blue box and green box' in the newsI (Asked in UPSC-Pre-2016)

(Batch: PCB10-Prelims) Mrunal’s Economy Pillar#3C- Intl.Org & Agreements → Page 571
(a) WTO aAairs (b) SAARC aAairs (c) UNFCCC (d) India-EU negotiations
MCQ. 0e terms 'Agreement on Agriculture', 'SPS Agreement and 'Peace Clause' are in the
context of awairs of the _ _ _ (Asked in UPSC-Pre-2015)
(a) Food and Agriculture Organization (b) UN Framework Conference on Climate Change
(c) World Trade Organization (d) United Nations Environment Programme
MCQ. TRIPS Agreement pertains to (Asked in UPSC-CDS-2017-I)
(a) international tariA regime (b) intellectual property protection
(c) international practices on trade facilitation (d) international taxation of property
MCQ. Which of the following are the main functions of WTOI (UPSC-IES-2020)
1. To organize meetings of members to arrive at trade agreements covering international trade.
2. To ensure member countries conduct trade practices as per agreements signed by the members.
3. To provide a platform to negotiate and settle disputes of international trade between members.
codes: (a) 1 and 2 only (b) 1 and 3 only (c) 2 and 3 only (d) 1, 2 and 3
34.3 WTO DISPUTES INVOLVING INDIA

Complaint at WTO:s Dispute Settlement Body (DSB) Outcome/Verdict

USA against India:s solar panel subsidies to local producers India lost.
USA against India:s ban on imported American chicken/poultry India lost.
USA against India:s export subsidies /tax beneFts e.g. MEIS, SEZ, etc India lost.

(Batch: PCB10-Prelims) Mrunal’s Economy Pillar#3C- Intl.Org & Agreements → Page 572
 Complaint at WTO:s Dispute Settlement Body (DSB) Outcome/Verdict
Australia, Brazil and Guatemala against India:s sugar export subsidies India lost.
In above cases, WTO:s Dispute Settlement Body (DSB) ordered India to stop such export
subsidies/tax beneFts.
➢ 2019: India goes to WTO Appellate Body ([ÖZWZa kXd^a) to appeal against DSB:s order.
➢ 2020: Indian Commerce Minister says, gwe will not implement WTO's DSB:s orders, because
the appellate body (AB) is not functioning, so our appeal is pending.r

34.3.1 WTOes Appellate Body (AB) Crisis

 It is a permanent body) to resolve appeals against DSB:s orders.
 It is ordinarily composed of 7 members, 4 year term & 1 reappointment.
 WTO Appellate Body members are appointed by the WTO members by consensus, (i.e. no
member-nation should formally object to candidate:s name).
 Since July 2017, the United States has been opposing AB appointments. So, body is under-
staAed/ dysfunctional. 9is has resulted in the JAppellate Body crisis:. ([ÖZWZa •~`”Xû W pdVT äuVs±
XåZ\]åV, Ωc\•d [Vz]d^ aå^\Ö] Xo eec\dj kXahµi ps^t^o\ }^W ]å^ å°)

34.3.2 WTO Multiparty Interim Arbitration (MPIA) mechanism

➢ Due to the aforementioned appellate body crisis → some WTO members have created a
Multiparty Interim Arbitration (MPIA) body as a temporary solution.
➢ Members' EU, China, Brazil, Australia, New Zealand etc 20+ WTO members.
➢ India is not a member yet. India wants restoration of the original appellate body (AB). (¡i
T…^ TV[b^ë ∫Ö TVWÅXVdV ùWo ÉZX T•åY dhÄ âVnc\XV'sèÖêZa [\Yz] ‘bY^' Æ|^WZ sX^ë å°•d\Yhé^]Y ¡Td^
Tâ… XåZ\å°, é^]Y }’û~Z« dj Ö]\Ö]^uY [ÖZWZa Æ|^WZ É^åY^ å°)

34.4 : WTO NEGOTIATIONS / SUMMITS / PACKAGES

34.4.1 Most Favoured Nation (MFN)- LyPkzY bOSTNP bP\ZtZa

(dhW »W^d] Æ÷Vd âVn XVs^dj âVnc dV T^ç låZ Ñlå^] d]X^ É^•åo ec lc [ÖXV[kY kÆa »¿ âVn dV T^ç d] ]å^ å°)
 WTO agreements require that whatever treatment is being given to the Most Favoured Nation,
must also be extended to all other member countries. A member should not discriminate
between its trading partners- provided there is mutual-reciprocity.
 So even imported Chinese coal should be subjected to 0% import tax in India- but ONLY IF
there is reciprocity ke Indian shoes will be subjected to 0% import tax in China. (But, China may
not allow it, so India not bound to taxes on Chinese coal)

(Batch: PCB10-Prelims) Mrunal’s Economy Pillar#3C- Intl.Org & Agreements → Page 573
 But in practice, MFN is not implemented in letter and spirit by some members. E.g. 1996: India
granted MFN status to Pakistan but Pakistan didn:t reciprocate (mainly) due to their local textile
industrialists: lobby who feared competition from Indian textile imports.
 2019-Feb: India withdrew MFN status for Pakistan, following Pulwama attack on CRPF
personnel. India also customs duty by 200% on goods originating from Pakistan.
 Since Pak not giving India MFN treatment. So, there is no {legal-compulsione on India to give
them MFN status. even if Pak complained to WTO:s dispute redressal panel, it:ll lose the case.

MCQ. MFN-Clause under WTO regime is based on the principle of [UPSC-CDS-2017-I]

a) non-discrimination between nations b] discrimination between nations
c) diAerential treatment between locals & foreigners d] uniform tariA across commodities

34.4.2 Least Developed Countries (LDC: c^cZcZYn UbYkcN tZa)

➢ are identiFed by the UN Economic and Social Council (ECOSOC: T\ahi ]^_`ä†çd ú] T^^◊ed
Öz]¨â). Somaliya, Ethiopia, Congo, etc.

(Batch: PCB10-Prelims) Mrunal’s Economy Pillar#3C- Intl.Org & Agreements → Page 574
 ➢ Least Developed Countries: economic growth can if they are able to export more. So,
WTO agreements permit other countries to give duty free quota free access to exports from
LDC. and that is not considered as a violation of any other agreement.
➢ e.g. If India levied 0% custom duty on Somalian pendrives, India will not be required to give
same treatment to Japanese pen drives under gMFN normr, Bcoz Japan isnot LDC.

Before dwelling into summits, letWs keep a few terminologies in mind →

1. First world countries, Advanced Economies (AE), Developed Countries= such as USA Canada,
France and Germany etc. (Æç klx dV âVn, ¡ÿY [çÜÑlb^o∂, kldqTY âVn)
2. Second world countries= USSR and its allied countries (e.g. Poland, Hungary, Cuba) which were
under the inQuence of Communist Socialist ideologies. However, with the collapse of USSR, the
term has become defunct (TcklaY T\Ÿ dV klŸ~X dV s^â aå n⁄ [ÆÉùWY/ “Y åc ua^ å°.).
3. 0ird world countries, developing countries, Emerging market economies (EME)= India China,
Mexico, Brazil etc. Nowadays, gGlobal Southr term also used for them. YZT]^ klx, kld^TnZW âVn,
¡é]YZ èë [çÜÑlb^o, l°◊xd-âmê|
Some of the burning and contentious issues between 1st world vs. 3rd world at WTO→

34.4.3 Doha Development Round (Qatar 2001)

3rd world countries wanted following:

✓ 1st world should liberalize their trade regulation further so that 3rd world:s goods and services
can enter more easily in the Frst world:s domestic markets. []Zdj s^e^] på^]V¡¬^âc\ÖVd ~V€ WuV
✓ 3rd world should be allowed to keep various barriers to slow down the entry of 1st worlds
agriculture, manufactured goods and service exports in their domestic market. b^XZa ¡‹cuc\dc
sÉ^XVdV ùWo å []Zd^ dV ›ÇW^√ Ñ^Ö^]-s^t^«\dc d^a ]ÇpuVã
✓ 1st world shd give Fnancial + technical assistance to 3rd world. ä†çd l YdXZdj Tå^aY^ »WV
Obviously, USA and European countries would not like this. So, Doha round of negotiation
continues without conclusion. And in future summits the USA/EU would want WTO oöcials to
begin negotiations on the new matters lucrative to their MNCs (like ICT, E-Commerce) whereas 3rd
world nations will continue to insist that Doha round negotiations must be concluded Frst.

(Batch: PCB10-Prelims) Mrunal’s Economy Pillar#3C- Intl.Org & Agreements → Page 575
34.5 WTO MINISTERIAL CONFERENCES (MC)- NOTABLE LIST
Notable Place Year Comment / notable outcome if any
MC1 Singapore 1996 Started for Frst time.
Doha Development Agenda: clash of Frst world versus
MC4 Doha O 2001
- -
-

- -
- -

third world. <learned in the previous section>

1) food subsidy peace clause
MC9 O
Bali 2013
-

2) trade facilitation agreement

- -

Special Safeguard Mechanism (SSM) to protect

MC10 Nairobi 2015
farmers in 3rd world countries.
Buenos Aires,
MC11 2017 failed to deliver any notable outcome.
Argentina
@Nur-Sultan,
Cancelled 2020 Cancelled by Corona
Kazakhstan
1) Fisheries subsidy agreement.
MC12 Geneva, Switzerland 2022
2) patent waiver for corona vaccines.
MC13 Abu Dhabi 2024

34.5.1 Food subsidies & peace clause: ~P rOTPTNÄÅO aPÇÉ LVÑÖZt/ÜWzPOP

Under WTO:s Agreement on Agriculture (AoA), 1st world and 3rd world countries are required to
- -

limit their food-subsidies toO

-
5% and 10% respectively to the value of their agriculture production.
- - - -

o
➢ But, in absolute quantitative terms USA:s
- -o
5% will be much bigger than India:s 10% → 1st
world countries are able to give larger amount of food subsidies to their farmers → export
-
them
-
-
-
to 3rd world countries @cheap price, and ruining local farmers.
-

➢ India has a large

- -
population of poor farmers who need Govt support such as subsidies &
procurement at Minimum Support prices (MSP: ≈ûXY TçÜX ûfi) More in Pill#4A.
- -

➢ India also has a large number of malnourished poor families who need subsidized food
grains under National Food Security Act (NFSA Ç^‹ Th]ê^ [qtkXa/d^XûX) More in Pill#6.
O
➢ 2013: WTO ministerial conference at Bali (Indonesia) → India refused to sign any new
--
- - -

agreements until this food subsidy issue was resolved.

➢ So, WTO Peace Clause → it gave temporary immunity to India and other developing
-

countries. ([b^aZ- sÉ^l/ [fld^ùWd- ÆkY]ê^)

-

➢ Basically, 3rd world nations can give any amt of subsidy for their food programs:

(Batch: PCB10-Prelims) Mrunal’s Economy Pillar#3C- Intl.Org & Agreements → Page 576
 - (1) USA/Other countries cannot impose countervailing duty.
- ÆkYd^]Z nhƒ Ö] ]cd
-- O
(2) USA/Other countries cannot complaint to WTO
-
about it. mnd^aY Ö] u§] XåZ\•da^ e^ou^
➢ 2020: India informed WTO that in rice production, we've crossed the 10% subsidy limit (in
- -

2018-19). But
>-as per Peace clause, we:ve immunity∏ å dc ÇhWZ Äû~ »WZ å°.
-

34.5.2 Food subsidies: Cairns Group

- - -

Agricultural exporting countries' group. Members: Argentina, Australia, Bolivia, Brazil, Canada etc.

#---
20 nations. 9ey want WTO members to
/stop agri subsidies. India is not a member.

34.5.3 Bali Package & Trade Facilitation Agreement / TFA (2013)

Bali Package is the trade agreement / outcome resulting from the WTO ministerial conference (\¿Z
- - - -

TUVWX) 2013 @Bali, Indonesia. Its two signiFcant components are :

- - - -

1. Trade Facilitation
- - Agreement (TFA: Ñ^Ö^] Thklt^ T∆§Y^):

- a. requires member countries to

-
their bureaucratic delays, red tapes, inspector raj in
- -

import-export of goods. (X§d]n^åZ, W^W ‡jY^n^åZ)

- - -

-b. 9ey:ve setup online portals where traders can seek permissions, pay fees, custom duties,
- -

self declaration forms (like e-way bill) etc.

-
- - - - O
c. India & others ratiFed in 2016 → TFA became eAective from 2017.
d. India set up a National Committee on Trade Facilitation (NCTF) under Cabinet
-

Secretary (IAS). Below him → a steering committee jointed headed by Revenue secretary
---

(IAS) and Commerce secretary (IAS). (Ñ^Ö^] Thklt^ Ö] ]^_Z̀a T»kY → T\É^WX T»kY)
2. Peace Clause on subsidies → explained in previous section.

34.5.4 Social and development subsidies -

➢ - 9ese subsidies provide food, housing, healthcare, education, and other basic needs to poor
families. We will learn about such schemes in pillar5 (Infra) and pillar6 (HRD)
➢ - WTO permits it- subjected to terms & conditions in Subsidies & Countervailing Measures
(SCM) and Agreement on Agriculture (AoA)

-
MCQ.
--
Find correct among the following statements: (Asked in UPSC-Pre-2017)
-
1. India has ratiFed the -
Trade Facilitation Agreement (TFA) of WTO.
G
-
--
2. TFA is a part of WTO:s Bali Ministerial Package of 2013.
3. TFA came into force in JanuaryOt
- -
2016.O
Answer Codes: (a)
- 1 & 2 only (b) 1 & 3 only (c) 2 & 3 only (d) 1, 2 and 3

(Batch: PCB10-Prelims) Mrunal’s Economy Pillar#3C- Intl.Org & Agreements → Page 577
34.5.5 Nairobi Package & SSM (2015)

Nairobi Package resulted from the WTO ministerial conference 2015 @Nairobi, Kenya →
1. We:ll extend the Peace Clause for another gxr years.
2. Members must stop the subsidy on Agriculture Exports: 1st world countries must comply
immediately while 3rd world countries given a relaxed deadline.
3. If there is a surge of cheap agro exports from 1st world to 3rd world, then 3rd world countries
will have the right to temporarily increase tariA / taxes on them, to protect their local farmers. It:s
called gSpecial Safeguard Mechanism: UbaZs cÑOáP NMo (SSM).f
4. 1996 → Information Technology Agreement (ITA) plurilateral agreement (i.e. not signed by all
member nations) → It aims to abolish import export taxes on ~200 IT products. WTO
discussions to try to get more members sign this, so global IT-trade can increase. India signed in
1997 but could not beneFt due to low capacity of local manufacturing. (å^W^\•d é^]Y påß^ê] Yc •do
çVWV•dX åpsèY ø^â^ √^aâ^ XåZ\èä Ωc\•d å^]Z d·‚û~] å^}ÜlVa] ¡¬^âX êY^ åZ dec] å°)
5. Technical reforms to help the exports from Least Developed Countries (LDC).

34.6 WTO SUMMIT 2022 @GENEVA→ NOTABLE OUTCOMES

 1998: WTO members had agreed not to impose customs duties on electronic transmissions
(=also known as moratorium on e-commerce of data). Recent years, an exponential rise global
trade of electronic transmissions such as movies (NETFLIX), music (SPOTIFY), video games
(PUBG) and Ebooks (KINDLE) etc. So India and Africa wanted stopping this moratorium to
increase tax collection. But WTO continued it until March 31, 2024. (•}◊e~W T\É^] dV äa^Y kXa^ÜY Ö]
TZ^ nhƒ XåZ\WuVu^ 2024 Ydã å^W^∂•d é^]Y ú] âmê| [„Zd^ dc oY]^‰ å°•d å^]Z d]-äâXZ pXhÂT^X åc ]å^ å°)
 Corona vaccines/medicines ke IPR/Patent pe temporary waiver without the consent of the
patent holder for 5 years. So that 3rd world nations can more easily manufacture Corona
vaccines/medicines domestically. (dc]cX^ dV •~dV/ âl^πac\d^ ÖV~p~/s§»∑d T\Öâ^ [qtd^] ◊eT d\ÖXZ dV Ö^T å°,
¡T d\ÖXZ dj [XhkY ùWo ksX^ éZ, [≈ d\ÖkXa^\¡Td^ ¡¬^âX d] Ö^o\uZã Y^•d TßVâ^c\Ö] aVâl^πa^\¡ÖWÊ åcã)
 We:ll resolve the deadlock of Judges vacancies / appointment. We:ll setup a well-functioning
dispute settlement system by 2024. (≈^a^tZnc\dV z]i/Á^WZ Öâc dc é]puVã kll^â kXÖ~^X Æ|^WZ âÈË ß d]pu.V)
 Fish Subsidies: WTO:s Agreement on Fisheries Subsidies (AFS): to curb Jharmful: subsidies that

promote overFshing. 9is will help Blue economy — sustainable use of ocean resources for

(Batch: PCB10-Prelims) Mrunal’s Economy Pillar#3C- Intl.Org & Agreements → Page 578
 economic growth. but some apprehensions/ discontent among members (REF Next section).
(Î ¡‹cu TVÖa^Ül]|/ e°l-klkltY^ dc å^kX d]XVl^WZ T–—}Z Ö] d~§YZ Ö^s\âZ dj s^Yp)

Above is around 200 words note. Elaborate, give background, add linkages with taxation, food
security, SDG goals to drag it till 250 words. Further faaltu-ki-PHD NOT required.

34.7 WTO FISH SUBSIDIES (nà câäãS WO cnåçNP)

WTO:s Agreement on Fisheries Subsidies (AFS) signed in WTO Sumit/ Ministerial Conference 2022
at Geneva. AFS prohibits three kinds of subsidies: (kXÏ •dò dj ââ TVT–—}Z Ö] Ö^s\âZ)
 (1) illegal, unreported, or unregulated (IUU) Fshing
 (2) Fshing of already over-exploited species/stocks
 (3) Fshing on unregulated high seas.
FAQ: What do above things mean, how are they diAerent from each others' ANS. NOTIMP.
Suöcient to know ke WTO wants to stop over-Fshing.

India wants special and diAerential treatment (S&DT). (é^]Y dc Á^T ú] méÿd] Äû~ É^•åo):

MCQ. Find correct statements relating to WTO: [UPSC-CDS-2014-II]

1. 9e WTO deals with the global rules of trade between nations.
2. 9e goal of the WTO is to help producers of goods and services, exporters, and importers
conduct their business.
3. 9e WTO, which is a successor body of the General Agreement on TariAs and Trade, came into
being following the Uruguay Round of Negotiations.
4. 9e WTO distances itself in framing of rules on trade in intellectual property rights.
Codes: (a) 1, 2 and 3 (b) 2, 3 and 4 (c) 1, 2 and 4 (d) 1 and 3 only

(Batch: PCB10-Prelims) Mrunal’s Economy Pillar#3C- Intl.Org & Agreements → Page 579
34.8 CONVENTIONAL GRAVITY MODEL (WPOMWrOY éÑèêPYsvë níã\)

 Developed by Jan Tinbergen, a Dutch economist in 1960s.

 It explains factors aAecting trade between 2 countries: (âc âVnc\dV sZÉ Ñ^Ö^] dc Æé^klY d]XVl^WVd^]d)
FACTOR PROPORTION EXAMPLE
A country with a larger GDP will attract more trade
Economic size/GDP Directly proportional
and investment from a smaller GDP country. e.g.
(cY\ ìOZ\îÜïPt) (TZt^ [XhÖ^Y)
SriLanka-India vs Bhutan-India
Geographical
Inversely proportional more distance = less trade, due to transportation
distance (ñçéó[\Y
(klÖ]ZY [XhÖ^Y) cost e.g. India-Mexico vs India-S.Africa
tòOS/LMNO)
Over the time more economists have added following factors
➢ Exchange rates (klkXa â])
➢ Income levels of customers (Ì^ådc\dj äa d^ ß])
➢ TariA and non-tariA barriers (nhƒ ú] Ó°]-nhƒ s^t^o∂)
➢ Infrastructure, skilled manpower (shkXa^âZ [lT\]ÉX^, dhnW ^Xl T\T^tX)
9erefore signing free trade agreements may not immediately show +ve impact on India from day1.
It takes time for above factors to mature/show eAect. Said ES23 (πTùWo hi Ñ^Ö^] T∆§Y^ d]XVdV ÖåWV
•âX TVåZ é^]Y Ö] Td^]^¢d [T] XåZ\•âÇVu^ Ωc\•d ¡i d^]dc\dc Öz]ÖÔ åcXVpú] [ÖX^ [T] •âÇ^XVpTa WuY^ å°)

(Batch: PCB10-Prelims) Mrunal’s Economy Pillar#3C- Intl.Org & Agreements → Page 580
 ·
34.9 TRADE AGREEMENTS TYPES: Ñ^Ö^] T∆§YVdV Æd^]

e
--
-° -
-

⑧
- =
-
·
- -

-
-

Ex -

-
-

- -

-
- -

OetE
--

-
-
--

L
-
E
- -

O
E
-

·
·
-

C - ②
- -

-
-

-
-

1. - ·
Partial Scope Agreement (PSA: ä\mnd Ñ^ÖdY^ T∆§Y^ ): Trade between two countries for a
-

small list of goods @reduced tariAs.

- -
- - -
-

2. Preferential Trade Agreement (PTA: [qt^XZ Ñ^Ö^] T∆§Y^) / Free Trade Agreement (FTA:
- - -
- -
- - -

kXnhƒ Ñ^Ö^] T∆§Y^): Member= lower tariA; non-members: regular tariA.

- -
-
- - -

a. All FTAs are not same. TariA and list of allowed goods/services could vary depending on
- - - - - -
-

country to country. E.g. India Mauritius Free trade agreement: Comprehensive

-

Economic Cooperation and Partnership Agreement (CECPA)- More than 300 Indian

(Batch: PCB10-Prelims) Mrunal’s Economy Pillar#3C- Intl.Org & Agreements → Page 581

/
 goods from agriculture, textile, electronics will get concessional customs duties in
Mauritius. More than 600 Mauritius goods will get Similar treatment in Indian market.
(Ñ^Öd ä†çd Tåacu ú] é^uZâ^]Z T∆§Y^ ◊eTpod âæT]V Ö] z]a^aYZ TZ^ nhƒ)
b. Depending on number of participants it can be bilateral or multilateral or regional or
global (e.g. WTO, ¥TVT∆§YV•üÖêZa sèÖêZa êV¿Za a^ l°◊xd åc TdYVåy).
c. If countries go further beyond just lower tariAs e.g. relaxed norms for entry of foreign
investment (FDI) and foreign workers → then it becomes
i. CEPA = Comprehensive Economic Partnership Agreement or
ii. CECA = Comprehensive Economic Cooperation Agreement.
iii. PHD over CEPA vs CECA = NOT IMPORTANT. Suöcient to know- CEPA
covers more areas than CECA. E.g. IPR, visa, investment, taxation etc.
➢ Sometimes they come up with even more fancy names like i) CECPA = Comprehensive
Economic Cooperation and Partnership Agreement ii) ECTA (Economic Cooperation and
Trade Agreement). But pedantry over all such terms = NOT IMP for Exam.
3. Customs Union (CU: TZ^ nhƒ T\Ÿ ): FTA in which members apply a common external tariA
(CET) for non- members. E.g. East African Community (EAC). Caribbean Community
(CARICOM, although according to some sources now it evolved into Common Union but that is
not imp. Location is imp.)
4. Common Market (CM: T^^≈ s^e^]): Customs union where factors of production (capital/FDI,
labour) can move freely amongst members e.g. MERCOSUR- S.America.
5. Economic Union (EU: ä†çd T\Ÿ): common market where member countries keep common
currency & tariA. Allow entry of goods, services, capital and labour among themselves with
minimum restrictions. 9ey decide their Fscal policies and diplomatic policies through a
common parliament JEuropean Parliament:, and their monetary policies through a common
central bank – JEuropean Central Bank:.

34.9.1 FTA: India Mauritius FTA/CECPA, 2021 (nírOac YZ cPô nÑö jPWPO cnåçNP)
 India Mauritius Free trade agreement: Comprehensive Economic Cooperation and Partnership
Agreement (CECPA) came into eAect from 1st April 2021.
 More than 300 Indian goods from agriculture textile electronics will get concessional customs
duties in Mauritius (300 TV[qtd é^]YZa kXa^ÜY Ö] Úz]nT ü^]^ TZ^ nhƒ pz]a^aY)
 More than 600 Mauritius goods will get Similar treatment in Indian market

34.9.2 FTA: India UAE CEPA, 2022

UAE to taxes on Indian products India to taxes on UAE products
Indian electronic goods, chemicals and 90% of the goods/services from UAE to India.
petrochemicals cement, ceramics and

(Batch: PCB10-Prelims) Mrunal’s Economy Pillar#3C- Intl.Org & Agreements → Page 582
 UAE to taxes on Indian products India to taxes on UAE products
machinery gems and jewelry, textiles, leather,
footwear, sports goods, engineering goods, and
pharmaceuticals.
 Agreement covers rules of origin, government procurement, intellectual property rights, and
e-commerce etc. (¡¬≤≥ dV kXa, T]d^]Z Á]Zâ, s§»∑d T\Öâ^ [qtd^], π-l^m|ø)
 India-UAE CEPA marks the Frst time India has included a chapter on e-commerce/ digital
trade in an FTA. (aVé^]Y d^ ÖåW^ ¥T^ Ñ^Ö^z]d T∆§Y^ å°eå^∂Ö] •}◊e~W Ñ^Ö^] dj éZ s^Y èë å°)
 9is will give big market access to Indian exports to UAE → further towards not only in
UAE, but also in Middle East and Africa.

34.9.3 FTA: India Australia ECTA (õúôY cùYPO ÅO jPWPO cnåçNP)

India-Australia Economic Cooperation and Trade Agreement (IndAus ECTA-2022)
♂Aussie to taxes on ♂India to taxes on Aussie India kept these sensitive
Indian products products items OUT
Engineering goods, gems 0% customs duty on Coal, sheep Australian Dairy products,
and jewellery, leather, meat, wool, LNG, alumina, wheat, rice, sugar,
textiles, apparel, footwear- metallic ores,Avocados, onions, chickpeas, beef, apples, toys,
total 96% of India:s exports pistachios, blackberries, cashews, iron ore .
to Australia. blueberries, raspberries. Indian govt will not taxes
Customs duty on – wine, on above Aussie items.
almond, cotton, orange, lenthil etc
9is create 1 million+ jobs 9is will help Indian for energy 9is will protect the local
in India security, cheap raw material Indian industry
(]c‰u^] T“eX /X§d]Z kX^Ü|) (Ûe^ÜTh]ê^ ú] Tß^ dÙ^ ^W é^]Y dc (é^]Y T]d^] XVıˆV̀ùWa^ TVäXV
»WV) l^WVdhÄ ¥TVT\lVâXnZW ÉZ‰pe°TV•d
âæt uV˜∂ É^lW ÉZXZ π÷^•â dc πTTV
s^å] ]Ç^ å°Y^•d é^]Y dV •dT^Xc\d^
XhÂT^X X åc)
➢ Australian govt relaxed Work-visa norms for Indian graduates from STEM
(Science, Technology, Engineering and Mathematics).
➢ faster approval to Indian medicines in Australian market (if such medicine is already
approved in Canada / European Union) (a•â é^]Y dj âl^ë dc d°XV}^/ aû]cÖZa T\Ÿ XV[XhkY »W Éhdj å°
Yc ıˆV̀ùWa^ p¡TVe¯Z TV[XhkY âZ e^ouZã)
➢ double taxation avoidance agreement for speciFc category of IT companies. (More in
Pillar#2B: Tax Avoidance) (TûÉX^ Ƨ‹c»udj TVehÅZ d\ÖkXac\Ö] âcå]V d]^t^X TVhµi π÷^•â)
➢ bilateral trade will to $50 billion within 5 years and generate 1 million+ jobs in India.

(Batch: PCB10-Prelims) Mrunal’s Economy Pillar#3C- Intl.Org & Agreements → Page 583
34.9.4 Interim (early harvest) trade agreement (aPtS cZWùZ\ZcéPû)
 Signed between two countries on a small list of goods and services. (od “[\Yz] Ñ^Ö^] T∆§Y^” ◊eTp
lßh« \ú] TVl^«\dj od Äc~Z TûÉZ Ö] ~°˚ d djo e^o)
 9ey act as a frontrunner before signing a more comprehensive free trade agreement (FTA).
 2022: India and UK exploring to sign an gearly harvest trade agreementr covering some 40-65%
goods and services. In the Fnal free trade agreement (FTA) agreement, we aim to cover 90%
goods/services: import export. (s^â psÅ^ hi Ñ^Ö^] T∆§Y^ d]pu.V)
 Similarly, India-Canada Early Progress Trade Agreement (EPTA).

How many nations are in CARICOM, a grouping of Caribbean nationsI (UPSC-Geologist-

2020) a.10 b. 12 c. 15 d. 18
<While the answer is 15 but poor cost:bene1t chasing such KBC GK. Better to skip>

34.10 FREE TRADE AGREEMENTS → TPP, TPP11, TATIP, IPEF, RCEP

34.10.1 Transatlantic Trade and Investment Pact (TTIP) #NOT-yet-Signed
 [\Y]-o~W^\•~d Ñ^Ö^] ol\ kXlVn T∆§Y^:
 Proposed free trade agreement between USA & EU with objectives similar to TPP- reduce tariA,
easier entry of foreign investment etc. Negotiations are ongoing but it is not yet signed.

34.10.2 U.S.-E.U. Trade and Technology Council (TTC) (2021)

2021: Started by President Biden to coordinate technology and trade policy between the United
States and European Union - with 5 areas of cooperation
- 1) Export controls - 2) Foreign direct investment screening
- 3) Secure supply chains (especially semiconductors)
- 4) Technology standards & ArtiFcial Intelligence - 5) Global trade challenges

MCQ. Statement-A: Recently, the United States of America (USA) and the European Union (EU)
have launched the JTrade and Technology Council:. [Prelims23-SET-A-Q087]
Statement-R: 9e USA and the EU claim that through this they are trying to bring technological
progress and physical productivity under their control.
A) Both A and R are true and R is the correct explanation of A.
B) Both A and R are true but R is not the correct explanation of A.
C) A is true but R is false. D) A is false but R is true.

(Batch: PCB10-Prelims) Mrunal’s Economy Pillar#3C- Intl.Org & Agreements → Page 584
34.10.3 Atlantic Declaration - USA-UK (2023-June)

ObjectiveI To ensure international stability -- from

1. Authoritarian states e.g. Russia & China 2. Disruptive technologies e.g. A.I, Blockchain
3. Non-state actors e.g. Terrorists 4. Transnational challenges e.g. climate change

34.10.4 Trans Paci>c Partnership (TPP: XRPc

M Wükc†°Y cPåZtPOS) #FAIL
USA proposed free trade agreement among 12 countries: US, Japan, Malaysia, Vietnam, Singapore,
Brunei, Australia, New Zealand, Canada, Mexico, Chile and Peru.
– Aimed to have lower tariAs for participant countries, easier norms for labour, environment and
investment. é^uZâ^] âVnc\dV ùWo ~V˚/d]c pdZ, ¸, Öa^Ül]| ú] kXlVn dV ùWo äT^X ^Xâ\}ã
– 2016: President Trump withdrew from the negotiation claiming, 5TPP will take away jobs from
USA because companies will setup factories in Mexico where labour is cheaper, and then such
cheap products will be dumped in USA, yet we8ll not be able to impose heavy taxes on them.9 So
TPP has become defunct.

34.10.5 TPP-11 or CPTPP

➢ While USA-led TPP could not materialize, but some of the nations in PaciFc region
separately worked out a JComprehensive and Progressive Agreement for Trans-Paci>c
Partnership: (CPTPP or commonly called TPP-11) in 2018-Dec.
➢ Presently, it has 11 signatories: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico,
New Zealand, Peru, Singapore, and Vietnam.

34.11 INDO-PACIFIC ECONOMIC FRAMEWORK (IPEF)

 Intro-Origin: 2022- USA launched it on the sidelines of QUAD Summit in Tokyo, Japan.
 President Biden launched IPEF bcoz 1) Trump pulled out of TPP11. Now President Biden need
to make friends again in PaciFc 2) To counter RCEP, China:s Belt-Road-Initiative. (3)
inQuence over Asia. (omna^ Ö°qT•√d p[ÖX^ Æéh˝ l^ÖT ÖhX b^kÖY d]XVdV ùWo [Vz]d^ dj h•å å°aV)

(Batch: PCB10-Prelims) Mrunal’s Economy Pillar#3C- Intl.Org & Agreements → Page 585
 -
IPEF is not a traditional trade agreement. Has four pillars: (Ö]˛]^uY Ñ^Ö^] T∆§Y^ XåZ\ã)

1) supply-chain resilience. (ÖåW^ ߡ å°äÖûõY ¸“\ÇW^ dc WÉZW^/ Thदृ± sX^X^)

--
2) clean energy, decarbonisation,
- - and infrastructure. (œá Ûe^Ü, }Zd^s⇥X^πeVnX ú] shkXa^âZ)
3) taxation and anti-corruption. (d]^t^X ú] ⇤_^É^])
---
 4) fair and resilient trade. India has not joined this pillar. (kX⌅ê ú] WÉZW^/ Thदृ± Ñ^Ö^], å^W^∂•d
--
é^]Y XVπT ߡ ÖVåß^ê] X•å •do)

India signed IPEF (Except Trade pillar), but problems: (é^]Y dc åZ ÉhX§YZ ä TdYZ å°)
 1) Child Labour, environment standards, India:s hesitancy over Genetically ModiFed
crops. (s^W ‰âæ]Z, Öa^Ül]| Th]ê^, GM-‡TWc p[]Zd^ [ÖXZ TcÉ é^]Y Ö] çcÖ TdY^ å°)
 2) Myanmar not allowed to join due to its military regime. Later on USA could make some
rules imposing their vision of democracy / Myanmar-relationship on the member
countries. (⇧^\^] e°TVY^X^n^å âVnc\dV T^ç é^]Y dV z]⌃c\Ö] []Zd^ [ÖXZ TcÉ çcÖ TdY^ å°)
 3) Anti-corruption / transparency / religious freedoms : USA government reports tend to
project India in a poor light. ([]Zdj T]d^]Z z]Öc~Üp⇤_^É^], t^⌥d œY\¿Y^ dV s^]V pé^]Y dc Xd^]^¢d ∫Ö TV
YcW^ e^Y^ å°ã Yc [s πT Xo ^\ÉVdV X^ Ö] []Zd^ ådc ú] Ç]Z Çc~Z ThX^ TdY^ å°ã)
 4) India has not joined the trade pillar. (Perhaps fearing that American solar panel, poultry etc
industry may harm local Indian industry. REF: WTO Disputes)

Conclusion: IPEF can prove to be a catalyst for furthering India's economic interests in the Indo
PaciFc region. provided that aforementioned challenges are nipped in the bud. (å^∂•å -Æn^\Y klß^] p
é^]Y dV ä†çd •åYc\dc s±^XVpââ Yc d] TdY^ å°, •d⌦h¡i ÉhX§kYac\dc ef dV Ta åZ âs^ âVX^ ‰∫]Zã)

34.12 REGIONAL COMPREHENSIVE ECONOMIC PARTNERSHIP (RCEP)

34.12.1 ✍ Introduction to RCEP

-

➢ RCEP (Ñ^Öd ä†çd é^uZâ^]Z d^ êV¿Za T∆§Y^) is a proposed free-trade agreement (hi Ñ^Ö^]
- - - -
-

TƤY^) between the 10 ASEAN countries and their six Free-Trade Agreements partners viz.
- - -

-
Australia, China, India, Japan, New Zealand and S. Korea. (hi Ñ^Ö^] T∆§Y^)
➢ Collectively, these countries command O
25% of global GDP, 30% of global trade.-

➢ RCEP requires them to tariA & non-tariA barriers against each other,Oinvestments,
economic
- e
& technical cooperation, protect Intellectual Property Rights (IPR: s§»∑d T\Öâ^
[qtd^]) etc. 9is
--
will trade, economic growth, employment in each of these countries

(Batch: PCB10-Prelims) Mrunal’s Economy Pillar#3C- Intl.Org & Agreements → Page 586
34.12.2 RCEP: Why didn't India join in 2019-NovI (ñPON nÄ£óMù§PáO VùSM•Y])
India has >$100 billion trade de>cit (Ñ^Ö^] Ÿ^~^) with RCEP countries. Out of this, China alone
accounts for $54 billion trade deFcit. So India had following apprehensions about this agreement.
1) China: RCEP will result in increased Qow of (Cheap) Chinese manufactured & electronic
goods → Indian MSME, automobile, steel industries harmed → So, India wanted separate levels
of customs duty against Chinese imports. ÉZXZ T^^X TVé^]Y dV ¡‹cu X_ åc e^o\uV.
2) Dairy: India is among largest producers of milk but our specialty is mostly in the liquid
products whereas New Zealand is renowned for its solid products (milk powder, butter, cheese
etc.) 9ese solid dairy products have a longer shelf-life & easier to transport over long-distance.
So if trade-barriers removed, India will be Qooded with cheap dairy products → Indian farmers
& dairy entrepreneurs will suAer. é^]YZa •dT^X, }V]Z ¡‹cu dc klâVnZ äaY TVÇY]^.
3) Agriculture: Southern India:s plantation farmers afraid of cheaper Tea, CoAee, Rubber,
Cardamom and pepper from Malaysia, Indonesia & other RCEP nations.
4) So, India wanted an Automatic Trigger Safeguard Mechanism (ATSM: ß®P[\N ©XRéO YP cÑOáP
NMo) to protect itself from surge in imports. (e.g. customs duty by gX%r on imported products
from gyr country if gzr situation occurs).
5) !" Ratchet Obligation (Oü®ZX tP™Tê): It means a nation can not go back/undo its commitments
under the RCEP agreement. India wants certain exemptions here.
6) Data localisation (ãZXP ´PVSTYOë): India wants all RCEP countries to have the rights to protect
data & prohibit cross-border data Qow (cSnPWPO ãZXP ¨bPù WO OóY) in the national interest. For this
reason, India even refused to sign G20 Osaka declaration on cross-border data Qow.
2019-Nov: RCEP summit at Bangkok, 9ailand. Here, Indian demands were not agreeable to the
majority of other members. So, India announced not to join the RCEP Agreement.
2020-Nov: 15 members signed it. India not yet signed. 2021: Singapore becomes 1 st to sign.
India also had 500 e^Y dV other objections but the maximum utility of RCEP topic is 250 words in the mains exam. For
that, we have gathered suöcient points. Further PHD useless.

34.12.3 " RCEP: Counterview: India made a mistake by not joining (ñPON cZé\NS ≠û ùü)
1) Competition brings excellence. Unless the Indian industrialists are subjected to the competition
from Asian giants, they will not invest further in the R&D, product upgradation, customer
service & customer satisfaction. ( ¸V↵Y^ dV ùWo स्पt^Üe∫]Z, åpâßÁY d] WVXVÉ^•åo çV)
2) If India doesn:t join RCEP, our products will not be able to compete in those nations because of
the higher taxes on Indian exports viz a viz other RCEP exports. (å n^»W XåZ\åc\uVYc s^Âj âVn Yc
n^»W åc ]åVåy, Yc ¡Xd^ ‡^aâ^ åc e^ou^ ú] å ]å e^o\uVã)
3) Indian manufacturers could import intermediate goods from RCEP countries at cheaper price
→ process them further → re-export towards Middle East, Africa and European. 9us, RCEP

(Batch: PCB10-Prelims) Mrunal’s Economy Pillar#3C- Intl.Org & Agreements → Page 587
 could have provided the perfect opportunity for India to become integrated with the global value
chain (l°◊xd ûfiltÜX ¸“\ÇW^ p•å¶^ sX TdY^ å°).
4) World Bank:s gA Glass Half Full: 9e Promise of Regional Trade in South Asiar report (2019)
estimates India:s potential trade in goods with South Asia at more than 60 billion, but at present
the actual trade is less than $20 billion- due to tariA barriers and connectivity issues. Hence,
RCEP is necessary for boosting Indiaes exports. (kXa^ÜY ps±cY]Z pââ »WVuZ)
5) RCEP was still Jless strict: in comparison of India:s ongoing FTA negotiations with the USA or
EU. It was a low-hanging fruit, we should have signed it. ([Vz]d^ aû]cÖ dV T^ç Æß^klY Ñ^Ö^] T∆§YVYc
πTTVéZ ज़्य^â^ Tख़्त å°, ¡XdV hÂ^sWVä]TZëÖZ Yc πYX^ Á]^s XåZ\ç^ã é^]Y XVâßÁY/åß^ê] d]XVÉ^•åo çVã)
6) Economic Survey observed- India will have to eventually shed-oA its {big but poore mentality.
International agreements always require some sort of bargaining / give and take. ('sÅVWV•dX u]Zs'
^XqTdY^ TVkXdWX^ åcu^ã [\Y]]^_Z̀a T‰§Yc pY^WZ âc å^ç TVseYZ å°ã)
7) 2022: Commerce Minister Piyush Goyal has chastised Indian industries: 1) FTAs are two-way
traöc. It cannot be one-sided access for Indian goods and services alone. Otherwise other
nations will not sign it, if we don:t allow their products in India. 2) Local Indian industry needs
to get more innovative and competitive. 3) Indian consumers should not be forced to buy
expensive / poor quality domestic products in areas where other countries: are oAering better
cheaper products. (l^m|ø \¿Z ÖZaû¨ ucaW XVé^]YZa ¡tcaÖYZac dc √~d^] Wu^aZ å° •d [u] é^]Y T]d^] klâVnZ
T^^X Ö] ~°˚ d XåZ\d]VuZ, Yc klâVn dj T]d^] é^]YZa T^^X Ö] ~°˚ d XåZ\d]puZã πTùWo é^]YZa d\ÖXZac XV
klâVnZac TVÆkYस्पt^ÜdV ùWo Y°a^] ]åVX^ åcu^ã é^]Y dV Ì^ådc\Ωc\é^]YZa d˛XZ d^ å∂u^ ú] Ÿ•~a^ Ô^ùW~Z d^ T^^X
Á]ZâVuVa•â ¡✏pklâVnZ ^W •d‡^aYZ â^ ú] [á⇣ Ô^ùW~Z d^ »W ]å^ åcã?)

34.12.4 ✍ RCEP: ConclusionI (UVÆsv)

 While it is true that India could have gained in certain export-sectors by signing RCEP
Agreement, but its present format did not fully address India's issues and concerns regarding the
protection of the domestic industry. å^W^\•d é^]Y dc dhÄ kXa^ÜY êV¿c\p√^aâ^ åc TdY^ ç^, WV•dX lYÜ^X Æ^∫Ö
XVŸ]VWû¡‹cu dj Th]ê^ dV T\s\t pé^]Y dV h✓c\ú] ≤ÉY\ ^«\dc Öû]Z Y]å TVT\scqtY XåZ\•da^
 So we:ve opted not to sign it. 9e remaining member-nations have planned to sign the RCEP
agreement in 2020 and they are trying to convince India to get onboard.
 India has not permanently shut the doors for negotiation. In future we may sign it, if our
concerns are addressed. b^aZ ∫Ö TVâ]l^eVs\â XåZ\•do åyã a•â å^]Z ≤ÉY\ ^«\Ö] ‘^X •âa^ e^o Yc ékl◆ på πT
Ö] åß^ê] d] TdYVåyã
 Meanwhile, 2022: ASEAN-India Trade in Goods Agreement (AITIGA) negotiations going on.
MCQ. Consider the following countries:(Asked in UPSC-Pre-2018)
1.Australia 2.Canada 3.China4.India 5.Japan 6.USA
Which of the above are among the 'free-trade partners' of ASEAN'
(a) 1, 2, 4 and 5 (b) 3, 4, 5 and 6 (c) 1, 3, 4 and 5 (d) 2, 3, 4 and 6

(Batch: PCB10-Prelims) Mrunal’s Economy Pillar#3C- Intl.Org & Agreements → Page 588
34.12.5 Why FTA increasing as per ES23
 Free trade agreements between nations are increasing because
 Recent WTO summits have failed to give positive outcomes, due to bickering among nations
over Doha Development Agenda, Food Subsidy etc. (lYÜ^X Ta p}’û~Z« Öz]¨â sèY Td^]^¢d
Öz]|^ XåZ\âVTdj, Ωc\•d Tâ…c\päÖTZ Xh~^l ú] Öh]^XV^Wc\Ö] ∆uÅVÉWYV]åYVåy)
 Free Trade Agreements are much easier to Fnalise than WTO agreements because friendly
nations show more Qexibility towards each other. (e.g. Compared to USA vs China on Doha
Agenda) (}’û~Z« dV hd^sWVhi Ñ^Ö^] T∆§YVäT^XZ TVkXÖ~ e^YVåyΩc\•d »¿ ]^_`od âæT]V dV ÆkY ø^â^ WÉZW^
]l°a^ •âÇ^YVåy)
FTA give following beneFts to member nation:
 Easier access to raw materials aSer tax-cuts. (dÙ^ ^W TßVâ^c\Ö] »WV.)
 Lower prices for consumers (Ì^ådc\dV ùWo éZ TßZ djYp)
 increasing customers/market size for export products (Ì^ådc\ps±cY]Z)
 Protecting against unfavourable trade policies of other countries, by Fnding new friends. e.g.
China vs India-Aussie. ([≈ âVnc\dj Xd^]^¢d XZkYac\dV ›ÇW^√ ùWo Xo âcß Çce ùWo e^o\)
 promoting peace and stability (n^\kY ú] ≠b]Y^.)

34.12.6 India-ASEAN to review FTA by 2025

➢ 2009: India-ASEAN FTA signed

➢ 2023: Indian feels this FTA is asymmetric- bcoz It is helping the ASEAN exporters more
than it is helping the Indian exporters. ([T\YhùWY T∆§Y^ ◊eTpäqTa^X dV kXa^ÜYdc\dc ø^â^ √^aâ^
èä å°, é^]Y dV kXa^ÜYdc\dc d √^aâ^ èä å°)
➢ So, India and the ASEAN countries will form a committee to review / modify the agreement
by deadline of 2025.

34.12.7 Budget-2020: FTA {rules of origine (ÜïkØ YZ UVTn)

- 1998: India - Sri Lanka FTA. So ink manufactured in SriLanka = 0% Indian customs duty when
imported in India.
- But sometimes Chinese company manufacture ink bottles in China, transports to its Sri Lankan
company → Sri Lanka:s (phoney/namesake) company pastes a label 5this bottle manufactured in
Sri-Lanka9 → sell them in India @0% customs duty'

(Batch: PCB10-Prelims) Mrunal’s Economy Pillar#3C- Intl.Org & Agreements → Page 589
- - - O -
-
O
So, FTA agreements contain 'rules of origin'. Which requires that minimum x%
manufacturing/processing/value addition must be done in originating②
. . . . -
country (SriLanka in our
- -

example) before it:s eligible for 0% customs duty.

- Originating country (Srilanka) cannot dump goods from some third country (China) in the
Indian market by just putting a label on it. (Y^•d, ¡âu/ kXa^ÜY d]Y^ âVn •dTZ YZT]V âVn dj lßh« Ö] [ÖX^
WVsW ≤ÉÖd^ dV é^]Y pd]-hµi dV T^ç X sVÉ TdV.)
d
-
34.12.8 Commerce Ministry: Certi>cate of Origin (Ütén ¨nPë Wo)
-
--
 India has signed a free trade agreement with many countries. Such agreements provide that
-

- -
-

foreign partner nations will levy 0% or reduced

- - - -
taxes on the imported items of India.
- - -
-
 But for this, Indian exporters need to submit a document to the - -
Foreign partner country' landing
port
-- that "indeed the item was manufactured and sent②
from India."

- -
-
 Such CertiFcate of Origin (CoO) is issued by the Director general of foreign trade under the
-
0
commerce ministry. (é^]Y TVkXa^ÜY •da^ ua^ T^^X é^]Y ü^]^ åZ sX^a^ ua^ å°¥T^ Æ^| Ö¿ Y^•d »¿ ]^_`¡T Ö]
-

hi Ñ^Ö^] T∆§YVdV [\YuÜY ~°˚ pz]a^aY âV)

34.12.9 >
Economic
-
survey: Observations abt Indiaes Trade Agreements
ShiSed to Mains
34.12.10 Trade agreements losing shine → NAFTA & SAFTA
&
NAFTA
-
➢ North American Free Trade Agreement; ¡≥]Z [Vz]d^ kXnhƒ Ñ^Ö^] T∆§Y^ (1994)
-
- - -

involves Canada, USA and Mexico.

-

1994
- -
- - O
➢ However, Trump felt NAFTA harms the American interests → 2018: He made a -

deal with Mexico and Canada to replace NAFTA with a new agreement called
e
- - . -

O
United States-Mexico-Canada-Agreement (USMCA).
e
- - - -

SAFTA ➢ South Asian Free Trade Area (âmê| omna^ë hi Ñ^Ö^] êV¿) is-
- -
a trade agreement
-
of
SAARC
--
nations- Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal,
>
-
- -
-

2004 Pakistan and Sri Lanka.

➢ 2016: India refused to attend SAARC Annual summit @Pakistan, aSer Uri-Attack.
In 2019 India raised duties on Pakistani goods so SAFTA:s is losing its shine.
e
AFCFTA --0-
➢ African Union (AU) members have signed the African Continental Free Trade
2019 Agreement
-- e
(AfCFTA) covering 54 nations.

34.13
e
# BURNING ISSUES IN INTERNATIONAL TRADE

O - -
O
&
-

(Batch: PCB10-Prelims) Mrunal’s Economy Pillar#3C- Intl.Org & Agreements → Page 590
34.13.1 #Protectionism, Trade war: cMOáëbPt, jPWPO TÑl
 Protectionism means use of tariA and non tariA barriers to protect the local industry against
foreign competition. (nhƒ lu°] nhƒ s^t^«\ü^]^ b^kXd ¡‹cuc\dc klâVnZ स्पt^ÜTVsÉ^X^)
 Trade war happens when 2/more nations attack each other's exports via tariA & non-tariA
barriers.
 2017: USA had $375 billion trade deFcit with China. Cheap import from China → domestic
American mfg suAer. US cos outsourcing to China → unemployment of American workers.
 2018: Trump announced 25% tariA on Imported Steel, Semiconductors, Chemicals, Plastics,
Motorbikes and Electric Scooters etc. from China.
 So, China retaliated by hiking tariA on imported American soybean & other food products,
chemicals, medical equipment & vehicles. Both also Flled complaints against each other at WTO.
 EU also making similar protectionist moves against China and India.

34.13.2 #: Protectionism → Indian Govt procurement (cOYPOS ~OSt)

 Atma-Nirbhar: PM asked the nation to be "local ke liye vocal" (to promote local goods) with an
aim to make India self-suöcient in every way.
 So, in Government procurement tenders up to ®200 crore. → Foreign (global) companies will
not be allowed to apply. (T]d^]Z Ç]Zâ dV 200 d]cÅ Yd dV ~p}] VklâVnZ d\ÖkXac\dc [e£ }^WXVÖ] ÆkYs\t, Y^•d
b^kXd Tûक्ष्म, WŸhú] ‘ ¡‹ dc ks⌫j d^ [lT] »WV)
 9is will help Indian Micro, Small & Medium Enterprises (MSME) and large Indian companies
to revive business through purchase from the Govt.

(Batch: PCB10-Prelims) Mrunal’s Economy Pillar#3C- Intl.Org & Agreements → Page 591
34.13.3 # USAes Special 301 report

Annual report that lists the countries who are harming the Intellectual Property Rights: (IPR: s§»∑d
T\Öâ^ [qtd^])- copyrights, patents and trademarks of American companies.
- 9ese countries are classiFed into categories such as gPriority Foreign Countryr (Most
dangerous)> "Priority Watch List" > "Watch List" etc.
- Depending on classiFcation, USA will complaint to WTO and / or spend money on those
countries to piracy (e.g. training and capacity building of Russian police o;cers & China8s
cybercrime courts etc.).
- 2018: India, Russia, China etc. are in priority watchlist. Mainly because of their hackers, movie
piracy, counterfeit products; India because of its drug patent norms & NPPA which reduce the
proFtability of US pharma companies: patented drugs.

34.13.4 # USAes Generalized System of Preferences (GSP) list

aûoTo dj Æ^ç»dY^«\dj T^^≈Zd“Y Æ|^WZ Tû≤É
If a developing country:s name is in this list, its exports will be subjected to zero/lower import duties
in USA (for selected products only). (kld^TnZW âVnc\TV[Vz]d^ e^XVl^WVdhÄ lßh« \Ö] [Vz]d^, ~°˚ d Wu^ou^)
- 2019: Trump removed India from GSP list, citing India has imposed heavy import duties on
Harley Davidson bikes and other American exports. (å^W^∂•d ~`˛ XVé^]Y dc πT TûÉZ TVå~^ •âa^ ç^)
- As such most of the Indian exported goods to USA are not in the GSP list in the Frst place, so
this blacklisting will not harm India much, albeit, Indian textile companies are worried that GSP-
removal will make Indian garments more expensive in USA.

34.13.5 # Global System of Trade Preferences

Deleting from handout because faded topic.
34.13.6 BREXIT = BRITAIN EXIT & How will awect IndiaI

ShiSed to Mains. #RAFTAAR

34.13.7 India UK Roadmap 2030 (Held in 2021-May)

India UK: virtual bilateral summit between PM Narendra Modi and British PM Boris Johnson.
Mostly bol-bachchan. ShiSed to Mains.

MCQ. 0e term {Digital Single Market Strategye seen in the news refers to(Pre-2017)

(Batch: PCB10-Prelims) Mrunal’s Economy Pillar#3C- Intl.Org & Agreements → Page 592
 (a) ASEAN (b) BRICS (c) EU (d) G20
e
MCQ. {Broad-based Trade and Investment Agreement (BTIA)e is in the context of
negotiations between India and_ _ _ _(Asked in UPSC-Pre-2017)
(a) European Union (b) GCC (c) OECD
- (d) SCO

35 OTHER NOTABLE GROUPINGS RELATED TO ECONOMY

- - -

35.1 GROUPINGS: INDIAN SUBCONTINENT

e
SAARC, 1985 ·
BIMSTEC, 1997
South Asian Association for Regional Bay of Bengal Initiative for Multi-Sectoral
- -

O
-

Cooperation t∞áë ]`aTPû áZoST cùTóé cMì

-
Technical and Economic Cooperation
- -
- -

(BIMSTEC) sèêV¿Za YdXZdj ú] ä†çd Tåacu dV ùWo

s\u^W dj Ç^ÅZ ÖåW
or -
HQ: Kathmandu, Nepal (1985) O
-
Dhaka, Bangladesh (1997)
- u
O
8: Afghanistan, Bangladesh, Bhutan, India, 7 members: Bangladesh, India, Myanmar,& Sri
O
- - - . . .
-

Nepal,
c Maldives, Pak & Sri Lanka.
- - - -
Lanka, 9ailand , Nepal and Bhutan.
°
-

>
- - -

- 2016:
---
summit @Islamabad cancelled aSer  Summits
-
every four years.
India and others boycotted due to Uri attack.
-
-
 2018 summit @Kathmandu, Nepal.
- 9en no annual summits in 2017, 2018 etc.
-
- - ②
 2022: summit @Colombo, Sri Lanka (virtual
mode)
Bitter areas: Myanmar coup & Rohingya crisis
- -

→ outQow of refugees India and 9ailand.

(⇧^X^] n]|^†çac\dj T…^ dV ÉWYVäÖT pçcÅZ dÅl^å~)
- SAFTA losing its shine due to non-cooperation aSer Pakistan:s terror attacks on India.
- - - -

- India has setup South Asian University (SAU-2010) @ Delhi (2010) for SAARC students.
- India launched South Asia Communication Satellite (GSAT-9) in 2017 to provide tele-
medicine, tele-education, banking, television broadcasting facilities to SAARC nations.
- 2020-March: SAARC leaders organized video conference to Fght Corona.
- India proposed creation of a COVID-19 emergency (äÖ^Yd^WZX kXqt) fund & contributed
$10 million in it.

MCQ. Which of the following are the objectives of SAARC I (CAPF-2023)

-
1. To promote the welfare of the peoples of South Asia and to improve the quality of life
-
- -

2. To promote and strengthen collective self-reliance among the countries of>

- - -
South Asia
- -

3. To contribute to mutual trust, understanding and appreciation of one another's problems

- - - - -

4. To-
- work towards ending cross-border
- terrorism
Codes: (a) 1 and 2 only (b) 1, 2 and 3 only (c) 1, 2, 3 and 4-
(d) 3 and 4 only

(Batch: PCB10-Prelims) Mrunal’s Economy Pillar#3C- Intl.Org & Agreements → Page 593
35.1.1 Mekong- Ganga Cooperation (2000)
India + Fve of the ASEAN countries, namely, Cambodia, Laos, Myanmar, 9ailand and Vietnam. for
=
cooperation in tourism,000---- - (ÖaÜ~X, T\⇠“kY, mnê^, Öz]låX,
culture, education, transport, communications.
T\É^]). Mekong river starts frome
- -
China → Qows through -
Myanmar, Laos, 9ailand, Vietnam,
>
Cambodia → drains in South China Sea.
-

-
1

-
-1
O e e
°
-
- -
-
- - -

-
- -
-

- -
-
-

1 -

W
- -O

35.2 GROUPINGS: ASEAN VS SCO

ASEAN SCO
Association of Southeast Asian Nations :
- -
Shanghai Cooperation Organization :
-

âmê| ÖûlÜomna^ë ]^_`T\Ÿ n\Ÿ^ë Tåacu T\uvX

& e
1969 → Bangkok declaration → HQ:
-
Jakarta, - 2001 → HQ: Beijing,O
& China.
Indonesia. - O
Regional Anti-Terrorist Structure (RATS)
O O
- - - -

8th August is celebrated as ASEAN Day. @Tashkent,

- Uzbekistan
-

00
10 Members: Brunei, Cambodia, Indonesia,
.
- . . .
- 6 founding members: Russia, China,
Laos, Malaysia, Myanmar, Philippines,
-
Kazakhstan, Kyrgyzstan, Tajikistan and
---
Singapore, 9ailand and Vietnam. &
Uzbekistan.
Chairmanship of O +2 new members: India & Pak O
-1
-

ASEAN rotates annually - (2017)

-

- -

=
based on the alphabetical>
order of the English - +1 new member:O Iran (2023)
-
- -

names of Member Nations.

-O
- 2018: marked the 25th Anniversary of ✓-
2017: SCO summit
- at Astana, Kazakhstan →

(Batch: PCB10-Prelims) Mrunal’s Economy Pillar#3C- Intl.Org & Agreements → Page 594
 ASEAN SCO
ASEAN-India Dialogue Relation, their India, Pak formally given membership.
leaders were invited to India → Delhi ✓ 2018: SCO summit at Qingdao, China resulted
declaration with the theme gShared Values, Qingdao declaration- a 3-year plan to combat
Common Destinyr terrorism. India refused to endorse China:s One
- 9eir 10 leaders also graced our 26th belt one road (OBOR) policy in this summit.
January 2018 Republic Day parade as chief (More in Pillar5: Transport)
guests. ✓ 2019: SCO summit at Kyrgyzstan:s capital
- 2019: Summit at 9ailandJs capital Bishkek.
Bangkok. 9eme: Advancing partnership
✓ 2020: Russia virtually hosted summit of gHead
for sustainability. ResultI Bangkok
of State(e.g. India:s president)r. Separately
declaration against Marine Debris (Th´p
dÉ]^) 2020: India virtually hosted summits of JHeads
- 2023: @Indonesia. 2024: @Laos of Govt: (HoG) e.g. India:s PM). PM Modi did
not attend, VP Naidu played the host.
✓ 2023: India; 9eme- 'Towards a SECURE SCO"
✓ 2024: Astana (Kazakhstan)
MCQ. Which of the following statements about ASEAN are correctI (CDS-2023-ii)
1. 9e Chairmanship of ASEAN rotates annually based on the alphabetical order of the English
names of Member States.
2. 9e Chairmanship is decided by voting among the Member States.
3. "One Vision, One Identity, One Community" is the ASEAN motto.
4. 12th August is celebrated as ASEAN Day.
Codes: (a) 1 and 2 only (b) 1 and 3 only (c) 3 and 4 only (d) 1, 2, 3 and 4

35.2.1 Afghanistan 6+2+1 group for redevelopment of Afghanistan

6: neighbouring countries: China, Iran, Pakistan, Tajikistan, Turkmenistan and Uzbekistan;
+ 2 global players the United States and Russia, and +1: Afghanistan itself.

35.3 GROUPINGS: OCEAN-RIM WALLA

Indian Ocean Rim Association (IORA); Asia-Paci>c Economic Cooperation (APEC)
•ùMt nùPcPéO rOn/•YVPOP ]cókc]aV (IORA) ]`aTP-¨aPMN õúôY cùTóé
22 Indian Ocean rim nations. India is a member. 21 PaciFc Rim ocean economies. India is not a
China-USA are dialogue partners. member, China-USA are members.
Setup in 1997, HQ: Ebene, Mauritius 1989, HQ: Singapore
- 2018 council of ministers: meeting - 2018 summit @Port Moresby, Papua New
@S.Africa:s Durban- established Mandela Guinea. India is keen to become member but
Scholarship, added Maldives as a member but not yet added.
blocked membership of Myanmar due to - 2019 summit @Chile cancelled due to civilian
S.Africa:s opposition. unrest in the country.

(Batch: PCB10-Prelims) Mrunal’s Economy Pillar#3C- Intl.Org & Agreements → Page 595
 Indian Ocean Rim Association (IORA); Asia-Paci>c Economic Cooperation (APEC)
•ùMt nùPcPéO rOn/•YVPOP ]cókc]aV (IORA) ]`aTP-¨aPMN õúôY cùTóé
2023: Summit at Colombo, SriLanka. - 2020-Virtual summit adopted gPutrajya
Vision 2040r for economic cooperation and
development partnership.

35.4 GROUPINGS: BRICS

Year Event
2001 Economist Jim O:Neill coined the term BRIC
2009 First summit by Brazil, Russia, India, China and South Africa.
2011 S.Africa joined as member
2014 BRICS New Development Bank (NDB) formed
Summit @Johannesburg, S.Africa. 9eme: gBRICS and Africa: Partnership for Mutually
2023
Accelerated Growth, Sustainable Development and Inclusive Multilateralismr.
2024 New members to join: Argentina, Egypt, Iran, Saudi Arabia, Ethiopia, and UAE
2024 Summit @Kazan (Russia)
➢ Role of secretariat is played by its pro tempore presidency. e.g. 2022: China, 2023: S.Africa
➢ BRICS aims for 3 pillars of cooperation:
o - (1) Political and Security Cooperation
o - (2) Financial and Economic Cooperation
o - (3) Cultural and People-to-People Cooperation

35.4.1 BRICS Johannesburg Declaration (2023)

- From 1/Jan/2024: 6 new members to join- Argentina, Egypt, Iran, Saudi Arabia, Ethiopia, and UAE
➢ @UNSC: need to add new (permanent) members
➢ @WTO: need special and diAerential treatment (S&DT) for developing countries,
➢ @WTO: Fll the judges vacancy
➢ @WTO: Fx the agriculture subsidy issue i.e. Permanent Solution on Public food
Stockholding (PSH) for food security purposes and special safeguard mechanism (SSM) for
developing countries.
➢ @IMF: review your quota system. Give more quota to developing ntions.
➢ @IMF - World Bank - WTO: appoint 3rd world country person top oöcial positions
➢ Look for peaceful resolution of Russia-Ukraine war
➢ BRICS Payment Task Force (BPTF) to workout on Cross-border Payments in BRICS
countries. (Recall Russia was banned from SWIFT- due to Western lobby. So, BRICS wants
their own parallel payment system)

(Batch: PCB10-Prelims) Mrunal’s Economy Pillar#3C- Intl.Org & Agreements → Page 596
 ➢ Dilma RousseA, Ex-President of Brazil is appointed as the President of the New
Development Bank (NDB) (Interestingly, 2016: she was in impeached from the post of
President of Brazil for budget mismanagement∏ Ye hai International Ethics¥∏)
➢ 2024: 16th BRICS summit to be held Kazan (Russia)

35.5 GROUPINGS: BRICS, OECD, OPEC & JAI

OPEC, - Organization of the Petroleum Exporting Countries: ÖV~c̀ùWa kXa^ÜYd âVnc\d^ T\uvX-
1961 1961 HQ@Vienna, Austria.
- a group of oil producing countries Saudi, UAE, Venezuela, Iran, Iraq etc.… total 14
members. Qatar withdrew from 1/1/19. Russia is NOT a member.
OECD, - Organisation for Economic Co-operation and Development: ä†çd Tåacu Yç^ kld^T
1961 T\uvX-1961 HQ@Paris, France.
- Works for International cooperation in the matters of economy and taxation.
Known for Base erosion and proFt shiSing (BEPS) Norms. India is not a member.
NAM - Non-Aligned Movement was founded under the leadership of Josip Broz Tito of
1961 Yugoslavia, Gamal Abdel Nasser of Egypt, Jawaharlal Nehru of India, Kwame
Nkrumah of Ghana, and Sukarno of Indonesia.
- 9ey advocated 3rd world nations to abstain from allying with USA/USSR during
Cold war. (nZY ah∑ dV â§]^X [T\ahi ]åVXVd^ ä\âcWX)
- Member nations are in Asia, Africa, Latin America, Caribbean, and Europe.
- 2023: Summit @Uganda.
2+2 e.g. India Japan 2+2 = meeting of foreign minister & defense minister from each side.
JAI Prime Minister Narendra Modi, US President Donald Trump and Japan Prime Minister
trilater Shinzo Abe met in a trilateral format in the sidelines of G-20 Summit in Buenos Aires,
al Argentina. It was called the Frst-ever JJAI: meeting. Objective' Economic growth,
2018 common prosperity & harassment of UPSC aspirants.
QUAD Quadrilateral Security Dialogue is a strategic dialogue / group of political democracies,
market economies and pluralistic societies. between the United States, Japan, Australia
and India. (ÉYhéhÜe Th]ê^ T\l^â : ]|XZkYd T\l^â, WcdY\¿ s^e^] ät^z]Y [çÜY\¿ ú] od^qtdY˝l^âZ
T^ec\d^ od Tûå)
AUKU 2021: 9is trilateral security pact between Australia, the United Kingdom. Under the
S pact, the US and the UK will help Australia to acquire nuclear-powered submarines.
France doesn:t like this, because earlier they were going to sell submarine to Australia.
Paris - Paris Club: Informal group of nations that help a debtor nation when debtor nation
Club facing loan repayment problems. Members include Australia, Canada, France,
(1956) Germany et cetera.
- India is an observer state (meaning not full member yet)

MCQ. BRICS Summit, 2020 will be hosted by (UPSC-CDS-i-2020)

(a) India (b) China (c) Russia (d) Brazil

(Batch: PCB10-Prelims) Mrunal’s Economy Pillar#3C- Intl.Org & Agreements → Page 597
 MCQ. Which of the following statements about Quad is/are correctI (CAPF-2023)
1. It is a group of four countries, namely, India, Australia, USA and France.
2. Maritime cooperation is an important binding force among members of the Quad.
3. 9e Quad members formed a working group on COVID-19 vaccines.
Codes: (a) 1 only (b) 1 and 2 only (c) 2 and 3 only (d) 1, 2 and 3

35.6 G20 SUMMIT AT INDIA

- 1999: A club of Fnance ministers and central bank governors- started in response to the East
Asian Fnancial crisis of 1997-98 (Refer: capital account convertibility topic in pillar3B)
- 2008: membership expanded in response to USA-Subprime/ global Fnancial crisis
- Before 2023: It had 19 nations + 1 EU as member: - Argentina, Australia, Brazil, Canada, China,
France, Germany, India, Indonesia, Italy, Japan, Republic of Korea, Mexico, Russia, Saudi
Arabia, South Africa, Turkey, UK, USA AND EU
- 2023: African Union (made up of 55 countries in the African continent) is given full
membership- similar to the EU.
- G20 Common Framework: G20 + Paris Club together devised a framework to help the low-
income countries in its loan repayment problems (2020)

35.6.1 G20: 3 tracks

G20 operates through 3 main tracks: (1) Finance Track, (2) Sherpa Track, (3) Engagement Groups.
Track Objectives
(1) Finance
issues related to Taxation, Infrastructure Fnance, Financial Inclusion of the poor etc
Track
Socio-economic issues like agriculture, anti-corruption, climate change, digital
(2) Sherpa economy, education, employment, energy, environment, health, tourism etc. Here,
Track each member send an oöcial called Sherpa.
e.g. India:s SHERPA = Amitabh Kant (Retd. IAS)
(3) Non-governmental representatives: Groups e.g. Business20, Civil20, Labour20,
Engagemen Parliament20, Science20, SAI20 (Supreme Audit Institutions), Startup20, 9ink20,
t Groups Urban20, Women20, and Youth20.

35.6.2 G20 Summit- 2023: 18th Summit @New Delhi, India: theme and logo
- G20 Summit is held annually with a rotating presidency
- G20 does not have a permanent secretariat and is supported by the previous, current, and future
holders of the presidency, known as the troika. e.g. 2023's troika consists of Indonesia (past-
summit 2022), India (present summit-2023) and Brazil (future summit in 2024)

(Batch: PCB10-Prelims) Mrunal’s Economy Pillar#3C- Intl.Org & Agreements → Page 598
 0eme:- gVasudhaiva Kutumbakamr or gOne Earth One Family One Futurer - is drawn from
the ancient Sanskrit text of the Maha Upanishad
 Logo:- globe/earth resting on a lotus

35.6.3 G20 Summit- India's priorities (SIX:6)

1. Green Development, Climate Finance & LiFE 2. Accelerated, Inclusive & Resilient Growth
3. Accelerating Progress on SDGs4. Technological Transformation & Digital Public Infrastructure
5. Multilateral Institutions for the 21st century 6. Women-led Development

35.6.4 G20 Summit-2023: Outcomes / New Delhi declaration (2023)

➢ African Union (55 members) accepted as G20 member- just like how EU is member of G20.
➢ India – Middle East – Europe Economic Corridor (IMEC) launched.
➢ Global Biofuel Alliance (GBA) launched.
➢ We need more funds to Fght climate change
➢ Next summit in BRAZIL. Brazil Summit:s priorities (1) social inclusion and the Fght against
hunger; (2) energy transition and sustainable development (3) reform of global governance
institutions.
For more points/analysis- refer to Mains Handout

35.6.5 G20 2023 Outcome India-Middle East-Europe corridor (IMEC)

➢ Announced during G-20 Summit @India (2023)
➢ Players' India, Saudi Arabia,UAE, Jordan, Israel, USA, EU & others in G20.
➢ Objective' Build railway line, shipping connectivity and optical Fbre Link. (- ¡✓V⇢? ]VWlV, Th´Z
\ TVäÖT pehÅ^l dc s±^apuãV )
eå^‰ Öz]låX, ıkप्टdW √^πs] ùWd
➢ BeneFts' (1) Trade, Energy, digital connectivity among Asia, the Arabian Gulf, and
Europe; (2) Countering China:s belt and Road initiative. (- ‡^aâ^? Ñ^Ö^]/äa^Y-kXa^ÜY, Ûe^Ü,
•}◊e~W T\É^]; ÉZX dj sV⌧ ú] ]c} ÖåW d^ hd^sW^ d]X^ã)
➢ IMEC is sub-scheme / part of Partnership for Global Infrastructure Investment (PGII). Refer
to Infra related org section for more.

35.6.6 G20 2023 Outcome Global Biofuel Alliance (GBA)

➢ Announced during sidelines of G-20 Summit @India (2023)
➢ PlayersI India, Singapore, Bangladesh, Italy, USA, Brazil, Argentina, Mauritius and UAE and
more- total 19 countries and 12 international orgs (- As of 2023-Sept.)

35.6.7 G20-2019: Osaka Declaration on free µow of data India refused to sign
shiSed to Mains. #RAFTAAR.

(Batch: PCB10-Prelims) Mrunal’s Economy Pillar#3C- Intl.Org & Agreements → Page 599
35.6.8 G20- Truckload of PYQs - `ucY∂ Yóû ∑MNùP VùSM
MCQ. Which of the following are India's G20 prioritiesI (CAPF-2023)
1. Green Development 2. Women-led Development
3. Climate Finance 4. Digital Public Infrastructure
Codes: (a) 1 and 2 only (b) 1, 2 and 3 only (c) 3 and 4 only (d) 1, 2, 3 and 4
MCQ. Consider the following statements about G-20: (Prelims-2023)
1. 9e G-20 group was originally established as a platform for the Finance Ministers and Central
Bank Governors to discuss the international economic and Fnancial issues.
2. Digital public infrastructure is one of India:s G-20 priorities.
Code: (a) 1 only (b) 2 only (c) Both 1 and 2 (d) Neither 1 nor 2
MCQ. Find wrong statement about the Group of Twenty (G20) is not correctI (EPFO-2023)
(a) It was founded in 1999.
(b) 9e G20 summit is held annually under the leadership of a rotating Presidency.
(c) 9e G20 members represent around 85% of the global GDP.
(d) 9e G20 comprises twenty countries.
MCQ. In which groups are all the four countries members of G20I (UPSC-Prelims-2020)
[a) Argentina, Mexico, South Africa and Turkey [b) Australia, Canada, Malaysia and New Zealand
[c) Brazil, Saudi Arabia and Vietnam [d) Indonesia, Japan, Singapore and South Korea
MCQ. Find correct about gG20 Common Frameworkf (Prelims-2022)
1. It is an initiative endorsed by the G20 together with the Paris Club.
2. It is an initiative to support Low Income Countries with unsustainable debt.
Codes: (a) 1 only (b) 2 only (c) Both 1 and 2 (d) Neither 1 nor 2
MCQ.Which of the following are India's G20 prioritiesI (CAPF-2023)
1. Green Development 2. Women-led Development
3. Climate Finance 4. Digital Public Infrastructure
Codes: (a) 1 and 2 only (b) 1, 2 and 3 only (c) 3 and 4 only (d) 1, 2, 3 and 4

35.7 GROUPINGS LED BY GORA (WHITES) O

→ G7
- -

35.7.1 G7 - Group of Seven (1975)

- -

➢ seven major developed countries: Canada, France, Germany, Italy, Japan, USA, UK.
-------

➢ 1997: Russia was added so it became G8 but then Russia annexed Crimea region of Ukraine
- ---
to Russia was Expelled from this group so again it became G7 in 2014.
➢ 2020: Trump proposed Australia, India, South Korea, Russia etc should also be invited at G7.
Although the UK hates the idea of inviting Russia back. But, ball-by-ball notIMP.
➢ Newspaper Columnists had gone crazier than usual, suggesting expansion of membership to
G10 / G11 by adding above countries as new members.

(Batch: PCB10-Prelims) Mrunal’s Economy Pillar#3C- Intl.Org & Agreements → Page 600
 ➢ 2021's Summit @Cornwall, UK. While India, South Korea and Australia are not members of
G7, but their leaders are invited to attend. PM Modi attended it Virtually. 9is summit:s
theme, outcome, 15% Global Minimum Tax = Ref Pillar#2B Black Money.
➢ 2022: Summit@Germany.
35.8 TECH RELATED ALLIANCE

35.8.1 Bletchley Declaration o AI Safety (UK-2023)

- - -

➢ 2023-UK PM hosted AI safety summit at Bletchley Park in England.

- - - - -

Bletchley declaration.
- n
②
➢ India, China, Saudi Arabia, USA etc....total 28 nations AND European Union signed
--

35.8.2 D10: 5G club proposed by UK (2020)

-
->
-
 UK proposed gD10r club of democratic partners including
o G7 countries — UK,
- -
US, Italy, Germany, France, Japan and Canada
o + 3 more plus Australia, South Korea and India
- - -

 Objective: create supply chain for 5G equipment and technologies. To avoid relying on China/
- - - -
Huawei-
--
for data security and data privacy. (5G ¡Öd]| ú] Ƨ‹c»u•dac\dV ùWo äÖûõY ¸“\ÇW^= ÉZXZ
d\ÖkXac\ü^]^ }^~^ Éc]Z d^ ÇY]^ d åc)

35.9 MINERALS RELATED GROUPINGS

/

--

35.9.1 A
RISE by World Bank and Japan
O
-

➢ Partnership for Resilient and Inclusive Supply-chain Enhancement (RISE)

000
- - -

-
➢ for critical minerals, such as cobalt, lithium, vanadium, manganese and zirconium.
-

➢ MastermindsI2
-
World Bank and Japan. Later Canada, Italy, S.Korea and UK also joined

35.9.2 -
Minerals Security Partnership (MSP: LUN nùêWîëv~UVuóMYZ [\] ñPéStPOS/cùTóé)
 US-led partnership to secure critical minerals and reducing dependency on China.
- - - -

 MSP includes Australia, Canada, Finland, France, Germany, Japan, the Republic of Korea,
- -

Sweden, United Kingdom, and the European Commission.

=
 2023-June: India joins MSP grouping . (Originally, we were not invited.)

(Batch: PCB10-Prelims) Mrunal’s Economy Pillar#3C- Intl.Org & Agreements → Page 601
 000
Cobalt, Nickel, Lithium etc. Required for batteries used in electric vehicles, semiconductors
-

and high-end electronics manufacturing.

- -

 -00
Rare Earth Minerals available in India — such as lanthanum, cerium, neodymium,
eo
- - -

praseodymium, samarium, etc.


= OG
Rare Earth Minerals NOT available in India- dysprosium, terbium, and europium. So, there

W
-
is a dependence on countries such as China.

35.10 -
INFRASTRUCTURE RELATED NOTABLE GROUPS/INITIATIVES
-

Initiatives Mastermind Year

Belt and Road Initiative (BRI) / One belt one road
China 2013
(OBOR)
Blue Dot Network (BDN) USA, Japan, Australia 2019
Global Gateway Initiative EU 2021
Partnership for Global Infrastructure Investment (PGII) G7 (mostly USA:s brainchild) 2022
India-Middle East-Europe corridor (IMEC)- it as sub-
O
G20 Delhi summit 2023
scheme of PGII given in previous cell.
Partnership for Resilient and Inclusive Supply-chain
En -
World Bank and Japan. Later
Enhancement (RISE) -
- Canada, Italy, S.Korea and UK 2023
for critical minerals, such as cobalt, lithium, vanadium,
also joined
manganese and zirconium.

35.11 GROUPINGS: MIDDLE EAST: GCC VS OIC

Gulf Cooperation Council (GCC);
- Organisation of Islamic Cooperation (OIC)
-
~P∏S cùTóé WrOst (GCC) ∑πP∫nY cùTóé cMéªV (OIC)
1981: HQ-Riyadh, Saudie Arabia -
1969: HQ-Jeddah, Saudi Arabia
-

6 members: Bahrain, Kuwait, Oman, Qatar, ~50 Islamic countries from across of the world.
- -

Saudi Arabia, and the UAE

2017:
-
some of these members have cut oA 2019-March: While India is not a member, but
-
- -

diplomatic and business ties with Qatar.

-
Frst time invited in OIC meeting as guest of
2021: Extraordinary summit @Pakistan. ②
honour.
35.11.1 Abraham Accords (2020-Sept)
➢ UAE, Bahrain and Israel:s Peace agreement for normalization of relations. (z]⌃c\dc T^^≈ d]XV
--
dV ùWo n^\kY TecY^) U.S. President Trump acted as mediator (‘b dj éû»d^)
➢ Abraham = regarded as a prophet by both the Jewish and Islam.
35.11.2 I2U2: Middle Eastern / West Asian QUAD (2021-22)

1980
 Indo-PaciFc QuadO
-

= India, USA, Japan and Australia

- -

I
(Batch: PCB10-Prelims) Mrunal’s Economy Pillar#3C- Intl.Org & Agreements → Page 602
 Middle Eastern Quad / / West Asian QUAD = India Israel, UAE, and USA
 six areas for joint action: water, energy, transport, space, health, and food security.
 countering the inQuence of Chinese belt and Road initiative in Middle East.
 $2 billion to develop a series of integrated food parks across India → 2x farmers: income.
 300-megawatt hybrid (Solar+Wind) renewable energy project in Gujarat → help to India:s goal
of 500 GW of renewable energy by 2030.
 Better implementation of the Abraham accords and other peace initiatives in Middle East.
Peaceful and prosperous Middle East = market for Indian Exports.
35.12 MISC GROUPINGS / ORG → WORLD ECONOMIC FORUM (1971)
 Not-for-proFt think-tank in Cologny (a municipal area in Geneva), Switzerland. klx ä†çd \É-
hX^√^-]•åY klnV¨ज्ञ Tûå
 Known for its annual summit at Davos resort in Switzerland where they invite selected world
leaders, thinkers, NGOs and industrialists.
 2021: Davos Summit 2021- cancelled by Corona:s Omicron variant.
 2022:Online Davos Agenda 2022 summit, held in virtual mode.
Annual reports: Global Competitiveness Report, Global Information Technology Report, Global
Gender Gap Report, Global Risks Report, Global Travel and Tourism Report, Financial Development
Report, Global Enabling Trade Report.etc.

MCQ. Global Competitiveness Report is published by the _ _ _ (UPSC Prelims-2020)

Codes: A) IMF B) UNCTAD C) World Economic Forum D) World Bank

35.13 MISC GROUPINGS / ORGANIZATIONS OTHERS

UN, NATO self study from IR-Diplomacy course/books/PDFs
List not exhaustive:
- UNCTAD: United Nations Conference on Trade and Development → famous
UN specialized for its World Investment Report. 2021:s report says that India is the FSh largest
agencies related recipient of Foreign Direct Investment (FDI) in the world.
to Economy - UNDP: United Nations Development Programme known for its Human
development report (more in pillar#6)
cMTÑö OPQRY∂ - UNIDO: UN Industrial Development Organization
Ub`aQ cM´P]M - World Intellectual Property Organization (WIPO: More in Pillar#4B-IPR)
- International Labour Organization (ILO: More in Pillar#4C:unemployment)
9eir establishment years, HQ, reports etc. = KBC GK poor cost:beneFt
Andean Free trade area of South American countries of Bolivia, Colombia, Ecuador, Peru.
Community
Southern Common Market of Argentina, Brazil, Paraguay, Uruguay + ANDEAN +
Mercosur
other countries. However Venezuela was suspended in 2016.
Paci>c Alliance Chile, Colombia, Mexico, and Peru:s regional level free trade agreement (2016)

(Batch: PCB10-Prelims) Mrunal’s Economy Pillar#3C- Intl.Org & Agreements → Page 603
 Visegrád Group 4 Central European countries: the Czech Republic, Hungary, Poland, and Slovakia.
(also known as V4 European Quartet)
Organization of cooperation among Azerbaijan, Kazakhstan, Kyrgyzstan, Turkey and Uzbekistan.
Turkic States
MCQ. Who are members of the Organization of Turkic States (Asked in Prelims-2022)
1.Armenia 2. Azerbaijan 3. Croatia 4. Romania 5. Uzbekistan
Codes: (a) 1, 2 and 4 (b) 1 and 3 (c) 2 and 5 (d) 3, 4 and 5
35.14 EXPORT CONTROL / NON-PROLIFERATION REGIMES
sèÖêZa kXa^ÜY kXa\¿| / [ÆT^] Ñlb^:
- Nuclear Suppliers Group (NSG: Ö]^|häÖûõYdY^ÜTûå) is a group of countries that
NSG control the export of nuke materials, equipment and technology & aim to prevent
1974 its use in making nuclear bombs.
- China is a member, India not a member yet due to China:s objection.
Australia - Informal group that encourages members not to export chemical or biological
Group weapons or technology.
1984 - China not a member, India became member (2018).
- Missile Technology Control Regime (»T^πW Ƨ‹c»udj kXa\¿| Ñlb^) is an informal
MTCR group that encourages members not to export missiles equipment, soSware,
1987 technology.
- China not a member, India became member (2016)
- Wassenaar is an area in Netherland. 9is arrangement (1996) requires members to
Wassenaar
be strict and transparent in the export of conventional arms and dual-use goods
Arrangeme
and technologies (e.g. Night Vision Googles). So they don:t fall in the hands of
nt
terrorists and rogue states like N.Korea.
1996
- China not a member, India became member (2017)
MCQ. India is member of _ _ _ (Prelims-2022)
1. Asian Infrastructure Investment Bank 2. Missile Technology Control Regime
3. Shanghai Cooperation Organisation.
Codes: (a) 1 and 2 only (b) 3 only (c) 2 and 3 only (d) 1, 2 and 3

35.15 RUSSIA RELATED ORG/AGREEMENTS

35.15.1 Black Sea Grain Initiative (2022)
➢ Russia will allow ships to access 3 Ukrainian ports of Odesa, Chornomorsk and Pivdennyi
(Yuzhny), aSer inspection that they are not carrying arms.
➢ BeneFts' (1) Ukraine can continue exporting wheat / corn / foodgrains = global food prices
remain stable. (2) UN Food aid program to poor nations - do not suAer from food shortage
➢ Mediators in the deal' 1) UN 2) Turkey.
➢ Controversy' Russia threatening to quit the deal.

35.15.2 CTBT Nuke Treaty: Putin Exit (2023)

(Batch: PCB10-Prelims) Mrunal’s Economy Pillar#3C- Intl.Org & Agreements → Page 604
 ➢ Comprehensive Nuclear Test Ban Treaty (CTBT-1996) by United Nations.
➢ It bans all types of nuclear explosions, whether for military or peaceful/ ScientiFc purposes.
➢ 2000: Russia ratiFed the agreement.
➢ But China, Egypt, India, Iran, Israel, North Korea, Pakistan, USA not yet ratiFed it.
➢ 2023: Russian President Putin plans to withdraw from deal bcoz USA has not ratiFed it yet.

35.15.3 USA related Arms Treaties

1. 1987:Intermediate-Range Nuclear Forces (INF) treaty between USA-Russia during to prohibit
development of missiles with ranges between 500 and 5,500 km. 2019: USA withdraws from it.
2. 1991: New Strategic Arms Reduction Treaty (New START) treaty between U.S. and Russia for
reducing nuclear weapons. 2021: Treaty will expire.
3. 1992: Open Skies Treaty (OST) signed between NATO and Warsaw Pact countries to
monitor/spy each other's territory through unarmed aeroplanes. 2020-May: USA wants to
withdraw from it.
4. Self-study: CTBT, NPT: NCERT Class12 Political Science ch4: India's external relations

for more on IR annual summits, treaties, etc. for prelims study from PDF/Mags/Courses

35.15.4 Mock Questions for Mains GSM2 (Intl. Org Related to Economy)
Question from this pillar mostly centre around what is the signiFcance of X organisation for India,
how do the actions/agreements of Y nations aAect the Indian interests.

NEXT Handout: Pillar4A: Sectors of Economy- Agriculture

(Batch: PCB10-Prelims) Mrunal’s Economy Pillar#3C- Intl.Org & Agreements → Page 605
 PILLAR4A: SECTORS OF ECONOMY → AGRICULTURE

Table of Contents

40 Agriculture- Intro ( ✏⇣- ⌘✓◆ ).................................................................................................. 610

40.1.1 Agri Production Numbers/GK: India is _ _ _ (data Ecosurvey-2023)..........................611
40.1.2 [Yearbook-Info] A Ministry of Agriculture and Farmers Welfare..........................611
40.1.3 [Yearbook] Min. for Fisheries, Animal Husbandry and Dairying......................612
40.2 Cooperative societies & New Ministry....................................................................................613
40.2.1 Cooperative Society: Meaning...........................................................................................613
40.2.2 Cooperative Society: Features / BeneAts (BCD / EFGH I / JF KL).....................................613
40.2.3 Cooperative Societies: Types of (✏MNOP Q F◆)....................................................................614
40.2.4 [Yearbook] Modi forms a new Ministry for Cooperation........................................614
40.2.5 Organisations under Ministry of corporation......................................................................614
40.2.6 Multi-State Cooperative Societies Act 2002 → Amendment Bill 2022 .......................615
40.2.7 3 new coop societies for export, organic, seeds (2022)..................................................616
40.3 Agri-Input Land (WXYZ).................................................................................................616
40.3.1 Land reforms in India a\er independence..................................................................617
40.3.2 Types of Farming: Cooperative Farming Versus Collective Farming..........................618
40.3.3 " Coop Farming → Small Farmer Large Field (B_` ⇣ abLELI).......................................618
40.3.4 Types of Farming: Truck Farming / Market Gardening................................................619
40.3.5 → Types of Farmingd HOMEWORK NCERT...............................................................620
→
40.4 Agri-Input Seeds: aYW..............................................................................................................620
40.4.1 →Agri-Input → Seeds Green Revolution: g✓◆I hFi✏I..................................................621
40.4.2 Agri-Input → Seeds → Landraces (WXYZY QWF✏I j kHBL/aYW).....................................621
40.4.3 Agri-Input → Seeds → Pepsi vs Potato Farmers..................................................621
40.4.4 Agri-Input → Seeds → Genetically modiAed (GM) crops.......................................621
40.4.5 GM Mustard approval- Kabhi haan kabhi naa...........................................................622
40.4.6 Smart Corn GMO (USA) = short height= storm resist ................................................622
40.4.7 Seeds → GM crops → Challengesn..............................................................................622
"
40.5 Agri-Input → Water (Irrigation: GHi Fo)......................................................................................623
40.5.1 [Yearbook] Jal Shakti Ministry...............................................................................623
40.5.1.1 [Yearbook1] Dept. of Water Resources, River Development & Ganga
Rejuvenation...................................................................................................................................624
40.5.1.2 [Yearbook2] Dept of Drinking Water And Sanitation: ⌘L WB s◆ tMuvIF ✏MOFw.....624

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 606
 40.5.2 → Water Schemes NRDWP (2009).......................................................................624
40.5.3 Water Schemes → Pradhan Mantri Krishi Sinchai Yojana (2015) .....................625
40.5.4 Water Schemes → Namami Gange Yojana (2015)..............................................625
40.5.5 Water Schemes → Jal Kranti Abhiyan (2015).......................................................625
40.5.6 Water Schemes → Jal Shakti Abhiyan (2019 onwards).......................................626
For generating awareness amongst citizens for water conservation. 2022ys zeme: Catch the
Rain...................................................................................................................................................... 626
40.5.7 Water Schemes → Jal Jeevan Mission (Rural) (2019)..........................................626
40.5.8 Water Schemes → Jal Jeevan Mission (Urban) (2021)........................................626
40.5.9 Water Schemes → ATAL Bhujal Yojana (=ATAL JAL) (2019)..........................626
40.5.10 Water Schemes → Misc. Schemes (✏M✏M{ |v}⌘`} ~WZFi)......................................627
40.5.11 " Agri-Input → Water → Composite Water Management Index ...........................627
40.5.12 Agri-Input → Water (irrigation) → River Interlinking in Budget-2022 ...................627
40.6 Agri-Input → Fertilizer (ÄMÅ◆ / EFK)..................................................................................628
40.6.1 " Prevent urea misuse → Nutrient Based Subsidy (2010)........................................629
40.6.2 Prevent urea misuse→ Soil Health Card (2015) (XKF ÇFÉ FÑÅ)..........................629
40.6.3 Soil Health card → Bhu-Vision/Krishi-RASTAA Soil Testing Equipment ...........630
40.6.4 Prevent urea misuse→ Neem Coating of Urea (2015)..........................................630
40.6.5 Prevent urea misuse→ DBT of fertilizer (2018)...............................................630
40.6.6 Prevent urea overuse→ Nano-Urea- suggested by ES22......................................631
40.6.7 Pradhan Mantri Kisan Samridhi Kendra (PMKSK-2022):.................................................631
40.6.8 Prevent fertilizer misuse→ PM-BJP/One Nation One Fertiliser ........................631
40.6.9 Reduce Fertilizer use : PM PRANAM scheme in Budget-2023......................632
40.7 Agri-Input Pesticides & weedicides..............................................................................632
40.8 Agri Inputs → Don0t use chemicals → PKVY (2015)...................................................632
40.9 Agri Inputs → PKVY (2015) → (BPKP-2021).............................................................633
40.9.1 Zero Budget Natural Farming (ZBNF: áàâ aW} QF ✏I ELIY).............................634
40.9.2 Organic farming & ZBNF → Limitationsn (X FÅKF/Z̀ä✏I F)...................................635
40.9.3 Conclusion: Organic farming / ZBNF....................................................................635
40.10 Agri Inputs →Farm Mechanization (XáYZY ◆D)...............................................................635
40.10.1 Agri Inputs Farm Mechanization: Challengesn.............................................636
40.10.2 Agri-Drone buying ke liye Subsidies.............................................................................637
40.11 Agri Inputs Finance / Credit: ãD.............................................................................637
40.11.1 →Agri-Finance Negotiable Warehouse Receipts (NWR)......................................638
40.11.2 Warehousing for small farmers: PM Bhai (2023).........................................................638
40.11.3 Agri-Finance → Loan waivers for the farmers ( å HFZ ~ WÅXFJj)..................638
40.12 Agri-Input →Risk reduction →Insurance.......................................................................639

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 607
40.13 Agri-Output → don0t burn the crop residue (kHB-çMáL⇣/ ⌘◆FBY).....................................639
40.14 Budget-2023 on Agro.............................................................................................................640
40.15 Agri-Selling APMC ( ✏⇣wI ÄéFK ✏M⌘DZ HèX✏I)..............................................................641
40.15.1 APMC Problemsn HXêFi / Z̀ä✏I Fi...................................................................................641
40.15.2 Model APMC Actn (ëKáÅ FZàZ).......................................................................................641
40.15.3 : 3 Farm laws repealed (2020-21)..................................................................642
40.16 Agri-Selling Online → e-national agriculture market (E-NAM)................................642
40.16.1 Agri-Selling → Gramin Agricultural Markets (GrAMs)........................................643
40.16.2 Agri-Selling→Outside India →Agri Export Policy, 2018..................................643
40.16.3 Agri-Selling Farmerys income: SAS Survey DATA....................................644
40.17 Agri-Selling Income support for farmers............................................................644
40.18 Agri-Selling → Minimum Support Prices (MSP)..................................................645
40.18.1 MSP covers which cropsn..................................................................................645
40.18.2 MSP computation, Swaminathan Committeen..............................................646
40.18.3 MSP decision Factors apart from (A2+FL) x 1.5 formula................................................647
40.18.4 ES22: Crop DiversiAcation: by higher MSP (kHB ✏M✏M{Y ◆D- Äì âàZIX HXîÅZ Xàï
ñF◆F)....................................................................................................................................................... 648
40.18.5 Crop DiversiAcation: CDP program (2013).......................................................................648
40.18.6 Agri-Selling → MSP → Procurement (çG{QF⌘D / E◆YK)n...............................649
40.18.7 = MSP BeneAtsn.............................................................................................649
40.18.8 = MSP Limitationsn (X FÅKF)...........................................................................650
40.19 : Agri-Selling: PM-AASHA: ?x MSP limitations................................................650
40.20 : FCI & PDS (aJ◆ OiÑF◆)....................................................................................651
40.21 : Agri-Selling: Storage and Transport.................................................................652
40.22 : Agri-Selling: Direct income w/o selling → PM-KISAN@6k/pa.............................................652
40.22.1 → : Pension: PM Kisan Maan Dhan Yojana.............................................653
40.23 Agri-Selling: food inCation for consumers..................................................................653
40.23.1 Food inóation Reasons and Remedies in 2022–23 by ES23.........................................653
40.23.2 Food Inóation- Govtys Reforms in 2022–23.......................................................................653
40.23.3 Food Inóation due to shortage of Pulses supply (KFB~i F ÄéFKZ).........................654
40.23.4 Food Inóation due to shortage of Vegetable supply............................................655
40.23.5 Seasonality in Onion-Tomatoes............................................................................656
40.24 : Food INFLATION → Onions.....................................................................................657
40.24.1 Onion Shortage caused by (ôFW j XY)..............................................................................657
40.24.2 : Govt initiatives → Onion Inóation (2019-Sept to Dec)..............................657
40.24.3 : : ES21 how to control onion inóationn..................................................657

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 608
40.25 : Agri-selling: Food-InCation: Govt initiativesE......................................................658
40.25.1 : Food Inóation → Govt initiatives → MEP...................................................658
40.25.2 : Food Inóation → Govt initiatives → OMSS................................................658
40.25.3 : Govt initiatives → Price Stabilization Fund (2014).....................................659
40.25.4 : Govt initiatives → Operation Greens for T-O-P (2018).............................659
40.26 → Food InCation Edible Oil (EFö ILB)....................................................................659
40.26.1 → : Govt initiatives Edible oil ki New Scheme (NMEO-OP: 2021-Aug)
.............................................................................................................................................................. 660
40.26.1.1 NMEO-OP Scheme Component-1: (DBT)..................................................660
40.26.1.2 NMEO-OP Scheme Component-2: (TRAINING)......................................660
40.27 : Food InCation → Essential Commodities Act......................................................661
40.28 Agro-Selling→ DeCation (2017 onwards).................................................................662
40.28.1 Agro-Selling→ Deóation → Sugar millsy problem............................................662
40.28.2 Agro-Selling→ Deóation → Sugar Subsidy & WTO order...............................663
40.29 Agriculture Production & Processing → Other Schemes................................................663
40.29.1 Agriculture Infrastructure Fund (2020-Jul)..........................................663
40.29.2 Bharat Campaign under Agriculture Infrastructure Fund..........................................664
40.29.3 Ghar Ghar KCC (2023)...................................................................................................664
40.29.4 Agro Produ. & Processing → Farmer Producer Company (FPC) ........................664
40.29.5 Agro Production & Processing → RKVY & RAFTAAR (2017)............................664
40.29.6 Agro Prod. & Processing → Green Revolution - Krishonnati Yojana ..................665
40.29.7 Agro Production & Processing → PM Kisan Sampada Yojana .............................666
40.29.8 Atma-Nirbhar: dOp Greend expanded to all fruits & veggies.......................666
40.29.9 Atma-Nirbhar: Food Enterprises promotion (EFö ÄöX~i ~ aõFMF)..................667
40.30 Food Processing Industries for GSM3...................................................................................667
40.31 Sectors → Agro Allied: → Animal husbandry (⌘á`⌘FBZ)..........................................................667
40.31.1 Livestock Census (⌘á`{Z j WZwDZF)......................................................................668
40.31.2 Agro Allied: Animal husbandry → White Revolution..........................................669
40.31.3 Cow (welfare) Cess.......................................................................................................671
40.31.4 : ES2019 suggests focus on Small Ruminants..................................................671
40.31.5 Atma-Nirbhar: Dairy cooperatives (Kù ú FB Hg F◆Y HèX✏I Fi)........................671
40.31.6 Agro Allied: Fisheries → Blue revolution (Xû → ZYBY hFi✏I).......................................672
40.31.7 Pradhan Mantri Matsya Sampada Yojana (2020)...........................................672
40.31.8 Shaphari certiAcation for aquaculture exports (MPEDA, 2021)............................673
40.31.9 Sweet Revolution (Honey / Beekeeping) XYüY hFi✏I, ágK, X{X̀†Y ⌘FBZ...............................673
40.31.10 Other revolutions:...........................................................................................................674
40.32 Agriculture → Research & Education, extension Services.........................................674

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 609
 40.32.1 Org: ICAR..............................................................................................................................674
40.32.2 Agri Census......................................................................................................................674
40.32.3 Agriculture year versus Financial Year..........................................................................675
40.32.4 Digital Crop Survey system........................................................................................675
40.33 Agri Extension: Notable App / Portals - truckload of...........................................................675
40.33.1 WINDS Portal (2023)......................................................................................................675
40.33.2 Kisan Rin Portal (2023)...................................................................................................675
40.33.3 UPAg Portal for Agri statistics.......................................................................................675
40.33.4 Meri Fasal-Mera Byora Portal (2023)............................................................................675
40.33.5 NBSS BHOOMI Portal.........................................................................................................675
40.34 Global Coop: Food and Agriculture Organisation (FAO)...................................................676
40.34.1 International Year for Millets (2023).......................................................................676
40.34.2 MILLETS: MAHARISHI...........................................................................................676
40.34.3 MIIRA for global Millet R&D (2023).......................................................................676
40.34.4 1st Global Symposium on Farmers' Rights (2023)...................................................677
40.34.5 Global Cooperation: International Years by United Nations (UN)...........................677
40.34.6 Global Cooperation: International Decades by UN (çiI◆FÅ¢£Y Ká )............................677
40.34.7 Global Coop: Misc. → SAARC Food Bank (2007)..................................................677
40.34.8 Global Coop: Misc. → International Grains Council (London) ............................677
40.34.9 Global Coop: Misc. → AMIS (2011, HQ@Rome,Italy).........................................677
40.34.10 Global Coop: Misc. → IRRI (1960, HQ@Los Baños,Philippines)......................677
40.35 Global Awards related to Agro.............................................................................................678
40.36 GK: Famous Agri Scientists..................................................................................................678
40.36.1 . Norman Borlaug (USA, 1914–2009)............................................................................678
40.36.2 . M. S. Swaminathan (Tamilnadu, 1925–2023).............................................................678
40.37 Mains Qs from Agriculture.................................................................................................. 678

40 AGRICULTURE- INTRO (⌫⇠⇡⇢- ⌧ )

(De#nition) Agriculture is a primary economic activity that includes growing crops, fruits,
vegetables, óowers and rearing of livestock. ✏⇣  QFîèX ëßî w✏I✏MG{ g®©WHX™aõIY JHB™, JB, H´¨ Fi,
JàB s◆ ⌘á`{Z F ⌘FBZ áFèXB g®
- Modi-Target: Double farmersy income by 2022-23 compared to 2015-16. (å HFZ j ë Kwú ZY ◆~)
- UN-SDG#1: End poverty in all forms. | UN-SDG#2: Eliminate global hunger, protect indigenous
seed and crop varieties, doubling agriculture productivity and small farmer incomes by 2030.

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 610
- Sir Arthur Lewis3 Dual Economy Model (ñ®I çîÅÆMØF): Economic development results in
labourer moving away from agriculture to the more productive industrial sector, & agriculture
sector becomes less important part GDP. ✏⇣ HL✏M✏ZXFÅD s◆ HLMF X™XWK∞◆~i F wXZ
- Indians in agriculture is steadily falling down: 55% (2011) to 42% (2018) (World Bank data).
- ze growth rate of agri= up-down due to El-Nino led drought years. PM Manmohan target 4%
annual growth rate.

- Within Agriculture & Allied sector: Highest production (money-wise)= Crops > Livestock >
Forestry > Fishing. ( ✏⇣ ⌘◆ HiB≥ CL¥~iX™HaHLµFKF ÄéFKZ gF HLg~IF g®)
- For more on GDP&GVA calculation- REF: Pillar#4C.

40.1.1 Agri Production Numbers/GK: India is _ _ _ (data Ecosurvey-2023)

 Milk: #1 Producer (more than 1/5th of world milk supply)
 Vegetable Oil: #1 importer India. (MZ∑✏I ILB X™K✏úZ F F HaHLabF ë FI IFÅOF◆I g®)
 Sugar: #2 producer. #1 consumer. (á∏◆ X™K✏úZ F F K∞H◆F HaHLabF ✏ZXFÅIF s◆ ⌘gLBF HaHLabF Ä⌘O~πF)
 Fisheries: #2 producer. 28 million Indians working. Exports earning ∫40,000+ cr per year
 Eggs: #3 Producer, Meat: #8 Producer
 54.6% of Indian population working in agriculture and allied sectors (Census-2011)
40.1.2 [Yearbook-Info] A Ministry of Agriculture and Farmers Welfare
It is made up 2 departments and implements National Policy for Farmers (2007)

Dept#1 Department of Agriculture, and Farmers Welfare

Agro-itself - Statutory: Coconut Development Board, National Cooperative Development
Corporation, Protection of Plant Varieties and Farmersy Rights Authority,
- Attached Oªce: National Rainfed Area Authority.
- CPSE: National Seeds Corporation Ltd. (NSC)
- Autonomous / Cooperative bodies: National Agricultural Cooperative
Marketing Federation of India (NAFED), Small Farmers Agribusiness
Consortium (SFAC). Various boards / institutes for horticulture, plant health
management, Agro marketing etc.

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 611
 Dept#2: Department of Agricultural Research & Education (DARE)
Agro - Autonomous body: Indian Council of Agricultural Research (ICAR: OF◆IY
Research ✏⇣ çZ`Hi{FZ ⌘✓◆⇣K)
Extension - Central Agro universities @Imphal (Manipur), Pusa (Bihar), Jhansi (UP)

* Hindi terms not given for most org. because above information is meant for MCQ only. In the mains
exam you may attribute all things to 1 ✏⇣ s◆ å HFZ ïFD Xi¥FB j M®{F✏Z / Hg F◆Y / ÇF º HiØF <insert
English term/abbreviation>⇠.

40.1.3 [Yearbook] Min. for Fisheries, Animal Husbandry and Dairying

zis ministry was setup in 2019, with two departments
1. Dept of Fisheries (Matsyapalan Vibhag)
A) Fishery Survey of India, Mumbai
B) Central Institute of Fisheries Nautical and Engineering Training (CIFNET), Kerala
C) Central Institute of Coastal Engineering For Fishery (CICEF), Bangalore

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 612
 D) National Inst of Fisheries Post Harvest Technology & Training (NIFPHATT), Kochi
E) National Fisheries Development Board (NFDB), Hyderabad
F) Coastal Aquaculture Authority, Chennai.
2. Dept of Animal Husbandry And Dairying (Pashupalan Aur Dairy Vibhag):
A) → Statutory: National Dairy Development Board (NDDB)
B) → Statutory: Animal Welfare Board of India under ze Prevention of Cruelty to
Animals Act,1960.
Previously above subjects were under the Agri ministry.

40.2 COOPERATIVE SOCIETIES & NEW MINISTRY

40.2.1 Cooperative Society: Meaning

 (DeAnition) ze cooperative society is a voluntary association of persons who join together with
the motive of welfare of the members and/or prevent exploitation by middlemen. (Hg F◆Y
H~HFΩ}Y/HiwüZ= B~w~i F  Ç®æø HXg̀ W~ HKê~i L ✏M FH L |B F KBFB~i L á~⇣D HLaZL L |B aZF F WFIF g®)
 (Data) zere are 8.5 lakh registered cooperatives in the country, with over 29 crore members
 For example: ze farmers of Kheda region (Gujarat) where exploited by the middlemen in the
milk trade. So, Sardar Vallabhbhai Patel advised them to sell their milk by forming a cooperative
society (1946) which later evolved into AMUL.
40.2.2 Cooperative Society: Features / Bene#ts (KLM / NOPQ R / SO TU)
- Voluntary membership: A person is free to join. can also leave anytime. (Ç®æø HKêIF)
- Legal status / Stable existence: formed by minimum 10 persons and registered
o under A) State laws (if Single State Cooperative Society), or
o B) under unionys multi-state cooperative Societies Act 2002- if it is operating in more
than 1 state e.g. National Agri. Cooperative Marketing Federation Of India (NAFED).
- Cooperative Society is a separate artiAcial legal person. It can enter into contracts and hold
property in its name. Death, or insanity of an individual members do not a¿ect continuity of a
cooperative society. Limited liability of members. (Explained in Pillar#1C2)
- Equal Voting: one person gets one vote irrespective of how much capital he contributed.
- Service / Welfare motive: Not driven by desire for excessive proAt or excessive growth.
- Support from government: m through low taxes, subsidies, and low interest rates on loans.

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 613
40.2.3 Cooperative Societies: Types of (⇡XYZ[ \⌫O )
 (i) Consumer3s cooperative societies: purchases goods in bulk directly from the factory and sells
goods to the members, thereby eliminating the middlemenys commission. (Ä⌘O~πF¡i L |B)
 (ii) Producer3s cooperative societies: small-scale producers buy raw material directly from
source/members, thereby eliminating the middlemenys commission. e.g. AMUL =Milk
Producersy cooperative Society → milk: butter cheese ice cream → sell. [ÄéFK~i L |B]
 (iii) Farmer3s cooperative societies: member-farmer cooperate for purchase and sharing of
seeds, fertilisers, machinery, land. zis helps solving the problems associated with farming on
fragmented land holdings.[å HFZ~i L |B]
 (iv) Marketing cooperative societies: zey help small producers in selling their products. e.g.
Tribal Co-operative Marketing Development Federation of India (TRIFED) under the Ministry
of tribal a¿airs. [✏M⌘DZ Hg F◆ L |B]
 (v) Credit cooperative societies: To collect money from members and give loans to the members
at a¿ordable rates. Formed by farmers, villagers, caste-based organisations etc. [⌘àiWY/¬D KLZL L |B]
 (vi) Cooperative housing societies: To help members get houses by pooling land/loans etc.

40.2.4 [Yearbook] Modi forms a new Ministry for Cooperation

ze country has 1,94,195 cooperative dairy societies and 330 cooperative sugar mill operations.
Budget-2021: Anance minister had promised a √separate administrative structured for
cooperatives. zis was Anally done in 2021-July.
BEFORE AFTER 2021-July Reform
Agriculture Ministry → Department of - Government announced the formation of a
Agriculture, Cooperation and Farmers Welfare separate Union Ministry of Cooperation /
= looked a\er administrative, legal and policy Cooperative Ministry.
framework for cooperative movement in India. - Home Minister Amit Shah was given
charge of the new Ministry
⌘gBLHg F◆Y XiÑBY/HiØFZ~i j ©ƒ≈LKF◆Y ✏⇣ Xi¥FB j îY, - Will look a\er administrative, legal and
ça ΩH L |B çBw HL Hg F◆ Xi¥FB j ØF⌘ZF∆ policy framework for cooperative
movement in India- including cooperative
organizations in agriculture, dairies, sugar
mills, spinning mills, banking-Anance etc
Statutory Body: Multi State Cooperative Shi\ed here («a»◆Fµ Hg F◆Y HèX✏I ~i L ◆©W…£F◆” W~
Societies ACT, 2002 → Registrar of Multi State ⌘gBL ✏⇣ Xi¥FB L çiIwÅI îL, ça Hg F◆Y Xi¥FB L
Cooperative Societies = functioned under Agri çiIwÅI)
Ministry
BeneAts and challenges of this moven Ans. Shi\ed to Mains Handout. #Prelims-RAFTAAR

40.2.5 Organisations under Ministry of corporation

1. Registrar of Multi State Cooperative Societies. Statutory body (2002)

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 614
 2. National Cooperative Development Corporation (NCDC), a statutory corporation (1963)-
societies. Its focus is on programmes of agricultural marketing, seeds/fertilizers/ inputs, food
processing, cold storage. Also promotes dairy, livestock, handloom, sericulture (silk),
poultry, Ashery
3. National Council for Cooperative Training (autonomous Society) @Delhi
4. Vaikunth Mehta National Institute of Cooperative Management (VAMNICOM), Pune for
Post Graduate-Diploma courses.

40.2.6 Multi-State Cooperative Societies Act 2002 → Amendment Bill 2022

YEAR LAW
1984 Multi-State Cooperative Act.
2002 Multi-State Cooperative Societies Act to replace earlier 1984ys act.
97th Constitutional Amendment act gave constitutional status to coop societies by doing 3
changes:
• 1. Added right to form cooperative societies as a fundamental right (Article 19).
2011 • 2. Included a new Directive Principle of State Policy on the promotion of
cooperative societies (Article 43B).
• 3. Added a new Part IX-B in the constitution, titled "ze Cooperative Societies"
(Article 243-ZH to 243-ZT).
2022 Multi-State Co-operative Societies (Amendment) Bill to amend 2002ys act.
Above bill aims for

 Setup statutory body √Co-operative Election Authorityd to conduct elections for board members
of multi-state co-operative societies. (aÕ-◆Fµ Hg F◆Y HiwüZ~i L a~ÑÅHKê~i L Z̀FM L |B  Hg F◆Y Z̀FM
QFG{ ◆D aZF F WFwF)
 Setup Ombudsman for hearing the complaints by the members of coops. (HKê~i j Ná F I HZ̀ZL L
|B Ná F I ✏ZMF◆D çG{ F◆Y)
 Setup a fund for revival of sick multi-state co-operative societies. ze Fund will be Ananced
through contributions by proAtable multi-state coops. (aYXF◆/_F}L-MFBL a»-◆Fµ Hg F◆Y HiwüZ~i ~
⌘Z̀WŒ✏MI ◆ZL L |B   ✏MºY - ~⇣ aZFœwL∆ XZ̀FkLMFBLHiwüZ~iZLΩHX™⌘®HF KLZF g~wF∆)
 Facilitate merger of 2 or more coop societies. (K~ F ÄHHLçG{ H◆ F◆Y HiwüZ~i F  j ◆D ◆MFZF ëHFZ
g~wF)
Criticism

- 1) Some State governments are opposed alleging that some provisions of this bill encroaching
upon State governmentys power to regulate single state cooperative Society. (◆Fµ H◆ F◆~i ~ ë⌘–º g®
å gXF◆Y á—π Fi X g~ WFwY)
- 2) ProAtable coops opposed to idea of giving money to revival of sick/loss making coops.
(XZ̀FkL MFBLHiwüZ~ ~ I◆FW/ë⌘–º g®å gX “~i⌘®HF KLaYXF◆/_F}L-MFBLHiwüZ~i j XKK L |B?)

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 615
40.2.7 3 new coop societies for export, organic, seeds (2022)
Union Govt approved setting up 3 new coop societies under Multi-State Cooperative Societies
(MSCS) Act, 2002.
- 1) national multi-state cooperative export society (◆F¢Y£ aÕ-◆Fµ ✏Z FÅI H~HF }Y)
- 2) national multi-state cooperative organic society (QF ✏I ELIY L |B)
- 3) national multi-state cooperative seed society (aYW L |B)

40.3 AGRI-INPUT → LAND (bcde)

 While India accounts for >17% of world population but barely 2.5 % of land of the world. (OF◆I L
⌘FH ëaFKY L çZ`⌘FI X™WXYZ a»I X g®)
 Agriculture is a purely land based activity. Size and quality of land has direct bearing on
agriculture productivity and farmersy income. Land ownership also serves as a social value &
security against credit. (å HFZ L |B HFXF©W Q✏I‘F s◆ WÅBLZL L |B WXYZ j XF|B j Xg’⌘àDÅ)
 Challengesf Rising population, division of land among heirs → fragmentation of
landholdings (OàèXW~I F ✏MEiÑZ). Small sized-farms are not conducive for farm-machinery →
productivity .v~}LELI~iX™abY XáYZ BF ZgYiH IL→ ÄéFK IF X

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 616
 fragmentation of land holding has . Average size of a farm reduced from 0.725 hectare (2003)
to 0.512 ht (2019) (ƒXYZ F OY EiÑZ g~ ◆gF g®. ELI j sHI ë F◆ X g~ ◆gY g®.)
 86% of agri-families have farm size of 2 hectres or less.

 Solutionf Small-marginal farmers should be encouraged to join mfg / service sector jobs,
selling their land to big farmers = Land Consolidation (OàèX  ¥Y ◆D)3.
 Land Reform (OàèX H`{F◆)3 is the government led division of agricultural land and its reallocation to
landless people. Whereas, Land Acquisition (OàèX çG{÷gD) means Govt acquiring private land for
industrial or infrastructure development.

40.3.1 Land reforms in India ager independence

 (1) Zamindari Abolition, Vinobays Bhudaan movement

 (2) Ceiling on Landholding i.e. Axing maximum size of land holding that an individual can own.
 (3) Laws to protection of tenant farmers (biRTO j⌫QOe)
 (4) National Land Records Modernization Programme (NLRMP-2008: ◆F¢£Y OàèX ✓◆ ◊ÑÅ
ë{`✏Z j ◆D F ÅhX) by Department of Land Resources under Rural Development Ministry.
Because digital land records help reducing court case related to sale / inheritance & help keeping
track of land ceilings.

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 617
 (5) Forest Rights Act: MZ çG{ F◆ çG{✏Z X 2006 which gives «Pattay (farm land ownership title) to
the forest dwellers, if the given family was cultivating that forest land for the last 75 years.
 Land is a state subject, so Union circulated Model Agriculture Land Leasing Act, 2016:
- 1) To protects land owner from illegal occupation by tenant farmer
- 2) To help tenant farmer get bank loans using leasing agreement as proof.
Further Self-studyf (1) Land reforms is a Mains-GSM3 topic. Do selective study from
mrunal.org/tag/land-reforms (2) Soil pollution & soil erosion is Environment topic do it from your
Unacademy Notes. (3) Soil & Crop distribution: Geography topic from NCERT/ Majid/Unacademy
Booklet.

MCQ. Which of the following are responsible for the decrease of per capita holding of cultivated land in
IndiaE (Asked in UPSC-CDS-2012-II)
1. Low per capita income. 2. Rapid rate of increase of population.
3. Practice of dividing land equally among the heirs. 4. Use of traditional techniques of ploughing.
Answer Codes: (a) 1 and 2 (b) 2 and 3 (c) 1 and 4 (d) 2,3 and 4

40.3.2 Types of Farming: Cooperative Farming Versus Collective Farming

Cooperative Farming Collective Farming

Parameter
Qm⌫O d NURd QOcnjm⌫ NURd
Collective/social ownership of land, livestock, and
Farmer continues to remain
labor.
Ownership the owner of the individual
Farmers were allowed to retain/own very small
(ocde ⌫O farmland.
plots to grow crops in order to meet their daily
pOqcr/ cOsK⌫t) Only the «activityy of farming is
requirements. e.g. Kolkhoz model in USSR (Soviet
done in a cooperative manner.
Russia)
Less. e.g. Russian Kolkhoz model farmers
carelessly packed the rotten fruits with the fresh
Output
Better fruits, despite knowing that rotten fruit will spoil
( uTOXO )
the fresh fruit because they did not own the farm
so they became lazy/irresponsible/demotivated

40.3.3 Coop Farming → Small Farmer Large Field (Kvw⌫⇠⇢⌫ xyUNUR)

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 618
 ➢ A pilot project by International Rice Research Institute (IRRI) in two villages of Odisha.
➢ Small landholders join and decide to grow 1-2 crop, synchronize all the agricultural
operations (seed to selling) as a group, and gain higher bargaining power while dealing with
seed/input-sellers, APMC-grain buyers etc
MCQ. Which one of the following best describes the concept of 'Small Farmer Large Fieldf
(⇡e|sK}NR c~QU⌫e-QO Ä⌫, 'Kvw⌫⇠⇢⌫ xyUNUR' ⌫t QÅ⌫ÇeO ⌫O QXÉÑc XMÖe mu?) (Prelims-2023)
• (a) Resettlement of a large number of people, uprooted from their countries due to war, by
giving them a large cultivable land which they cultivate collectively and share the produce
• (b) Many marginal farmers in an area organize themselves into groups and synchronize and
harmonize selected agricultural operations.
• (c) Many marginal farmers in an area together make a contract with a corporate body and
surrender their land to the corporate body for a Axed term for which the corporate body
makes a payment of agreed amount to the farmers
• (d) A company extends loans, technical knowledge and material inputs to a number of small
farmers in an area so that they produce the agricultural commodity required by the company
for its manufacturing process and commercial production

40.3.4 Types of Farming: Truck Farming / Market Gardening

• Truck farming / market gardening = small-scale farm producing fruits, vegetables, and
óowers to sell to urban consumers and restaurants.
• zese farmers operate from urban or suburban areas.
• Famous areas: Netherlands (Tulips óowers), northwest Europe, northeastern United States
of America, and the Mediterranean regions.
NCERT Class12 Fundamentals of Human
Wikipedia & other Websites
Geography
ze word «trucky does not refer to the
ze distance of truck farms from the market
transportation truck but comes from the French
is governed by the distance that a truck can cover
word troquer, which means √barterd or
overnight, hence the name truck farming
√exchanged
MCQ. Which of the following statements about áTruck farming3 is/are correctf (EPFO-2023)

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 619
1) Growing vegetables around urban centres to meet the daily demand of people is known as
Truck Farming.
2) It is governed by the distance a truck can cover overnight between the farm and the market.
Codes: (a) 1 only (b) 2 only (c) Both 1 and 2 (d) Neither 1 nor 2
FAQ: then weather statement2 is right or wrongf Ans. I will prefer to go by the interpretation
given in NCERT.

40.3.5 → Types of Farmingà HOMEWORK NCERT

• Read NCERT Class12 Fundamentals of Human Geography ch.05 : subtopic
Agriculture: https://ncert.nic.in/ncerts/l/legy105.pdf
• for the terms like mixed farming, primitive farming, factory farming, viticulture, cooperative
farming et cetera

40.4 AGRI-INPUT → SEEDS: xdb

(Introduction: Origin) Since we canyt drastically increase the area under cultivation, so, agriculture
yield (amount of crop produced in a given acre of land) depends greatly on seed quality.
- For best yield, hybrid seeds must be replaced every year, and non-hybrid must be replaced every
three years. But in India, seed replacement rate is less than optimum because of (1) new seeds are
not a¿ordable and 2) not available to all farmers. So, government has approved 100% FDI (in
automatic route) in seed development. Hi ◆ aYW~i ~ g◆ HFB aKBZF Fåg å iI`w◆Ya å HFZ L |B Xæ̀ÿB
- Seed village concept: Group of farmers in a village given training to produce seeds of various
crops so they can fulAll seed demand of their own & neighbouring villages.
- Seed bank / Seed vault is a depository that stores seeds to 1) preserve genetic diversity 2) supply
seeds during natural calamities and unforeseen conditions. Global Seed Vault is located in the
Svalbard @Norway, in Arctic.
- Agro Ministry gives funding for above two initiatives.

MCQ. Which best describes the main objective of Seed Village ConceptE (UPSC-Pre-2015)
(a) Encouraging the farmers to use their own farm seeds and discouraging them to buy the seeds from
others.
(b) Involving the farmers for training in quality seed production and thereby to make available quality
seeds to others at appropriate time and aBordable cost.
(c) Earmarking some villages exclusively for the production of certiCed seeds.
(d) Identifying the entrepreneurs in villages and providing them technology and Cnance to set up seed
companies.

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 620
40.4.1 Agri-Input → Seeds → Green Revolution: m⌧ R äOÅ⇡R
Green revolution refers to the large increase in food production with the help of High Yielding
Variety (HYV: Äì Ä⌘W KLZLMFBY å Ÿ) of hybrid seeds.
- Phase-1: mid 1960s upto mid 1970s → focus on wheat, rice and more a⁄uent states such as
Punjab, Andhra Pradesh and Tamil Nadu. (wLÕiFMB µFKF HX€ ◆Fµ~iX™)
- Phase-2: mid-1970s to mid-1980s → HYV seeds were spread to a larger number of states. zey
also focused on crops apart from wheat and rice. (çâ ◆Fµ~iX™OY g✓◆I hFi✏I F QHF◆)
- Bioforti#cation: is the process by which the nutritional quality of food crops is increased. E.g.
ICAR developed CR Dhan 310- a rice variety that has higher protein & zinc content than
traditional rice. Germans developed Golden rice for VitaminA
Homework: read NCERT Class11 Economy: Ch2 for more vocabulary

40.4.2 Agri-Input → Seeds → Landraces (bcded \bO⇡R ⌫t ãQKU/xdb)

 Hybrid crops are created by scientists artiAcially in the labs.
 Whereas, √Landracesd are naturally occurring variants of commonly cultivated crops. (kHB~ j
ƒXYZY QWF✏I Fœ-©WHLQ ~wáFBF X™ZgYiaZF F, aæ‹ QF ✏I ›⌘ HLÄfiM »ë)
 Landraces are climate resultant, may contain better quality of nutrients. (HLƒXYZY QWFIY FWBMF `
⌘✓◆MIÅZ L fl‡BFk å} F· Ä‚™„FKF ⌘~⇣ ‰Æ g~ILg®)
 2021-Padma-Shree given to Rahibai Popere for conservation of landraces. Sheys nicknamed
«Seedmothery, hails from Ahmednagar, Maharashtra. (XgF◆F¢£å ◆ågaFΩ ~ ⌘ÂÊY)

40.4.3 Agri-Input → Seeds → Pepsi vs Potato Farmers

 1970ys Indian Patents Act (OF◆IY ⌘L}™} çG{✏Z X) doesnyt give Patent to seeds / plant varieties. But,
 2001ys Protection of Plant Varieties and Farmers' Rights Act (⌘ä{~i j å Ÿ~is◆ å HFZ~i L çG{ F◆~i F
Hi◆CD) grants Intellectual Property Rights (IPR: aäè€ Hi⌘KF çG{ F◆) to plant breeders, researchers
and farmers who have developed any new plant varieties
 Pepsi supplied FC5 potato hybrid variety to Indian farmers. It has a lower moisture content ( X
ZXY) so suitable for making Pepsi-Layys potato chips. Later, contract expired yet farmers continue
to grow this variety (& selling to other chips makers).
 2019: Pepsi complained against Guj Farmers, but later withdrew. (Ná F I MF⌘H BLBY).
 2021: Govt cancelled the registration of Pepsiys potato variety citing that Pepsi had not given the
required documents while registering the variety. (H◆ F◆ ZLÄH F ⌘iWY ◆D gY ◆Á ◆ åK F g®)

40.4.4 Agri-Input → Seeds → Genetically modi#ed (GM) crops

➢ Hybrid seeds (Hi ◆ aYW) are developed by cross-breeding / cross-pollination with other plants.

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 621
➢ Whereas, Transgenic / Genetically modi#ed (ëZM̀iNá ë{F◆ ⌘◆ ëá~G{I å ŸL) seeds are developed
by transferring selected genes from one organism into another. E.g. Bacterium Bacillus
thuringiensis genes inserted in cotton → Bt. cotton → if bollworm pests eat it, ityll die by the
toxin crystals in Bt.cotton plant.
➢ GM-Regulationf Environment Protection Act 1986 (EPA: ⌘ FÅM◆D Hi◆CD çG{✏Z X ) → Genetic
Engineering Appraisal Committee (GEAC: WLZLå} /WZZY ΩiWY✏Z ✓◆iw/çNO Fiè¥ j XàïFi Z HèX✏I)
conducts studies, and recommends approving a GM crop in India → Environment ministry
gives Anal permission.
➢ 2002: Environment ministry allowed Bt. Cotton (a non-food crop) cultivation in India

40.4.5 GM Mustard approval- Kabhi haan kabhi naa

GEAC Environment Ministry
2017 Approved Rejected & ordered GEAC to do more Aeld study.
2022-Oct Approved again Pending/yet to give full clarity.

40.4.6 Smart Corn GMO (USA) = short height= storm resist

• zis corn variety has 1/3rd height of normal corn plants. Shorter height = it can withstand
the fast wind speed / storms / cyclones. (·œFo X™aäZL/ZF}Lg~ILg®IFå ILW gMF X™OY èw◆ ZgYiWF∆)
• Bayer company → added foreign gene in Corn → plant growth hormone gibberellic acidys
production stopped = height-growth stopped. USA govt has permitted its cultivation(2023)
40.4.7 Seeds → GM crops → Challengesf
1. Biosafety concerns (W®M H`◆CF Hiai{Y –Ii Fi) GM food crops may be unsafe for human and animal
consumption. zey may harm the soil bacteria & bees → harm to entire food web and
biodiversity. GM crop may eliminate the wild/indigenous species by cross-pollination (⌘◆-⌘◆FwD)
2. American company Monsantoys Bollgard technology is used for developing Bt Cotton seeds. So,
Indian Bt-cotton seed production companies have to pay a type of royalty to Monsanto, called

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 622
 Trait fees (✏MáL⇣IF á`‹). Govt of India decides the ceiling on Trait fees. Some legal disputes going
on. what/how/why NOTIMP.
3. Monsanto also owns patent over Terminator gene technology (HXF⌘ WZYZ Qäö~èw j) i.e. when
such seeds are planted, theyyll produce crops only once. zeir resultant cropys seeds will be sterile
(aFœË/ Z⌘`iH ) → Farmer forced to buy new seeds from company for every season. Terminator
gene seeds are not allowed in India.

Further self study of GM Sci.tech → (i) NCERT Biology class 12 chapter 10, 12 (ii) Unacademy
Notes 2.0 OR any other material that you like/or you have

40.5 AGRI-INPUT → WATER (IRRIGATION: PQÅ Oç)

De#nitionf ze supply of water to crops at di¿erent intervals is called irrigation.

 Challengesf While India accounts for more than 17% of world population but we have barely 4%
of world's water resources. ëaFKY L ågHFa HLWB HiHF{Z a»I X g®OF◆I L ⌘FH
 India is a water stressed country. >50% of the agri depends on rainfall. Only four months of
monsoon & if El-Nino we receive even less rainfall. → 2014 & 2015 drought → food inóation.
 ze countries with the largest areas under groundwater irrigation: India (39 million ha), China
i Fo a»I µFKF XF¥F X™g~IY g®)
(19 million ha) and USA (17 million ha) (OF◆I X™OàWB ñF◆F GH
 Irrigation water productivity is deAned as ratio of the crop output to the irrigation water
applied. To produce 1 kg of rice, Indian farmers use 3,000-5,000 litres of water, whereas Chinese
farmers manage it within 350 litres of water. OF◆IY å HFZ a»I µFKF ⌘FZY ΩÈLXFB ◆ILgÍ
 MSP, heavily subsidized electricity, water and fertilizers = 60% of water is consumed by water
intensive crops like paddy and sugarcane. FMB s◆ wPL j ELIY L BIL⌘FZY Æ µFKF
 By 2050, India will be in the global hotspot for «water insecurity3. (WB çH`◆NCIIF)
 To earn 2x (double) income, a farmer must cultivate multiple crops annually. But majority of
farmers face water shortage so they canyt do so. (✏aZF ⌘FZY L å HFZ j ëXKZY Kwú ZF ◆ZF çHiOM)

40.5.1 !" [Yearbook] Jal Shakti Ministry

2019-May: Government formed Jal Shakti Mantralaya by merging following ministries
1. Ministry of Water Resources, River Development and Ganga Rejuvenation (WB HiHF{Z, ZKY
✏M FH s◆ wiwF Hi◆CD)
2. Ministry of Drinking Water and Sanitation (⌘L WB s◆ ÇøIF)

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 623
Now Ministry#1 and Ministry#2 have been made «Departments (✏MOFw)y under the Jal Shakti
Ministry. (⌘gBLW~ Xi¥FB îLça Mg ✏MOFw X™IÎYB/⌘✓◆MÏII ◆ åK)

40.5.1.1 !"[Yearbook1] Dept. of Water Resources, River Development & Ganga Rejuvenation
WB HiHF{Z, ZKY ✏M FH Mi wiwF Hi◆CD ✏MOFw consists of <list not exhaustive>
Dept N/A ( UcÅèOK ⌫U OQ ⌫iç ⇡XZOê emdÅmu)
Attached / - Central Water Commission ( ™‰Y WB ë ~w) → National Water
subordinate oëces Academy, Pune | Ganga Flood Control Commission | Bansagar
QÅKí/ìîdeï ⌫O OÖK Control Board (Son River)| Central Water and Power Research Station
| Central Soil and Materials Research Station
- Betwa River Board, Brahmaputra Board under respective Acts.
- Various water dispute tribunals (WB ✏MMFK âF FG{ ◆D) under Inter-State
Water Disputes Act, 1956
Statutory Bodies - Under Environment Protection Act, 1986 →
XuîO⇡e⌫ QÅïO - National Ganga River Basin Authority (NGRBA) → later, replaced by
√National Ganga Councild chaired by PM
- Central Ground Water Authority ( ™‰Y OàWB QFG{ ◆D) formed under
the Environment (Protection) Act.1986
- Water and Power Consultancy Services Ltd (WAPCOS)
Govt Companies
- National Projects construction Corporation Ltd.
- National Institute of Hydrology | Krishna River Management Board
Autonomous Bodies
- Godavari River Management Board

40.5.1.2 !"[Yearbook2] Dept of Drinking Water And Sanitation: MNOPQ RS TUVWXY ZU[Y\
→ doesnyt have any MCQ worth Organizations. (⌘◆YCF L |B WFZZLBF ~o HiØF ZgYi)

40.5.2 Water Schemes → NRDWP (2009)

National Rural Drinking Water Mission ◆F¢Y£ ÷FXYD ⌘L WB èXáZ
- Bossf Drinking Water Dept: Centrally Sponsored Scheme → Core Scheme = NOT 100% funded
by Union. (50:50) ( ™‰ ñF◆F QF ~©WI - Xg’⌘àDÅ ~WZF WgFi◆Fµ ZLOY EÅ F `v ågÓF KLZF ⌘bIF g®)
- To provide every rural person with safe water for drinking, cooking & domestic needs.
- Additional focus on areas a¿ected by Arsenic, Fluoride & chemical contamination, Encephalitis
disease etc. (◆FHF ✏Z HiK∞⇣D IîF ÔLJLBFΩå}H aYXF◆Y ~ ◆~ ZL L |B µFKF FZ åK F WF)
- 2019: NRDWP subsumed under a new scheme namely Jal Jeevan Mission (JJM).

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 624
40.5.3 Water Schemes → Pradhan Mantri Krishi Sinchai Yojana (2015)
Bossf Administered by Jal Shakti Ministry (2015) [Note: Di¿erent website give di¿erent Ans. I'm
quote from govt's India yearbook, 2023]
Valid till 2025-26. Core Scheme = Not 100% Funded by Union. States required to contribute ∫∫
Aimf To improve the irrigation coverage, reduce wastage of water, using 4-pillar strategy:
i Fo BFO F ÅhX) → Requires Jal Shkati
1. Accelerated Irrigation Bene#t Programme (AIBP: ’✓◆I GH
Ministry to Anish the ongoing national irrigation projects at a faster pace.
2. Har Khet ko Pani → Requires Jal Shakti ministry to distribute water to each and every farm by
setting up canal network.
3. Watershed Development (WBÒFM ✏MÈF◆ ✏M FH) → Requires Rural Development Ministryys Dept of
Land Resources to setup water harvesting structures like check dams, Nala bund, farm ponds,
tanks etc. + traditional water storage systems such as Jal Mandir (Gujarat); Khatri & Kuhl (H.P.);
Zabo (Nagaland); Eri & Ooranis (T.N.); Dongs (Assam); Katas & Bandhas (Odisha & M.P.).
4. Per drop more crop → Requires Agriculture Ministry to improve the water usage eªciency
through Micro-irrigation devices such as drips, sprinklers, pivots, rain-guns. Related terms →
a. Fertigation: Mixing water-soluble fertilizers in drip system → fertilizer delivered into
the root system → wastage of fertilizers.
b. Mulching: It is a simple process of covering the bare soil with straw, wood chips,
shredded bark etc. to the water evaporation, soil erosion and weed growth.
Micro-irrigation challengesf High cost of purchase. Trampling by elephant, boar, nilgai etc.
damages the equipment, but repairman not available locally and repair costs not covered in crop
i Fo F HFXFZ gFîY `B KLI~ X◆≈I F ⌘®HF ZgYiKLIY H◆ F◆)
insurance. So less adoption. (HàÚ GH

40.5.4 Water Schemes → Namami Gange Yojana (2015)

- 1986: Ganga Action Plan by PM Rajiv Gandhi.
- 2008-09: Ganga was declared the «National Rivery
- 2015: Modi repacked previous schemes / initiatives under «Namami Gangey. Bossf Water
Resources Dept. Central Sector Scheme = 100% funded by union
- To make Ganga pollution free in the next 5 years through Sewage / E⁄uent Treatment Plants
(wiKF ⌘FZY HFk ◆ZL L Hi i¥), Information, Education & Communication (IEC: HàZF, NáCF s◆ HiF◆) etc.

40.5.5 Water Schemes → Jal Kranti Abhiyan (2015)

Bossf Water Resources Dept. : In every district, 2 villages facing acute water shortage (⌘FZY j IYÛ XY)
are designated as «Jal Gramy and e¿orts are made to turn them into «water surplusy villages.

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 625
 zis is not a separate scheme. ∫ ∫ is mobilized from others schemes like Pradhan Mantri Krishi
Sinchayee Yojana, NRDWP, MNREGA etc. to create dugwells, watershed, artiAcial recharge
tanks etc. water assets. (K∞H◆Y ~WZF¡i F ⌘®HF Ω{◆-Ä{◆ HLa}~◆ L BFILgÍ)

40.5.6 Water Schemes → Jal Shakti Abhiyan (2019 onwards)

For generating awareness amongst citizens for water conservation. 2022ys zeme: Catch the Rain

40.5.7 Water Schemes → Jal Jeevan Mission (Rural) (2019)

- Bossf Jal Shakti Ministry
- Objectivef Har Ghar Jal (piped water supply) To all rural households by 2024.
- To Cities with million+ population will be encouraged to achieve it in current year (2020) itself.
- Focus on rainwater harvesting, groundwater recharge and using household wastewater for reuse
in agriculture. M⇣FÅWB Hi Z, OàWB ⌘Z̀OÅ◆D s◆ ✏⇣ X™⌘Z̀: Ä⌘ ~w L |B _◆LBàç⌘NᢠWB F Ä⌘ ~w ◆ZF∆
- Previous scheme NRDWP scheme subsumed into this new scheme. (⌘`◆FZY ~WZF ΩHX™»o ✏MBYZ)
- Fundingf Govt aims to spend ∫ 3.60 lakh crores in this by converging with other Central and
State Govt Schemes and using their funds. Further, if required, the Govt will also use additional
funds available under the Compensatory A¿orestation Fund Management and Planning
Authority (CAMPA- C✏I⌘à◆ MZY ◆D ~⇣ Qai{Z s◆ ~WZF QFG{ ◆D) for this purpose.

40.5.8 Water Schemes → Jal Jeevan Mission (Urban) (2021)

Budget-2021: Jal Jeevan Mission (Urban), will be launched

1) To provide Functional Household Tap Connection (FHTC) to houses in all 4378 Urban Local
Bodies. (ág◆Y ëMFH ~ ZB ñF◆F ⌘FZY)
2) zis mission will also provide liquid waste management in 500 AMRUT cities. (What are
AMRUT citiesn = Ref#5: Urban infrastructure) I◆B ç⌘NᢠQai{Z

40.5.9 Water Schemes → ATAL Bhujal Yojana (=ATAL JAL) (2019)

- Bossf Jal Shakti Ministry. Funding: 50:50 by Union + World Bank.

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 626
- zis scheme is not meant for entire India but only in the selected areas of selected 7 states facing
extreme water shortages viz. Gujarat, Haryana, Karnataka, Madhya Pradesh, Maharashtra,
Rajasthan and Uttar Pradesh. (GHJÅ `✏ZKi F ◆Fµ WgFi⌘FZY j a»I å ÙI)
- Panchayat led ground water management and behavioral change (ÆMgF◆ / MIÅZ X™⌘✓◆MIÅZ). Better
performing gram panchayats, will be given more funding allocation.
- Villagers formed into «Water User Associationsy → try to minimize water wastage, build water
assets, IEC etc. (⌘FZY L Æ aaFÅKY ~ ◆~ ZF)

40.5.10 Water Schemes → Misc. Schemes (⇡X⇡Xî sñó wó ibeOÄÅ)

Bossf Jal Shakti Ministry. Central Sector Schemes =100% funded by union (In the sense that states
are not required to give money) + Additional loans from World Bank.
- Dam Rehabilitation and Improvement Program.
DRIP (2012) - DHARMA webportal: to monitor safety of dams in India, minimize
loss of life and property damage in case of dam overóow / disaster.
National Hydrology - Objectiven Remote Sensing for water resources, óood forecast etc. (HK̀∞◆
Project (2016) HiMLKZ L ñF◆F WB HiHF{Z s◆ aFõ F ⌘àMFÅZX̀FZ)
 Budget-2017: NABARD given funds for long term irrigation
NABARD
infrastructure (20k cr) and Micro Irrigation (5kcr)
40.5.11 Agri-Input → Water → Composite Water Management Index
 NITI Aayog divides India in: 1) non-Himalayan states 2) North-Eastern and Himalayan states,
3) Union Territories (UTs).
 NITI ranks them into nine themes and 28 indicators against the base year 2017-18.

40.5.12 Agri-Input → Water (irrigation) → River Interlinking in Budget-2022

1. River inter-Linking project. Self-study in Geography for more on this topic.
2. Budget-2022:- Funding for river interlinking: Ken-Betwa, Damanganga-Pinjal, Godavari-
Krishna, Krishna-Pennar, Pennar-Cauvery and Par-Tapi-Narmada (although Par-Tapi-
Narmada dropped due to public protest) (ΩZ ZåK ~i ~ ë⌘H X™W~bZL L |B Z aW} X™ `v aFI™ j wo)

MCQ. Find correct statement(s): (UPSC-Prelims-2020)

1) 36% of Indiays districts are classiAed as √overexploitedd or √criticald by the CGWA.
2) Central Ground Water Authority (CGWA) was formed under Environment (Protection) Act.
3) India has the largest area under groundwater irrigation in the world.
Codes: [a) 1 only [b) 2 and 3 only [c) 2 only [d) 1 and 3 only

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 627
40.6 AGRI-INPUT → FERTILIZER (òXÖ ⌫ / NOT)

(Introduction: De#nition) Manure / Compost is a natural substance from decomposition of organic

waste. Whereas, Fertilizer is an artiAcial chemical prepared in factories to boost nutrients in the soil.
Fertilizers Notes
Nitrogen (N) - Haber process: natural gas (methane) converted into ammonia (NH 3) →
Urea further processing to create Urea.
- zerefore, Urea production requires natural gas import.
- Ministry of Chemicals and Fertilizers statutorily Axes the Maximum Retail
Selling Price (MRP) of urea using Essential Commodities Act, 1955
→Fertilizer (Control) Order, 1985. zen ministry gives companies subsidy for
their losses.[ à✓◆ F L ✏ahj L KFX FZàZZ ›⌘ HL◆HF Z s◆ ÄMÅ◆ Xi¥FB I ◆IF g®s◆
i⌘✏Z ~i ~ g~ZLMFBLZ` HFZ j O◆⌘Fo L |B Ä‚™HæıÑY KLIF g®]
- Urea subsidy is a Central Sector Scheme = 100% paid by Union. (i.e. State
Government not required to contribute money).
- 2022: Urea 45 kg bag price = ∫242/- (Axed by Government)
Phosphorou ~80-85% demand is met via import. ISRO using remote Sensing technology to
s (P) identify the potential mines for rock phosphate.
Potash (K) - India is 100% import dependent for Murial of potash (MOP) fertiliser- 33% of
this comes from Russia & Belarus but due to Ukraine war 2022, supply chain is
a¿ected. (OF◆I ë FI ⌘◆ ✏ZOÅ◆, å iI` àhLZ `€ L BILë⌘àÏI X™HXêF)
- Govt encouraging √Potash Derived from Molasses (PDM)d fertilizer. Molasses
is a byproduct in Sugar Mills. So in future our import Reliance can decrease.

Ideal Nitrogen: Phosphorus: Potassium (NPK) ratio in soil: 4:2:1, for India itys 8:3:1 because
subsidized cheap Urea → illiterate farmers use excessively. As a result →
1. Soil & groundwater pollution. ( à✓◆ F L ç˜G{ Ä⌘ ~w L BILWXYZ s◆ OàWB QK∞⇣D)
2. Subsidized urea smuggled to non-agro purpose in chemical industries related to dyeing, inks,
coatings, plastics, paints even synthetic milk. (w®◆ ✏⇣ Ä⌘ ~w L |B I¯◆Y)
3. Subsidized urea also smuggled to Bangladesh and Nepal. (HÈL à✓◆ F j ⌘b~HY KLá~iX™I¯◆Y)
4. Increased use & smuggling → increased subsidy burden → increased Ascal deAcit.
So Govt. initiated one following reforms to control urea Misuse/Overuse/Diversion:

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 628
40.6.1 Prevent urea misuse→ Nutrient Based Subsidy (2010)
- ⌘~⇣ I˘M ë{F✓◆I Hå˙HÑY. Central Sector Scheme = 100% Paid by Union (i.e. State Government not
required to contribute money).
- Bossf Ministry of Chemicals and Fertilizers gives subsidy to company based on weight of the
di¿erent nutrient in the fertilizer. E.g.
Nutrient N (Nitrogen) P(Phosphorus) K(Potash) S(Sulphur)
ô Subsidy per kg 19 15 11 4
(hypothetical Numbers)
- Above subsidy given to companies for producing non-UREA type √customized/mixedd fertilizer
according to soil requirement in each region.
- Example diammonium phosphate (DAP)- which contains Nitrogen (N) and Phosphorus (P).
- ☹Challengef 1) Urea not covered in this scheme, Urea subsidy paid separately. Sometimes
government clears the urea subsidy Ales in faster manner but delays in NBS subsidy payments.
Because Government does not have enough money to clear all subsidies at once. zerefore
Fertilizer companies focus more on urea than other fertilizers → shortage in supply of non-Urea
fertilizers → Urea overuse continued (˚®◆- à✓◆ F HæıÑY F OẁIFZ H◆ F◆ M¸ ⌘◆ ZgYi ◆ ⌘FIY “~iå H◆ F◆
~ ⌘®H~i j å˝ÙI g®∆ ΩH|B ˛✏Z Fi à✓◆ F ÄéFKZ ⌘◆ „FKF ƒ~◆ KLIY g®→ aFƒF◆ X™ à✓◆ F gY „FKF Ä⌘Bˇ ◆gIF g®
ΩH|B å HFZ à✓◆ F ΩH j „FKF ‡◆YKILgÍ“~iå ˚®◆- à✓◆ F EFK ëHFZY HLÄ⌘Bˇ Zåg g~IY g®∆)
- 2) because of the ongoing Russia Ukraine war: supply shortage in international market →
fertiliser prices are likely to so govt may have to pay more quantity of subsidy to prevent the
price . ( `hLZ `€ L BILë F✏II ◆HF Z~i/ÄMÅ◆ ~i j å˝ÙI L BILKFX~iX™Mè€ g~ZL F O , GHMF å H◆ F◆
˛✏Z ~i ~ KLKZFKZ HæıÑY KL ◆, KFX aõZLHL◆~ ™∆)

40.6.2 Prevent urea misuse→ Soil Health Card (2015) (c⇠TO pOö ⌫OõÖ)
- Bossf Agro Ministry. Core Scheme = not 100% funded by Union.
- contains the status of soils with respect to 12 parameters →
Macronutrients N, P, K
Micro - nutrients Zn, Fe, Cu, Mn, Bo
Secondary- nutrient S: Sulphur
Physical parameters pH, electrical conductivity (EC), Organic Carbon (OC)
- A farmerys land is tested & he is given updated soil card once in every 3 years.
- ze card also advises on which type of crops, seeds, fertilizer, irrigation method will be suitable
i Fo Ä⌘ `π g®)
for his farm, according to his soil type. (å HFZ ~ HBFg KY WFwY äZ HY JHB aYW ÄMÅ◆ GH

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 629
40.6.3 Soil Health card → Bhu-Vision/Krishi-RASTAA Soil Testing Equipment
- zis machine can do soil sample testing for 12 parameters and send a soil health card to mobile
phones in 30 minutes. Earlier, this process took 3 to 4 hours. ( g HY XáYZ g®W~ èX⇥Y X™⌘~⇣ ‰Æ~i F
⌘î∏◆D 30 èXZ} X™gY Â~aFΩB k~Z ⌘Lg®XKF ÇFÉ FÑÅOLW KLIY g®∆)
- Developed by ICARy Indian Institute of Rice Research (IIRR) with help of pvt companies.
40.6.4 Prevent urea misuse→ Neem Coating of Urea (2015)
Bossf Ministry of Chemicals and Fertilizers. From 2015, Government made it mandatory for
fertilizer companies to neem coat the urea before selling it. Bene#tsf →
1. Prevents diversion of subsidized urea towards non-agricultural purposes.
2. Neem coating slows down the rate of dissolution of urea in soil→ Improves the plantys
absorption of Nitrogen from the urea → Yield is increasing . (⌘®KFMF◆ X™aõ~I◆Y)
3. reduced pest and disease attack → Pesticide consumption is also . ( j}ZFá X Fåg)

MCQ. Why Govt promotes the use of Neem-coated Urea3 in agriculturef (Prelims-2016)
(a) Release of Neem oil in the soil increases nitrogen Axation by the soil microorganisms
(b) Neem coating slows down the rate of dissolution of urea in the soil
(c) Nitrous oxide, a greenhouse gas, is not at all released into atmosphere by crop Aelds
(d) It is a combination of a weedicide and a fertilizer for particular crops.

MCQ. Find correct statement(s) about chemical fertilizers in India (Prelims-2020)

1) At present, the retail price of chemical fertilizers is market-driven and not administered by the
Government.
2) Ammonia, which is an input of urea, is produced from natural gas.
3) Sulphur, which is a raw material for phosphoric acid fertilizer is a by-product of oil reAneries.
Codes: [a) 1 only [b) 2 and 3 only [c) 2 only [d) 1, 2 und 3

40.6.5 Prevent urea misuse→ DBT of fertilizer (2018)

Bossf Ministry of Chemicals and Fertilizers. (◆HF Z s◆ ÄMÅ◆ Xi¥FB )
- Direct BeneAt Transfer (Q˜C BFO çiI◆D) in fertilizer: Fertilizer companies are paid subsidy only
a\er the retailer has sold the fertilizer to farmer through Point of Sale (PoS) devices & noting
down his Aadhaar Card/ Kisan Credit Card/Voter Identity Card etc. to verify his identity as
farmer. → zen Govt transfers the subsidy ∫ ∫ directly into the bank account of the respective
fertilizer company. ( i⌘ZY HF✏aI ◆L å JWŒ å HFZ ~ ZgYiaLF IOY H◆ F◆ i⌘ZY ~ HæıÑY KLwY)
Bene#tsf Prevents diversion of subsidized urea towards non-agricultural purposes and towards
Bangladesh / Nepal. (GHMF L aFi⇤FKLáY _H̀⌘®åü Z BY ë{F◆ FÑÅaZMF ◆ BLWF)

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 630
40.6.6 Prevent urea overuse→ Nano-Urea- suggested by ES22
ES22: We should encourage Nano Urea To protect soil & fertiliser eªciency

Parameters Normal «powder/solidy Urea Nano-Urea

Qty required for 1 acre 90 kilogram 500 ml
Price ∫500+ ∫240 per bottle (By IFFCO#)
#
IFFCO- Indian Farmers Fertiliser Cooperative (IFFCO)- claims to be Arst company in the world to
produce liquid Nano urea in 2021.

40.6.7 Pradhan Mantri Kisan Samridhi Kendra (PMKSK-2022):

 Bossn Ministry of chemicals and Fertilizers
 To convert the existing fertilizer retail shops into Model Fertilizer Retail Shops, called Pradhan
Mantri Kisan Samridhi Kendra
 zese shops will act as √One Stop Shopd for all the agriculture related inputs (seeds, fertilisers,
pesticides etc) and services.

40.6.8 Prevent fertilizer misuse→ PM-BJP/One Nation One Fertiliser

Boss: Ministry of Chemicals and Fertilisers

 Scheme name: √Pradhanmantri Bhartiya Janurvarak Pariyojnad (PMBJP) / One Nation One
Fertiliser
 Objective: If company receiving fertiliser subsidy from government → company has to use govt-
mandated brand name, logo and bag-colour design. ( åK ~o i⌘ZY OF◆I H◆ F◆ HLÄMÅ◆ j HæıÑY QF⌅
◆ ◆gY g®I~ ÄHZLÄMÅ◆ J⇧}BFΩW◆ j îLBY ~i⌘◆ LMB, H◆ F◆ ñF◆F ✏Z{FÅ✓◆I ZFX-B~w~iΩ˜FåK ΩÈLXFB ◆ZF g~wF.)
 Single brand name for UREA, DAP, MOP and NPK etc. would be BHARAT UREA, BHARAT
DAP, BHARAT MOP and BHARAT NPK etc. respectively
 A logo showing √Pradhanmantri Bhartiya Janurvarak Pariyojnad.
Bene#tf

 1) Easy to spot such fertiliser bags so, if any smuggling/ diversion being done then easily it can be
detected. (I¯◆Y g~ ◆gY g~wY I~ I`◆iI åKE WFwF∆)
 2) Govt can claim credit / fame among farmers. Farmers become aware / sensitive about the
subsidy being paid by Govt, and engage more positively towards the future reforms of Govt.
(å HFZ~i L aY H◆ F◆ j v✏M X™H`{F◆ g~ s◆ H◆ F◆ ñF◆F O✏M⌃ X™å  WFZLMFBL ✏⇣ H`{F◆~ F M~ HXîÅZ ◆™)

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 631
40.6.9 Reduce Fertilizer use : PM PRANAM scheme in Budget-2023
Exact features yet to be launched, but Newspaper are making some guesswork. So following info-
may be wrong/partially correct. (çOY I ëG{ F✓◆ ›⌘ HL ~WZF WF◆Y ZgYi»o I~ g~ H IF g®✏Z⌥ KY w Y Z~} X™ `v
¥å̀} Fig~)

 Boss: Ministry of chemicals and Fertilizers

 Objective: To reduce the use of chemical fertilisers.
 Mechanism: if state govt manages to reduce the fertiliser consumption, & saves say Rs.100 cr
subsidy bill for Union, then Union to give Rs.50cr as grant to the state government. (numbers
are imaginary, because scheme features yet to be launched).
 Scheme became necessary because fertiliser subsidy bill has increased to Rs 2.25 lakh crore in
2022-23. - Government does not have enough Ascal resources to sustain such subsidy burden.
(PM QDFX ~WZF: åK ~o ◆Fµ H◆ F◆ ·MÅ◆ /J⇧}BFΩW◆ Ä⌘O~w X™ }äIY ◆MFIY g®, I~ ™‰ H◆ F◆ ÄH ◆Fµ H◆ F◆
~ çZK̀FZ L ›⌘ X™⌘®HF KLwY∆ ™‰ H◆ F◆ L OF◆Y HæıÑY a~Ë ~ X ◆ZL L |B g ƒ›◆Y g®)

40.7 AGRI-INPUT → PESTICIDES & WEEDICIDES

(Introduction: De#nition) Pesticides and weedicides ( j}ZFá , E◆⌘IMF◆ ZFá ) are chemicals which
are used for killing / controlling pests and weeds respectively.
 25% crop loss on account of pests, weed, diseases but Indiays per hectare pesticide consumption
is far less than Arst world. We should encourage organic pesticides and biocontrol agents.
 We should adopt Integrated Pest Management (IPM:  j I j} Qai{Z) approach i.e. rather than
eradicating pest population to 100%, just try to keep crop damage to economically tolerable level.
Because even pests are important for biodiversity protection and food chain balance.
 Spread awareness about proper use of chemical pesticides (esp. Endosulfan) so it doesnyt
contaminate in food / land / water / human bodies excessively. (HFM{FZY⌘àMÅ Ä⌘ ~w L |B WFw✏I )
 Homework-Self-Study: Locust disaster Management. (å}ड्डY ë⌘KF Qai{Z)
 Pesticides Management Bill, 2020 to regulate the trade, storage & use of pesticides but NOT
veryIMP4EXAM. # î~bF-⌘õ~-ëwL-aõ~

40.8 AGRI INPUTS → DON3T USE CHEMICALS → PKVY (2015)

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 632
(Intro: De#nition) Organic farming is a type of agriculture that avoids the use of synthetic fertilizers,
pesticides, and other chemical inputs. It relies on crop rotation, crop residues, manures,
biofertilizers, biopesticides etc. (W®✏M ELIY: è¥X ÄMÅ◆ , j}ZFá s◆ çâ ◆HF Z~i F Ä⌘ ~w Z ◆™.)
 (Data) India has more than 44 lakh organic farmers- it is the highest in the world
 Ecological bene#tsf Less use of chemicals → biodiversity protected, less soil water air
pollution (because farmers will not burn the crop residue). [ W®M ✏M✏M{IF F ◆CD g~wF]
 Economic bene#tsf 1) organic products command higher prices among the health conscious
buyers from developed countries → more exports → less CAD, more farmerys income. 2) less
use of chemical fertilizers → governments urea subsidy bill will decline → Ascal deAcit can be
controlled. (FBàEFIF _F}F, HæıÑY a~Ë, ◆FW ~⇣Y EF{ X™ XY)
 In 2003, Sikkim stopped entry of chemical fertilizers, and its Vidhan-Sabha declared the
intention to become a 100% organic state. ze goal achieved in 2015. (GH✏∏X Hi⌘àDÅIF W®✏M ELIY ◆Fµ)
 A\er Sikkim, now Tripura and Uttarakhand also planning to become 100% organic - says
ES23
 2015: To encourage organic farming in India, Union Govt. launched Paramparagat Krishi Vikas
Yojana (PKVY). Bossf Agro Ministry. Core Scheme = Not 100% paid by Union. (60:40,90:10)
 Mechanismf Form a group of 50 farmers in a cluster to start organic farming. Every beneAciary
farmer is given ∫ 20,000 per acre for 3 years for doing organic farming.
 Agro Ministryys Jaivik Kheti webportal to help organic buyers & sellers connect with each other.
 Agro Ministryys Participatory Guarantee Scheme (PGS: HgOFwY wF◆i}Y ~WZF) for certiAcation of
organic products. It assures the buyers the given fruit/vegetable/produce has organic origin.
(W®✏M ÄéFK~i F QXFDY ◆D)

40.9 AGRI INPUTS → PKVY (2015) → (BPKP-2021)

- 2020: Agri ministry launched Bhartiya Prakritik Krishi Padhati (BPKP) as a sub-scheme of
Paramparagat Krishi Vikas Yojana (PKVY) (Ä⌘- ~WZF L ›⌘ X™á`› å F)
- helps farmers with natural farming (donyt use chemicals), biomass recycling, cow dung-urine
manure, and exclusion of all synthetic chemical inputs. (QF ✏I ELIY, aF ~XFH ⌘Z̀ZÅMYZY ◆D, w~a◆-XॠHL
EFK, s◆ HOY è¥X ◆FHF ✏Z ëKFZ~i F aåg F◆∆)
- BPKP gives ∫12,200 / hectare Anancial support every 3 years. (✏MºY HgF IF KY WFIY g®∆)

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 633
 FAQ: How is BPKP similar/diúerent than PKVY – it seems to be like old wine new bottlef
Ans. Not important. To show-o¿ to media, govts usually launch new scheme with same objective.
We need to prepare 2-3 lines & move to next topic.

40.9.1 Zero Budget Natural Farming (ZBNF: ûnü xbó \O⌫⇠⇡R⌫ NURd)
- 'Zero Budget' means without using any loan, and without spending any money on purchase of
inputs (seeds, fertilizers, pesticides). (aYW ÄMÅ◆ j}ZFá X™⌘®HF EÅå  ✏aZF, WÅ|B ✏aZF, ELIY ◆ZF)
- 'Natural farming' means farming without chemicals. By using biofertilizers, earthworms, cow
dung etc. Associated keywords:
○ Jiwamrita3 (microbial culture) and «Bijamrita3 (seed treatment solution)
○ Biopesticides: «Agniastray, «Brahmastray and «Neemastray
○ Most of the above are made from Cow-urine.
○ «Waaphasa3 (giving water outside the plantys canopy),
- ZBNF saves farmers from debt-traps; and protects the environment, soil and biodiversity. ( WÅ L
✏M⇣ h; ⌘ FÅM◆D, èX⇥Y s◆ W®M ✏M✏M{IF j ◆CF)
- Practice Arst started in Karnataka by Subhash Palekar. Himachal, Andhra also frontrunners.
- Budget-2019 promised to expand ZBNF in other parts of India. Govt encourages it under
launched Bhartiya Prakritik Krishi Padhati (BPKP)
- Budget-2022:- Chemical-free Natural Farming will be promoted esp on farmersy lands in 5-
km wide corridors along river Ganga (wiwF ZKY L 5 å B~XY}◆ ΩBF L X™◆HF Z X`π QF ✏I ELIY aFbY ~
Q~↵FgZ åK F WFwF)
- Budget-2022:- SC/ST farmers to be given funding for agro forestry. Agro forestry is
integrating trees with crops and animals e.g. Bamboo & Oil-Palm trees in farm land. (çZ`Hà–I
WF✏I s◆ WZWF✏I L å HFZ~i ~ ÷~J~◆L…£Y L |B ⌘®HF K™w)L .

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 634
40.9.2 Organic farming & ZBNF → Limitationsf (c OÖTO/ we⇡R O)
1. Organic farming yield (quantity produced per acre) is lower than conventional chemical-based
farming. (⌘F◆i⌘✓◆ ◆FHF ✏Z ë{F✓◆I ELIY j I`BZF XL X Ä⌘W)
2. In recent years Sri Lankan govt suddenly promoted too much organic farming, discouraging the
import of chemicals pesticides and fertilisers. Crop yield/production qty because fertilizer
not used → food supply → food inóation , food becomes expensive for consumers, food
exports declined . 2021: Now Lankan government has realised its mistake & began
encouraging use of chemical fertilizer for tea, rubber and coconut (ÊYBi F H◆ F◆ ZLW®✏M ELIY ~
ƒ›◆I HL„FKF Q~↵FgZ KLåK F s◆ MgFœça kHB ⌘®KFMF◆ Fkj X g~ wo g®. ©WH L BILEFö XgœwFo X™aõ~I◆Y s◆ ✏⇣
✏Z FÅI X™ XY ë Y g®∆ I~ ÊYBi F H◆ F◆ ~ wBIY HXW X™ë Y, MF⌘H ◆FHF ✏Z ÄMÅ◆ L Ä⌘ ~w ⌘◆ ƒ~◆ KL◆gLg®∆ )
3. Diªcult to produce o¿-season crops using organic farming. so if entire India became √100%
organic farmingd → food shortage → inóation. (ÄéFKZ X™ XY L BILEFö çH`◆CF s◆ XgiwFo )
4. Shelf life, colour and texture of organically grown fruits/vegetables are less attractive than
chemically grown hybrid / GM varieties. So, unless ordinary consumers are made aware of their
health beneAts they may not buy. (W®✏M JB H´¨ FiWल्दY ✏awb WFILg®, ◆iw-aZFM} ë ⇣Å ZgY)

40.9.3 Conclusion: Organic farming / ZBNF

 (SDG) New India Vision 2022 requires doubling farmersy income, while Sustainable
Development Goal No.2 requires nations to adopt agriculture practices that improve land and
soil quality & protect the genetic diversity of óora-fauna. (HII ✏M FH Bक्ष्य s◆ å HFZ~ j ë ~ Kwú ZF)
 Given the aforementioned ecological and economic beneAts of organic farming /ZBNF, it can
help us achieve both the targets. (⌘ FÅM◆D s◆ ëßî ZW✓◆ HLa»I JF KLXiK)

40.10 AGRI INPUTS → FARM MECHANIZATION (cûded⌫ M)

(Intro: De#nition) It means the higher usage of combine harvesters, land levelers, cultivators,
tractors, reapers, threshers, trolleys and mechanical pickers etc. ( ✏⇣ X™XáYZ~i F µFKF Ä⌘ ~w)
 Signi#cancef (1) ↑ productivity of land, labour by increasing work output per unit time. (2) ↑
employment opportunities to rural youth in production, operation, and repair-maintenance of
machines. (ÄéFKZ, HiFBZ s◆ X◆≈I-◆E◆EFM XÍ÷FXYD M̀F ~ ◆~WwF◆)

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 635
 Labour augmenting technological progress: Allows each laborer to be more productive e.g.
Industrial revolution → James Hargreaves' Spinning Jenny that allowed each worker to spin
eight cotton threads at once (1770).
 Capital augmenting technological progress: Allows capital assets / machinery to be more
productive. E.g. wooden plough replaced with steel plough → more sturdy, requires less
maintenance & repairs, resistant to water-fungal attacks.
 A\er MNREGA scheme (wherein villagers are guaranteed 100 days of unskilled manual work),
the Punjab-Haryana farmers are facing shortage of farm-laborer in peak season, & forced them
to o¿er higher wages → many of those farmers opting for machinery to reduce labour
requirement. (⌘iWFa g✓◆ FDF X™ ✏⇣ XWK∞◆~i j XY L BILXáYZ~i F Ä⌘ ~w µFKF)
 ES21: Corona lockdown- movement of migrant farm labourers & farm machinery-
repair/movement a¿ected = problems during harvesting season. (JHB }Fo X™åK∏I ë Y)

MCQ. ]e substitution of steel for wooden ploughs in agricultural production is an example of

_ _ _ _ _ _ _ _ technological progress. (Asked in UPSC-Pre-2015)
(a) labour-augmenting (b) capital-augmenting (c) capital-reducing (d) None of the above.

MCQ. Private investment in Indian agriculture is mostly on labour saving mechanization. ]is
could be a response to (Asked in UPSC-CDS-2015-II)
(a) rising productivity of agricultural sector (b) rising inequality in agriculture
(c) rising wages and tighter labour market (d) debt write-oB by the Government

40.10.1 Agri Inputs → Farm Mechanization: Challengesf

 Indian tractor industry is the largest in the world, accounting for 1/3 rd of total global production.
Nearly 80,000 tractors exported every year to African and Asian nations. But within India, the
utilization is low. India farm mechanization (40%) < China (60%)< Brazil (75%) < USA (95%).
 Customized machinery required for Indiays soil and climatic diversity so R&D, Make in India
required. Small-marginal farmers lack Anancial resources to own machines so renting centres
should be setup. (OF◆I j WXYZ s◆ ëa~gMF j ✏M✏M{IF L çZ`›⌘ i¥~i F Hiá~{Z s◆ ✏M FH å F WF)
 Agri Ministry Schemef 2017: Green Revolution - Krishonnati Yojana → Sub-Mission on
Agricultural Mechanisation (SMAM): to address above challenges.
 Agri Ministry launched Mobile App called FARMS (Farm Machinery Solutions) for farm
machinery renting.
 Budget-2022:- «Kisan Dronesy for crop assessment, digitization of land records, spraying of
insecticides, and nutrients. (JHB ✏Z◆YCD, WXYZ KÈFMLW~i ~ åÑ©W}B aZFZF, å }-ZFá KMFo IîF ⌘~⇣ -I’~i L
|vb FM L |B "å HFZ Ñ£~Z" ~ Q~↵FgZ K™w)L

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 636
40.10.2 Agri-Drone buying ke liye Subsidies
Scheme Sub-Mission on Agricultural Mechanization (SMAM) by Agro Ministry.

Bene#ciary Amount
If Agriculture graduates wants to set up drone 50% subsidy. Max limit: Rs. 5 lakh
hiring centre
woman/SC/ST/Small Marginal / NorthEast same as above
farmer wants to buy drone
Rural entrepreneur cooperative society wants to 40% subsidy. Max limit: Rs. 4 lakh
buy drones
Women self help group (SHG) wants to buy - If price of Drone + accessories = Rs.10 lakh
drones. then Union to pay 80% subsidy (8 lakh)
- Drone pilot to get ∫15,000 salary; co-pilot
∫10,000

40.11 AGRI INPUTS → FINANCE / CREDIT: †M

(Intro: Origin) Small and marginal farmers produce little marketable surplus, and o\en deprived of
the remunerative prices even during bumper crops, so without borrowing they can never buy inputs
for the next cropping cycle. (v~}LHYXFiI å HFZ~i L ⌘FH aLZL L |B ✏M⌘`B XF¥F X™çZFW g~IF ZgYis◆ çø ⌘®KFMF◆ L
Kä◆FZ OY, aFWF◆ X™çøL Xàï èXBILZgYig®, ΩH|B gXLáF ML W✏X™ÑàaL◆gILgÍ)
 Economic Survey 2016 found an inverse relation between size of landholding vs. Indebtedness
(ãD÷ÈIF) of farmers i.e. small/marginal farmers are more indebted than big farmers.
 ES20: ze share of North Eastern States <1% in total agricultural loans.
 Budget-2020: 1) Agriculture credit target for the year 2020-21 has been set at ∫15 lakh crore.
NABARD will provide a reAnance facility for this. 2) if a PM-KISAN beneAciaries doesnyt have
Kisan Credit Card (Ref:Pillar#1D), he will be given such a card.
 Agri Loan Targets in Recent Budgets: ∫16.5 lakh cr (2021), ∫18 Lcr (2022).
Table 1: notable steps to enhance credit availability to farmers →
RBI3s PSL norms: ⌧ bXÖx°⌫ ¢O O \O£qc⌫ LUè ⌫U †M cOe⌫ Ref: Pill#1: Monetary policy
handout
Nationalisation of banks ager the Independence. Ref: Pill#1: Bank
Setting up of diúerential banks (RRB, LAB, SFB). classiCcation handout
Kisan credit card, interest subvention scheme, Ref: Pill#1D: Fin.inclusion

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 637
 say
Samajh
Nghi sample)
P(youmbe)
~ ↑ se

40.11.1 Agri-Finance → Negotiable Warehouse Receipts (NWR)

 Bossf Ministry of Consumer A¿airs, Food & Public Distribution → Statutory Body
Warehousing Development and Regulatory Authority (WDRA: OFiÑFwF◆D ✏M FH Mi ✏M✏Z FX
QFG{ ◆D)- law in 2007.
 Farmer deposits his produce into WDRA registered warehouses and gets negotiable warehouse
receipt (NWR; ⌘◆hF⇣ w~KFX ◆HYK). He can use it in two ways
a. Pledge it in the banks to obtain loans for the next cropping cycle. OR
b. Trade it via the commodity exchange markets or electronic National Agriculture
Markets (e-NAM).
 Bene#tf NWR prevents the distress sale of agriculture produce. Farmer can wait and watch
for the prices to improve before selling, while his crop is safely stored in the warehouse.

40.11.2 Warehousing for small farmers: PM Bhai (2023)

• PM-Kisan Bhai (Bhandaran Incentive) scheme. Bossn Agri Ministry
• To help small and marginal farmers, who do not have money to store their produce in
warehouses → so they are unable to wait for better prices and forced to sell quickly ( v~}Ls◆
HYXFiI å HFZ ©WZ L ⌘FH w~KFX X™çBw ◆EZL L |B ⌘®HF ZgYig~IF∆ )
Full details are yet to be worked out. Concept is following as per news-reports:
• 1) Farmers will be given subsidy to pay for the warehouse rent.
• 2) Farmers who have stored their produce in the warehouse= these farmers will get
additional loan interest subsidy on Kisan credit card (KCC) loans.

40.11.3 Agri-Finance → Loan waivers for the farmers (j⌫QOe ⌫i ⌫bÖcOSt)

Shi\ed to Mains Handout.

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 638
40.12 AGRI-INPUT → RISK REDUCTION → INSURANCE
(Intro: Origin) zough agriculture sector is a minor contributor to Indiays GDP, but large
proportion of our population depends on agriculture. Agriculture itself depends on monsoon, pests,
disease and other vagaries of nature. But insurance penetration & insurance density is low in India.
- 2002: Agriculture Insurance Company of India Ltd. (AIC) was setup.
- Agro Ministry launched Pradhan Mantri Fasal Bima Yojana (Core scheme) and other
crop insurance schemes. (More in Pillar#1D: general insurance)

=
Idaki 2k/2K/EK
-
↓
Saal me

mein
hos month
paise detibai-

40.13 AGRI-OUTPUT → DON3T BURN THE CROP RESIDUE (ãQK-ìXûU⇢/ OKd)

(Intro: Origin) Every year during Sept-October, farmers of Punjab, Haryana, Uttar Pradesh burn the
paddy stubble & residue which are le\over from previous cropping season. Burning clears the farm
land for sowing wheat for next cropping season. çwBLXäHX X™wLÕiÄwFZL L |B JHB-çMáL⇣/ ⌘◆FBY WBFZF
- Resultf zick smog, air pollution, particulate matter (PM 2.5) in Delhi.
- open burning of crop residues has ill e¿ects on soil organic carbon and soil fertility
" "Solutionsf
" "
- In-situ composting (ÇØFZY Ä⌘WF· ◆Z)
- Machines like Rotary Slasher, Zero Till Seed Drill, Rotavators, 'Happy Seeder: zey help in wheat
sowing without having to get rid of paddy straw on the land.

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 639
- 2015: National Green Tribunal order → Burning crop residue is a crime under Section 188 of the
IPC and under the Air and Pollution Control Act of 1981
- Budget-2018: Union to give 100% funding to Punjab, Haryana and Delhi to tackle this
menace. Further, individual farmers to be given subsidy for such machinery purchase.
- ES20: PM2.5 emission (g/Kg) from burning crops: Sugarcane (12.0)> Maize (11.2)> Cotton
(9.8)> Rice (9.3)> wheat (8.5).
- We should promote crop with lower lignocellulosic content- like potato, soybean etc. because
their residueys burning creates less air pollution. (©WZ kHB~ X™|B≥~iHLïàB~ƒ j XF¥F X g~, ÄZ L çMáL⇣
WBFZLHL X QK∞⇣D J®BIF g®∆ )
- Setup biomass depots for storage of crop residues. → use this crop residue in zermal power
plants → Budget 2022 announced use of 5-7% biomass pellets in thermal power plants.
- biochar briquettes as fuel for local industries, brick kiln and hotel/dhaba

FAQ. i've 500 jaat-ke-doubts/counter arguments about lignocellulosic content in crops. Ans. I have
written the sentences given in the economic survey- for the purpose of MCQ. Beyond that. Ask your
science related doubts to science teacher. mere ko maaf karo.

40.14 BUDGET-2023 ON AGRO

AREA BUDGET-2023 ANNOUNCEMENTS
Coop Societies - vision of «Sahakar Se Samriddhiy.
- Computerisation of 63,000 Primary Agricultural Credit Societies (PACS)
will be done
- A national cooperative database for GPS mapping of cooperative societies.
Use áless √PM Programme for Restoration, Awareness, Nourishment and Amelioration
fertiliser3: PM- of Mother Earthd. - Union to encourage States and Union Territories to
PRANAM reduce consumption of chemical fertiliser.
Organic farming - Weyll setup 10,000 Bhartiya Prakritik Kheti Bio-Input Resource Centres.
- To train 1 crore farmers to adopt natural farming.
Farm input - Weyll create creating a national-level manufacturing network for pesticide
and micro-fertilizer (e.g. Nano Urea)
Horticulture Atmanirbhar Clean Plant Program: - To boost availability of disease-free,
quality planting material- horticultural crops
Agri Startup Agriculture Accelerator Fund for encouraging agri-startups in rural areas
Millets /Shree we grow several types of «Shree Annay such as kuttu, ramdana, kangni, kutki,
Anna kodo, cheena, and sama. weyll give the funding to Indian Institute of Millet
Research, Hyderabad (IIMR). It is an org. under under Indian Council of
Agricultural Research (ICAR).
Loans weyll give ∫ 20 lakh crore loans to agri, animal husbandry, dairy and Asheries.

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 640
 Subsidy Refer to Pillar2B for data on food and fertilizer subsidies.
Irrigation Upper Bhadra Irrigation Project (Karnataka) given funding.

40.15 AGRI-SELLING → APMC (⌫⇠⇡⇢êR ò§OT ⇡X Me Qqc⇡R)

(Intro: Origin) In the Post-independent India, despite the abolition of zamindari, the farmers were
not «liberatedy from exploitation. Because, the goons of local Baniyaa or money lender would forcibly
take away the farmersy harvest without paying suªcient money. So, state governments enacted
APMC laws that √Arst sale of agriculture produce can occur only at the market yards / Mandis of
Agricultural Produce Market Committees (APMC).d (å HFZ~i ~ HFÕ F◆~i L MHàBY/á~⇣D HLaFZL L |B ◆Fµ~iZL
FZàZ aZF å ✏⇣ Ä⌘W j HaHL⌘gBY ✏ahj XF¥F ⌘YXHY XiÑY X™gY g~ ⌘FwY)
40.15.1 APMC Problemsf Qc•OÄÅ / we⇡R OÅ
1. APMC trustees (oªce bearers) are politically in¶uential persons. zey enjoy a cozy relationship
with the licensed commission agents. zese agents form cartel, manipulate prices, deprive
farmers of remunerative prices; engage in hoarding & artiAcial shortage of food supply in the
retail market, thereby driving up the food inóation for proAteering. (◆FWZY✏IHLWb̀LI’, å HFZ ~ çø
jXI ZgYiKLI,L Hi÷g-E~◆Y ñF◆F aFWF◆ X™YW~i ~ XgiwF ◆ L XZ̀FJFE~◆Y ◆ILgÍ)
2. APMC trustees lack the managerial skill / vision for vertical integration with food processing
industries. [because their only skill is 1Politics⇠, Qai{Z äáï X g®]
3. While these Mandis charge multiple entry, exit and other fees. But money is siphoned o¿ →
poor infrastructure, lack of cold-storage, transport facilities → waste of fruits & vegetables even
in good monsoon years. (áYIwF◆, ⌘✓◆MgZ a`✏Z FKY çMHi◆ZF j XY L BILH¨Y JB aaFÅK)

40.15.2 Model APMC Actf (ßTûÖ⌫Oene)

Since agriculture is a state subject, ultimately state governments have to reform their archaic laws.
Union Government already circulated a model APMC Act, 2003 (HFIMYiçZ`HàY X™◆Fµ HàY X™g®)
- It allows the private entrepreneurs and cooperatives to set up their parallel markets, & sell
directly to consumers
- It allows the corporate companies to engage farmers in «contract farming (ìewxÅî NURd)3 and
directly purchase the produce from farmgate.
Further, Union Government released
1) Model Agricultural Produce and Livestock Marketing Act 2017 (APLM: X◊ÑB ✏⇣ Ä⌘W s◆ ⌘á`{Z
✏M⌘DZ) → it has better features than above model act, covering both Agro commodities as well as
livestock, Asheries and poultry.

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 641
2) Model Contract Farming Act, 2018 → aims to protect farmers engaged in contract farming with
better features than model APMC act 2003.
2016: NITI Aayog launched Agricultural Marketing and Farmer Friendly Reforms Index (AMFFRI)
to rank States and UTs. No state has achieved 100/100 score yet.

40.15.3 : 3 Farm laws repealed (2020-21)

For Prelims-RAFTAAR, Iyll make very very brief summary. Rest of the arguments shi\ed to Mains Handout
3 farm laws Objective
Farmersy Produce Trade and Reform State APMC Acts. Give facility to farmers to sell it to
Commerce (Promotion and people/organizations outside APMC
Facilitation) Ordinance/Act, 2020.
Farmers (Empowerment and  Contract farming agreement means an advance
Protection) Agreement on Price agreement between the farmer and the buyer agent,
Assurance & Farm Services before the production of farm commodities. (çZài{
Ordinance/Act, 2020. ELIY: ÷Fg s◆ å HFZ L aY, ✏⇣ ÄéFKZ HL⌘gBL, å F w F 
çè÷X HXËäIF g®)
 zis new law aimed to reform the State laws to protect
both farmer and buyer (food processing company)
Essential Commodities  To help food processing companies in stock limits.
(Amendment) Ordinance/Act, 2020
But some farmer organizations protested against these laws, ultimately govt repealed these 3 laws.
What were farmers demandsn Etc. analysis = SHIFTED to Mains Handout. #Prelims-RAFTAAR.

MCQ. In India, markets in agricultural products are regulated under the (UPSC-Pre-2015)
(a) Essential Commodities Act, 1955
(b) Agricultural Produce Market Committee Act enacted by States
(c) Agricultural Produce (Grading and Marking) Act, 1937
(d) Food Products Order, 1956 and Meat and Food Products Order, 1973

40.16 AGRI-SELLING ONLINE → E-NATIONAL AGRICULTURE MARKET (E-NAM)

- Bossf Agro Ministry (2016) → Small Farmersy Agribusiness Consortium (SFAC)
- Central Sector Scheme = 100% paid by Union.
- e-NAM (o-◆F¢£Y ✏⇣ aFWF◆) aims to connect the existing 580+ APMC mandis across India through
a web portal, thus enabling interstate and intrastate (within state) trade of agricultural
commodities. (XiåÑ ~i ~ ⌘ZBFΩZ W~b ◆ ÆF⌘F◆ X™HẁXIF)
- Govt is providing free so\ware and ∫ 75 Lakh per APMC mandi for infrastructure creation.

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 642
- Ityll also remove the information asymmetry (HàZF j ✏M⇣XIF) between buyers and sellers, and help
in real time price discovery based on actual demand and supply.
- 2019-Nov: FM Nirmala.S says State Govts should dismantle the APMC-mandis & replace them
with E-NAM Mandis so farmers can get a better price for their produce.
- Budget-2020: Negotiable Warehousing Receipts (e-NWR) will be integrated with e-NAM.
zis will help merchants buy e-NWR from E-NAM portal.

MCQ. What are the advantages of 'National Agriculture Market' schemef(Pre-2017)

a) It is a pan-India electronic trading portal for agricultural commodities.
b) It provides the farmers access to nationwide market, with prices commensurate with the quality
of their produce.
c) Both a and b d)Neither a nor b

40.16.1 Agri-Selling → Gramin Agricultural Markets (GrAMs)

- Bossf Agro Ministry (2018) → NABARD fund for Agri-Market Infrastructure Fund (AMIF).
- Gramin Haats are owned by Local Bodies (Panchayats/councils), Agricultural/ Horticultural
Departments of State Govts, Cooperatives, APMCs and Private Sector. Total ~22,000 of them.
Whereas APMC mandis are barely 580+.
- Budget-2018: 1) we will upgrade Gramin haat into GrAMs (÷FXYD ✏⇣ aFWF◆) 2) Weyll link them
with e-NAM. So, farmers can directly sell from nearby Gram Haat, instead of transporting the
produce to the APMC Mandis at the district level.

40.16.2 Agri-Selling→Outside India →Agri Export Policy, 2018

 Agri Export Policy Bossf Commerce Ministry. (MFNDµ Xi¥FB j ✏⇣ ✏Z FÅI ZY✏I)
 Objective – to improve agri exports.
 Salient features – shi\ed to Mains Handout.

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 643
40.16.3 Agri-Selling → Farmer3s income: SAS Survey DATA

- Situation Assessment Survey (SAS) of agricultural households conducted by the Ministry of

Statistics & Programme Implementation (MOSPI)→ National Statistical Oªce (NSO). ✓Ø✏I
ë BZ HM✏CD
- Latest Report covers timeframe of 2019. It was published in 2021. Notable Findings →
- agriculture household monthly income has from ∫ 6426 (in 2014) to ∫ 10218 (2019) (
OF◆IY å HFZ⌘ ⌘✓◆MF◆ j sHI ëXKZY Xæ̀ÿB HL10,000 ¬⌘ LQ✏IXFg g®).
Highest monthly incomes of farming families Lowest monthly incomes of farming families:
 Meghalaya (Rs 29,348)  Jharkhand (Rs 4,895)
 Punjab (Rs 26,701)  Odisha (Rs 5,112)
 Haryana (Rs 22,841)  West Bengal (Rs 6,762)
- fragmentation of land holding has . Average size of a farm reduced from 0.725 hectare (2003)
to 0.512 ht (2019) (ƒXYZ F OY EiÑZ g~ ◆gF g®. ELI j sHI ë F◆ X g~ ◆gY g®.)

40.17 AGRI-SELLING → INCOME SUPPORT FOR FARMERS

- NABARD released All India Rural Financial Inclusion Survey found total ~21 crore rural
household. Out of them ~10 crore engaged in agriculture. Farming is not a very proAtable
enterprise in India because majority of the families struggle to earn even ∫10,000 per month.
(ELIYaFbY a»I XZ̀FkL MFBF {i{F ZgYiWF ◆gF îF OwMFZ Mè€ HL10 gƒF◆ ¬⌘ XF ⌘FILg®)
- ES2018 noted: Climate changeys negative impact with higher temperature and shorter
rainfall: income fall will be 15-18% (for irrigated farm), 20-25% (for unirrigated farm). WBMF `
⌘✓◆MIÅZ HLÄéFK IF ~ EI◆F

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 644
- Modi-govt has target of doubling the farmers income (from base year 2015-16) in 2022-23. But
for that agricultural sector must grow at 10% annually whereas itys struggling to grow even @5%◆
zerefore, Govt. intervention is necessary in the form of subsidies, procurement, MSP and
minimum income support (PM-KISAN@6k/pa). ΩH|B HæıÑY, ✏M⌘DZ, âàZIX HXîÅZ Xàï, âàZIX ë
HXîÅZ L ›⌘ X™H◆ F◆Y gÈCL⌘ W›◆Y

40.18 AGRI-SELLING → MINIMUM SUPPORT PRICES (MSP)

Under the State APMC Acts, the Arst sale of agriculture commodity can occur at Agricultural
Produce Market Committee (APMC) Mandis only. However, a farmer may not get remunerative
prices at the Mandi due to following reasons:
1. Bumper production / supply =market prices (ë⌘àÏI aõL: KFX èw◆L) AND / OR
2. Cartelization / price-Axing by the mandi-merchants.
So, to protect the farmers, Government of India announces MSP (âàZIX HXîÅZ Xàï) before each crop
sowing season. ( åK å HFZ ~ XiÑY X™çø jXIY ZF èXBLI~ H◆ F◆ ~ aL H ™)
40.18.1 MSP covers which cropsf
For 22 crops (MSP) + 1 sugarcane (FRP) = 23 viz.
14 kharif crops  Kharif: Grown In Summer / Monsoon Season.
 Paddy, Jowar, Bajra, Maize, Ragi, Arhar, Moong, Urad, Groundnut-In-Shell,
Soyabean, Sunóower, Sesamum (✏IB), Nigerseed (◆FX✏IB) And Cotton;
6 rabi crops  Rabi: grown in winter season.
 Wheat, Barley, Gram, Masur(Lentil), Rapeseed/Mustard,Sa⁄ower ( `HX̀)
3  Jute, Copra (coconut) and Sugarcane.
commercial  For Sugarcane, mechanism is di¿erent: It requires the sugar mill companies
/cash crops to pay the minimum Fair and Remunerative Price (FRP) Axed by Govt.
(Whereas for other 22, Govt itself procures @MSP)
 In addition, MSP of Toria (a type of oilseed crop) Axed on basis of rapeseed-mustard and MSP of
de-husked coconut (|vB F ÄIF◆F w F ZF✓◆ B) Axed on the basis of the MSP of copra. But for MCQ if
asked then the safe number is «22y.

MCQ. How many of the these statements are correctf (Prelims-2023)

1. ze Government of India provides Minimum Support Price for niger (Guizotia abyssinica) seeds.
(OF◆I H◆ F◆ FBL✏IB [ZFΩW◆ (wῺƒ~å} F ✏aGH✏Z F)] L aYW~i L |B âàZIX HXîÅZ jXI Ä⌘Bˇ ◆FIY g®∆)
2. Niger is cultivated as a Kharif crop. ( FBL✏IB j ELIY E◆YJ j JHB L ›⌘ X™ j WFIY g®∆)
3. Some tribal people in India use niger seed oil for cooking. (OF◆I X™ `v WZWFIY B~w FBL✏IB L aYW~i F
ILB O~WZ ⌘ FZL L |B Q ~w X™BFILgÍ∆)
Codes: (a) Only one ( LMB  ) (b) Only two ( LMB K~) (c) All three (HOY IYZ) (d) None ( ~o ZgYi)

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 645
 40.18.2 MSP computation, Swaminathan Committeef
Agro Ministryys Commission for Agricultural Costs and Prices (CACP: ✏⇣ BFwI s◆ Xàï ë ~w)
recommends MSP (& FRP for sugar) → Cabinet Committee on Economic A¿airs (CCEA: ëßî
XFXB~i j ®✏aZL} HèX✏I) chaired by PM approves & announces MSP. aaya ?
CACPys computation method is →
samjh
~
④
-
-

A2 Actual costs directly incurred by the farmer on seeds, fertilizers,

pesticides, hired labour, depreciation on farm buildings & machinery,
interest on working capital, diesel/electricity for tractor/ pump sets etc.
FL Imputed cost of (unpaid) family labour.
(A2+FL) © 1.5 times zis will be the oªcial MSP. (from Budget-2018 onwards). So farmer
MINIMUM. sees 50% proAt on this cost of production.
ze National commission on farmers (2006) headed by Scientist MS Swaminathan had suggested
50% proAt but using a di¿erent «C2 formulay, BUT
- C2 formula computed lot of costs, including imputed rent on his own land and imputed interest
on his own capital etc. (i.e. what if farmer had leased the farmland or gave his savings as loan to

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 646
 someone else, instead of farming by himself, then how much rent / interest would he have
earnedn) ( Fल्प✏Z ›⌘ HLMg å IZF XF BLIF ÄH L OY `v ëi bLW~bLWFILgÍ)
- If govt. used C2 formula, MSP will become very high due to aforementioned (hypothetical)
imputed costs → higher budgetary allocation, Ascal deAcit will increase. So, Govt is using A2+FL
formula only.
- 2020: Corona → Atma-Nirbhar → Govt promised to raise MSP to help farmers.

40.18.3 MSP decision Factors apart from (A2+FL) x 1.5 formula

Although the cost (A2+FL) is an important determinant of MSP, the MSP pricing policy is NOT
rooted in ONLY «cost plus 50% proAty- Other factors are also considered as well. (ÄéFKZ j BFwI L
çBFMF çâ F◆ ~ ⌘LOY wä◆ å F WFIF g®)

Factor Notes, if any

CoP = (A2+FL). Ideally, the farmer should get a 50% proAt over this
Cost of Production (CoP)
cost of production, as learned in the previous section.
e.g. to address the shortage of pulses, the govt should encourage
Demand and supply
farmers to grow pulses by o¿ering better MSP on them.
e.g. if there is a shortage of Soybean in India, while Soybean oil from
Price trend in the domestic
Argentina becomes expensive, then India should o¿er better MSP to
and international markets
farmers to encourage them to grow more soybean.
e.g. to encourage farmers to shi\ from wheat/rice to millets, the govt
Inter-crop price parity
should o¿er better MSP on millets.
Ensuring rational
utilization of natural
same as above- rice vs millets
resources like land and
water
e.g. MSP should not be so high for rice that all farmers stop growing
MSP impact on consumers
tomatoes → tomato shortage
Terms of trade between
the ratio of agri prices to industrial prices. Basically, the agri price ratio
agricultural and non-
should not become very low or very high compared to mfg/service
agricultural sectors
industries. Otherwise, it may result in people shi\ing to a single
(⌫⇠⇡⇢ ™ êu ⌫⇠⇡⇢ LUè ⌫U xd
industry → shortage of workers in other industries.
´O O ⌫t ûR/̈≠ï⇡R )

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 647
40.18.4 ES22: Crop Diversi#cation: by higher MSP (ãQK ⇡X⇡Xîd⌫ M- òÆ üneRc Qc£Öe cnØ ¢O O)

Critiques argue that due to MSP policies, farmers are encouraged to grow mostly sugarcane, rice and
wheat, which creates 1) water shortage 2) supply-shortage of other crops. (H◆ F◆ j âàZIX HXîÅZ Xàï
ZY✏I ~i L BIL„FKFI◆ å HFZ wPF-wLÕi-FMB BwFZF ⌘HiK ◆ILgÍ©WHHL⌘FZY j aaFÅKY, çâ JHB~i j å˝ÙI g~IY g®.)

- So, to encourage crop diversiAcation, govt is giving MSP @more than 50% of Cost Price for
certain crops e.g. mustard (100%), Masur (70+%), barley (60%) (ΩH|B H◆ F◆ ZL `v JHB~i⌘◆ å HFZ
j BFwI ‡Å L ·⌘◆ 50% HLOY çG{ XH⌘Y WF◆Y å F g®)
- BeneAtsn - 1) crop diversiAcation. 2) water & soil conservation 3) improve farmers income. 4)
self-suªciency in pulses and oilseeds → inóation control, food and nutritional security.

40.18.5 Crop Diversi#cation: CDP program (2013)

2013: Agri Ministryys Rashtriya Krishi Vikas Yojana (RKVY): Sub-scheme- Crops DiversiAcation
Programme (CDP) to →

 To rice cultivation in the original green revolution states viz. Punjab, Haryana, Western UP
 To tobacco cultivation in Andhra Pradesh, Bihar, Gujarat, Karnataka etc
 under this scheme, govt helps farmers to shi\ towards less water requiring crops such as oilseeds,
pulses, coarse cereals, , cotton, etc (FMB s◆ Iम्बF à L å HFZ~i ~ H◆ F◆ XKK ◆IY g®çâ kHB BwFZLX™)

MCQ. Consider the following:(Asked in UPSC-Pre-2018)

1. Areca nut 2.Barley 3.Co¿ee 4.Finger millet 5.Groundnut 6.Sesamum 7.Turmeric
ze Cabinet Committee on Economic A¿airs announces MSP for which of the aboven
(a) 1, 2, 3 and 7 only (b) 2, 4, 5 and 6 only (c) 1, 3, 4, 5 and 6 only (d) 1, 2, 3, 4, 5, 6 and 7
MCQ. ∞e FRP of sugarcane is approved by the (UPSC-Pre-2015)
(a) Cabinet Committee on Economic A¿airs (b) Commission for Agricultural Costs and Prices.

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 648
(c) Directorate of Marketing and Inspection in Ministry of Agriculture.
(d) Agricultural Produce Marketing Committee.

40.18.6 Agri-Selling → MSP → Procurement (ìPî\O M / N dT)f

Central agencies namely, Food Corporation of India (FCI), Cotton Corporation of India (CCI), Jute
Corporation of India (JCI), Central Warehousing Corporation (CWC), National Agricultural
Cooperative Marketing Federation of India Ltd. (NAFED), National Consumer Cooperative
Federation of India Ltd. (NCCF), and Small Farmers Agro Consortium (SFAC) will purchase the
entire quantity o¿ered by the farmers at MSP.
 So, itys also called áOpen Ended Procurement (E`BLv~◆ F)3 i.e. whether farmer brings
20/200/2000/xyz kilo, Govt agencies will buy it, without any «quotay for every farmer. [Although
in real life there are some state-wise quotas but weyll not get into operational guidelines]
 Collectively, this entire mechanism is called Market Intervention Scheme and Price Support
Scheme (MIS-PSS: aFWF◆ gÈCL⌘ ~WZF s◆ Xàï HXîÅZ ~WZF).
 Bossf Agro Ministry. Central Sector Scheme = 100% paid by Union.

From Food Corporation of India3s point of view, the economic cost of food grains is:
1) MSP paid to farmers (technically called «Pooled cost of grains bought at MSPy)
2) + Bonus paid to farmers (if any. zis is usually announced during election season for votebank
appeasement)
3) Procurement Incidentals: paid to truck drivers, loaders, diesel, cost of operating godowns etc.
4) Cost of Distribution: When delivering grains to States for their Public Distribution System
(PDS) shops, National Food Security Act (NFSA), Mid-day-meal schools etc. More in Pillar#6:
Malnutrition

∞e economic cost of food grains to the Food Corporation Of India is Minimum Support Price and
bonus (if any) paid to the farmers plus _ _ . (Prelims 2019)
(a) Transportation cost only (b) Interest cost only
(c) Procurement incidentals and distribution costs (d) Procurement incidentals and charges for godowns

40.18.7 = MSP Bene#tsf

 Farmer always has the option to sell produce to govt, if he canyt get remunerative prices from
private merchants. It prevents distress-sale of produce at throwaway prices to private merchants.
(H◆ F◆ ñF◆F ë⌫È å HFZ, _a◆Fg} X™Ä⌘W ✏ZWY ÆF⌘F◆Y ~ ⌘FZY L KFX~i⌘◆ ZgYiaLLwF)

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 649
 Govt announces MSP before the sowing season for 23 crops including cereals, pulses, oilseeds &
certain cash crops. zis advance information helps the farmer to make an informed decision
about which crop to sow for maximum economic beneAt within the limitations of his farm size,
climate and irrigation facilities. (å HFZ ✏ZDÅ BLH IF g® äZ HY JHB X™ÄHLµFKF JF KF g~wF)
 MSP sends a price-signal to market that if merchants donyt o¿er higher than MSP prices the
farmer may not sell them his produce. zus MSP serves as an anchor or benchmark for agro-
commodity market. While MSP doesnyt guarantee that market prices will always be higher than
MSP, but at least it ensures the market prices will not be drastically lower than MSP. (✏ZWY aFWF◆ L
Xàï~i L |B XFZKiÑ F FX ◆IF g®)

40.18.8 = MSP Limitationsf (c OÖTO)

 FCI/NAFED procurement (çG{QF⌘D) is usually conAned to big towns and district centres.
Farmers in remote & tribal area unable to bring their produce to the procurement agencies due
to high cost of transportation. 1997: Govt launched Decentralized Procurement (DCP: ✏M ™‰Y I
çG{QF⌘D ~WZF) wherein State Govt themselves procure wheat and rice from farmers, & Union
will bear the costs. But not much success in increasing the penetration yet.
 Procurement is usually conAned to rice and wheat (cereal grains). Not usually done for pulses,
oilseeds and other crops. So, aforementioned beneAts of MSP remain «only on papery, they are
not implemented in reality. So farmers are demanding MSP as «legal righty (MFÈ✏M IF X™ZgYig~IY∆
GHJÅ  FwWY åKEFMF/åh F g®. ΩH|B å HFZ ΩHL‘˝FZàZY-çG{ F◆’ aZFZL j XFœw ◆ ◆gLgÍ.)
 MSP not even announced for vegetables and fruits. (JB H´¨ ~i F ZgYig~IF)

(UPSC-Prelims-2020) Consider the following statements

1) In the case of all cereals, pulses and oil-seeds, the procurement at Minimum Support Price
(MSP) is unlimited in any State/UT of India.
2) In the case of cereals and pulses, the MSP is Axed in any State/UT at a level to which the market
price will never rise.
Codes: [a) 1 only [b) 2 only [c) Both 1 and 2 [d) Neither 1 nor 2

40.19 : AGRI-SELLING: PM-AASHA: FIX MSP LIMITATIONS

Pradhan Mantri Annadata Aay Sanrakshan Abhiyan.

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 650
Bossf Agro Ministry (2018-Sept). Central Sector Scheme = 100% funded by Union.
ze scheme has three components:
1. Price Support Scheme (PSS: cnØ Qc£Öe ibeO): Central Agencies will henceforth also do physical
procurement of pulses, oilseeds and Copra. (KBgZ, ✏IBgZ s◆ ~⌘◆F)
2. Price De#ciency Payment Scheme (PDPS: cnØ c~⌫cd ZwêROe ibeO): If Farmers sells oilseed crops
to private merchants in APMC-mandis who are paying them less than MSP price, then govt will
directly transfer the di¿erence money in farmerys bank account.
3. Private Procurement Stockist Scheme (PPSS: êu -Q ⌫O d \O≤≥ £i⌫-´O O d ibeO): Private agencies
will be hired for procuring the commodities at MSP on behalf of Govt.

40.20 !": FCI & PDS (xS ZÅõO )

1964-65: Food Corporation of India (FCI, HQ-Delhi), a statutory corporation, setup under
Consumer A¿airs Ministry (OF◆IY EFö ✏ZwX, Ä⌘O~πF F ÅXi¥FB F M®{F✏Z ✏ZwX)
1) Procurement of foodgrains from farmers at Minimum Support Prices (QF⌘D ◆ZF)
2) Distribution of foodgrains to consumers through Public Distribution System (PDS, HFMÅW✏Z
✏MI◆D QDFBY ñF◆F w◆Ya~iX™EFöFP~i F ✏MI◆D)
3) Maintenance of bu¿er stock for food related schemes and to meet emergency situations like
unexpected crop failure, natural disasters, festivals, etc. (EFö H`◆CF s◆ jXI ✓Ø◆IF L |B EFöFP~i L
aJ◆ …◊ F OiÑF◆D ◆ZF)
More points / analysis of food subsidy/PDS = shi\ed to mains. #Prelims-RAFTAAR.

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 651
40.21 : AGRI-SELLING: STORAGE AND TRANSPORT
Budget-2020 announced:
- Indian Railways with refrigerated coaches in trains. }£LZ~iX™QáY✏II åÑ⇢L. = improve
Kisan national cold supply chain for perishables, milk, meat and Ash. (ZFá⌘FIY ✏⇣ Ä⌘W,
Rail K∞{, XFiH s◆ XvBY∆)
- Challengen Railway Ministry complained funding shortage for this project.

Ministry of Civil Aviation (ZFw✓◆ Äड्ड Z Xi¥FB ) will permit new óights on international
Krishi and national routes to transport agricultural cargo.
Udaan = farmers of North-East and tribal districts to sell their exotic fruits/óowers at
premium prices. (çZ~EL/WiwBY JB-JàB~ ~ ·œY jXI)
 Weyll encourage the Warehousing Development and Regulatory Authority (WDRA), Food
Corporation of India (FCI) and Central Warehousing Corporation (CWC) to build more
warehouses. [All these are bodies under Consumer A¿airs Ministry]

40.22 : AGRI-SELLING: DIRECT INCOME W/O SELLING → PM-KISAN@6K/PA

Pradhan Mantri Kisan Samman Nidhi - Income Support Scheme

- Bossf Agro Ministry. Central Sector Scheme = 100% paid by Union.
- Bene#ciaryf 2018: A small / marginal farmer family comprising of husband, wife and minor
children -who collectively own cultivable land upto 2 hectare as per the land records of the
concerned State/UT. (2 hectare = ~5 acres).
- However, 2019-May: A\er General Election, Modi 2.0 Govt remove the land holding ceilings.
Now scheme available for all farmers, irrespective of farm size. (HOY v~}LabLå HFZ~i ~ BFO åK F WFwF
OBLÄZ L ⌘FH å IZLgY  b j WXYZ g~)
- Entitlementf Direct BeneAt Transfer (DBT) of ∫ 6000 per year in three equal installments (∫
2000 x 3) in the beneAciaryys bank account. zus, eliminating middlemen and corruption.
- more than 11 crore farmers are given payments - said ES23.
- Criticism/Challenges/Reforms = Shiged to Mains. #Prelims-RAFAAR.

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 652
40.22.1 → : Pension: PM Kisan Maan Dhan Yojana
Ref: Pill1D- Pension Schemes for more details. Basically farmer contributes 55-200 per month. →
pension of ∫3000 upon crossing age of 60. zen on death his/her husband/wife to get 1500 pension.

40.23 AGRI-SELLING: FOOD INFLATION FOR CONSUMERS

(Intro-Origin) With green revolution, we became self-reliant in cereal production. But perishable
fruits and vegetables have remained our Achillesy heel. Seasonal spikes in onion, tomatoes & pulses is
a recurring nightmare for middle class families of India. ze underlying causes as following:
1. Demand Side: Growth of middle class & their disposable incomes → demand of
fruits/veggies than before.
2. Supply Side: shortage of commodities on account of 1) poor monsoon & pests 2) post-harvest
losses due to unavailability of cold-storage & warehousing 3) hoarding (Hi÷gE~◆Y/ FBF-aFWF◆Y).

40.23.1 Food in¶ation Reasons and Remedies in 2022–23 by ES23

ITEM REASON FOR INFLATION
MILK 1) fodder shortage due to untimely rains 2) diesel price → transport cost
for both milk and fodder
TOMATOES unseasonal heavy rains in the Karnataka, Tamil Nadu, Andhra Pradesh, and
Telangana a¿ecting supply in April-Sept.
WHEAT AND excessive EXPORTs reducing supply for local customers.
RICE

40.23.2 Food In¶ation- Govt3s Reforms in 2022–23

ITEM NOµ cmÅêOç ⌫i ⌫c ⌫ eU⌫U sKÄ Q ⌫O ¢O O ò∂OÄ êÄ ⌫Tc
Milk 100 fodder-centric Farmer Producer Organisations (FPOs) to be setup

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 653
 Wheat (êU∑Å ⇡e OÖR Banned export of wheat óour, maida, samolina (rava/sirgi) → to supply
\⇡RxÅî) in local market.
Rice ( OXK ⇡e OÖR Increased customs duty on exported rice to 20% → foreign customer will
⌫ iÅc~x∏iR d)
buy less → supply in local market.
Pulses (TOKiÅ⌫U ß OR customs duty and AIDC cess on imported pulses. AIDC = Agriculture
⌫ iÅc~ñnó) Infrastructure and Development Cess (Ref: Pillar#2B-Customs Duty)
Edible Oils (NOµ 1) customs duty and AIDC cess on imported edible oil such as palm oil,
RUK) soyabean oil and sunóower oil 2) imposed stock limits 3) ordered edible oil
companies to reduce prices by 15 Rs. per litre using powers of essential
commodities Act (ëMश्य MÈ`çG{✏Z X L IgI EFö ILB i⌘✏Z ~i ~ jXI ⌧ ›⌘ L
X ◆MFo )
Soya Meal (for (1) Declared Essential Commodity & imposed stock limits to combat unfair
Poultry & Fish practices like hoarding, black marketing etc. ( FBFaFWF◆Y ◆~ ZL L |B …◊ HYXFi
feed) (cwêπ ™ cñKd I j) (2) From 2021- allowed import of genetically modiAed (GM)
⌫O O O: Qi O-cdK) soymeal
Chana Union Govt supplies it to State at subsidised price
Now lets looks at some more points/issues:

40.23.3 Food In¶ation due to shortage of Pulses supply (TOKiÅ⌫O ò§OTe)

1. Finest irrigated land used for cereal and cash crops like sugarcane because of better MSP. So
pulsesy area under cultivation is declining. Govt shd reform MSP for pulses cultivation, especially
in drought prone areas because pulses require less water than sugarcane. (KFB j JHB X™wPLHL X
⌘FZY ΩÈLXFB g~IF g®, ΩH|B HàEF QOF✏MI ✏MÈF◆~iX™ÄHLQ~↵FågI å F WF)
2. Pulses make the soil nitrogen rich, it encourages weed growth- which the pulses yield. Pulses
are themselves protein rich, so theyyre more susceptible to (1) pests attack and (2) When stored
in open godowns, humid conditions = fungal growth. 25% of the produce is lost by this.
Solutionf New seed varieties required but Indian scientists are focused on «cerealsy rather than
«pulsesy. (OF◆I L ✏⇣ M®ज्ञF✏Z ~i F FZ KFB~i⌘◆ Hiá~{Z j Wwg EFöFP çZFW ⌘◆ Hiá~{Z X™µFKF g~IF g®)
" ""Cobweb Cycle "c⌫yd
(" ⌫O bOKO")"
 if a farmer observes a high price for a speciAc crop for a year, he would opt to produce more of it
the next year. But if all farmers think with this mindset → excessive production & supply →
prices → then they stop cultivating it in the next cycle → shortage in supply→ price ⇥.
 Faulty producer expectations → cyclical óuctuation in supply & prices. (å HFZ j K~⇣⌘àDÅç⌘LCFœ →
ÄéFKZ s◆ jXI~iXLhj ÄIF◆-õFM)
 zis is called «Cobweb3 Cycle. Term given by economist Nicholas Kaldor (1934)
 ES20 blamed this phenomenon for price óuctuations in pulses.

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 654
40.23.4 Food In¶ation due to shortage of Vegetable supply
1. Global Warming: April-May heat waves destroy nascent óowers / buds of vegetable plants. (M®©⌫
IF⌘ XLMè€ L BILZMWFI JàB / |B ~i F X`◆WFZF)
2. Pests & Diseases (⌫tó ™ iê): Maharashtra and Southern Indian farmers have been growing
tomatoes & onions since last 3 decades. But, overuse of general pesticides → whiteóies, red
mites, gram pod borers and other pests have gained immunity. → crop-loss has increased.
Farmers had started using Switzerland companyys seeds but later they were found to be
vulnerable to certain viral diseases.
3. UPA-Congress Govt (2004-14) had rapidly hiked MSP for wheat & rice so many farmers shi\ed
from veggies / pulses to cereal production. (wLÕiFMB X™µFKF HXîÅZ Xàï L BILKFB s◆ H´¨ ~i j JHB
X g~wF ◆gLgÍå HFZ)
4. Ager demonetization (2016), cash based retail vegetable industry su¿ered → lower prices to
farmers in the last season. So they shi\ed away from vegetables towards sugarcane, maize, soya
etc. cash & cereal crops → veggies production .
5. Price wedge = large di¿erence between the wholesale and retail prices. Itys due to high
transaction costs, poor marketing infra, huge margins by middleman etc
6. Heavy rains, Unseasonal rains, óoods and cyclones disrupt the supply chains. e.g. 2021-Sept:
unseasonal rains in Punjab, Haryana, HP → Tomato crop damaged → inóation.

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 655
7. Farmer strike in Maharashtra, UP & MP, wherein they destroyed truckload of tomatoes, milk,
potatoes etc. (å HFZ~iñF◆F gbIFB s◆ QKáÅZ ‡K̀ ç⌘ZF çZFW /H´ब्ज़ FœHb ⌘◆ J™ KLILg®)
8. Shortage of cold storage infrastructure (ûdROêO ). Big traders utilize them for hoarding onions
and potatoes, → less space for other vegetablesy storage even during bumper crops. 70% of
Tomatoes grown in Rabi Season- so in remaining months there will be shortage, if theyyre not
stored.
9. Onion inóation – explained in separate section below.
10. 2020- Corona lockdown/supply-chain constrains= price rise in initial months, but later on
with unlockdown, prices moderated by 2020-December (IFBFaiKY X™ë⌘àÏI ÊiEBF Qai{Z X™Z̀ä✏I Fi©WH L
BIL2020 á`¬ëIY XgYZ~iX™EFö XgiwFo aõY gFBFiå aFK L XgYZ~iX™MF⌘H X »o)
11. 2021- Soybean shortage → feed prices → so Ash & chicken prices (H~ FaYZ F◆F »ë XgœwF →
XẁŒ⌘FBZ s◆ XvBY⌘FBZ ◆ZLMFB~iZLç⌘ZLKFX XgœwL j)
12. 2022: scene explained in the earlier chart at the starting of this topic.

40.23.5 Seasonality in Onion-Tomatoes

ES22 observed Onion Tomato

70% grown during Rabi season Rabi season
Transplantation (ãQK xieO) December-January October-February
Harvest (ãQK ⌫OóeO) By May By June
Aúected by weather/climate in Maharashtra, Karnataka Punjab, UP, HP, Haryana,
South India
zus, if drought / cyclone / excess rain / pest attack in above months → huge supply shortage &
inóation.

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 656
40.24 : FOOD INFLATION → ONIONS

40.24.1 Onion Shortage caused by (∫Ob ⌫t ⌫cd)

 Late-arrival of monsoon: sowing (aYWF◆~⌘D) period delayed.
 Prolonged rains damaged the standing crop in the Major producers viz. Karnataka, Telangana,
Madhya Pradesh and Maharashtra (largest producer: Its Lasalgaon town in Nasik district is
Indiays largest onion market).
 2019-Sept-Oct: Heavy rains a¿ected cutting and transportation of the crop.
 So, [Supply < Demand] = Onion prices increased to ∫140/kg in late-2019.

40.24.2 : Govt initiatives → Onion In¶ation (2019-Sept to Dec)

 Commerce Ministry → DG Foreign Trade → temporarily banned the export of Onions since
2019-Sept. (Although Andhra3s Krishnapuram onions were allowed for exports. zey are
extremely pungent in taste (ÇFK X™IYEF), liked by Srilankan and ASEAN families. But, Indian
families donyt like its taste much.)
 Commerce Ministryys MMTC ltd company will import onions from Turkey & Egypt using the ∫
∫ from Price Stabilisation Fund (Itys a fund under Consumer A¿airs Ministry) → onions will be
supplied to State Govtys Food and Civil Supply Departments → sold at reasonable prices.
 Government also directed the States to build bu¿er stocks, impose stock limits on traders and
take action against hoarding. (…◊ HYXF BFwà ◆™)
 Long term solutionsf Help the farmers cooperatives to directly sell to customers, strict action on
hoarding, develop more cold storage warehouses etc.

40.24.3 : : ES21 how to control onion in¶ationf

Onion prices skyrocket in August-November every year. Following reforms need to be taken:

 NAFED procures and stores onion mostly in three states- Maharashtra, Madhya Pradesh and
Gujarat = more risk of adverse weather shocks / heavy rains / óoods → transport bottlenecks.
Need to decentralise it with modern storage facilities at multiple states. (GHJÅ IYZ ◆Fµ~iX™ôFW F
OiÑF◆D ◆ZL j Wwg, ✏M ™‰Y I ›⌘ HLçZL ◆Fµ~iX™Ä‚™OiÑF✓◆I å F WF, )
 Health Ministry's eVIN (electronic vaccine intelligence network) =used for monitoring the
Vaccine supply. Similarly, onion supply online-monitoring systems need to be developed.
(⌘ZBFΩZ I◆Y L HL©WH Q F◆ HLM® YZ j ✏Zw◆FZY ◆EY WFIY g®, HF gY ôFW L HFî ◆™)
 Use of dehydrated onions that has longer shelf life should be promoted for bu¿er stock purposes.
Hydrated variety should be sold early. (H`EF w ôFW BiaY çMG{ I ✏awbILZgYiΩH|B ÄZ F OiÑF◆D å F
WF Waå IFWF / ZF H`EF w ôFW ôFW î~bL⌘gBLaL åK F WF)

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 657
40.25 : AGRI-SELLING: FOOD-INFLATION: GOVT INITIATIVESf
40.25.1 : Food In¶ation → Govt initiatives → MEP
 Minimum Export Price (MEP: âàZIX ✏Z FÅI Xàï) It is the price below which of commodity
cannot be exported from India. During inóation in a particular agro commodity, commerce
ministry will MEP to discourage its export from India → supply in the local market →
price
 Limitationf Frequent changes in MEP = uncertainty for exporter-oriented farmers for the
next cropping season.
Sidenote: Minimum Import Price (MIP): itys the price below which a commodity canyt be imported.
zis is usually done for protecting domestic industries against cheap imports. E.g. Government
imposed MIP on pepper and areca-nut in 2018-19 (ΩHHL X Xàï ⌘◆ ë FI ZgYi ◆ H IL)

40.25.2 : Food In¶ation → Govt initiatives → OMSS

 1964-65: A statutory corporation Food Corporation of India (FCI: OF◆IY EFö ✏ZwX) was set up
under Ministry of Consumer A¿airs, Food and Public Distribution (Ä⌘O~πF XFXBL, EFö s◆
HFMÅW✏Z ✏MI◆D). By default, FCI procures cereals/foodgrains @MSP & sells them to poor-families
via the Public Distribution System (PDS:HFMÅW✏Z ✏MI◆D QDFBY) outlets.
 However, during food inóation, FCI would also sell the grains in open market to supply,
price rise. Itys called Open Market Sale Scheme [E`BF aFWF◆ ✏ahj ¯jX].
 Limitationf While OMSS can help during shortage / inóation of cereal grains (rice, wheat).
But, not much useful in veggies because theyyre out of FCI-MSP ambit.
 Corona-2020: FCI starts selling wheat & rice to all the charitable/ non-govt orgs who are
running community kitchen for migrant workers / poor people. ( ~◆~ZF X™kHYëo ZL
HLMFOFMY/HXFWHLMY/˚®◆-H◆ F◆Y HiØF¡i ~ OY KLKZFKZ çZFW aLF IFå M~ QMFHY XƒK∞◆~iX™EFZF Ä⌘Bˇ ◆F H L∆)

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 658
40.25.3 : Govt initiatives → Price Stabilization Fund (2014)

- Xà! ✓Ø◆Y ◆D ~⇣ is a Central Sector Scheme = 100% funded by Union.

- Bossf Consumer A¿airs Ministry gives Interest free loans to FCI, NAFED & other central/state
agencies to procure pulses and perishable vegetables from local and foreign farmers and sell it to
aam-aadmi at reasonable prices. (H◆ F◆Y HiØFZ~i ~ "FW X`π WÅåK F WFwF ©WHHLMLKFB s◆ H´¨ FiE◆YK
L MF©Wa KFX~i⌘◆ aLL)
40.25.4 : Govt initiatives → Operation Greens for T-O-P (2018)
REFER To PM Kisan Sampada Yojana under the topoic √Agriculture Production & Processing →
Other Schemesd

40.26 FOOD INFLATION → EDIBLE OIL (NOµ RUK)

Due to faulty MSP polices Edible oilseedsy production in India is inadequate to meet consumer
demand. And it is becoming expensive for India to import edible oil because [ë FI XgiwF g~ ◆gF g®“~iå ]

 High demand of oil due to due to fastfood, junkfood (wafers etc) habits of young generation.

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 659
 La Niña climatic conditions a¿ecting crop production in Argentina, Brazil for Soyabean Oil
 Malaysia and Indonesiays Palm oil purchased in large quantity by China =less qty for India.
 edible oils used generating biofuels by USA/Brazil= less qty for India. [W®M #{Z X™ΩÈLXFB]
 Corona → supply chain constraints and labour issues in lock down.
 2021: Indian govt customs duty on imported palm oil to reduce prices in India and imposed
stock limits under Essential commodities act. ë FI g~ZLMFBL⌘FX ⌘ B ⌘◆ H◆ F◆ ZLHYXF á`‹ X å F
IFå OF◆I X™EFö ILB~i j XgœwFo K◆ X™ XY ë H L∆ ëMश्य MÈ`çG{✏Z X ˝FZàZ L çiIwÅI …◊ |BèX} I j∆
 Critics argue reducing taxes on imported edible oils, is not going to help Aghting inóation,
because of high demand by customers and proAteering by sellers. å iI`ëB~ ~i F XFZZF g®å ÆF⌘F✓◆ ~i
j XZ̀FkF‡~◆Y IîF ÷Fg ~i j aõIY XFœw L BILEFö ILB~iX™XgœwFo ~ ˝FaàX™ZgYig~ H IY∆

40.26.1 : Govt initiatives → Edible oil ki New Scheme (NMEO-OP: 2021-Aug)

 Bossf Agriculture Ministry launched National Mission on Edible Oils – Oil Palm (NMEO-OP)
to make India self-reliant on edible oil production. [EFö ILB ÄéFKZ X™ OF◆I ~ Ç✏ZOÅ◆ aZFZL L |B]
 Centrally Sponsored Scheme = States also required to contribute money.[ ™‰ ñF◆F QF ~©WI ~WZF.]
 With a special focus on the North east region and the Andaman and Nicobar Islands[‡FH ƒ~◆]

40.26.1.1 NMEO-OP Scheme Component-1: (DBT)

 ze oil palm farmers produce Fresh Fruit Bunches (FFBs) from which crude palm oil (CPO) is
extracted by the industry. Govt of India will give a price assurance to the oil palm farmers for
the FFBs. zis will be known as the Viability Price (VP).
 Basically, Farmer will sell the fruits to oil-miller. and if farmer is receiving less money than the
Govt-formula-walla Viability Price (VP) then government will pay Viability Gap (ô) to farmerys
bank account= Direct bene#t transfer (DBT). [H◆ F◆ ñF◆F I ˝jXI~iHL åK X ⌘®HF å HFZ~i ~ kHB aLZL
⌘◆ èXB ◆gF g®I~ H◆ F◆ å HFZ L aÍ EFILX™⌘®HF WXF ◆LwY]
what is the exact formula for CPO adjusted with WPI to VPnnn = NOT IMPORANT.
Don't waste time in such things ityll give very poor cost beneAt because scheme doesnyt have a fancy
name.

40.26.1.2 NMEO-OP Scheme Component-2: (TRAINING)

Farmer will be given subsidy/support for input/seed/training for New cropping techniques e.g. half
moon terrace cultivation, bio fencing (Biofencing= planting lines of trees / shrubs that provide
protection against cattle, wildlife, winds) [ELIYaFbY L |B çø w`DMºF L aYW, HæıÑY s◆ IFBYX]

Conclusion: Presently India imports 98% of its palm oil requirement. Above scheme will greatly
help reducing our import bill, current account deAcit, while creating income and employment
opportunities for farmers and youth. [H◆ F◆ F g ˝KX EFö ILB L ë FI ~ X ◆ZLX™, å HFZ~is◆ ZäWMFZ~i L
|B ◆~ƒwF◆ L çMH◆ aõFZLX™XKK ◆LwF]

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 660
40.27 : FOOD INFLATION → ESSENTIAL COMMODITIES ACT

 Essential Commodities Act 1955 (ECA: ëMश्य MÈ`çG{✏Z X) aims to control the production,
supply and distribution of certain goods considered as essential commodities e.g. foodgrain,
pulses, edible oil, sugar, jute, fertilizers & seed, cattle-fodder, medicines, petrol, diesel, kerosene,
etc. During inóation/shortage: govt can impose stock limits, restrict movement of goods.
 zis was causing some hardship to food processing companies. So Government enacted
Essential Commodities (Amendment) Ordinance/Act, 2020 to help companies. But then
repealed this amendment a\er farmer protests. (…◊ HYXF X™EFö QHi¯◆D i⌘✏Z Fi⌘◆LáFZ g~IY îY. H◆ F◆ ZL
ÄZ j XKK L |B FZàZ X™H`{F◆ å F, BLå Z å HFZ ëiK~BZ L aFK H`{F◆ MF⌘H |B F.)
 More analysis = shi\ed to Mains Handout. #Prelims-RAFTAAR.

MCQ. Why India experienced high food in¶ation in the recent pastf (UPSC-Pre-2011)
1. Due to a gradual switchover to the cultivation of commercial crops, the area under the
cultivation of food grains has steadily decreased in the last Ave years by about 30%.
2. As a consequence of increasing incomes, consumption patterns of the people have undergone a
signiAcant change.
3. ze food supply chain has structural constraints.
Answer Codes: (a) 1 and 2 only (b) 2 and 3 only (c) 1 and 3 only (d) 1, 2, and 3

Which were aúecting price of rice in India in the recent pastf (UPSC-Prelims-2020)
1) MSP 2) Governmentys trading 3) Governmentys stockpiling 4) Consumer subsidies
Codes: (a) 1,2 and 4 only (b) 1,3 and 4 only (c) 2 and 3 only (d) 1,2, 3 and 4

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 661
40.28 AGRO-SELLING→ DEFLATION (2017 ONWARDS)
While agri. Inóation was a recurring nightmare during UPA-Congress raj (2004-14), the Modi-raj
has resulted in food-deóation (fall in the prices) for 3 reasons: (ç⌘✓Ø✏I / KFX~iX™èw◆FM})
1. Demonetization, limits on cash transactions and fear of being tracked by IT/GST authorities →
Traders are less inclined to hoarding → more supply available at market.
2. Protectionism by US/EU & fall of International commodity prices → India's agro exports are
down → More supply available in domestic market.
3. Urjit Patel's hawkish policy helped curbing inóation.(More in Pillar#1A2)

40.28.1 Agro-Selling→ De¶ation → Sugar mills3 problem

- Fair and Remunerative Price (FRP) is the minimum price decided by union govt at which
sugarcane is to be purchased by sugar mills from farmers. ( ™‰ H◆ F◆ ñF◆F ✏Z{FÅ✓◆I kë◆⌘Y M~ âàZIX
KFX g®©WH ⌘◆ YZY èXBXF|B ZLå HFZ HLwPF ‡◆YKZF g~wF)
- Some State govts may announce State Advised Price (SAP) at levels higher than FRP.
- Cane Reservation Area: sugar mills must buy sugarcane from farmers within a speciAed radius.
zis is to protect the sugarcane farmer from cheap sugarcane import from States. (√wPF ë◆NCI
✏MÈF◆d FZY YZY èXB XF|B ZLç⌘ZY JL$◆Y L ΩKÅ-èwKÅ L  ✏Z{FÅ✓◆I ✏MÈF◆ L å HFZ~ HLgY wPF ‡◆YKZF g~wF∆)
- In recent Years, Bumper production of sugarcane in India and Brazil → supply → global
sugar prices → but to keep Indian farmers happy Govt did not reduce FRP. Infact, FRP has
doubled in 10 years. (ÄéFKZ X™aõ~I◆Y ~ ✏M⌫ aFƒF◆ X™á∏◆ L KFX èw◆ w BLå Z å HFZ~i ~ ‡`á ◆ZL L |B
✏⌘vBL10 HFB~iX™OF◆I H◆ F◆ wPL L HXîÅZ Xàï ~ Kwú ZF å F)

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 662
- Mill-ownersy arrears to farmers (i.e. previous payment not cleared yet.) (H◆ F◆ ñF◆F ✏Z{FÅ✓◆I KFX~i⌘◆
YZY/á∏◆ èXBXF|B ~iZLå HFZ~iHLwPF ‡◆YKF g~IF g®BLå Z gFB L M⇣% X™aFƒF◆ X™YZY HÈY g~ w Y BLå Z å HFZ~ ~
E`á ◆EZL L |B H◆ F◆ wPL L KFX aõFIY ◆gY, ΩH|B YZY/á∏◆ èXB-XF|B å HFZ~ F a F F ⌘®HF ` F Zåg ⌘F ◆gL)

∞en govt doing following to help the sugar mill owners, in following ways:
- So\ loan / cheap loans to sugar mill owners in the arrears to farmers.
- Finance Ministry imposed 100% customs duty on imported sugar & 0% custom duty on export
of sugar to help Indian sugar mills.(ë F✏II YZY ⌘◆ 100% HYXF á`‹, ✏Z FÅI YZY ⌘◆ 0% HYXF á`‹)
- Subsidy to sugar exporters

40.28.2 Agro-Selling→ De¶ation → Sugar Subsidy & WTO order

2019: Australia, Brazil and Guatemala complained to WTO that
- Indian Govtys subsidies/so\-loans/tari¿ barriers to sugar sector led to excess supply & "reduced"
global prices so their local industry is hurt. (OF◆I H◆ F◆ ñF◆F wPF-YZY Äö~w ~ HæıÑY s◆ ◆F{FZ ñF◆F W~
Q~↵FgZ åK F w F g®ÄHHL✏M⌫ aFƒF◆ X™YZY L KFX èw◆ w gÍs◆ &FƒYB, ⌘…£L|B F, 'F}LXFBF L YZY Äö~w ~ Z` HFZ
»ë g® HY Ná F I Ä‚~iZL✏M⌫ ÆF⌘F◆ HiwüZ X™ j wo g®)
- While WTOys Agreement on agriculture (AoA)ys √Peace-Claused allows Indian govt to give
food-subsidies (More in Pillar#3B: WTO) but such exemption is meant for «food securityy of
its own Indians. But sugar export subsides/taxation is going beyond the scope of food-security.
(gFBFœå áFi✏I-{F◆F L çiIwÅI OF◆I H◆ F◆ ~ ✏M⌫ ÆF⌘F◆ HiwüZ ZLçi{Fœ{àZ EFö HæıÑY KLZL j và} KY îY, BLå Z M~ và}
GHkÅ OF◆IY B~w~i j EFö H`◆CF L |B îY∆ YZY ✏Z FÅI ⌘◆ OF◆I L KX, ÄH và} L KF ◆L HLaFg◆ g®)
- 2021: WTO ordered Indian govt to stop its sugar subsidies. Indian Commerce ministry said that
WTO judgement is √completely unacceptabled to India, and weyll appeal against it. (✏M⌫ ÆF⌘F◆
HiwüZ ZLOF◆I ~ ç⌘ZY YZY-HæıÑY aiK ◆ZL F ëKLá åK F g®∆ gFBFœå OF◆I H◆ F◆ ΩH L fl‡BFk ç⌘YB X™WFwY∆)

40.29 AGRICULTURE PRODUCTION & PROCESSING → OTHER SCHEMES

40.29.1 Agriculture Infrastructure Fund (2020-Jul)
 Bossf Ministry of Agriculture. ( ✏⇣ Xi¥FB j ✏⇣ çMHi◆ZF ✏ZG{)
 Typef Central Sector Scheme (=States not req. to give money.)
 Bene#ciaryf Farmers, Agriculture Cooperative Societies, Farmer Producers Organizations
(FPOs), Self Help Group (SHG), Agri-startups, Public Private Partnership (PPP) projects etc.
 Banks and NBFCs will loan them total ∫1 lakh cr. (10k cr this + 30k cr each in next 3 years) =
total 1 lakh cr. NABARD may provide them with reAnance. (Ref#1D)
 Loan will be given forf
o Post-harvest Management Infrastructure (Warehouse, cold storage, etc. }Fo L aFK OiÑF◆D
L |B a`✏Z FKY (FiF)
o Community Farming Assets (HFXK̀F) ELIY j ⌘✓◆Hi⌘–º Fi)

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 663
 Loan durationf Medium to long term loans.(How many years exactlyn Ans. not clearly
mentioned. (XX HLBiaY çMG{ L ãD)
 Loan Interestf To be decided by individual bank/NBFC.
 Loan Interest Subventionf 3% by Government ("FW X™HæıÑY/XKK)
 Loan Defaultf = upto ∫2 cr credit guarantee by Credit Guarantee Fund Trust for Micro and
Small Enterprises (CGTMSE: Ref1D)
 Scheme Valid for next ten years, starting from 2020

40.29.2 Bharat Campaign under Agriculture Infrastructure Fund

• Agri ministryys campaign / competition / training program for bankers.
• To ensure bankers give maximum loans and awareness generation for Agriculture
Infrastructure Fund scheme.
BHARAT = Banks Heralding Accelerated Rural & Agriculture Transformation (full form not imp)

40.29.3 Ghar Ghar KCC (2023)

• Awareness drive to give Kisan Credit Card (KCC) to every eligible farmer across India-
including Ash-farmers and dairy farmers. (REF Pillar1D3 for more on KCC)
• Bossn Ministry of Agriculture with help of RBI, NABARD, Bankers
40.29.4 Agro Produ. & Processing → Farmer Producer Company (FPC)
 Western economists had predicted that small farms will eventually cease to exist as big farmers
will buy their land, but that hasnyt happened in India. So, Government decided better to enable
small farmers to setup company & combine their landholdings.
 2003: Companies Act, 1956 was amended to allow new type of company- FPC.
 FPC is a hybrid between a private limited company (=professional management) and a
cooperative society (mutual beneAts without excessive weightage to who contributed how much
land / share capital.)
 FPC can be setup by minimum 10 farmers (no upper limit). However, FPC is not allowed to
become a Public Ltd. company i.e. they canyt invite public at large to invest in their shares/bonds.
 Agro ministry gives them Anancial support, credit guarantee for bank loans.
40.29.5 Agro Production & Processing → RKVY & RAFTAAR (2017)
 Bossn Agro Ministry. Core Scheme = not 100% funded by Union.
 Rashtriya Krishi Vikas Yojana (RKVY) started during UPA/Congress (2007).
 2017: Modi renamed and rebranded it to RKVY-RAFTAAR i.e. Remunerative Approaches for
Agriculture and Allied sector Rejuvenation.
 It provides funding for Infrastructure creation (warehouse, cold storage, market facility etc.);
training & skill development (Mushroom cultivation, beekeeping, aromatic plant cultivation,
óoriculture) and Anancial support to farmers to start agri-enterprise a\er getting the training.

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 664
40.29.6 Agro Prod. & Processing → Green Revolution - Krishonnati Yojana
- Bossf Agro Ministry. Core scheme= not 100% paid by Union.
- 2017: Modi made this umbrella scheme (vI◆Y ~WZF) by combining previous 11 Congressi
Schemes viz.
1. Mission for Integrated Development of Horticulture (MIDH:aFwaFZY  j I ✏M FH): Bee keeping
also promoted in it. One of MIDH sub-mission is «Coordinated Programme on Horticulture
Assessment and Management using «geo-informaticsy (Project CHAMAN) to use space
technology / remote sensing data to assess the horticulture production & diseases in India. 2018:
Phase-II of Chaman launched.
2. National Food Security Mission (NFSM) to increase production of rice, wheat, pulses, millets
(coarse cereals) and commercial crops & restore soil fertility.
a. 2018 declared as √National Year of Milletsd. Further, UN & FAO accepted Indiays
proposal to celebrate 2023 as International Year of Millets (çiI◆FÅ*}£Y aFW◆F M⇣Å). Because,
millets are tolerant to drought, climate change, photo insensitive; need less water,
provide nutritious elements in poor familiesy diet. So, Govt create two sub-missions.
i. NFSM on Makka and Jau.
ii. NFSM on Nutri-Cereals (⌘ä✏¢ çZFW) - Jowar, Bajra, Ragi and little millets like
Kutki, Kodo, Sawa, Kangni and Cheena.
b. NFSM has another sub-mission: National Mission on Oilseeds and Oil Palm (NMOOP:
✏IBgZ s◆ ILB ⌘FX) to augment the availability of vegetable oils and to reduce the import of
edible oils. Associated term: Yellow Revolution.
3. National Mission for Sustainable Agriculture (NMSA: ØF Y / HII ✏⇣ L |B ◆F¢Y£ èXáZ) to
encourage organic manures, bio fertilizers, cropping practices for soil and moisture conservation
measures; Rainfed Area Development (RAD) programme.
a. Subscheme: National Bamboo Mission (NBM) to augment the income of farmers.
Further, Indian Forest Act, 1927 was amended to exclude bamboo from the deAnition of
«treesy. zis will encourage bamboo grown outside forest area without interference from
Forest Department.
4. Sub-mission on Agriculture Extension (SMAE: ✏⇣ ✏MtIF◆ ⌘◆ Ä⌘ èXáZ): farmers training & skill
development with more use of electronic / print media, mobile apps and ICT tools, etc.
5. National e-Governance Plan on Agriculture (NeGP-A: ◆F*}£Y o-wMZ+H): to enhance reach of
extension services- about cropping methods, market prices etc. to the farmers.
6. Sub-Mission on Seeds and Planting Material (SMSP: aYW IîF ⌘ä{ ◆~⌘D HFX÷Y): to promote new
technologies in seed production, processing, storage, certiAcation and quality etc.
7. Sub-Mission on Agricultural Mechanisation (SMAM: ✏⇣ XáYZY ◆D ⌘◆ Ä⌘èXáZ): To increase the
availability of farm machines to small and marginal farmers. e.g. «Custom Hiring Centresy where

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 665
 they can rent the machines without spending money on individual ownership. encourage R&D
for small-sized machineries for small landholdings, hill-areas etc.
8. Sub Mission on Plant Protection and Plan Quarantine (SMPPQ: ⌘ä{ Hi◆CD s◆ ⌘ä{~i L çBwFM ⌘◆
Ä⌘èXáZ ): To minimize the damage by insect pests, diseases, weeds, rodents, etc. and to shield our
agricultural biosecurity from alien species.
9. Integrated Scheme on Agriculture Census, Economics and Statistics (ISACES: ✏⇣ wDZF, çîÅ, Mt
îFi IîF HFi—- j ⌘◆  j I ~WZF): For data collection which can be used for R&D and policy making.
10. Integrated Scheme on Agricultural Cooperation (ISAC: ✏⇣ Hg ~w): Give Anancial assistance for
farmers' cooperatives for agricultural marketing, processing, storage etc.
11. Integrated Scheme on Agricultural Marketing (ISAM: ✏⇣ ✏M⌘DZ): To develop online and o⁄ine
agricultural marketing infrastructure.
<HomeworkE ARer Prelims, self-study their features in a more comprehensive manner from Yojana-
Kurukshetra magazines, because UPSC is in habit of asking about random obscure agro. schemes in
the mains exam. E.g. horticulture mission.>

40.29.7 Agro Production & Processing → PM Kisan Sampada Yojana

 Bossn Food Processing Ministry. Central Sector Scheme. 100% funded by Union.
 Modiys PMKSY (Q{FZ Xi¥Y å HFZ H˛KF ~WZF) is an umbrella scheme incorporating previous
Congressi schemes like Mega Food Parks, Integrated Cold Chain, modernization of reefer vans
etc. Basically, funding is given to setup food processing infrastructure / parks / collection centres.
E.g. Patanjali Food and Herbal Park at Haridwar, Uttarakhand.
 Budget-2018 launched a new sub-scheme under PM Kisan Sampada Yojana called √Operation
Greensà for T-O-P: Tomato, Onion and Potato to improve infra for their storage & transport →
round the year availability of T-O-P @a¿ordable prices.
40.29.8 Atma-Nirbhar: àOp Greenà expanded to all fruits & veggies

 Food Processing Ministry → PM Kisan Sampada Yojana → sub scheme called Operation
Greens for T-O-P: Tomato, Onion and Potato
 2020: Corona → ATMANIRBHAR= now weyll expand from T-O-P to ALL fruits and
vegetables. Ityll provide
o 50% subsidy on transportation from surplus area to deAcient area. (©WZ ✏MÈF◆~X™✏M⌘`B
ÄéFKZ/ë⌘àÏI g®MgFiHL XY/IiwY MFBLaFWF◆~iX™XFB ⌘»iF F WF)
o Long term subsidy on storage infrastructure. (OiÑF◆D L |B a`✏Z FKY (FiF)
 Bene#tf reduced food wastage, Better prices for farmers, a¿ordable food for consumers
(ç⌘Æ /aaFÅKY, å HFZ ~ aLgI◆ jXI, ÷Fg ~ å JF IY KFX)

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 666
40.29.9 Atma-Nirbhar: Food Enterprises promotion (NOµ òµciÅ⌫i x∏OXO)
 Scheme: Prime Minister-Formalization of Micro Food Processing Enterprises (PM-FME):
 Existing (unorganized sector) micro food enterprises, Farmer Producer Organisations, Self Help
Groups and Cooperatives
 will be given funding, training, support for brand Building,marketing . (çHiwåüI CL¥ L B_`EF
ÄöX~i ~ ✏Mº ⌘~⇣D, QNáCD, HXîÅZ)
 Help them comply with Food Safety Standards, (EFö H`◆CF XFZ )
 Cluster based approach of development e.g. Mango in UP, Kesar in J&K, Bamboo shoots in
North-East, Chilli in Andhra Pradesh, Tapioca in Tamil Nadu etc. → Export (HXàga.{ ◆ L
✏M FH, ✏Z FÅI XLaõ~I◆Y)
Separately, herbal cultivation of medicinal plant, beekeeping will be encouraged (s⇣{Y ⌘ä{Ls◆
X{X̀†Y ⌘FBZ ~ Q~↵FgZ)

MCQ. which of the following can be considered as public investment in agriculturef (Prelims-2020)
1) Fixing Minimum Support Price for agriculture produce of all crops
2) Computerization of Primary Agriculture Credit Societies
3) Social Capital development
4) Free electricity supply of farmers
5) Waiver of agriculture loans by the banking system
6) Setting up of cold storage facilities by the governments
Codes: (a) 1, 2 and 5 only (b) 1, 3, 4 and 5 only (c) 2, 3 and 6 only (d) 1, 2, 3, 4, 5 and 6

40.30 FOOD PROCESSING INDUSTRIES FOR GSM3

Shi\ed to Mains. #Prelims-RAFTAAR

40.31 SECTORS → AGRO ALLIED: → ANIMAL HUSBANDRY ( ûw OKe)

- Agricultureys allied sectors include Animal Husbandry, Dairying, Fisheries & aquaculture, forestry
& logging ( LHa ✏⇣ HiB≥ CL¥ g®)

- ze dairy sector employing more than 8 crore farmers directly

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 667
-- Agri3s DPSP-Article 48: requires the State to organise animal husbandry on modern and
&
scientiAc lines, preserving and improving breeds, and prohibiting the slaughter of cows and
other cattle.
④- -
India3s #1 milk producer, #3 egg producer and #8 meat producer- says ES23.
- Per capita availability of milk and eggs has steadily
---
in recent years, says ES22

Above graph also gives a hint of why there is malnutrition in some states.

40.31.1 Livestock Census ( ûwîe ⌫t beêMeO)

- Department of Animal Husbandry conducts livestock Census every 5 year since 1919-20.
- ze 20th Livestock Census: data collection started in 2018-Oct. data released in 2019.
- India has the world's largest livestock population -
Category Census- % growth / Internal Distribution:
(Largest to 2018-19 fall to More imp for StatePCS Exam than IAS exam
Smallest) (in previous
million) census
Cattle 192.49 0.8%  WB>UP>MP>BH>MH
 Female Pop>Males.
 Indigenous Population is more than
Crossbred/Exotic Pop.
 In-Milk giving population greater than Dry
Population
Goat 148.88 10.1% RJ>WB>UP>BH>MP

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 668
 Category Census- % growth / Internal Distribution:
(Largest to 2018-19 fall to More imp for StatePCS Exam than IAS exam
Smallest) (in previous
million) census
Bu¿alo 109.85 1.1% UP>RJ>Guj>MP>Bihar
Sheep 74.26 14.1% Telangana>Andhra>Kar>RJ>TN
Pig 9.06 -12.0% Assam>JH>Megha>WB>Chhattisgarh
Mithun 0.38 26.7% Itys a Bu¿alo like animal found in Northeast
Only 4 States: Arunanchal>Naga>Mani>Mizo
Horses & 0.34 -46.0% UP>JK>RJ>BH>Guj
Ponies
Camel 0.25 -37.5% Only 4 States: RJ>Guj>Haryana>UP
Donkey 0.12 -62.5% RJ>MH>UP>Guj>BH
Mule 0.08 -60.0% info not available in Census document
Yak 0.06 -25.0% Only 5 States: J&K>Arunanchal>Sikkim>HP>WB
Total 535.78 4.6% Top 5-States: UP>Raj>MP>W.Bengal>Bihar
(Mammal)
Livestock
Separately
Poultry 851.81 16.8% Top 5-States: TN>Andhra>Telengana>WB>MH
40.31.2 Agro Allied: Animal husbandry → White Revolution
- India ranks Arst in milk production, accounting for 20 percent of world production.
- 1970-1996: Operation Flood in 3 phases, to setup dairy farmersy cooperatives → increase milk
production in India.
- A\erwards, milk production in India has been increasing steadily.
- All India per capita availability of milk is 375 grams per day, it varies between 71 grams per day
in Assam to 1120 grams per day in Punjab.
- White Revolution Scheme Bossf Department of Animal Husbandry & Dairying.
- Core Scheme = Not 100% Funded by Union.
- It is an Umbrella scheme covering many Congressi schemes like Dairy Entrepreneurship
Development, Livestock Census, National Livestock Mission, fodder & vaccination etc.
- Notable parts of White revolution are →
Table 2: by default, Animal husbandry ministry responsible for this ④
Pashudhan - Animal Wellness Programme with emergency helpline
Sanjivani - Farmers given Nakul Swasthya Patra: An Animal Health card with UID
identiAcation number of each animal registered in a National Database.
e-Pashudhan Online portal for connecting farmers with breeders of indigenous bovine
Haat portal breeds for bulls, artiAcial insemination etc. ( è¥X wOFÅ{FZ)
E-Gopala App National Dairy Development Board's (NDDB) App to give info on cattle care,
(2020-Sept) health and diet. Later, Animal's separate Unique IdentiAcation number

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 669
 (UID/Aadhar) numbers to be added in e-GOPALA app to make it easier for
cattle owners to buy and sell animals. (XMLNá ~i j ✏ahj g~wY ëHFZ )
Gopal Ratna To farmers who adopt 100% ArtiAcial insemination method.
Award
Rashtriya Gokul - Indigenous bovine breeds (ÇKLáY w~WFIY Z/)- conserve them & increase
mission their population. E.g. Gir, Sahiwal, Rathi, Deoni, zarparkar, Red Sindhi.
- State govts are given money for establishing Gokul Gram breeding &
disease treatment centres.
National For development and conservation of indigenous breeds in a scientiAc
Kamdhenu manner. Two centres: 1) Itarsi near Hoshangabad in M.P. 2) Chintaladevi
breeding centre near Nellore in Andhra GK-NOTIMP.
Rashtriya Int-Budget-2019 setup this executive body in Department of Animal
Kamdhenu Aayog Husbandry & Dairying. Goalsf
2019 - Genetic up-gradation of cow resources
- Enhance cow productivity through research in organic manure, biogas
etc; Cow welfare, cow protection laws.
Structure:
- Chairman with tenure of 2 years.
- Members from govt, research institutions, social workers etc their tenure
depends on govtys discretion.. HQ: New Delhi.
Budget-2020  Weyll eliminate following disease by 2025:
o Cattle: Foot and Mouth disease, Brucellosis
o sheep and goat: Peste Des Petits Ruminants (PPR)
 Weyll use MNREGA workers to develop fodder farms.
Dairy Sahakar dairy sector to get loans through National Cooperative Development
2021 Corporation (NCDC).
Challenge in dairy sectorf
1. Post-2017: Excess supply of milk in global market → crash in milk prices. So, Indian private
dairy owners also cut down their procurement prices, resulting in dairy farmersy distress &
agitations. So, farmers spilling milk on highways in protest. (ç˜FG{ ë⌘àÏI → KFX~iX™èw◆FM})
2. As animal gets old & stops giving milk → farmers sell it to slaughter house to get money to buy
new animals. But, this trade becoming diªcult due to present socio-political atmosphere → even
leather-industry also su¿ering. (MIÅXFZ HFXF©W -◆FWZY✏I XFg~B X™aàõL⌘á`¡ i ~ ˝0EFZLX™aLZLX™å HFZ ~
åK1I, ©WHHLå XbF Ä{ ~w X™OY HXêF)
3. RCEP Agreement Angle. Ref- Handout: Pillar-3B
4. Corona-2020: in milk demand due to lockdown, tea-shops, sweet shops, ice cream parlours,
restaurants, hotel etc shutdown → private dairies stopped milk procurement from the farmers
→ farmers started selling to milk cooperative dairies but theyyre unable to pay money because

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 670
 Cow welfare cess ka matalab hota hai ek prakar ka
kar ya cess jo gaayon ki kalyankari yojnaon ke liye
slow business. (B◊ ÑFÄZlagaya
L BIL✏ZWYjata hai.~ZLåYeh
ÑL ◆Y-XF|B HFZ~iHLkar aam
K∞{ E◆YKZF å F taur
aiK I~ å par
HFZ Hg gaayon
F◆Y K∞{ XiÑ|B ~iki
X™
dekhbhal,
µFKF K∞{ O◆MFZLBwLå iI`MgFœ⌘◆ OY {i{F XiKF g®) poshan aur unki suraksha ke uddeshya
5. 2022: Fodder Shortagese lagaya
/ inóation → milk jata hai.
prices inóation.
40.31.3 Cow (welfare) Cess
Punjab was the 1st State start to levy Cow (Welfare) Cess on sale of liquor, electricity etc. Later on
Chandigarh, Uttar Pradesh, Rajasthan also started collecting it.

40.31.4 : ES2019 suggests focus on Small Ruminants

Figure 1: TU VW Day#1 XYMains Answer Writing Z[VY\Y!

Sheep and goat are collectively known as small ruminants (bwêOKd ⌫ eUXOKUñióUbOeX )
 zese small ruminants have higher survival rates under drought conditions compared to bovines
(ê-bORd ûw: Cattle, Bu¿alo, Mithun and Yak).
 zey can even live on shrubs and trees. zeir reproduction rates are higher than large ruminants.
Farmers/producers can sell them more frequently & no fear of «cow-vigilantismy. (wä-◆CF L |B
ZFw✓◆ ~iñF◆F FZàZ ~ gFî X™BLZF)
 zus, small ruminants can help income of the small-marginal & women farmers. (v~}LHYXFiI
s◆ XågBF å HFZ~i j ë X™aõ~I◆Y)

40.31.5 Atma-Nirbhar: Dairy cooperatives (TΩ

º OK Qm⌫O d Qqc⇡R OÅ)
 Corona lockdown = milk sales .
 Government to give 2% loan interest subvention to dairy cooperatives for working capital
requirement (i.e. purchase of raw material, electricity bill etc) + If they regularly repay loans then
additional 2% = total 4% interest subvention ("FW XL◆FgI).
 Dairy Processing and Infrastructure Development Fund (DIDF) to give 2.5% interest subsidy
for setting up new milk processing/chilling facilities.
 National Animal disease control → 100% vaccination of domestic animals against Foot and
Mouth Disease (FMD) and for brucellosis. (⌘á`¡ i F }Y F ◆D)
 Animal Husbandry Infrastructure Development Fund (⌘á`⌘FBZ j a`✏Z FKY çMHi◆ZF ✏M FH ✏ZG{) →
3% loan interest subsidy & 25% loan credit guarantee etc.

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 671
 40.31.6 Agro Allied: Fisheries → Blue revolution (cæ → edKd äOÅ⇡R)
(Introduction) India is the second largest Ash producer in the world. Majority of our production
comes from inland Asheries sector. It provides employment, income, export earning, nutrition and
food security to a large population (more than 25 million Indians). Frozen shrimp is Indiays largest
-

exported seafood item.

?
-
-

?
- Blue Revolution Bossn Dept of Fisheries. zis is also a core scheme.
- Government gives money for modernization of boats, marketing & cold storage infrastructure.
National scheme for welfare of Ashermen which gives money for construction of houses, tube
wells for drinking water etc. Promote Inland Asheries, aquaculture & pisciculture i.e. raising Ash
in artiAcial tanks/ ponds.

O- Budget-2019: Dept of Fisheries to launch Pradhan Mantri Matsya Sampada Yojana

(PMMSY) for infrastructure, post-harvest management, quality control etc.
- Budget-2020:

⑭
- øSagar mitrasà: these extension workers to advise Ashermen with processing and
marketing. Xv`ë◆~i ~ QH¯◆D-s◆ ✏M⌘DZ IFBYX KLZL L |B HFw◆-èX¥
- Target to raise Ashery export to ∫1 lakh crore by 2024-25.
- Weyll promote growing algae, sea-weed and Cage Culture (growing of Cshes in existing
water resources in a net cage which allows free ^ow of water.)
- Budget-2021: 5 major Ashing harbours – Kochi, Chennai, Visakhapatnam, Paradip, and
Petuaghat (W.Bengal) – will be developed further (XvBY ⌘ bZL L aiK◆wFg çG{ ✏M GHI å  WFiwL)
④- Mariculture = cultivation of marine organisms in their natural environment in sea upto 12
nautical miles from coast. Just like Agriculture, this is also a State-list subject. 2018: Agro
Ministry announced Dra\ National Policy on Mariculture which encourages State Govts to lease
the sea area to private entities & even farming of genetically modiAed species in enclosed / caged
marine spaces. # î~bF-⌘õ~-ëwL-aõ~

40.31.7 Pradhan Mantri Matsya Sampada Yojana (2020)

 Originally announced in Budget 2019. but was not launched in that Anancial year. zen Corona
→ Atma-Nirbhar 2020-May/Jun → yes we'll launch it.
 Bossf Ministry of Fisheries, Animal Husbandry & Dairying
 Typef It's an umbrella scheme worth >20kcr. Made up of two sub-schemes/parts:
o 1) Sub-scheme #1: Central Sector Scheme (=state not req to give money)

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 672
 o 2) Sub-scheme #2: Centrally Sponsored Scheme (=States required to give money.)
∞is scheme provides Support / Funding / Subsidies for
 Sagar Mitra youth extension workers: zey'll give training to Ashermen.
 $Fishing Boat/Vessels → Loans interest subsidy and Insurance premium subsidies (ZFM/⌘~I
L |B ãD L "FW s◆ aYXF å È X™HæıÑY)
 Inland Aquaculture, Coldwater Fisheries in Himalayan areas, (çiIK✏áY , áYI WB Xû)

 Seaweed cultivation, Ornamental Fisheries (HX‰̀Y á®MFB j ELIY, HWFM}Y XvBY)

 Mariculture: cultivation of marine organisms in their natural environment in sea upto 12
nautical miles from coast.
 Development of Ashing harbours, Post harvest infrastructure, transport, marketing support (
aiK◆wFg, a`✏Z FKY çMHi◆ZF, ⌘✓◆MgZ, ✏M⌘DZ HgF IF)
 Quality control labs so we can comply with US/EU's health/hygiene, sanitary and phyto-
sanitary (SPS) standards. (w`DMºF ✏Z i¥D Q ~wáFBFi, IFå ç⌘ZF Xû ÄéFK ✏MKLá~iX™ÇFÉ/ÇøIF HiaiG{I
XFZ ~i⌘◆ EF✓◆W ZF g~ WF)
 Scheme Valid for next Ave years, starting from 2020
 Outcomef 55 lakhs direct and indirect jobs, ∫1 lakh cr Asheries export by 2025.
Conclusionf Fisheries and aquaculture are an important source of food, nutrition, employment
and exports in India. Govt has taken an appreciable step to boost this sector further. (O~WZ, ⌘~⇣D,
◆~WwF◆ s◆ ✏Z FÅI j aõ~I◆Y L |B Xg’⌘àDÅΩH Xû CL¥ ~, s◆ aõFMF KLZL L |B H◆ F◆ ZL,  H◆FgZY KX ÄüF F g®∆)

40.31.8 Shaphari certi#cation for aquaculture exports (MPEDA, 2021)

«Shaphariy= Sanksrit for superior quality of Ashery products suitable for human consumption.

 2021: Marine Products Exports Development Authority (MPEDA, a statutory body under
Commerce Ministry) has developed a Shaphari certiAcation scheme for aquaculture (e.g. Ash,
shrimp etc), based on United Nationsy Food and Agriculture Organizationys technical guidelines.
 If an Indian aquaculture farmer/company gets this certiAcate = means his shrimp/Ash etc. are
free of harmful chemicals/pesticides/antibiotics. (QXFD⌘¥ j XvBY-ËYiwF X™Wg◆YBL◆HF Z ZgYi)

40.31.9 Sweet Revolution (Honey / Beekeeping) cd∂d äOÅ⇡R, ûmT, cîwc¿d OKe
 2017: 'Honey Mission' was launched by Khadi and Village Industries Commission (KVIC, a
statutory body under MSME Ministry). PM Modi termed it «Sweet revolutiony. (ágK)
 2020: Agri ministry launched National Beekeeping & Honey Mission (NBHM)
 Honey provides income from selling honey to food processing industry, beeswax in chemical
industry, bee-venom to pharma industry etc.

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 673
 40.31.10 Other revolutions:
#Ratte
⑭ Color / Åê
øPink
Objective / ò¡U¬
for meat and poultry industry, under Ministry of food processing. Some
Revolutionà experts say it is also related with the Ash/prawn/shrimp
Yellow revolution oilseed
Silver revolution egg / Cotton / Fibre
Golden revolution Fruits / Honey Production / Horticulture / Jute.
Indian government planned to boost the production of petroleum by mixing
Black revolution
bioethanol with petrol and biodiesel with diesel.
Evergreen increasing in productivity using technology BUT without harming
revolution environment. Concept given by M S. Swaminathan
Orange Revolution Ukraine protests about corruption, democracy (2004)
Tulip Revolution Kyrgyzstan corruption, democracy (2005)
Jasmin Revolution Tunisia about corruption, democracy (2010)
MCQ. Find correct pairs of revolution in agriculturef (CDS-2023-ii)
1) Pink revolution : Shrimp production 2) Yellow revolution: Oilseeds production
3) Black revolution : Biodiesel production 4) Golden revolution: Egg production
Codes: (a) 1, 2 and 3 (b) 2 and 3 only (c) 1 and 3 only (d) 2 and 4 only

40.32 AGRICULTURE → RESEARCH & EDUCATION, EXTENSION SERVICES

40.32.1 Org: ICAR

 Indian Council of Agricultural Research (1929) is the apex autonomous body of agricultural
research, education and extension under the ministry of agriculture.
 ICAR operates through 690 + Krishi Vigyan Kendra which provide last Mile connectivity to
farmers and help them adopt the latest cropping technologies.
 Further details on agri-extension services = SHIFTED To Mains Handout. #Prelims-RAFTAAR

40.32.2 Agri Census

• 1970: Started Agriculture Census in India as part of FAOys World Census of Agriculture.
• Nodaln Agricultural Ministry, but data collection done by National Sample Survey Oªce

atte (NSSO) under Ministry of Statistics and Programme Implementation (MOSPI) ⑭

• Duration: quinquennially = every 5–5 years from 1970. However, 2020 delayed by Corona.
So, Agri-Census 2021–22 (phase-1) may be completed by 2023-December.
-
(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 674
40.32.3 Agriculture year versus Financial Year
Financial year Agriculture year
1/April to 31/March 1/July to 30/June
For Taxation, accounting purpose For agriculture census / survey / data collection

40.32.4 Digital Crop Survey system

BEFORE From 2024-July
Crop survey conducted manually with pen and paper resulting into delays and will use GPS enabled
errors. (HM✏CD F˚ƒ s◆ ⌘LZ HLå F WFIF îF ΩH|B wB✏I ~i F çM Fá „FKF∆) mobile apps.
Guidelines/manual released by Agriculture ministry → Economics, Statistics and Evaluation
Division (ESED)
FAQ: what is survey vs censusf
• Census = data collection of entire population/area. (WZwDZF)
• Survey = e.g. suppose only 10% of entire population/area sample taken.(HM✏CD)

40.33 AGRI EXTENSION: NOTABLE APP / PORTALS - TRUCKLOAD OF

Note: some of the older apps / portals like MKisan / Kisan Suvidha etc = i've shi\ed to Mains HDT.

40.33.1 WINDS Portal (2023)

• Weather Information Network Data Systems (WINDS) portal.
• For weather data analytics related to agri for disaster management, crop insurance et cetera.
• Bossn Agri ministry with help of Ministery of Earth Sciences.

40.33.2 Kisan Rin Portal (2023)

• A portal for farmer loan data, interest subvention etc. (Ref: Pillar#1D3 on farm loans)
• Bossn Agri ministry with help of Anance ministry, RBI, NABARD etc.

40.33.3 UPAg Portal for Agri statistics

• UPAg = UniAed Portal for Agricultural Statistics.
• Bossn Agri ministry - for data relate to crop area under cultivation, yield per hectare, prices,
import-export etc.

40.33.4 Meri Fasal-Mera Byora Portal (2023)

• By Haryana Government - to procure 14 crops @MSP price viz. wheat, mustard, barley,
gram, paddy, maize, bajra, cotton, sunóower, moong, groundnut, tur, urad and sesame.
• Haryana has become the Arst state in India to do so.

40.33.5 NBSS BHOOMI Portal

• Webportal showing agro-ecological region of India. by National Bureau of Soil Survey and
Land Use Planning (NBSS&LUP)- it is a body under ICAR

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 675
40.34 GLOBAL COOP: FOOD AND AGRICULTURE ORGANISATION (FAO)
- EFö s◆ ✏⇣ HiwüZ is a specialized agency of UN, setup in 1945 with HQ @Rome, Italy.
- It publishes Food Price Index (FPI) to monitor inóation. zis index focuses on Ave commodity
groups namely - cereals, oilseeds, dairy products, meat and sugar (EFö XgiwFo Hà Fi aZFIF g®)
- FAO started celebrating international milk day on June 1 since 2001. Now 20th World Milk Day
2021 with the theme 'Sustainability in the dairy sector.y çiI◆◆F¢£Y K∞{ åKMH g◆ HFB WàZ X™XZF F WFIF g®

40.34.1 " International Year for Millets (2023)

 United Nations General Assembly, in its 75th session during March 2021, declared 2023 the
International Year of Millets (IYM)
 Indiays millet production accounts for 80% of Asia and 20% of global production.
GLOBAL INDIA
Avg. Yield (kg/ha) 1229 1239
zus, Indiays yield is higher than Global.

 In India, millets are primarily a Kharif crop mostly grown in rainfed conditions
 requiring less water and agricultural inputs than other staple crops.
 Government notiAed Millets as Nutri-cereals in April 2018. Under the National Food Security
Mission (NFSM), millets have been introduced to provide nutritional support.
 Budget-2023: we grow several types of «Shree Annay such as kuttu, ramdana, kangni, kutki,
kodo, cheena, and sama. weyll give the funding to Indian Institute of Millet Research, Hyderabad.
It is an org. under under Indian Council of Agricultural Research (ICAR).

MCQ. Find correct about millets: (CAPF-2023)

1. Millets are o\en referred to as climate-resilient crops because they can grow on arid lands with
minimal inputs and maintenance.
2. Millets are a good source of minerals, dietary Abre, antioxidants and protein.
3. Millets, including sorghum, account for less than 3% of the global grains trade.
Codes: (a) 1 and 2 only (b) 1 and 3 only (c) 2 and 3 only (d) 1, 2 and 3

40.34.2 " MILLETS: MAHARISHI

- Millet and other Ancient Grains International Research Initiative (MAHARISHI)
- At G20 Summit-2023 → meeting of agricultural chief scientists (MACS)
- HQ: Indian Institute of Millets Research (IIMR) in Hyderabad
- for research-development, awareness-generation etc.

40.34.3 " MIIRA for global Millet R&D (2023)

 «Millet International Initiative for Research and Awarenessy.

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 676
 India wants to launch this with help of G20 nations, for global coop in millet R&D. Details yet to
be worked out.

40.34.4 1st Global Symposium on Farmers' Rights (2023)

- Venue: New Delhi. - Organizer: FAO and Indian agri ministry.
- Aim: Protect farmersy rights against seed companies (e.g Pepsi-Potato).

40.34.5 Global Cooperation: International Years by United Nations (UN)

2024 Camelids (group of Camel species)
2023 Millets – so Budget-2022 also announced that weyll promote millet food processing
2022 Artisanal Fisheries and Aquaculture
2021 1) Creative Economy for Sustainable Development 2) FAO Year of Fruits & Vegetables
2020 Plant Health

40.34.6 Global Cooperation: International Decades by UN (ìÅR OÖ√ƒd Tû⌫)

2018–2028 International Decade "Water for Sustainable Development"
2019–2029 1) Nelson Mandela Decade of Peace 2) United Nations Decade of Family Farming
2021–2030 United Nations Decade on Ecosystem Restoration
2021–2030 International Decade of Ocean Science for Sustainable Development
40.34.7 Global Coop: Misc. → SAARC Food Bank (2007)
 2007: South Asian Association for Regional Cooperation (SAARC) countries signed the
agreement to establish the SAARC Food Bank.
 ze Food Bank will help member nationsy people in case of emergencies.
 Each member country is required to contribute either wheat/rice.
 Stock is kept with respective Govt agencies like FCI. So, Bank doesnyt hv a HQ as such.
40.34.8 Global Coop: Misc. → International Grains Council (London)
 HQ: London, for cooperation in wheat and coarse grain matters.
 IGC has two types of members— importing and exporting members. India has been included in
the category of exporting member since 2003
40.34.9 Global Coop: Misc. → AMIS (2011, HQ@Rome,Italy)
• 2011: Agricultural Market Information System (AMIS) setup in Rome (Italy).
• AMIS tracks the food prices and coordinates with FAO, OECD, World Bank etc to ensure
global food supply.
• 2023-G20 summit @Delhi observed that fertiliser prices also increased a\er Russia-Ukraine
war so, we will use the AIMS mechanism to Ax this.
40.34.10 Global Coop: Misc. → IRRI (1960, HQ@Los Baños,Philippines)
• International Rice Research Institute (IRRI) aims to reduce poverty and hunger through rice
science.

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 677
 • Funding by Ford and Rockefeller foundations, & Philippine government.

40.35 GLOBAL AWARDS RELATED TO AGRO

WORLD  Award given by the World food Foundation (Founder- Dr. Norman E.
FOOD PRIZE Borlaug. HQ: Iowa State in USA)
Also nicknamed as  Award given Every year on UN World Food Day (October 16).
Nobel Prize in  2020: Indian-American soil scientist Dr Rattan Lal won for soil health
Agriculture  2021: Indian origin nutrition scientist Dr Shakuntala Haraksingh
∞ilsted (Trinidad born) for research in aquaculture & food systems.
 2023: Dr Swati Nayak, an Indian scientist at the International Rice
Research Institute (IRRI). Nickname: Bihana Didi (Seed Lady) by
Odisha villagers.
Nobel Peace - 1970: Dr. Norman E. Borlaug won Nobel Peace Prize for his
Prize contributions to the world food supply (He had also helped in Indiays
Z~aLB áFi✏I ⌘`◆¯F◆ Green Revolution)
- 2020: United Nations (UN) World Food Programme (HQ: Rome,
founded in 1961) Hi `π ◆F¢£✏M⌫ EFö F ÅhX Z~aLB áFi✏I ⌘`◆¯F◆ 2020 WYIF g®

40.36 GK: FAMOUS AGRI SCIENTISTS

40.36.1 . Norman Borlaug (USA, 1914–2009)

• 1940s-50s: Worked with farmers in Mexico for wheat and rice.
• Developed dwarf variety of wheat Sonora-64 and Lerma Rojo-64. (wLÕi j aäZY QWF✏I F)
Nobel Peace Prize (1970). He was nicknamed father of green revolution (for whole world).

40.36.2 . M. S. Swaminathan (Tamilnadu, 1925–2023)

• father of Indian green revolution.
• ModiAed the wheat Sonora-64 and Lerma Rojo-64 with Gamma Rays. Conducted their Aeld
trials at Delhiys Jaunti village (1965) → Wheat yield improved from 1.5 tonnes to 4.5 tonnes
per hectare.
Won Padma Shri & Bhushan & Vibhushan, Ramon Magsaysay Award, & World Food Prize.

40.37 MAINS QS FROM AGRICULTURE

Mostly centred around cropping types, Problems in land reforms, food processing, APMC.
Government reform to help farmers, food production etc. zey're shi\ed to Mains-QEP Course.

Next HDT: Pillar4B: Sectors of Economy → MFG, MSME, Make/Assemble in India etc.

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4A: Sectors of Economy: Agro → Page 678
 Pillar4B: sectors of Economy: MFG, Startup-IPR, Make in India, EoD, MSME-Textile
Table of Contents
41 Mfg & Services: Industrial policy and LPG reforms..................................................................684
41.1 Liberalization, Privatization and Globalization$..................................................................684
41.1.1 Liberalization: )*+,-.,/......................................................................................................684
41.1.2 Liberalisation of currency exchange (678+ 9:9;6< 6=)*+,-.,/)................................................685
41.1.3 → Privatization: 9;B-.,/..............................................................................................686
41.1.4 Globalization: :CD-.,/.........................................................................................................687
41.2 Beyond LPG → towards 4th Industrial Revolution..............................................................687
41.2.1 GPAI – the new GANG for A.I. (2020-June).............................................................688
41.2.2 Beyond LPG → 4th Industrial Revolution → New Industrial Policy ..........................688
41.2.3 4th Industrial Revolution → Samarth Udyog Bharat 4.0..............................................689
41.3 Circular Economy (NO,P+6- QRST:U+).........................................................................689
41.3.1 Circular Economy: Business Models...............................................................................690
41.3.2 Circular Economy: Right to Repair Portal (2022)..................................................690
41.3.3 Circular Economy: India Plastics Pact (IPP) 2021..........................................................690
41.4 Mfg Policy → National Mfg Policy 2011: ,+VW-< )X+*; ;-9Y.......................................................690
41.4.1 Mfg Infrastructure → NIMZ, ,+V-W< )X+*; [, 9;:\] ^\_...................................................690
41.4.2 Mfg Infrastructure → Industrial Corridors ( [`abc. cde<+,\)........................................691
41.4.3 Staple fesis- natural resources role in Economic growth............................................692
41.5 Make in India: How$......................................................................................................... 692
41.6 Make in India 2.0........................................................................................................................ 695
41.7 : Mfg: Assemble in India (Qg=he i; ijkl<+)..............................................................696
41.7.1 : : Assemble in In India → mNetwork productsn...........................................697
41.7.2 : : Assemble in In India → how will it beneot Indiap ...................................697
41.7.3 : Production Linked Incentive Scheme (PLI: )X+*; qr+O,Y sat+u;).............697
41.7.4 : PLI 1.0 Scheme ke 13 Sectors........................................................................697
41.7.5 PLI 2.0 for IT Hardware (2023).............................................................................................698
41.7.6 : - PLI Scheme: Beneotsp..............................................................................698
41.7.7 Mfg: electric vehicles: FAME & PMP Schemes....................................................................699
41.8 Mfg Sector Observations by ES23......................................................................................699
41.8.1 Mfg- signiocance as per ES23 (9:9;6+S/ ^\_ .+ 6ux).....................................................699
41.8.2 MFG Sectors challenges as per ES23 (y7;z9Y<+j)............................................................699

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 679
 41.8.3 Mfg: Balancesheet Deleveraging completed as per ES23..........................................700
41.9 Mfg & Services → Startup India (2016)............................................................................700
41.9.1 : Budget-2019 on Start-ups.......................................................................................701
41.9.2 : Budget-2020, 2021, 2022, 2023 on Start-ups........................................................701
41.9.3 Startup: Unicorn Company.....................................................................................702
41.9.4 Startup data from ES23...........................................................................................................702
41.10 → Mfg Policy National Policy on Electronics 2019.........................................................702
41.10.1 Mfg → Electronics Development Fund (EDF: ie\{W|9;.} 9:.+g 9;~r).......................703
41.10.2 Mfg → Design Linked Incentive (DLI) for Semi-Conductor Chips......................703
41.10.3 → National Digital Communications Policy (2018)...............................................704
41.10.4 → National Policy on Soware Products - 2019.....................................................704
41.10.5 Electronics & Startups Notable Schemes/Portals (2022).............................................704
41.10.6 → Quantum Technology (Ç+jÉ6 sz`abc.}) 2020........................................................705
41.11 Startup Criticism / challenges (9;*j +/qeay;+)...........................................................705
41.12 → Startup → (SHUTDOWN) >EXIT@ of Sick Industries..........................................705
41.13 Startup Problems as per ES23...........................................................................................706
41.13.1 Flipping..............................................................................................................................706
41.13.2 How can India combat mÑippingn / ensure mReverse Flippingnp..................................707
42 →Mfg & Services Intellectual Property Rights........................................................................707
42.1.1 WIPO is known for........................................................................................................707
42.1.2 IPR → Indian Laws............................................................................................................707
42.2 IPR → Patents → What canAt be Patented$...........................................................................708
42.2.1 Patent: Discovery versus invention.......................................................................................708
42.2.2 Copyright Act - covers following works...............................................................................708
42.2.3 Trademark Types.....................................................................................................................709
42.2.4 IPR: Biopiracy & Traditional Knowledge Digital Library (TKDL)................................709
42.3 IPR → Patents → Compulsory Licensing (Q9;:+<Se+ig=~gcj )..................................................710
42.3.1 Patent pools (N\ÉjÉa .+ g6àu-.,/)......................................................................................710
42.3.2 Trips Waiver demand by India & S.Africa..................................................................711
42.4 IPR → Evergreening of Patents (N\É=É .a g*+hu+, .,;+ / ,â;+)...................................................711
42.5 IPR → Utility Patents: )N<abcY+ N\É=É........................................................................................712
42.6 IPR → National IPR Policy 2016......................................................................................712
42.7 IPR → Notable Schemes (.7ä )ã\â;-< <aB;+åj)...................................................................712

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 680
42.8 IPR Indices & Rankings................................................................................................714
42.8.1 IPR Index → Global Innovation Index (GII: :CçD. ;:-;-.,/ gày.+j.).......................714
42.8.2 Index → Global Competitiveness Index (GCI) by WEF...............................................714
42.8.3 Index → NITIés India Innovation Index ( è+,Y ;:+y+, gày.+j.).......................................715
42.8.4 IPR Index → Misc. ê+eYà:+e\........................................................................................715
42.8.5 Pvt sector not spending enough ëë on R&D says ES21...................................715
43 Sectors: Ease of Doing Business Report.....................................................................................716
43.1.1 " EoD → Indian Statesé EoD: BRAP Ranking................................................................717
43.1.2 EoD → Economic Freedom of the World...................................................................717
43.2 Ease of Doing Biz (EoD): Budget-2023 announcements....................................................717
43.2.1 EoD: Vivad se Vishwas I – Relief for MSMEs in Budget-2023..................................717
43.2.2 Vivad se Vishwas II – Settling Contractual Disputes in Budget-2023......................717
43.2.3 EoD: PAN Card as Common Business Identioer............................................................718
43.2.4 EoD: Unioed Filing Process...............................................................................................718
43.2.5 EoD for MSME: GSTN gets AA Status.............................................................................719
43.2.6 EoD: One-stop solution for identity and address updating :..........................................719
43.2.7 EoD: training of civil servants to be more sensitive in Mission KarmaYogi................719
43.3 EODB 2.0 in Budget-2022 (T+N+, g7c6Y+ .+ *îg,+ y,/).....................................................719
43.4 Pro-Business vs Pro-Crony, ES20Vol1Ch3................................................................720
43.4.1 : Cronyism: Economist David Ricardo & Rent Seeking....................................720
43.5 Ease of doing Biz → Judicial Reforms: ï+ñ<. g7r+,............................................................720
43.5.1 : ENFORCING CONTRACTS PORTAL (2021-June).....................................720
43.5.2 : International Arbitration Centre @GIFT city - in Budget-2022....................721
43.5.3 Transparency International → Corruption Perceptions Index ............................721
43.6 ES21: Over regulation in India, TORA Act...............................................................721
43.7 Ease of doing Biz → Labour Reforms : ò6 g7r+,..................................................................721
43.8 Ease of doing Biz → Fixed Term Employment 2018.............................................................723
43.9 Minimum Wages (ïà;Y6 :\Y;)............................................................................................724
43.9.1 Minimum Wage Reform: Anoop Satpathy Committee (2019)................................724
43.10 Minimum Wages → Code on Wages 2019 (:\Y; .al/ gjkuY+)........................................724
43.10.1 Code on Wages 2019 →Salient Features (ogures not IMP) ..............................725
43.11 Ease of doing Biz (EoD) Factories Act reforms...........................................................726
43.11.1 Factories (Amendment) Bill, 2014............................................................................727

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 681
43.12 (EoD) → Industrial Dispute Act 1947, 2010...............................................................727
43.12.1 EoD: Jan Vishwas (Amendment of Provisions) Bill, 2022,.................................727
43.13 Ease of doing Biz Shram suvidha Portal (2014).........................................................728
43.14 EoD → Corona: Suspension of Labour Laws$....................................................728
43.14.1 Corona Suspension Labour laws: Union says NOôô.............................................728
43.14.2 Inter-State Migrant Workmen Act, 1979......................................................................729
43.14.3 Banking = Public Utility Service (g+:SB9;. )N<abcY+ g\:+) .....................................729
43.15 Ease of doing Biz Building Homes & Running Shops.................................................730
43.15.1 Ease of doing Biz → Model Shops & Establishments Bill, 2016............................730
43.15.2 Ease of doing Biz → Real Estate Regulation & Development Act (RERA) ...........731
44 Sectors of Economy → Mfg → Textile & MSME......................................................................732
44.1 Textiles Ministry (.Nl+ / :õ 6j_+e<)....................................................................................733
44.1.1 Textile Ministry → Notable schemes / initiatives.................................................733
44.2 → Mfg & Services → MSME Ministry.............................................................................735
44.2.1 MSME Problems: RBIés UK Sinha report (2019)..................................................735
44.3 MSME: Truckload of Scheme/Initiatives................................................................................736
44.3.1 MSME Ministry → PM's Employment Generation Programme (PMEGP-2008) . 736
44.3.2 → MSME Ministry Public Procurement Order(g+:SB9;. â,-*/Q~rs+ûü q*\])
.............................................................................................................................................................. 736
44.3.3 Public Procurement → GeM Portal..............................................................736
44.3.4 One District One Product (ODOP: 2021)........................................................................737
44.3.5 MSME Atma-Nirbhar Funding/Schemes (2020, Corona)....................737
44.3.6 Ubharte Sitaare Programme for MSME Exporters (USP: 2021-Aug)......................737
44.3.7 PM Vishwakarma Scheme (2023-Sept)......................................................................738
44.3.8 Loan Interest on PM Vishwakarma........................................................................738
44.4 MSME Ministry → Misc. Initiatives........................................................................739
44.4.1 MSME Ministry → ASPIRE (2015)............................................................................739
44.4.2 MSME Ministry → Solar Charkha Mission (2018)....................................................739
44.4.3 MSME Ministry → Gramodyog Vikas Yojana...........................................................739
44.4.4 MSME Ministry → Portals / Helplines...................................................................739
44.4.5 MSME: Funds for their development.....................................................................740
44.5 ES19: MSME dwarGsm shd be discouraged (hz;+N;).......................................740
44.5.1 ATMANI: MSME Deonition Changed by Government.....................................740

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 682
45 Service Sector (g\:+ ^\_)........................................................................................................... 741
45.1.1 Service Sector- 3/4/5 level (Y°Y-<. /yY7RS. /Njy6 )..............................................................741
45.1.2 Service Sector Data from Eco Survey 2023......................................................................742
45.1.3 MBA-Terms: Outsourcing vs Home-shoring.................................................................742
45.1.4 MBA-Terms: Outsourcing- BPO vs KPO.......................................................................742
45.1.5 Service Sector: IT & BPM..............................................................................................742
45.1.6 : Knowledge economy of India: freats/Challenges.........................................742
45.1.7 Sunrise sector in Budget-2022 (gà<¢*< ^\_: Bu+£Y\§ :°b• .} gjè+:;+)..........................743
45.2 → SERVICE SECTOR E-Commerce (¶ :+ß/® / ©;e+i; 9hP})...........................................743
45.2.1 E-Commerce vs E-Business (i-:+ß/® h;+6 ¶-.+,ah+, )..........................................................743
45.2.2 E-Commerce: types of transactions.................................................................................743
45.2.3 E-Commerce Challanges..............................................................................................744
45.2.4 E-Commerce Rules 2019-Feb......................................................................................744
45.2.5 E-Commerce: (Dra) CONSUMER PROTECTION (E-COMMERCE) RULES,
2020...................................................................................................................................................... 745
45.2.6 Criticism against E-COMMERCE) RULES: (qeay;+)..........................................745
45.2.7 E-Commerce: Open Network for Digital Commerce (ONDC):..............................745
45.2.8 QCommerce / Quick Commerce..................................................................................746
45.2.9 E-Commerce: Anti Fake review framework by BIS.............................................................746
45.2.10 E-Commerce: Google Appstore Anti-Trust: CCI Order in India....................................747
45.2.11 Google Search Engine Anti-Trust case in USA............................................................747
45.3 Mfg → Bodies for quality standards (c7/:™+ .\ 6+;.).............................................................748
45.3.1 Consumer A´airs Ministry → Statutory → BIS (1986)................................................748
45.3.1.1 : BIS & Gold -Silver Hallmarking (¨/SYR+ y+£*- u|e6+≠.c .\ deå 9;<6Æ)...............748
45.3.2 BIS certiocate for Mitticool refrigerator (2022).........................................................749
45.3.3 Power Ministry → Statutory → BEE (2001-02)............................................................749
45.3.4 Health ministry→ Statutory → FSSAI (2006)...............................................................750
45.3.5 Commerce Ministry → Not-Statutory → QCI (1997)..................................................751
45.3.6 Commerce Ministry → Not-Statutory → NPC (1958).................................................751
45.3.7 One Nation, One Standard Scheme (2019).................................................................751
45.3.8 PARAKH Laboratory Network (2021)....................................................................752
45.3.9 OIML Certiocate for weighing machine maker companies..........................................752
45.4 Consumer Protection Act, 2019 ()NèaØ+ gj,^/)................................................................752

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 683
 45.4.1 Consumer Protection Act 2019 → bodies → Consumer court...............................752
45.4.2 Consumer Protection Act 2019 → bodies → others................................................753
45.4.3 Consumer Protection Act 2019 → Features (s67â/67∞ s+:r+;).................................753
45.4.4 Social Media inÑuencers pe CCPA Rules 2023................................................................754
45.4.5 Royal Entry UPSC Toppers pe CCPA rules (2023)...............................................754
45.5 Mains Questions from this pillar$......................................................................................754

41 MFG & SERVICES: INDUSTRIAL POLICY AND LPG REFORMS

1948 1st industrial policy by Indiaés Minister for industries Shyama Prasad Mukherjee.
 Industrial Policy Resolution ([`abc. ;-9Y gj.±). It focused on public sector led
heavy industries (Oil, mining, shipbuilding, steel, chemicals, machinery
manufacturing etc). g+:SB9;. ^\_ .\ )NP6ajN, Ba, k*<+ c<+, ≤ajk. ;\u≥ .a ec+ R+ k. ,a§c+,
1956 g°B; [, q¥9;èS,Y+ .\ deå <u- §≥,- uC
 PM Nehru presumed this will help in 1) employment generation 2) self reliance 3)
provide raw material, intermediate goods and machinery to help other industries
to produce consumer goods.
BoP crisis forces PM Narsimha Rao (& FM Manmohan Singh) to launch New
1991
Industrial Policy with LPG reforms.(BoP crisis- More in Pillar#3A)
fe contribution of mfg and service sector in Indiaés GDP & employment increased.
Post-
More in Pill#4C: GDP handout.
LPG
(9:9;6+S/ [, g\:+ ^\_ .} è+,Y .\ GDP [, ,a§c+, 6=ku∂\*+,- )*+,-.,/ .\ g7r+,aj.\ h+* h∑- uC)
41.1 LIBERALIZATION, PRIVATIZATION AND GLOBALIZATION$

41.1.1 Liberalization: -./01203

Means the withdrawal of controls and regulations by the government on the industries.
♀Till 1991 A4er LPG-reforms
Ministerial interference in the day2day Govt. signed memorandum of understanding
functioning of CPSEs → fall in professionalism (MoUs:g6∫zY+ ª+N;) with CPSEs granting them
and e∏ciency. (g,.+,- .jN9;<aj.\ *C9;. .+<π 6=6j_- .} operational freedom through ºRatnaé status. (
*âe .\ yeY\.+<S^6Y+ 6=bc,+:É) Pillar#2 → Disinvestment)
- Mandatory for any private individual to Production quota & Inspector was abolished.
obtain license to start to start any industrial Licenses required only for a selected number of
activity. industries. Namely,
1. Alcoholic drinks (],+h 6k*,+)
- Even on licensed industries, govt. would

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 684
 ♀Till 1991 A4er LPG-reforms
impose ºproduction quotaé (e.g. not more 2. Tobacco products (Y¿+.à )X+*)
than ºxé number of telephones or ºyé 3. Electronic aerospace and Defence
number of scooters be produced.) equipment
Government would appoint inspectors to 4. Industrial explosives, gun powder,
check the compliance. nitrocellulose and matchsticks; (k*<+ge+¶)
Result$ Delays, corruption, No ease of doing 5. Hazardous chemicals: Hydrocyanic acid,
business. Phosgene, Isocyanates & their derivatives.
(Ba¬â6Nà/S,g+<;)
.a¶ è- )X+*; .,;\g\Nue\æ\.+ e+ig=g e\;+ B≥,-. )X+*;
For remaining sectors, a private entrepreneur
.} 6+_+ N, g,.+,- .aÉ+= øV+y+,, T+N+, .,;\6=.a¶
can start the business by simplifying an
qg+;- ;u-jÆ
Industrial Entrepreneur Memorandum
(IEM:)`6- ª+N;) with Commerce Ministry
(except for the industries reserved for public
sector). fe purpose of IEM is merely to collect
data about investment, employment and
industrial activities.
fe big corporates were not allowed to enter in Govt gradually shrunk this list. By 2015, no
the sectors reserved for the Small Scale item was reserved for SSI/MSME industries.
Industries (SSI) / MSME. e.g. pickles & Nue\.¶ ^\_aj.a e√7)`acaj.\ deå q,ß^Y k.<+ c<+ R+
chutneys, mustard oil, groundnut oil, exercise hƒ- .jN9;<aj.a :u+jq;\.} 6;+¶ R-. r-,\-r-,\ )g q,^/
books and registers, wax candles, glass bangles, gày- .a uÉ+<+ c<+
steel almirah etc.

41.1.2 Liberalisation of currency exchange (?@A/ BCBD?E ?F-./01203)

Note: Complete pillar3B before reading this section.
To address the 1991's balance of payment crisis- following currency exchange system reforms done:
Year Event
1991- RBI (Govt)^^ o∏cially devalued Indian rupee against dollar by 18–19%
July «N<\.+ Q:6à»; k.<+ c<+/ l|e, .\ 67…+he\.6§a, k.<+ c<+Æ
Dual exchange rate regime. Importers can buy 1) some dollars at free-market rate and 2)
1992
some dollars at RBI determined oxed exchange rate. (*au,- 9:9;6< ;-9Y)
India o∏cially moved from mFixedn to ºManaged Ñoat exchange rateé regime. In other
1993 words, 1992és ºdual exchange rateé regime was discontinued, so this new system also called
ºunioed the exchange rateé because there is single exchange rate. (å.e 9:9;6< ;-9Y)
Result Indiaés exports improved with weakening of rupee.
^^ FAQ: isnMt it the role of RBI to do this$ Why have you written government$ Ans. Yes,
RBIés role.But when UPSC examiners make MCQs related to devaluation, they use the word

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 685
RBI/Govt interchangeably- as evident from the PYQs and o∏cial answerkeys related to this topic in
Ref: Pillar#3B)

MCQ. [Prelims-2000] Assertion (A) : Te rate of growth of IndiaMs exports has shown an
appreciable increase a4er 1991.
Reason (R) : fe Govt. of India has resorted to devaluation.
(a) Both A and R are true and R is the correct explanation of A
(b) Both A and R are true but R is not a correct explanation of A
(c) A is true but R is false (d) A is false but R is true

41.1.3 ♂→ Privatization: BDV1203

1. Allowing private sector to enter into the sectors which were previously reserved for public sector
companies only, g+:SB9;. ^\_ .\ deå q,ß^Y )`acaj6=9;B- ^\_ .} .jN9;<aj.a Q;769Y *\;+
2. Converting public sector companies to private sector companies by reducing Government
shareholding to below 50% ( Pillar#2 → Disinvestment)
Till 1991 A4er LPG-reforms
many of the industrial sectors were reserved for Only following industries are reserved for
the public sector Industries only → no public sector undertakings

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 686
 Till 1991 A4er LPG-reforms
competition, lack of innovation. .¶ ^\_ g,.+,- 1. Atomic Energy (N,6+/7ÀB+S)
.jN9;<aj.\ deå q,ß^Y R\. 9;B- ^\_ .\ )`b6<aj.a q;\.} 2. Railways (now even there private train
6;+¶Æ r+S[, ;:+y+, .} .6-
operators allowed (More in Pillar#5)
Government would nationalise private sector - Stopped the practice of nationalisation.
industries in the national interest such as - Private sector companies were allowed in
banking, insurance, aviation. (9;B- .jN9;<aj.+ Banking, Insurance, aviation, telecom and
,+V-W<.,/)
other sectors.
- ,+VW-<.,/ .} skP<+ hjr .}, [, 9;B- .Ã9;<aj.a
hÕk.jc h-6+ )Œ<; *î,gjy+, iœ+k* ^\_aj6=Q;769Y *-

41.1.4 Globalization: CWX1203

Globalization is a process in which nations allow free Ñow of goods, services, labour, capital
investment, technology, ideas and innovations. :–7, g\:+—j, ò6, NàjB- 9;:\], sz`abc.}, [, 9:y+,aj;:+y+,aj.\
67Ø s:+u .} skP<+ .a :CD-.,/ .uY\uÕ
Till 1991 A4er LPG-reforms
Inward looking economy, Import substitution India joined the WTO-regime, we gradually
policy, variety of tari´ & non tari´ barriers on relaxed the tari´ and non tari´ barriers on the
the imported goods & services → problem of imported goods and services. (Ref: Pillar#3B)
smuggling.(q<+Y s9YU+N; ;-9Y, ]7“ [, cC, ]7“
h+r+å, Y”,-)
Very strict controls on currency convertibility, Norms where relaxed (Ref: Pillar#3A)
foreign companies, and foreign investment. (678+ (9;<6aj6=’-e / äàÉ)
NO,:YS;-<Y+, 9:*\]- 9;:\] N, g‘ 9;<j_//,a.)
Further self study on the LPG reforms from NCERT class 11 ch.2 and 3. Mains Answer writing about
LPG reforms: youtube.com/user/feMrunalPatel/searchpquery=rao
41.2 BEYOND LPG → TOWARDS 4TH INDUSTRIAL REVOLUTION

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 687
 Timelines (Approx.) Industrial revolutions & their major components
1.0 (1800 onwards) Powered by coal, iron machines and factories, railways, steamships
and telegraph.
2.0 (1900 onwards) Powered by Electricity, Oil, Motor-Vehicles, Planes, Telephone, TV,
Cinema and radio.
3.0 (1980 onwards) Electric and Hydrogen Powered Vehicles, Drones, Flexible Robots, 3D
Printers and nanotechnology.
4.0 (latest buzzword It further optimizes the computerization of Industrial revolution 3.0
from 2016As WEF-Davos using cloud computing, Artiocial Intelligence (.°b_6 h7b•6™+) and
summit onwards) Internet of fings (IoT: e.g. using smartphone app to turn on AC
before you arrive at home.)
- fe 4th Industrial Revolution = automation of mfg processes through "smart factories" where
cyber-physical systems will make decisions, minimizing wastages, optimizing the use of energy
and raw material. (yzR- [`abc. P+j9Y = ◊+ÉS.+,â+;aj6=9:9;6+S/, ÀB+S[, .ÿ\6+e .\ T< 6=.6-)
- Germany, France, China, USA etc. have already launched government funded programs
- 2017: Commerce ministry set up a taskforce on AI for India's economic transformation under
Dr. V. Kamakoti. 2018: Defense ministry set up a taskforce on AI for national security under N.
Chandrasekharan of Tata Sons. (ig 6+6e\N, g,.+, Ÿ+,+ 9:ßè⁄ gb69Y<aj.+ è- cæ; €q uC)
- 2018-Budget gave ë100 crore to Department of Science & Technology for a mission on cyber
physical systems. NITI Ayog working on National Artiocial Intelligence Mission.
- 2019-Budget announced a National Programme on 'Arti^cial Intelligence'.

41.2.1 GPAI – the new GANG for A.I. (2020-June)

 Global Partnership on Artiocial Intelligence (GPAI: q‹Ékêß]<e ijÉ\deB=g N, :CçD. è+c-*+,-).
 Founding members$ India, US, the UK, EU, Australia, Canada, France, Germany, Italy, Japan,
Mexico, New Zealand, Republic of Korea, Singapore (è+,Y ig gjU+ .+ å. U+N. g*› uÕ)
 HQ/Secretariat @Paris, France. Supported by GPAI will be supported by a Secretariat, to be
hosted by Organization for Economic Cooperation and Development (OECD).
 Budget-2023: weéll setup 3 Centres of Excellence for Artiocial Intelligence for agriculture,
health, and sustainable cities.

41.2.2 Beyond LPG → 4th Industrial Revolution → New Industrial Policy

1991: Our last industrial policy was made. 2017: Commerce ministry began formulating a New
industrial policy for India focusing on the Fourth Industrial Revolution with six thematic areas viz.
- 1) Technology & Innovation: Govt to provide incentives for artiocial intelligence, internet of
things, and robotics.
- 2) Manufacturing & MSME, 3) Ease of Doing Business
- 4) Infrastructure & Investment 5) Trade & Fiscal Policy
- 6) Skills & Employability for Future

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 688
2021: fis policy is awaiting cabinet approval.(Qè- Qj9Y6 Q;769Y ;u-jb6e-)

41.2.3 4th Industrial Revolution → Samarth Udyog Bharat 4.0

Bossp Ministry of Heavy Industries & Public Enterprises → Department of Heavy Industries (è+,-
)`ac 9:è+c) → to propagate technological solutions to Indian manufacturing units to make them
ready for Industry 4.0 by 2025.
- How$ Awareness generation, demo centres, training, networking between industry and
academia, international corporation. (.jN9;<aj[, ]C^ß/. gjU+—j.\ h-y 6\eBae h∑+;+)
- Related$ fis department is also responsible for the National Capital Goods Policy 2016, to
domestic production of textile machinery, Earth moving and mining machinery, printing
machinery etc. (,+VW-< NàjB-cY 6+e ;-9Y) Sidenote: Textile Ministryé SAMARTH scheme= skill
development in textile sector.
- 2023: Hyderabad to have Indiaés orst Centre for the Fourth Industrial Revolution (C4IR) on
healthcare & life sciences, with help of World Economic Forum.

41.3 CIRCULAR ECONOMY (NO,P+6- QRST:U+)

 (De^nition) A circular economy is an alternative to a traditional linear economy (make, use,

dispose). In circular economy, resources are kept in use for as long as possible, the maximum

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 689
 value is extracted from them, and ultimately waste is recovered and regenerated in the end.
N+,jNO,.-,C¬â.-QRST:U+ g\9:N,-Y <u+ NO,P+6--QRST:U+ 6\gjg+r;a .\ N7;;S:-;-.,/ N\®+*+ fi+; k*<+ B+Y+ uCÆ
 (Origin) 2019: NITI Aayog proposed ºCircular Economy and resources e∏ciency in Indiaé.
 (DATA) Circular Economy in EU is expected to create savings of fl600 billion for EU businesses,
creation of additional 580,000 jobs and reduction of carbon emissions by 450 million tonnes by
2030. In India it can generate 1.4 crore jobs in next 5-7 years. ,aBc+, g°B; 6=6**
41.3.1 Circular Economy: Business Models
Explained in Video. More pointer = Shied to Mains.

41.3.2 Circular Economy: Right to Repair Portal (2022)

 MINISTRY OF CONSUMER AFFAIRS opened the right to repair portal.
https://righttorepairindia.gov.in/
 Companies will have to compulsorily the upload the repair manuals. so that consumers can get
product repaired by themselves or by a third party, rather than depending on the manufacturers.
 will help in reducing the generation of electronic waste, environment, conservation, promotion
of circular economy, etc.
 Initially, portal will cover mobile phones, electronic, consumer durables, automobile and
farming equipment.
 Such right already available in Europe and western countries. (é6,‡Y .+ Q~r.+,’)

41.3.3 Circular Economy: India Plastics Pact (IPP) 2021

-Basically Indian companies make promises for developing circular economy for Plastic products.
Bossp World-Wide Fund for Nature-India (WWF) and Confederation of Indian Industry (CII)

41.4 MFG POLICY → NATIONAL MFG POLICY 2011: 0/bc1E -d/.D D1Be
Boss$ Commerce ministry → DIPP / DPIIT. (:+ß/® 6j_+e<)
- Target$ To manufacturingés share in GDP to 25% by 2022, & create 100 million jobs.
- For this target, Govt will pursue ease of doing business, skill upgradation for young workforce,
funding for innovation & green Technologies (T:g+< .,;\6=qg+;-, <7:+ .\ deå .z]e, ;:+y+, [, uO,Y
sz`abc.} .\ deå 9:™ Na‚/)
- Creating National Investment and Manufacturing Zone (NIMZ).

41.4.1 Mfg Infrastructure → NIMZ, 0/bc1E -d/.D f0 BDCgh igj

- NIMZ is an ºindustrial townshipé containing Special Economic Zones, Industrial Parks &
Warehousing Zones, Export Oriented Units etc.
- NIMZ are given additional support by government e.g.
- Tax incentives, Relaxed norms for FDI approval (.,aj,9:*\]- sœ^ 9;:\] 6=O,<+<Y)

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 690
 - Providing Rail, Road, energy, communication connectivity, schools-hospitals & other
social infrastructure for the workers, etc. in a time bound manner. (gjy+, NO,:u; .} h79;<+*-
g79:r+å£)
- relaxations in the labour laws e.g. women allowed to work in night shi, easier hiring-
oring norms: .+6 N, ,â;\.\ - 9;.+e;\.\ qg+; 6+;*jl.
O
* -O
->
-
NIMZ will be treated as self-governing bodies under Article 243(Q-c) of the Constitution. So the
-
----
- -

traditional norms related to Municipality, its functions, election of ward members etc. will not
apply for this township area. (;c,N+de.+ .\ N+,jNO,. 9;<6 <u+jN, ;u-je+càuaY\)
- We have more than 15 NIMZ such as Ahmedabad-Dholera Investment Region@Gujarat, Dadri-
Noida-Ghaziabad investment Region@Uttar Pradesh, Manesar-Bawal Investment
Region@Haryana etc.
- Previously, Delhi Mumbai Industrial Corridor had setup Special Investment Regions (SIR) in its
region. feyére converted into NIMZ.
- 2017: Commerce ministry launched Industrial Information System (IIS), a GIS-enabled
database of industrial areas across the country. fis helps entrepreneurs to ond out raw material,
distance from key transport hubs etc.

41.4.2 Mfg Infrastructure → Industrial Corridors (fklmn2 nopE/0g)

Boss$ Commerce Ministry → National Industrial Corridor Development and Implementation
Trust (NICDIT).
- fey provide funding for industrial and commercial areas, townships, Warehousing and
container depots, Rental Factories, Social infrastructure like- schools, technical institutions,
hospitals etc, Housing and Residential Complexes; roads, railways, airports, Oil and gas pipeline
etc. ()`ac, NO,:u;, ÀB+Sg\e\., 6B*î,aj.\ hÿaj.\ deå ß]^+ .} Y6+6 h79;<+*- Q:gj,y;+å )Ne„)
Notable ongoing/ proposed industrial corridors of India:
- Delhi Mumbai Industrial Corridor: (DMIC-2006 onwards) passing through Uttar Pradesh,
Haryana, Rajasthan, Madhya Pradesh, Gujarat and Maharashtra. ITés implemented by a Special
purpose vehicle (SPV: company) with ownership: 49% NICDIT, 26% Japanese Bank for
International Cooperation (JICA) and rest with Indiaés Public Sector Financial Intermediaries.
- Other notable corridors: Amritsar Kolkata Industrial Corridor, Chennai Bengaluru Industrial
Corridor, Bengaluru Mumbai Economic Corridor, Vizag –Chennai Industrial Corridor, East
Coast Economic Corridor from Kolkata to Chennai, Odisha Economic Corridor etc.
- 2017: Commerce Ministry approved Defence Park at Pallakad, Kerala.
- 2018: Two Defence Industrial Production Corridors: 1) Tamil Nadu 2) Uttar Pradesh.
Related$ infrastructure, National Investment & Infrastructure Fund (NIIF) etc. in Pillar#5

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 691
41.4.3 Staple Tesis- natural resources role in Economic growth
• feory by 2 Canadian scholars, Harold Innis and W.A. Mackintosh.
• A country grows depending on abundance of natural resources. (çBg *\] .\ N+g ‰+*+ s+.°9Y.
gjg+r; uÕ:a Y\§- g\qÂR. :°b• ., g.Y+ uC)
• e.g. growth of Canada (Wood, Coal, Uranium, Metals), S.Arabia (oil).
• Eco Survey India doesn't have so much natural resources to grow like Canada / S.Arabia. So,
we've to focus on low-skill manufacturing using "Make in India" scheme.
41.5 MAKE IN INDIA: HOW$
Nodal$ Commerce ministry. (:+ß/® 6j_+e<)
Objective$ Promote India as global hub for manufacturing goods & services, design and innovation
in 25 sectors. Later it was expanded to total 27 sectors. Basically it focuses:
 FDI norms relaxed for facilitating investment (9;:\] .} g79:r+)
 fostering innovation, research development (R&D) (;:+y+, .a h∑+:+ *\;+)
 building infrastructure (h79;<+*- Q:gj,y;+)
 making it easy to do business by relaxing the factory-labour-tax laws & administrative
procedures (T+N+, .,;\6=qg+;- s*+; .,;+)
 enhancing skill development (.z]e 9:.+g .a h∑+;+)
Sectors (^\_)  Make in India Initiatives- some notable examples
Auto  National Automotive Testing and R&D Infrastructure Project (NATRiP)
Components project for encouraging R&D
Automobiles  FAME-India [Faster Adoption and Manufacturing of (Hybrid &) Electric
Vehicles in India]. More in Pillar5: Infrastructure → transport
infrastructure.
 Electric, Ethanol and Methanol Vehicles exempted from Permit.
Aviation  National Civil Aviation Policy (NCAP) & UDAAN scheme to boost
)Œ<; regional air connectivity. Faster approval to the Greenoeld airports in the
North East areas
 2016: FDI policy relaxed for Aviation.
Biotech  New biotechnology parks launched, FDI policy relaxed.
⚗Chemicals  New plastic parks launched.
⚒Construction  Real Estate (Regulation and Development) Act, 2016- for granting quick
6.+; 9;6+S/ permissions to the builders at the same time protecting the home buyers.
Defense  Defence Procurement Procedure (DPP-2016: ,^+ Q~rs+ûü skP<+) :
Manufacturing Government will give orst priority to the indigenously designed
,^+ ]õaj.+ 9:9;6+S/ developed and manufactured (IDDM) defence equipments.
 Updated Defense O´set Norms (,^+ ©êg\É 6+;*jl) i.e. when government
buys defence equipments from a foreign company, that foreign company

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 692
 Sectors (^\_)  Make in India Initiatives- some notable examples
will have to reinvest mx%n of the income back into Indian industries.
 2020: Atma-Nirbhar:- Banned import of 101 defense items.
Electronic  New electronic parks approved, subsidy to entrepreneurs for purchasing
System Design machinery.
 National Electronics Policy 2019 <its salient features given under the
Standup India portion of this handout>
Food  New Mega Food parks, cold storages, abattoirs approved.
Processing  2020: Atma-Nirbhar:- needs funds & support ( Pillar#4A)
IT and IT  2016: 100% automatic FDI in market-place E-commerce.
enabled Services  Post demonetisation many initiatives to digital payment systems.
(IT & ITeS)
 Pradhan Mantri Digital Saksharta Abhiyan (PMGDISHA), Digital India
Mission- All of them directly and indirectly increase the demand of
computer hardware and soware.
 Public Procurement (Preference to Make in India) Order 2017 which
requires govt depts to buy India-made desktops and computer parts.
Leather  India is 2nd largest producer of footwear, second largest exporter of leather
y6ƒ+ [, BàY+ )`ac garments. New leather parks and clusters to be approved
 Global demand for footwear is moving towards non-leather footwear for
their comfort & cheapness, so we need R&D.
Audio-Visual  Single window clearances for olm shootings for foreign olm makers in
Media and India. Relaxed the norms to start new private FM radio stations.
Entertainment  Budget-2019: Previously Single Window clearance to foreigner olm
6;a,jB; ^\_
makers for shooting movies. fis facility made open to Indian as well.
 Cinematography Amendment bill: unauthorized camcording /
duplication of movie → upto 3 years jail + 10 lakh one.
⇥ Mining  Mines and Minerals (Development and Regulation) Act (MMDR)
â;; amended in 2015-16 for ease of mining exploration.
 2020: Atma-Nirbhar:- more reforms ( Ref: Pill#5)
Oil and Gas  Gas based fermal Power Projects approved.
 Gas grid projects to deliver gas through pipeline.
 Strategic oil reserves created. Hydrocarbon Exploration and Licensing
Policy (HELP) 2016 To facilitate the exploration of all type of
hydrocarbons. (Ref Pillar#3A)
 PM-Ujjwalla yojana to encourage poor families adopt LPG - indirectly

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 693
 Sectors (^\_)  Make in India Initiatives- some notable examples
boosts the demand & mfg of gas stoves, lighters etc. (Ref Pillar#5)
Pharma  Additional NIPER institutes approved → availability of trained
[‚~r manpower. FDI norms relaxed. Compulsory licensing of expensive
MNC-patented drugs to encourage generic drugsé production in India.
<Ref: IPR portion of this handout.>
Ports (hj*,)  Sagarmala Project to improve port infrastructure.<Ref Pill#5>
Railways  New Metro Rail Policy 2017 with public private partnership. Mumbai-
(QbÎ,R) Ahmedabad high speed rail project with help of Japan.
 Permitted private train operators (More in Pillar#5)
Highways  Expressways between Vadodara Mumbai,Delhi-Mumbai, Bangalore-
(,+B6+cS) Chennai etc.
 NHAI approved new investment models.
 Bharatmala project for highway construction. (More in Pillar#5)
Renewable  Preference to domestic manufacturers for purchasing equipment for
Energy Jawaharlal Nehru National Solar Mission and similar projects.
(;:-.,/-< ÀB+S)  Although later USA complaint to WTO that it is a ºnon-tari´é barrier.
(More in Pillar#3B-WTO)
Space  ISROés commercial arm Antrix Corporation Ltd. getting other countries
Q:.+] to launch their satellites using ISROés expertise.
(Ref: Pill#5)  2020: Atma-Nirbhar:- more reforms to encourage private sector in
space research / space tourism (Ref: Pill#5)
Textiles  India Handloom Brand launched. Special Textile Package to increase jobs
.Nƒ+ )`ac and machinery upgradation. Apparel and garment manufacturing parks
setup in North East.
Termal Power  New thermal power plants with green supercritical technology. UDAY
Y+N ÀB+S scheme to cover the losses of distribution companies. DD Gram Jyoti
(Ref: Pill#5) Yojana & Saubhagya scheme to increase the electricity penetration in
rural households. Unnat Jyoti by A´ordable LED for All (UJALA) scheme
to increase consumption of LED bulbs.
Tourism and  e-Visa scheme, Swadesh Darshan scheme, PRASAD scheme etc. to
Hospitality, increase tourism
Wellness  Yoga day, AYUSH Ministry to attract foreigners for medical tourism
s:+g;  Tourism sector contributes signiocantly in terms of GDP, foreign
exchange earnings and employment. But growth rate has been falling in
recent years. So, ES18-19 suggested Government to promote Ayurveda,
Health and Medical Tourism in India so as to overcome the ºseasonalityé

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 694
 Sectors (^\_)  Make in India Initiatives- some notable examples
aspect of recreational tourism.
Other services  Medical Value Travel/medical tourism
 Transport and Logistics, Communication
 Accounting and Finance, Legal Services
 Environmental Services, Education Services
ÏÏ In 2018, Government expanded 25 sectors to 27 sectors. Some original sectors were
removed/renamed/modioed/replaced. So, above list will not total to 27. But hairsplittery unnecessary
for Mains. We only need to develop vocabulary from above table.

Challenge$ Most of the jobs in above 27 sectors are skill intensive while India is burdened with
vast pool of unskilled labour. So, govt has to pay more attention to education, skill development
schemes incl. Skill India (2015) → more in Pillar#6. (3456789:; :<=> ?@:AB C7 DAE 5;EA F8GA)

MCQ. Find correct statements about 'Make in India' initiative$ (CDS2019-II)

(1) It was launched in the year 2018. (2) Its objective is to foster innovation
Codes: (a) 1 only (b) 2 only (c) Both 1 and 2 (d) Neither 1 nor 2

41.6 MAKE IN INDIA 2.0

 2014: Make in India 1.0 → 2022: Make in India phase 2.0 started,
 targets: investment of ë3 lakh crore in 5 years and jobs for 60 lakh people.
 Make in India 2.0 is covering following sectors: 15 mfg + 12 services = 27 sectors
Mfg Services
1. Aerospace and Defence 1. Information Technology & Information
2. Automotive and Auto Components Technology enabled Services (IT &ITeS)
3. Pharmaceuticals and Medical Devices 2. Tourism and Hospitality Services
4. Bio-Technology 3. Medical Value Travel
5. Capital Goods 4. Transport and Logistics Services
6. Textile and Apparels 5. Accounting and Finance Services
7. Chemicals and Petro chemicals 6. Audio Visual Services
8. Electronics System Design and 7. Legal Services
Manufacturing (ESDM) 8. Communication Services
9. Leather & Footwear 9. Construction and Related Engineering
10. Food Processing Services
11. Gems and Jewellery 10. Environmental Services
12. Shipping 11. Financial Services
13. Railways 12. Education Services
14. Construction
15. New and Renewable Energy
Additionally, Make in India 2.0 is also covering 24 sub-sectors as follows:

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 695
41.7 : MFG: ASSEMBLE IN INDIA (stFup vD vwxyE/)

ES20 Vol1Ch5 suggested we move from ºMake in Indiaé towards Assemble in India
Make in India Assemble in India
What textiles, clothing, footwear, toys (.Nƒ\:õ Products of Apple, Samsung, Sony, Nike,
$ BàY\¬âez;\) Adidas etc.
How$ Traditional Unskilled Labour Semi-skilled labour
N+,jNO,. Q.7]e òb6.Æ Q;N∑ g\è- .+6 ye B+å qjß]. ≥N g\.7]e òb6.aj.\ Ÿ+,+

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 696
41.7.1 : : Assemble in In India → zNetwork products{
- (Deonition) Network Products: feir production occurs across Global Value Chains (GVCs)
operated by Multinational Companies (MNCs) such as Apple, Samsung, Sony, Nike, Adidas etc.
(h€,+VW-< 9;c6ajŸ+,+ :CçD. 6à» ò°jâe+ .\ Ÿ+,+ “;\É:.S )X+*aj” .a h;+<+ B+Y+)
 Product is designed by their Headquarter (HQ) located in a rich country @US/EU/Japan. But
Product assembly/manufacturing in done low wage countries.
 Further, these products are not produced from start to onish within a single country. (Qec-Qec
*\]aj6=9:]\‚ªY+ .\ Q;7g+, )X+*; k.<+ B+Y+ uC)
 Instead, countries specialize in particular stages of production sequence. E.g. Iphone:
 LCD screen @South Korea + Processor @Taiwan +WiFi chip @Malaysia
 → above parts are onally assembled in Foxconn Factory in China.
 2020-July: Apple's contract manufacturer Foxconn started iPhone 11 mfg in its Chennai factory.
(Due to the USA-China trade war, companies are shiing the factories away from China. Ref
Pillar#3B for trade war / protectionism)

41.7.2 : : Assemble in In India → how will it bene^t India$

IF India joins the assembly chain of Network Products (;\É:.S )X+*) esp. computers, TV, mobile,
electronics (9:`7Y )N”,), road-vehicles (gƒ. :+u;), then…
Assemble in India 2025 2030
New Jobs in India 0lVn/0 t|VD → 4 cr 8 cr
IndiaMs share in World Export CW}X2 BDE/~e ?F/n1./01 → 3.5% 6%

41.7.3 : Production Linked Incentive Scheme (PLI: -d/.D ÄÅ/Ç0e ÉlÑ/ÖD)

 fis scheme aims to mfg of automobiles, pharma, mobiles, textile etc. sectors
 By giving them conditional 4-6% subsidy on incremental sales of goods manufactured in India,
against their production in base year (:‚S2019 .\ Q;7N+Y 6=, è+,Y 6=9;6Y .jN;- .\ )X+*;a, .} g+e+;+ 9hP},
k.Y;- h∑-, )g kug+h g\g]YSgÒÚl-/e+è *- B+åc-Æ)
 Note: Drone industry is exception- theyéll be given 20% subsidy on sale of drones.

Base year 2019-20. But to some companies given option to select 2020-21 as base
year, if they want. Who are those Companiesp Ans. Not IMP.
Scheme Validity till 2025-26.

41.7.4 : PLI 1.0 Scheme ke 13 Sectors

Sr Mfg Approving Org áá
1,2 - 1) Automobiles (But scheme not Dept of Heavy Industries (under More
given for petrol/diesel/CNG type Ministry of Heavy Industries) than
Internal Combustion Engine (ICE) 57,000 cr
vehicles. Focus is on e-vehicles)

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 697
 Sr Mfg Approving Org áá
- 2) Auto components (e.g. tire,
engine etc)
3 Drones and Drone components Ministry of Civil Aviation 120 cr
4 Advanced Chemistry Cell (ACC) NITI Aayog and Department of 18100 cr
Battery- used in consumer electronics, Heavy Industries
electric vehicles, and renewable energy.
5,6, 5) Active Pharmaceutical ingredients Department of Pharmaceuticals 15000 cr
7 (API) / raw material pharma under Ministry of Chemical
6) Pharmaceutical Drugs
7)Medical devices (e.g.Xray, Stent)
8 Telecom & Networking (*î,gjy+, .\ )N.,/) Department of Telecom (under 12195 cr
e.g. Mobile handsets Communication ministry)
9 Food Products- Veg, Non Veg, dairy- Ministry of Food Processing 10900 cr
ghee/cheese etc are included (â+` N*+RS)
10 Textile Products: Man Made Fibre Ministry of Textiles 10683 cr
(MMF) and technical textiles e.g.
shoelaces, parachutes etc
11 Specialty Steel (â+g k.◊ .\ Ù-e )X+*) Ministry of Steel 6322 cr
12 White Goods - domestic / home Department for Promotion of 6238 cr
appliances but only two mentioned for Industry and Internal Trade
now- ACs & LED (DPIIT) under Commerce Ministry
13 Electronic/Technology Products Ministry of Electronics and 5000 cr
Information Technology
14 Solar Photovoltaic Modules Ministry of New and Renewable 4500 cr
Energy
Total ë1.97 Lcr
Total: ë1.97 lakh crores worth of subsidy will be provided. Presently 14 sectors. Later more sectors
may be added / Government may increase scheme funds….so above tableMs numbers may change.
(ig6=Qec Qec g6< N, Qï ^\_aj.a Baƒ+ B+Y+ uC[, gÒÚl- .} ,…6 6=h*e+: k.å B+Y\uÕe\k.; h€Y h+,-.} g\PHD
.,;\6=ı+<*+ .6, :Ø .} hh+S*- ‰+*+ uCÆ )

41.7.5 PLI 2.0 for IT Hardware (2023)

• Boss$ Ministry of Electronics & IT (MEITY)
• Products$ (i) Laptops (ii) Tablets (iii) All-in-One PCs (iv) Servers , semiconductor,
integrated chips etc.
• Bene^t$ 5% incentive on incremental sale of IT hardware made in India.
• Tenure$ 6 years from registration.
• existing IT manufacturers who registered in PLI 1.0 → their accounts upgraded into 2.0
41.7.6 : - PLI Scheme: Bene^ts$
 imports, exports, Jobs, GDP (q<+Y 6=.6-, 9;<+SY 6=:°b•, ,a§c+, g°B;)
 Eco Survey-2023: Indiaés share in global export is 2.2% (2021). PLI can help improving it.

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 698
 Scheme will encourage Telecom mfg companies like Foxconn, Wistron and Pegatron, who
assemble iPhones for Apple companies- to shi the base of operation from China to India.
 2023: Tata bought Wistron's factory near Bengaluru, so now Tata will make iphones for Apple.
 Mobile handset sector alone is likely to contribute >ë10 LCR of GDP, and 60% of these mobiles
will be exported, 2 lakh direct jobs will be created, 6 lakh indirect jobs will be created e.g. those in
transport, packaging material, advertisement etc. of those mobiles.
 Automobile will create additional 7.5 lakh jobs, Drone industry = 10,000 new jobs, Similar
beneots in other sectors mentioned in the above table. (g.e √,\eà)X+*, 9;<+SY YR+ ,aBc+, 6=h∑aY,-)

MCQ. (Prelims-2023) Statement-I: India accounts for 3.2% of global exports of goods.
Statement-II: Many local companies and some foreign companies operating in India have taken
advantage of Indiaés ºProduction-linked Incentiveé scheme.
(a) Both I and II are correct and statement II is the correct explanation for statement I
(b) Both I and II are correct and statement II is not the correct explanation for statement I
(c) I is correct but II is incorrect (d) I is incorrect but II is correct

41.7.7 Mfg: electric vehicles: FAME & PMP Schemes

(Ref: Pillar#5 infrastructure - subtopic: transport)

41.8 MFG SECTOR OBSERVATIONS BY ES23

Sector Rank/Number of India
Mobile second-largest mobile phone manufacturer
largest producer of generic medicines
Pharma
3rd largest producer (Volume wise)

41.8.1 Mfg- signi^cance as per ES23 (BCBD?/~3 igj 2/ ?Öà)

 Domestic MFG reduces the reliance on imports → reduces current account deocit. (q<+Y N,
9;èS,Y+ .6 ,uY- uC. y+eàâ+Y+ √+É+ .6 uaY+ uCÆ)
 Gives direct jobs to over 12 crore people. (.,aƒajeacaj.a ,a§c+,)
 Textiles and construction are two major job creating sectors.
 industrial growth catalyses growth in services sectors such as banking, insurance,
courier/transport/logistics, etc. (N,a^ ≥N g\g\:+ ^\_aj6=è- ,a§c+, 9;6+S/)
 fus, MFG has Multiplier e´ect on job creation. (<+;- .} ,a§c+, 9;6+S/ N, c7/. sè+:)

41.8.2 MFG Sectors challenges as per ES23 (â@DäBeE/w)

 Corona-2020: supply chain disruptions, shortage of microprocessors, semiconductors. (qNà̂Y
òjâe+- 6+iPasag\g, ˜yN, g\b6.jl{, .} k.¯˘ )
 Geo-political challenges e.g. China-Taiwan, Russian-Ukraine → inÑation in imported
commodities e.g. edible oil, crude oil, fertilisers. (èà,+B;-9Y. Y;+: .\ yeY\q<+9YY .ÿ\6+e .} .}6Yaj6=
h∑aY,-)

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 699
Interest Coverage Ratio (ICR) ek financial ratio hota hai jo company
ke financial health ko measure karta hai. Yeh ratio company ke ability
ko indicate karta hai ki wo apne interest payments ko kitni asani se
afford kar sakti hai. ICR ko usually ek number mein vyakt kiya jata
hai, jise Earnings Before Interest and Taxes (EBIT) se divide karke
calculate kiya jata hai:

ICR = EBIT / Interest Payments

Yahan, EBIT company ke earnings hai jo interest aur taxes se pehle

calculate ki jati hai, aur Interest Payments company ke dwaara kiye
gaye interest payments hai.

ICR ka higher hona better hota hai, kyun ki yeh dikhata hai ki
company ke pass interest payments ke liye sufficient earnings hai. Ek
low ICR company ke liye financial strain ka sanket ho sakta hai, kyun
ki wo interest payments ko afford karne mein mushkil ho sakti hai.
 shortage of skilled workers, easy loans, easy transport. (.7]e 6B*î,, qg+; ea;, qg+; NO,:u; .} .6-)
 private company is not doing enough research innovation.(gj]ar; [, Q˙\‚/ 6=9;B- .jN9;<+j®+*+ NCg+
âyS;u-j.,Y-)
 Construction sector slow down by high Rainfall in 2022. (è+,- h+O,] .\ yeY\6.+; 9;6+S/ 6=Y…e-ı)
 RBI hiking repo/loan interest rate to oght inÑation: → home / auto sales a´ected. (6u£c+¶ g\eƒ;\.\
deå O,§:ShÕ. ;\ea; 6ujc\k.å Ya √,/:+u; .} 6+£c 6=.6-)
 Due to lack of demand → Companies selling older stock, but not doing much FRESH
production. (6+£c 6=.6- .\ yeY\.jN9;<+jN7,+;+ 6+e h\y ,u- uCe\k.; ;<+ )X+*; ‰+*+ ;u-jua ,u+Æ)
 freat of new Covid Variant. (;å .a9:l :CO,åjÉ .+ âY,+)

41.8.3 Mfg: Balancesheet Deleveraging completed as per ES23

 Deleveraging is the process of reducing debt. (l\e:\ ,\çBcj = ˚/ .a .6 .,;\.} skP<+ uCÆ)
 It can be done by paying o´ / restructuring loans, onding fresh investors/loans to restart
business, auctioning/selling assets, increasing proots etc. (N7,+;\ea; y7.+ .,, ;å 9;:\]. ’àj’ .,, gjN˜™<aj
.} ;-e+6- qk* g\l-e\:,\çBcj k.<+ B+ g.Y+ uC)
 ES23: Government reforms such as IBC Code & Bad Bank (Ref: Pillar#1B2), ECLGS Scheme
(Ref: Pillar#1D3), PLI Scheme & other schemes giving subsidies/taxcuts etc.= helped
deleveraging Indian companies. (g,.+, ;\Ba Qec-Qec .+;à; [, <aB;+åj h;+¶ uC);g\<\6** b6e- uC. )
 this is also evident from following indicators:
Ratio 2020 2022
Interest Coverage Ratio (Ref: Pillar#1B2) 3 5 (Bigger number is better)
Debt to Equity Ratio (Ref: Pillar#1C) 0.8 0.4 (Smaller number is better)

41.9 MFG & SERVICES → STARTUP INDIA (2016)

Nodal$ Commerce Ministry.

De^nition Original de^nition (2016) New de^nition a4er 2019-Feb
Startup company is a 7 years. 10 years
company not older than _ _ _

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 700
 De^nition Original de^nition (2016) New de^nition a4er 2019-Feb
(10 years if Biotech Company).
DoesnMt have annual turnover
ë 25 crore. ë100 cr
more than _ _ _
Must be working towards Yes
innovation & development of Yes
goods / services
- Under Startup India (Ù+ÉSQN ijkl<+) initiative such startup companies are given 3 years exemption
>
-

from Income Tax , Corporation Tax. (q<., YR+ 9;c6 ., - Y-; :‚π Y. ä7¸-)
- Self-certiocation permitted with respect to (WRT) EPFO act, ESIC Act etc. (¨ s6+/-.,/ .} u6;\i;
.+;à;aj.+ N+e; k.<+ uCÆ g,.+,- Qıg, B+jy .\ ;+6 N\N,\]+j; ;u-j.,=c)\
- Relaxed norms in public procurement. E.g. if Govt tender says Hwe are hiring a web development
company to make a site for Govt department, but it must have x years experience and y crores of
turnover..N- fese mxn and myn requirement would be kept relaxed for a start-up company. (g,.+,-
â,-* .\ *z,+; N+_Y+ .\ 9;<6aj6=äàÉ)
- Relaxed norms for exit i.e. winding up the companies. (êC{W- hjr .,;\.} …+;à;- skP<+ 6=qg+;-)
- Govt established "Fund of Funds for Startups" (FFS) in Commerce Ministry. fis fund will
provide money to other startup related schemes. (g,.+, ;\9;~r<aj.} 9;~r h;+<- uC)
- Industry-academia partnership, incubation and hand holding, Mobile app and Portal, Legal and
Technical Support for oling the patent, lower / zero fees for patent applications etc.
- Foreign Venture Capital Investors (FVCI) given certain technical relaxations by Income Tax
Dept (for TDS/ tax withholding) and Reserve Bank of India (for currency convertibility).
- Startup India Seed Fund Scheme (SISFS): By the Ministry of Commerce to provide onancial
assistance to 3600 startups from 1st April 2021 to next four years. (qÂR. 6**/ ]7«qY- NàjB-)
- Prarambh Startup India International Summit 2021: Indian Commerce ministry + BIMSTEC
(Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation) countries viz.
Bangladesh, Bhutan, India, Myanmar, Nepal, Sri Lanka & failand.

41.9.1 : Budget-2019 on Start-ups

 Weéll stop harassing startups in the Angel Tax cases. ( Ref: Pillar2)
 Weéll launch special Doordarshan TV channel for helping startup entrepreneurs- how to register
and manage business, how to mobilize capital, tax planning, marketing strategies etc. (ª+; s*+; .\
deå Qec TV yC;e)
 Weéll extend the Stand-Up India Scheme till 31/3/25. ( Ref: Pillar1D)

41.9.2 : Budget-2020, 2021, 2022, 2023 on Start-ups

• Nothing exam worthy. Just the usual lip-service/chikni-chupdi-baatein.
• 2023: Angel Tax new announcements done. (Ref: Pillar#2A1)

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 701
41.9.3 Startup: Unicorn Company
• 2013: Unicorn term was coined by Aileen Lee, a Venture capitalist. Unicorn is a mythical
animal- looks like horse with a single horn.
• Unicorn Company = A startup company whose valuation is $1 billion or higher.
• It must be a privately held company = means private limited company= its shares not
available to public at large or traded in stock exchange yet. (says EconomicTimes)
• Swiggy, Byjus, Unacademy etc. Indian startups are in this list.
January 2022 → India China USA
No. of Unicorn Startups 80+ 300+ 400+

MCQ. Which of the following statements about a 'unicorn' is/are correct$ (EPFO-2023)
1. fe term 'unicorn' refers to any startup that reaches the valuation of $10 billion.
2. Only a privately held startup can be a unicorn.
Codes: (a) 1 only (b) 2 only (c) Both 1 and 2 (d) Neither 1 nor 2

41.9.4 Startup data from ES23

 In India, number of startups have from 700 (2016) to 14,000 (2021).
 Indian startups created 9 lakh+ direct jobs says ES23
Rank (2020)→ 1 2 3 4 5
Largest number found Maharash
Karnataka Delhi UP Haryana
in State → tra
Largest number found IT Healthcare & Educati Professional Food
in Sector → services Life Science on services Beverages
41.10 MFG POLICY → NATIONAL POLICY ON ELECTRONICS 2019

ie\{W|9;˛ N, ,+VW-< ;-9Y 2019 replaces the previous policy of 2012.

- Boss$ Ministry of Electronics and Information Technology (MeitY).

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 702
- To make India a global hub for Electronics System Design and Manufacturing – (ESDM:
ie\{W|9;˛ s/+e- ,y;+/~gÙ6 klB+i; [, 9:9;6+S/), Government will do following: →
- Tax beneot, subsidies and other incentive for R&D, innovation, Training and skill development
for 5G, Internet of fings (IoT), Artiocial Intelligence (Al: .°b_6 h7b•6™+ ), Machine Learning,
Virtual Reality (VR), Drones, Robotics, Nano-based devices, Medical Electronic Devices,
Automotive Electronics Industry, Strategic electronics for the defence sector etc.
- Sovereign Patent Fund (SPF: g+:Sèz6 N\É=É 9;r-): Govt will buy Patents / Intellectual Property Rights
(IPR) from the innovators / Corporate Companies → allow MSME industries to use those IPR
for electronics manufacturing, without having to pay hey royalties to original patent holder..
- Targets for 2025$ Produce 100 crore units of mobile handsets & export 60 crores units out of
that. Create 1 crore jobs.
- SAMRIDH SCHEME: MeitY scheme for helping Soware Product related start-ups.
- Meta resources = are facilities that allow easier access to network-based resources in a deoned
subject area. e.g. electronic devices that helps you read e-books, audiobooks, smartwatches for
GPS-tracking your cycling etc (;\É:.S 6=ˇUY gjg+r;aj.a qg+;- g\i–\6+e k.<+ B+ g.\ → )g6=6** .,;\
:+e- y-§ .a 6\É+-gjg+r; .u+ B+Y+ uCÆ BCg\k. 6ah+ie ıa;, ◊+ÉS-√ƒ- iœ+k*)
- ES23: Govtés target is US$ 1 trillion digital economy by 2025.

41.10.1 Mfg → Electronics Development Fund (EDF: vpgécèBD2ê BC2/t BDëÅ)

- Boss$ Meity gave money to Canara bankés CANBANK Venture Capital Funds Ltd.
- 2015: EDF was set up as a mFund of Fundsn (h°u* 9;~r) → money is given to mDaughter Fundsn
()N-9;~r<+) e.g. SEBI registered venture capital funds who are investing in electronics related
startup companies.

41.10.2 Mfg → Design Linked Incentive (DLI) for Semi-Conductor Chips

- MINISTRY of Electronics and Information Technology (MEITY) → Centre for Development
of Advanced Computing (C-DAC) → design linked incentive (DLI) scheme.
- Govt will give 4-6% subsidy to Indian company for semi-conductor chips, Integrated Circuits
(ICs), Chipsets, etc. to reliance on Taiwan for Chips. (Y+i:+; g\q<+Y .6 .,;+ Nƒ\)

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 703
 41.10.3 → National Digital Communications Policy (2018)
,+VW-< klçBÉe gjy+, ;-9Y replaces National Telecom Policy-2012.
Boss$ Ministry of Communications → Dept of Telecom
- Target-2022: 50mbps broadband to every citizen, 10 Gbps to all Gram Panchayats, jobs to 40
lakh people covering 8% GDP.
- Bodies:
 DoTés Telecom Commission transformed into ºDigital Communications Commission
(klçBÉe gjy+, q<ac)é.
 (proposed) National Fibre Authority(,+V-W< ê+ih, s+~r.,/): for creating broadband National
Digital Grid.
- Focus data privacy, digital security, 5G, Internet of fings (IOT), Machine to Machine
Communication (M2M)
- United Nations → specialized agency → International Telecommunication Union (ITU) →
ICT Development Index → improve Indiaés ranking. (presently below 100, have to get top-50.)
- Related: World Economic Forumés Networked Readiness Index. Although seems ranking not
updated post-2016 so letés ignore.

41.10.4 → National Policy on So4ware Products - 2019

- Boss$ MEITY Target-2025: 10000 startups, 35 lakh jobs, 10% of Indiaés GDP.
- For this we will help the startup companies, setup Soware Technology Parks , Research,
Innovation, Training, Skill Upgradation, Linkages Between Industry-Academia, IPR Protection.
- Soware Product Development Fund (SPDF: g|फ्ट:\<, )X+* 9:.+g .a‚) of ë 1000 cr → ºFund of
Fundsé → give ë ë to Venture Capital Funds → to soware developers.

41.10.5 Electronics & Startups Notable Schemes/Portals (2022)

Scheme Description Boss
TIDE 2.0 help startups in Internet of fings (IoT), AI, Block-chain, Robotics, etc. MEITY

[
MezHY (2019)
SAMRIDH helping soware startups MEITY
GENESIS help startups in small towns. MEITY
SPECS help manufacturing of Electronic Components and Semiconductors. MEITY
MAARG DPIIT portal giving Mentorship, Advisory, Assistance to Startups DPIIT
-
[ Portal
CGSS Credit Guarantee Scheme for Startups. So bank/NBFC can pass their DPIIT
loan application faster.
Full forms for above table:

O
 MEITY (Ministry of Electronics and Information Technology)
④  DPIIT (Department for Promotion of Industry and Internal Trade) under Commerce Ministry.
- n

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 704
 2022
Whe
41.10.6 → Quantum Technology (í/wì? Éäklmn2ê) 2020
 Conventional computers process information in ºbitsé or 1s and 0s.
 Quantum computers compute in ºqubitsé (or quantum bits). fey work on quantum mechanics
principles related to how matter behaves on the atomic scale.
 Googleés quantum computer ºSycamoreé claimed ºquantum supremacyé bcoz it onished a task in
200 seconds that would have taken a conventional supercomputer 10,000 years to complete.
 Applicationsp computing, communications, cyber security etc.
 Budget-2020: National Mission on Quantum Technologies for a period of 5 years.
 Related Topics: 5g, public data etc in Pillar#5: communication infrastructure.

41.11 STARTUP CRITICISM / CHALLENGES (BD.w //ÄplâD/)

Shied to Mains Handout. #Prelims-RAFTAAR

41.12 → STARTUP → (SHUTDOWN) zEXIT{ OF SICK INDUSTRIES

Sick industries: h-6+, )`ac in an entity that has accumulated more losses than its entire net worth
(networth = assets minus liabilities).
Industrial sickness can be a result of (qjYO,. [, h+⇥ .+,.)
 Internal factors like mismanagement, workers low morale & strikes etc.
 External factors like rising cost of energy & raw material, fall in product demand etc.

1985: PM Rajiv Gandhi in enacted Sick Industrial Companies Act → Statutory body in Finance
Ministry → Board for Industrial and Financial Reconstruction (BIFR).

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 705
 BIFR would A) help the SICK industry with new funds or B) shut down the SICK industry on
case to case basis.
 Ideally, a sick industry should be liquidated so its labour and capital can be shied to healthy
companies. (q*]SNO,ˇU9Y<aj6=Ya h-6+, )`ac k. 6B*î, [, NàjB- ¨U )`ac .} Y,ê c6; .,;\y+kuå )
 But, above bodiesé decision making was very slow so sick companies will not quickly shut down,
and continue to receive Government funding/support, as if Abhimanyu entered the
ººChakravyuhM but never exits. So previous economic surveys used term ºChakravyuh challengeé.

2016: PM Modi repealed this Act & its statutory bodies. feir pending cases referred to National
Company Law Tribunal (NCLT). So now if a orm becomes sick then:
- IF wilful defaulter or incapable defaulter → liquidation under the SARFAESI Act
- ELSE I&B Code: IP will make a resolution plan within mxn number of days → if IPés resolution
plan is not agreeable to the lenders → liquidation.
- If a startup company wants to (voluntarily) shut down, it can make application under
I&B Code → IP will liquidate it within 90 days. fis helps the entrepreneur to pull out
his portion of capital (to start another startup = Ease of doing business).

41.13 STARTUP PROBLEMS AS PER ES23

 1) funding crisis aer US Fed Tapering. 2) fall in demand/sales.
 3) problems in Tax / Regulatory structure → flipping by the founders. <see next section>

41.13.1 Flipping
 Flipping process of transferring the entire ownership, IPR and DATA of an Indian company to
an overseas entity. (è+,Y-< .jN;- .} 6+e-.}/¨+b6x, hzb•. gjN*+ [, l\É+ k.g- 9:*\]- i.+¶ .a U+;+jYO,Y .,
*\;+Æ)
 fis is done mainly for going to nations with lower tax/legal norms (e.g. UAE/Singapore), Easier
to get funding (e.g. USA) etc. (≤ak. ); 9:*\]- g,.+,ajŸ+,+ ÉC˛ 6=6+ı}, …+;à; 6=äàÉ [, :u+£.\ ]\<, h+§+, g\
Nà£B- )æ+;+ qg+; uaY+ uCÆ)

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 706
 Flipping e´ectively transforms an Indian company into a 100 per cent subsidiary of a foreign
entity. While the founders and investors continue to remain its owns (indirectly) thru the foreign
company. (è+,Y .} .jN;- QjYY⇤ å. 9:*\]- i.+¶ .} Qr-;/gu+<. .jN;- h; B+Y- uCÆ)

41.13.2 How can India combat zïipping{ / ensure zReverse Flipping{$

1. Fix the loopholes in DTAA (Double Taxation Avoidance Agreement) (Ref: Pillar#2B:Black
Money) *au,\ .,+r+; NO,u+, g6∫zYa 6=g7r+,
2. Simplify / reduces taxes in India and other Ease of Doing Business measures. (.,a .a .6 k.<+ B+å
[, T+N+, 6=g7c6Y+ h∑+¶ B+å)
3. Make it easier for Indian companies to raise capital nationally and internationally e.g. more
capital account convertibility (Ref: Pillar#3B) (9:*\]- h+B+, g\NàjB- e+;+ qg+; k.<+ B+å)
4. Funding for R&D etc. (gj]ar; ;:+y+, .\ deå NCg+ k*<+ B+å)

* * * **
42 MFG & SERVICES → INTELLECTUAL PROPERTY RIGHTS

# Ratta maar
10 , ismain
To to highlight has
 WTOés Trade-Related Aspects of Intellectual Property Rights (TRIPS-1995) protects following
types of IPR (hzb•. gjN*+ Q~r.+,) : Copyright, Trademarks, Geographical Indications, Industrial
Designs, Patents, Integrated Circuits & Trade Secret.
 ♂World Boss$ UN specialized agency World Intellectual Property Organization (WIPO: HQ
Geneva, Switzerland, 9:D hzb•. gjN*+ gjcæ;).
42.1.1 ♂WIPO is known for
1) Global Innovation Index (:CçD. ;:+y+, gày.+j.)
2) Marrakesh Treaty 2013 which requires nations to increasing accessibility of copyrighted books to
Visually Challenged. India was orst to ratify.
a. Further, Social Justice Ministry → Divyangjan Dept → launched ºSugamya Pustakalaya
e-libraryé for VH, in collaboration with Daisy Forum of India (an NGO) and Tata
Consultancy Service (TCS).
42.1.2 IPR → Indian Laws
Year Act Nodal$
1952 Cinematograph Act Ministry of Information and Broadcasting.
Budget-2019 promised to amend it with anti-
camcording provisions.
1957 Copyright Act Previously HRD ministry, now Commerce
Ministry. Copyright O∏ce → Intellectual
Property Appellate Board (IPAB: hzb•. gjN*+
QN-e-< halS)
1970 Patents Act Commerce Ministryés Controller General of

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 707
 Year Act Nodal$
1999 Trademarks Act Patents, Designs and Trademarks. (CGPDTM)
1999 Geographical Indications of Goods Commerce Ministryés Geographical Indications
(Registration and Protection) Act Registry at Chennai
2000 Designs Act CGPDTM
2000 Semiconductor Integrated Circuits MEITY: Ministry of Electronics and Information
Layout-Design Act Technology
2001 Protection of Plant Varieties and Farmersé Agro Ministry
Rights Act
2002 Biological Diversity Act Environment Ministry
v - Trip 42.2 IPR → PATENTS → WHAT CANMT BE PATENTED$
-
-  Frivolous inventions. E.g. schoolbag, laptop bag (6+6àe- q9:⌅+,)
 Anything seriously harmful to public order, morality, humans, animals, plants or environment.
E.g. Stone-pelting machine (N⇧,h+B- .,;\.} 6]-; .+ N\ÉjÉ ;u-jb6e g.Y+)
 Atomic energy related inventions.
-

 Mere discovery of a scientioc principle or the formulation of an abstract theory or discovery of

any living thing or non-living substance occurring in nature;
 Plants-seeds varieties, biological process to create them; (Ref Pil#4A Pepsi-Potato)
-

 animals breeding; Medical treatment of humans and animals

-

 Mere discovery of a new form of a known substance which does not e∏ciency.
 Mere re-arrangement or duplication of known devices.
 Mere aggregation of properties of the components e.g. lemon + sugar + water = juice
 Mathematical formula, business method, method of playing game e.g. Dhoniés helicopter shot.
 computer program, presentation of information
 Integrated circuit (Its IPR can be registered separately under Semiconductor Integrated Circuits
Layout-Design Act)
 literary, dramatic, musical or artistic work; cinema-TV shows. (g+kuœ ;+⌃ gjc-Y .e+ )- there is
---
separate copyright law for it.
-

 Traditional knowledge. E.g. Ayurvedic information.

- - -

42.2.1 Patent: Discovery versus invention

Discovery ñlV Invention ÄBCó/0
Process of highlighting an already Ability to create something novel, or
Meaning
existing thing something unique
Newton saw the apple fall and
e.g. Alexander Graham Bell invented telephone
discovered gravity
Patentable$ No Yes it can be patented.

42.2.2 Copyright Act - covers following works

Type of work Examples

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 708
Literary work Pamphlets, Brochures, Novels, Books, Poems, Song Lyrics, Computer Programme
Artistic work Drawings, Paintings, Sculpture, Architectural & Technical Drawings, Maps, Logos
Dramatic Dance or Mime, Screenplay, Musical Work, Sound Recording, Cinetographic olms

42.2.3 Trademark Types

Type of work Examples
(1) Conventional
Words, colour combination, label, logo, packaging, shape of goods, etc.
Trademark
1. Sound mark - e.g. unique starting musical sound in Apple laptop.
(2) Non-
2. dynamic marks/ Ñuid marks e.g. (A) Google Doodle displayed on
Conventional
the top of the search engine. (B) Amul Girl in diferent clothes in
Trademark
newspaper cartoons.
(3) Smell and Taste e.g. Unique smell of Tide/Ariel detergent. But this type of trademark is not
trademark recognised under Indian laws.

42.2.4 IPR: Biopiracy & Traditional Knowledge Digital Library (TKDL)

 2001: TKDL started by CSIR (Council of Scientioc and Industrial Research, under Sci Ministry)
+ Ministry of AYUSH. Objective: to prevent biopiracy.
 Biopiracy = to the exploitation of traditional knowledge, genetic material etc by companies,
without the consent of local community /original owners. e.g.
Traditional Knowledge Patent application in USA / biopiracy attempt
Neem Oil Neem oil extracts to cure skin diseases and fungal infections
Turmeric powder medicine for wound healing
 TKDL contains digital database of over 3 lakh traditional Indian medicines/techniques from
Ayurveda, Unani, Siddha, Sowa Rigpa, yoga as well as Yoga.
 TKDL database available in ove international languages including English, German, French,
Japanese and Spanish, - in a format easily understandable by (foreign) patent examiners.
 TKDL evidence helped revoking/banning over 200 patents obtained thru biopiracy.

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 709
JKL MNOLP QRSR TRSU MV WXYZ[\ ]S ^RM_`UM /aRSNbSM cadRS eRO MR `Z\fg hijklRjKL mfafnin MSZR \fOR- cmf
JRXkaRXSfmL MoUfop. qmMf rlsRt sKOfMf usv mSMRS OfaRSwabSM eRO xyz{ns sRq|fSL (nLMfyLvs) JOR} o~.

MCQ. Find correct statement(s): (Prelims-2019)

1. According to Indian Patents Act, a biological process to create a seed can be patented in India.
2. In India, there is no Intellectual Property Appellate Board.
3. Plant Varieties are not eligible to the patented in India.
Answer Codes: (a) 1 and 3 only (b) 2 and 3 only (c) 3 only (d) 1,2, and 3
42.3 IPR → PATENTS → COMPULSORY LICENSING (sBDC/E~p/vtFëtwn)
 If public interest is involved → Government can use, manufacture, import or sell a patented
invention without the patent-ownerés consent. Permitted under WTOés TRIPS agreement.
(B;kuY 6=g,.+, N\É=É :+e- *:+¶ .+ è- 9h;+ N\É=É-r+,. .} Q;769Y .\ )X+*; .,:+ g.Y- uC.)
 2012: Shortage of an anticancer drug Nexavar in Indian market. Bayer Pharma (Germany) held
patent & production rights & sold of ë 2.50 lakhs per 120 tables.
 So, Indian Govt used Indian Patent Act to ºCompulsory Licenseé to an Indian company NATCO
to produce this drug, sell it at ë 8880 per 120 tablets & pay 6% royalty to Bayer.
 US & EU are apprehensive of Indian Govt issuing CL, because their MNCs will su´er, if such low
prices and royalty % are forced. (è+,Y g,.+, .\ i; .*6ajg\ca,\ *\] ˜y9jYY)
 2020: newspaper columns on how CL can help making Corona drugs cheap.# Raƒ+-N∑a-qc\-h∑a

42.3.1 Patent pools (ògìwìl 2/ t?ôÖ1203)

 Patent pools are voluntary agreements between two or more patent holders. (¨CÒ⌥. g6∫zY\) to
create a "pool" → Appoint a manager → Manager gives the production/licence rights to

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 710
 multiple third parties for a cheap cost → manager distributes the royalty/license fees among the
patent holders.

 Why in the news$ Costa Rica and other poor nations are proposing patent pools for Corona
related drugs/vaccines.
 Pharma MNCs of USA & UK etc are opposed to this idea since it'll harm their monopoly &
prooteering. (ca,aj.} kê,jc-j.jN9;<+ igg\;+,+§ ≤ajk. );.\ å.+~r.+, [, 67;+ê+âa,- .a Y,+)

42.3.2 Trips Waiver demand by India & S.Africa

 2020-Oct: India and South Africa jointly proposed waiver from the TRIPS Agreement for
COVID-19 for drugs, vaccines, diagnostics kits, personal protective equipment (PPE), and other
medical technologies. In simple words: (.a,a;+ .\ g+R B7ƒ- €¶ y-Baj.a hzb•. gjN*+ gj~r 6=67Ø/O,<+<Y *-
B+å-⌦g+ s–+: è+,Y [, Q↵-.+ ;\b6e., 9:D T+N+, gjcæ; 6=k.<+ uC)
 First world countries should proactively share such patents / technology with third world
countries. (sR6 9:D .\ *\]aj;\)g.} )X+*; sz`abc.} Y-g,\ 9:D .\ *\]aj.\ g+R g+B+ .,;- y+kuå)
 if a third world country is using such patented-technology of a 1st world country then it should
be allowed, without any complaints/penalties at WIPO/WTO. (Y+k. Qï *\] è- )g.+ )X+*; ., g.\,
9h;+ 9:D T+N+, gjcæ; 6=ß].+<Y g\l,\)
 2022-WTO Geneva Summit allowed this. Refer to Pillar3C.

42.4 IPR → EVERGREENING OF PATENTS (ògìFì 2l t./uÖ/0 20D/ / 0ñD/)

 Patent is a statutory monopoly right given for an invention for 20 years. (N\ÉjÉ - g+e .\ å. g-b6Y
g6< .\ deå å. q9:⌅+, .\ deå k*<+ c<+ å. :Cr+9;. å.+~r.+, uCÆ)
 Patent protection is a territorial right and therefore it is e´ective only within a country. Suppose
a pharma company is given 20 years patent for xyz drug in India, others cannot manufacture it
during that period. (20 :‚S.\ h+* <\Q~r.+, ¥ ua B+Y+ uCÆ)
 But when the patent is about to expire, the company just slightly modioes the original drug
formula to create a new drug and seeks patent for that new drug. fis unethical practice is called
mEvergreeningn. ([‚~r .\ 6àe Yx 6=Raƒ+ h€Y 6+6àe- ê\,h*e .,.\ *ah+,+ N\ÉjÉ e\;\.} êBीर् .aß]])
 Indian Patent Act prohibits Evergreening. (under Section 3(d)). (…+;à; 6=s9Yhj~rY uC)

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 711
 (2013) A Swiss pharma company Norvatisés blood cancer drug Glivecés patent was about to
expire, they had sought patent for similar new anti-cancer drug but lost the case in Supreme
Court India. SC allowed Indian companies can produce generic version of this anti cancer drug
→ patient will get it at cheaper price.
 2023: similar case with Johnson and Johnsonés TB medication Bedaquiline.

42.5 IPR → UTILITY PATENTS: -òElmne/ ògìFì

- Utility patents / ºpetty patentsé recognize the minor / superocial (mechanical) improvements of
existing products e.g. adding speaker in a microwave oven to announce when food is prepared.
(6+6àe- dääa,\ / gYu- –, .\ <+jb_. g7r+,)
- Commerce ministry is not in favour of amending the Patent Act to allow Utility Patent because
otherwise it could aggravate the problem of ºEvergreening of Patentsé.

42.6 IPR → NATIONAL IPR POLICY 2016

- Nodal$ Commerce ministry. Motto$ Creative India; Innovative India.
- fis policy shied the Copyright O∏ce and its statutory body Intellectual Property Appellate
④
Board (IPAB) from HRD (Education) ministry to commerce ministry.
- Conduct IPR awareness programs for industry, police, customs and judiciary so they can combat
counterfeiting and piracy in a more e∏cient manner. (B+c°9Y YR+ Y+e-6)
- +Filler points like Launching new courses in the higher education to increase the availability of
patent experts in India, reducing the patent application fees for the startup companies and
grassroot innovators etc. (Ù+ÉSQN .jN9;<aj.+ NjB-.,/ ı}g 6=67Ø)

MCQ. Find correct about öNational Intellectual Property Rights PolicyM (UPSC-Pre-2017)
a) It reiterates Indiaés commitment to Doha Development Agenda & TRIPS Agreement.
b) Dept of Industrial Policy and Promotion is nodal agency for regulating IPR in India.
c) Both a and b [d)Neither a nor b

42.7 IPR → NOTABLE SCHEMES (2@õ -úgñD1E ElVD/ùw)

SIPP  Commerce Ministryés Startups Intellectual Property Protection (SIPP:Ù+ÉSQ✏
hzb•. gjN*+ gj,^/) scheme valid from 2016 to 2020.
 Startup entrepreneurs are given free training on how to ole the patents. No
patent fees for them.
AIM Atal Innovation Mission in NITI Ayog to help the innovators. E.g. launch challenges
in NITI / competitions and award prize money. Following initiatives launched in 2020:
(2015) - 2020-Sept: ARISE-ANIC initiative for applied research and innovation in Indian
MSMEs and startups.
- 2020-Nov: AIM–Sirius Innovation Programme 3.0 for schoolchildren of India

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 712
 and Russia In virtual mode. Sirius is a Research Institute of Russia. It included a
competition to create sowares and apps for culture, distance education, science,
health, sports, otness,, chemistry, artiocial intelligence etc in Corona.
SETU in  Self Employment and Talent Utilisation (SETU) in NITI ayog
NITI  to setup incubators for innovation. Incubators are centers that help aspiring
(2015) entrepreneurs to develop /experiment with products without investing in all the
machineries beforehand.
Smart  Organized by the HRD/Edu Ministry since 2017 onwards.
India  2019: College students asked to give innovative ideas to solve the challenges
Hackatho faced by public sector organisations, industries and even NGOs. 36 hrs soware
n development competition, 5 days hardware development competition etc.
 2020: YUKTI 2.0 Young India Combating COVID with Knowledge,
YUKTI Technology and Innovation (YUKTI) is HRD/Edu Ministry's portal for sharing
2.0 info about: Research, Innovation, Technologies, Startup (gj]ar;,
;:NO,:YS;,Y.;-.,Ù+ÉSQN) esp. those related to Corona
KAPILA  2020-: HRD/Edu Ministryés Kalam Program for Intellectual Property Literacy
and Awareness Campaign (KAPILA). [2èpgV 2g õ/j f0 sû/ò2lw?FIPR V/n|Be]
 To create awareness about Intellectual Property Rights (IPR) and patents among
students and teachers in Higher Education Institutions (HEIs)
Misc. Dept of Science Technology launched
2@p m?p/20 1. INSPIRE (Innovation in Science Pursuit for Inspired Research) – scholarship
õ/jC|ëü and awards given to students and faculty.
vD/? v†/°. 2. MANAK (Million Minds Augmenting National Aspiration and Knowledge)
3. NIDHI (National Initiative for Developing and Harnessing Innovation)
4. NIDHI-PRAYAS (PRomoting and Accelerating Young and ASpiring technology
entrepreneurs)
HRD Ministry launched Uchhattar Avishkar Yojana (UAY) for IITs
All these schemes provide some type of grant, funding, scholarship, award the
innovator. By default theyére 100% Union fund. Internal di´erence & exact features=
poor cost beneot.
✍ Conclusion template$ Innovations / Startup can turn Indian youths from job seekers into job
creators. fey encourage entrepreneurship, innovation and creation of revolutionary new products
that can be used by people around the world. Hence startups are important / protecting their IPR is
important. Aforementioned initiatives / schemes are important in that regard. <\gh B≥,- Y+k. è+,Y .\
;zB:+;aj.a ;z.,-- <+y. g\;z.,--*+Y+ h;+;+ g.\, P+j9Y.+,- ;å )X+*; .,\, çBgg\*9⇣;<+ .\ eacaj.} g79:r+ h∑ g.\.

Atal innovation mission is set up under the _ _ . (Pre19-SetA-Q19)

(a) Department of science of technology(b) Ministry of labour and employment
(c) NITI Ayog (d) Ministry of skill development and entrepreneurship
INSPIRE is an ongoing initiative of Government of India for (CAPF19)
(a) attracting talent for science and research (b) research advancement through nurturing

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 713
(c) promoting research among various S & T stakeholders
(d) augmenting quality manpower in niche areas of research
Te policy of Intellectual Property Rights (IPRs) is the responsibility of _ _ _ _ (UPSC-CDS-i-
2020)
a) Ministry of Law and Justice b) Department of Science and Technology
c) Department for Promotion of Industry and Internal Trade
d) Ministry of Human Resource Development
NIDHI is an umbrella scheme for the promotion of (Asked in UPSC-CDS-2021-i)
(a) young and aspiring innovators. (b) scientioc research.
(c) primary health care. (d) primary education in rural areas.
42.8 IPR → INDICES & RANKINGS ④

42.8.1 IPR Index → Global Innovation Index (GII: CW}X2 DC1D1203 tôâ2/w2)
-
by WIPO, Cornell University (USA), Insead Business School (Paris).
 Indiaés overall rank continuously from 81 (2015) to 40 (2022). (gYY ≥N g\QN;+ ,Õ. h\uY, €q uC)
 GII ranks a country based on performance across 7 pillars viz. 1) knowledge and technology
outputs, 2) market sophistication, 3) human capital and research, 4) institutions, 5) business
Ki
sophistication, 6) infrastructure, 7) creative outputs. India
Yaad Rakho Se
,

IndiaMs Fina
Pehle
halat
Rank 1 2 3
Rank
~ THEME achi hai
2021 Switzerland Sweden USA #46 Tracking Innovation through COVID-19
>
Crisis. 9 un No 1 -
:

2022 Switzerland USA Sweden #40 What is the future of innovation-driven Switzerland
hai
growthp
2023 Switzerland Sweden USA #40 Innovation in the face of uncertainty

42.8.2 Index → Global Competitiveness Index (GCI) by WEF

(:CçD. s9Y r+S¥.Y+ gày.+j.-9:D qÂR. 6jy) by World Economic Forum ranks nations on GCI 4.0
framework with 12 drivers of productivity: Institutions, Infrastructure; Technological readiness;
Macroeconomic context; Health; Education and skills; Product market; Labour market; Financial
system; Market size; Business dynamism; and Innovation.
✓ 2019-Oct Ranking: 1) Singapore 2) USA 3) Hong Kong….68) India. India has fallen by 10 places
than previous report.
✓ 2020-Dec: Special report with feme-m How Countries are Performing on the Road to
Recoveryn. Although instead of giving 1-2-3-4-type proper rankings, they seemed to have done

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 714
 only Timepass-talk about Corona.e.g. A) top-3 Ñexible work from home :Netherlands New
Zealand Switzerland B) top-3 digital legal framework = USA Luxembourg Singapore etc.
✓ 2021 onwards- seems they've not published reports yet.
42.8.3 Index → NITIMs India Innovation Index (/0e DC/â/0 tôâ2/w2)
2019: NITI Aayog released it. Institute for Competitiveness (a private organization) acted as
knowledge partner. It monitors the States and UT on two dimensions viz
1) Enablers (Él¢ Includes ove pillars: (1) Human Capital, (2) Investment, (3) Knowledge
t/ÖD./e/) Workers, (4) Business Environment, and (5) Safety and Legal Environment.
2) Performance Includes two pillars: (6) Knowledge Output and (7) Knowledge Di´usion.
NITI Aayogés India Innovation Index 2021 (published in 2022-Jul)- Top3 (Major States) Karnataka,
Telangana and Haryana. Bottom-3 (Major States) Chhattisgarh, Odisha and Bihar.

42.8.4 IPR Index → Misc. £/peôC/pg

Following are low proole bodies, so their index components / India' ranking = notImp / gives very
poor: cost beneot for exam (iY;+ gh <+* ,â;\6=ê+<*+ .6 u- uCÆ QN;- <+**+⌘ N, h€Y §a, 6Y l+eaÆ)
Index Prepared by
Global Talent Competitiveness Index By INSEAD business school (Paris) in partnership with
(GTCI: Z~ÄM ^`UTR ^`UÅjRÇmÉdMRwM) Tata Communications and Adecco Group.
World Competitiveness Index By Switzerland-based International Institute for
Management and Development (IMD).
World Digital Competitiveness By Switzerland-based International Institute for
Ranking Management and Development (IMD).
Index of Economic Freedom By Heritage Foundation (USA) with support of Wall
Street Journal.
Technology and Innovation Report By United Nations Conference on Trade and
Development (UNCTAD, HQ: Geneva, Switzerland).
2021 Report: India listed as the top "over-performer"
among developing countries.
Global Competitiveness Report is published by the _ _ . (Prelims-2019)
(a) IMF (b) UNCTAD (c) World Economic Forum (d) World Bank
Which one of the following countries was ranked 1st in the IMD World Competitiveness ranking
2019$ (UPSC-Geologist-2020) a) Singapore b) USA c) India d) Switzerland

42.8.5 Pvt sector not spending enough áá on R&D says ES21

shied to Mains handout

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 715
43 ♂SECTORS: EASE OF DOING BUSINESS REPORT

Figure 1: OCEA ?P4E;B =QR :7E;:; S>T B7:A7U 5V789:; WX7 :AYZ;:AYZ;[: WQ:A \9
- §/ò/0 20Dg?F t@n?e/ 2/ Ç0òlì~ is an index by the World Bank to measure how easy or di∏cult it is to
run a business organisation in a given country, based on simple average (equally weighted) of 10
parameters- such as no. of documents, time & cost involved in registering a property, getting an
electricity connection, paying taxes etc.
- As such no specioc themes are given in these reports.
Rank 2020 (released in #1: NZ>Singapore>Hongkong> India (63) >... Somalia (190)
2019-Oct) → Report acknowledges India as one of the top 10 improvers, third time in
a row. Indiaés rank in 2017 (#130) to 2020 (#63) = shows a jump of 67
steps- this is highest by any large country since 2011.
Rank 2021 (it was to be 2020 Aug: World Bank has discontinued/suspended this report because
released in 2020 BUT) of allegations of data manipulation / irregularities about Chinaés rank.
(l+É+ 6=r+jre- /ä\ƒä+ƒ ua ,u- uC⌦g\q,aNaj.\ yeY\ig g+e O,NaÉS .a UbcY k.<+)

Table 1: India⇠s ranking on 10 parameters- although no need to memorize now_

Ease of Doing Biz Parameters Rank-2018 Rank-2019 Improved 2019 over 2018
Overall 100 77 100 -77=23
Starting a Business 156 137 19

Construction Permits 181 52 129 (highest jump)

Getting Electricity 29 24 5
Registering Property 154 166 -12

Getting Credit (loan) 29 22 7

Protecting Minority 4 7 -3
Investors
Paying Taxes 119 121 -2 (despite apps & portals¶)
Trading across Borders 146 80 66
Enforcing Contracts 164 163 1

Resolving Insolvency 103 108 -5 (despite I&B Code)

MCQ. According to the World BankMs Doing Business Report, 2019, IndiaMs ranking has improved in in
which of the following areas compared to previous year$ (UPSCMs-CDS-ii-2018):
1) Paying taxes 2) Resolving insolvency 3) Starting a business 4) Construction Permits
Answer Codes: A) 1 only B) 1 and 2 only C) only 3 and 4 D) All four areas.

MCQ Which is not a sub-index of öEase of Doing Business Index$ (Prelims-2020)

(a) Maintenance of law and order (b) Paying taxes

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 716
(c) Registering property (d) Dealing with construction permits

FAQ: Do I have to remember ranking when this report is banned$ Ans. No. but keywords
should be kept in mind, for vocabulary for Mains Answer writing.

43.1.1 ♂ EoD → Indian StatesM EoD: BRAP Ranking

 Commerce ministry → Department of Industrial Promotion and Internal Trade (DPIIT) with
help of World Bank. Indian States are ranked for Access to Information, Single Window System,
Labour, Environment, etc. (gày;+, å.e ¬âƒ.} s/+e-, ò6, N<+S:,/)
 2022: Top rankers: Andhra Pradesh, Gujarat, Telangana, Haryana, Karnataka, Punjab and Tamil
Nadu.

43.1.2 ♂ EoD → Economic Freedom of the World

 by the Fraser Institute in Canada. (9:D .} qÂR. ¨Yj_Y+)
 To rank the ability of individuals to make their own economic decisions in a country e.g. How
easy it is to start a business, get a loan, number of Govt regulations etc
 Ranking: Iéd not burden in my brain memory card with this low proole report.

43.2 EASE OF DOING BIZ (EOD): BUDGET-2023 ANNOUNCEMENTS

43.2.1 EoD: Vivad se Vishwas I – Relief for MSMEs in Budget-2023
 normally if a company fails to complete the government project on time (e.g. highway building,
supplying tables/chairs etc ), then govt will forfeit companyés bid security deposit/Earnest Money
Deposit/bank guarentee/performance security.
 Budget-2023: if MSME could not complete the government /CPSE contract during the Covid
period → 95% of the forfeited amount will be refunded.
 Here, COVID Period means between February 19, 2020, and March 31, 2022.

XÑ\ Mk} vhvmvh} cÖkÜ OfMkSkOR Mf \áSRO mSMRSL àfMR aÉSR OoLwâMXR äR ]S mSMRS Of\wy Mf ãa hicmMV åmçkbSnL
xyakz{n Mk éè âMXR äRê Uk 95% {í Sìh mSMRS ZRam sánR \fÜLê

43.2.2 Vivad se Vishwas II – Settling Contractual Disputes in Budget-2023

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 717
 if a company vs Governmentés contractual disputes is pending in a court. (e.g. NHAI/ONGC
imposing penalty on a contractor for bad construction quality etc.)
 then such contractors ole cases in courts against the penalty.
 Budget-2023: will give option for voluntarily settlement of dispute outside the court using
arbitrator/mediator.
 Govt aims to settle 500 cases involving about Rs 1 trillion.
âMmL MwaOL MR mSMRS Mf rîsRï âMmL ñOYJwj/MkwnóRMn Mf hRhsfMf ñ\RsUL-hYì\hR ds SoR o~, Uk ñ\RsU Mf JRoS oL cmMR
mhRjRO/hòôL MR ñZmS/háìR Ñ\XR {RvÜRê

43.2.3 EoD: PAN Card as Common Business Identi^er

Govt will amend the laws to make PAN the Common Business Identioer for companies.
number/id Company has to get this id for …..
PAN for Direct Taxes and TDS (Ref: Pillar#2A1)
GSTIN for GST tax submission / website login (Ref: Pillar#2A2)
LIN: Labour Identi^cation for EPFO and other labour laws related websites (Ref: Pillar#1D)
Number
CIN: for Companies Act registration (Ref: Pillar#1C2)
Udhyam number for MSME schemes
Beneots: easier and faster to
 1) For businessman to login/register to multiple government website using just PAN number,
without having to remember so many login-ids/passwords.
 2) For the tax authorities to crosscheck fraud / tax evasion etc.
 3) For the bankers to crosscheck companyés onancial capacity before passing loans.

`Z`Zj mSMRSL ZfJmRqn hiaw{LMSö/sõúÜO Mf usv a~O MRyÇOwJS Mk oL Wh/mRhRù `J{Ofm aodROMURÇOwJS Mf ãa hiqûfhRs
âMXR {RvÜRê qmmfcÖkÜa`U Mf usv TL WmROL SofÜL, ]S MS ñåjMRbSXkwMf usv TL `OÜSROL WmRO SofÜL, JpMkwMf usv skO
\fOfmfaosfcÖkÜa`U MV `ZüLX †hUR MR WMsO MSOR TL WmRO okÜRê

43.2.4 EoD: Uni^ed Filing Process

 Companies have to upload many documents and legal-compliance reports to various websites
such as Labour ministry, corporate a´airs ministry, commerce ministry, MSME Ministry etc.
 Budget-2023: weéll setup a common portal for Unioed Filing Process to help the companies.
fis will save businessmené time/e´ort in visiting / logging into multiple websites
(MwaOL OfñsÜ ñsÜ hw°RsXkwMV ZfJmRqn aS ìROÉOL ñOYaRsO Mf \ûRZfé OoLwñasky MSOfokwÜfê vM oL ZfJmRqn mfmRSR
MRh ok {RvÜRê)

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 718
Account Aggregator ek digital platform hai jo aapke financial data ko ek jagah ekata karke rakhta hai. Iska
main uddeshya hai aapko apne financial information ko ek hi jagah se access karne mein madad karna.

Jaise, maan lijiye aapke paas kai bank accounts hain, alag-alag insurance policies hain, aur investments
hain. Account
43.2.5Aggregator ke MSME:
EoD for zariye GSTN
aap ingets
sabhi financial accounts ki details ek hi platform par dekh
AA Status
sakte hain, jisse aapko apne overall financial health ka ek sahi jaankari mil jata hai.

Iska ek example hai agar aapke paas ek savings account hai SBI mein, ek current account hai HDFC
mein, aur ek mutual fund investment hai ICICI mein, to Account Aggregator ke through aap in sabhi
accounts ki details ek hi jagah par dekh sakte hain, jisse aapko apne saari financial information ki ek sahi
picture mil jati hai.

 Account Aggregator (AA) or Financial Information Provider (FIP) is an NBFC that

collects/provides onancial information of the client. (Ref: Pillar#1B1 classiocation.)
 AA/FIP transfers data from one onancial institution to another institution, based on an
individualés instruction and consent.
 RBI has granted AA/FIP status to Goods and Services Tax Network (GSTN). (Ref: Pillar#2A2-
GST)
 fis will enable MSME owner to direct show his onancial capacity (via GST tax data) to
bank/NBFCs for getting loans more easily.

bS{ZÇJpM Of{LvmnLvO MwaOL Mk ñMRcwn v¢LÜfnS MR \{RÇÑ\XR o~ê URâM £RaRSL ñaOf{LvmnL n~§ sfO\fO MR yRnR ñù JpM
`ZüLX mwôROkwMk Ñ\lR mMf URâM h~O{
f S cm £RaRSL MV `ZüLX †hUR/mRl MR WMsO sfMf skO {•L mfaRm MS mMfê

43.2.6 EoD: One-stop solution for identity and address updating :

 A persons database is stored in multiple government websites such as driving license, municipal
property tax, education department scholarship portal etc.
 Budget-2023: A one stop solution/website updating address/identity. With help of Aadhaar
card and DigiLocker.
 Digilocker = App/Portal by Ministry of Electronics and Information Technology (MeitY) storing
documents e.g. markasheet, driving license et cetera (2015)

âMmL £¶ß Mk mSMRSL \ûRZf{kwhiñaOR vyófm J\sZROfMf usv ñsÜ ñsÜ ZfJmRqnkwaS TnMOR OoLwaKfÜRê WjRS MRyÇ]S
yL{LsõMS QRSR vM oL ®R\R Xo MRh `Oan {RvÜRê

43.2.7 EoD: training of civil servants to be more sensitive in Mission KarmaYogi

 2020: Ministry of Personnel → Mission Karmayogi = training and skill development programme
for civil servants.
 iGOT Karmayogi = webportal providing online training to civil servants in union/state/UT.
 Budget-2023: In above program, weéll give training to civil servants to be more friendly
towards citizens and businessman.
úhgO MhÇXkÜL Mf UoU mSMRSL M©hXkwMk URsLh \iÜfURâM ZfskÜk Mf ^`U ™R\R h~°LaÉöÇZ´mwZf\OgLs okMS MRh MSiê

43.3 ♂ EODB 2.0 IN BUDGET-2022 (§/ò/0 t@n?e/ 2/ .®t0/ â03)

EODB 1.0 = So far, Govt removed nearly 1500 laws and 25,000 compliances

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 719
 Budget-2022 announced Next phase of Ease of Doing Business (EODB 2.0). Itéll focus on →
 idea of ºtrust-based governanceé. (9:D+g qr+O,Y g,.+,)
 digitisation of manual processes (6C;7Qe skP<+—j.+ klçBÉe-.,/)
 integration of the central and state-level systems through IT bridges (gày;+ sz`abc.} Ÿ+,+ .=8 [, ,+®
g,.+, .} s/+de<aj.\ h-y g\Y/7 N7e h;+;+)
 citizen-centric services (;+cO,.-eß^ g\:+å£)
 removal of overlapping compliances. (Q;7N+e;aj.+ TRS*au,+: uÉ+;+)
 Crowdsourcing of suggestions (¨<jg\:.ajè-ƒ Ÿ+,+ g7∫+:aj.a i.✓+ .,:+;+)

43.4 ♀PRO-BUSINESS VS PRO-CRONY, ES20VOL1CH3

Crony capitalism is an economic system in which businessmen thrive not by their hard work or risk
taking capacity, but through a nexus between a business class and the political class. (N^N+Y- NàjB-:+*:
Àr<acN9Y QN;- 6\u;Y <+ Ba¬â6 e\;\.} ^6Y+ g\;u-jk.◆7, ,+B;-9Y. :cSg\g+jæc+jæ .\ yeY\Y,} .,Y\uC)
How it harms economy, what to do to ox itp Ans. Shied to Mains Handout.

43.4.1 ♀ : Cronyism: Economist David Ricardo & Rent Seeking

 A Mobile company pays political bribes to get spectrum/license from the Government. (More in
Pillar5: Communication infrastructure)
 fen the Company will charge very high prices on the prepaid plans and data packs to recover
(1) Operational Costs (2) Proot (3) Bribes. 6j_- .a *- c¶ √àg .} ,.6 ग्र+u. N, ha∫ l+eY- uC
 Similar examples could be cited in the coal-power based thermal electricity prices, Toll fees
charged by highways developers, heavy fees in private hospitals/ schools/colleges.
 Ricardo labelled it mrent seeking behaviour. (k.,+<+:gàe-/e7jÉ;\.} 6+;~g.Y+)n It doesnét help in (new)
wealth creation because abnormal proots extracted at common citizensé expense.
 Such crony capitalists do not invest their high proot for research and innovation, they just use it
for debauchery & building more crony-relationship with politicians. (67;+ê\ .a ;¶ âaB/gjgar; 6\;u-
hÒ“ ⌦<+]-, [, ;\Y+— g\g+£æc+jæ h∑+;\6\i–\6+e .,Y\uC)

43.5 ♂⚖ EASE OF DOING BIZ → JUDICIAL REFORMS: ©/™E2 t@Å/0

Shied to Mains Handout. #Prelims-RAFTAAR

43.5.1 ♂⚖ : ENFORCING CONTRACTS PORTAL (2021-June)

 fis portal launched by Department of Justice (under Ministry of Law)
 fis portal provides 1) information/statistics about cases in Commercial/Civil Courts of Delhi,
Mumbai, Bengaluru and Kolkata 2) Commercial laws for reading/reference purpose. (è+,Y .}
s67â ]u,aj6=*-:+;- Q*+eYaj6=k.Y;\k. ig B+,- uC)g.+ l\É+ YR+ 9:9:r *-:+;- .+;à;aj.a N∑;\.} g79:r+)

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 720
43.5.2 ♂⚖: International Arbitration Centre @GIFT city - in Budget-2022
 Arbitration is an alternative dispute resolution system to settle disputes outside the judiciary
courts, using an impartial third party. (m6fiUY+n = Q*+eY .\ h+u, å. Y-g,\ 9;ष्प^ T Ø .} 6** g\9::+*
ue .+ :C.Ò±. Y,-…+ uC)
 Presently, for disputes involving foreign companies vs Indian Govt/Companies → they
approach Arbitration centres at Singapore, Netherland etc. . (Bh è+,Y g,.+,/è+,Y-< .Ã9;<aj.+ 9:*\]-
.jN9;<aj.\ g+R 9::+* ua B+å Ya u6 ;-*,eÕl <+ ~gcj +N7, .\ ⌦g\6fiUY+ .=8aj6= B+Y\uÕ)
 Budget-2022: - An International Arbitration Centre will be set up in the GIFT City for
timely settlement of disputes under international jurisprudence. (⌦g+ å. QjY,,+V-W< 6fiUY+ .=8 →
è+,Y .} bc⌫É ~gÉ- 6=è- h;+<+ B+åc+Æ)

43.5.3 ♂ Transparency International → Corruption Perceptions Index

 Transparency International is a global civil society organisation oghting against corruption.
Setup in 1993, HQ- Berlin, Germany. (ø⇠+y+,-Q;7èà9Y gày.+j.).
 Ranking for 2021: → #1 (tie) [Denmark and Finland]. Bottom Rank#180 [South Sudan].
Year 2018 2019 2020 2021 (report published in 2022-April)
IndiaMs Rank 78 80 86 85
To control corruption, the report recommends:
 Focus on conÑicts of interest, preferential treatment given to wealthy. kuYa .\ É.,+: N, fi+; *=, r;:+;aj
.a b6e;\:+e- g,.+,- O,<+<Ya N, fi+; *=
 Regulate electoral onancing, election integrity. y7;+:- êjkljc .+ 9;<j_/, y7;+:- r+jre- ,a.\
 Regulate lobbying activities. ()r<acN9Y— .} e|h-ijc c9Y9:~r<aj.a 9;<j_/ 6=,â\)

43.6 ES21: OVER REGULATION IN INDIA, TORA ACT

Shied to Mains Handout.

43.7 ♂ ♂EASE OF DOING BIZ → LABOUR REFORMS : ´? t@Å/0

fere are multiple Central laws related to labour e.g. Minimum Wages Act, 1948; the Payment of
Wages Act, 1936; the Payment of Bonus Act, 1965; and the Equal Remuneration Act, 1976.

Entrepreneur has to oll up multiple forms to prove his compliance, and heés subjected to multiple
annual inspections by the govt o∏cials = No ease of doing biz. ferefore, Second National Labour
Commission (2002) recommended govt to simplify & consolidate these laws. 2017-18: Govt
announced to replace existing central laws with just four labour codes (ò6 gjkuY+ /.+;à;) -

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 721
 Old Laws → Merged in
 Payment of Wages Act, 1936 Code on Wages, 2019. i; gh .+;à;aj.a.+ å.}.,/ .,
 Minimum Wages Act, 1948 h;+¶ c¶ ‘:\Y; gjkuY+’
 Payment of Bonus Act, 1965
 Equal Remuneration Act, 1976
 Trade Union Act, 1926 Code on Industrial Relations, 2020
 Industrial Employment Act, 1946 (òb6. [, )`acN9Y .\ h-y) [`abc. gjhjr gjkuY+
 Industrial Disputes Act, 1947
09 Labour Acts like Code on Social Security & Welfare, 2020
 Employeesé Compensation Act, 1923 (òb6. .}) g+6+çB. g7,^+ [, .»+/ gjkuY+:
 Maternity Beneot Act, 1961
 Payment of Gratuity Act, 1972
 Unorganized Workersé Social Security
Act, 2008 etc.
13 Labour Acts like Code on Occupational Safety, Health & Working
 Factories Act, 1948 Conditions, 2020
 Plantation Labour Act, 1951 T+:g+ñ<. g7,^+, ¨+⇢ [, .+<S]Yπ N, ò6 gjkuY+
 Mines Act, 1952
 Building and Other Constructions
Workersé Act, 1996 etc.
Before above labour code bills were passed, Labour Ministry kept amending the existing laws for ease
of doing business and for workers welfare such as. (Bh )Ø ò6 gkuY qå gjg* 6=N+O,Y ;u-j€¶ R- Ya N7,+;\:+e\
.+;à;aj6=g,.+, g7r+, k.å B+Y- R-)
Passed Provisions
Maternity Bene^t - Applies to factory, mines, plantations, shops and other
(Amendment) Act, establishments.
2017: - Paid maternity leave for 1st to kids = 26 weeks. 3rd kid onwards = 12
6+Y°x e+è (gj]ar;) weeks.
Q~r9;<6, 2017 - If woman worker adopts a baby <3 years (or gets a baby through
surrogacy)= 12 weeks paid leave for her .
- If factory has 50 workers/> then boss must install creche facility;
allow mother to visit child min. 4xtimes a day.
- Aer maternity leave is over, boss may even allow the woman
worker to work from home.
- Boss must inform every woman worker of her rights in writing.
Payment of Wages Previously the employer was legally required to pay salary in ºphysical
(Amendment) Act, cash onlyé- in certain industries. Act reformed to allow salary payment in
2017 cheque/NEFT to encourage less cash economy.
Child Labour It amends the 1986és act to provide that →
(Prohibition) Children below 14 years canét be employed anywhere, EXCEPT:
Amendment Act, - TV/ Cinema /Sports (but not circus)
2016: - Non hazardous family enterprise work aer the school hours.

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 722
 Passed Provisions
h+e ò6 (9;‚\r) gj]ar; Adolescents between 14 to 18 age can be employed but only in non-
Q~r9;<6, 2016 hazardous work. Any violations = Jail + penalty. District Magistrate
given additional powers. Criticism$ Chemical mixing, battery acid
recycling etc. occupations removed from the ºhazardous listé so Ease of
doing biz for their owners, but exploitation of adolescent workers.
Apprentices - fe original 1961 Act regulated the training of apprentices in the
(Amendment) Act, industry. But rules were draconian e.g. Govt shall decide the
2014 apprentice youthés stipend, holiday, overtime. If factory owner is
sß]^⇣ violating any norm → jail.
- So, the 2014és amendment relaxed the norms, Factory owner will
decide stipend, holiday etc. and if any violations then only penalty,
no jail for him.
MCQ. Which of the following statements is/are correct regarding the Maternity Bene^t
(Amendment) Act, 2017$ (Prelims-2019)
1. Pregnant women are entitled for 3 months pre-delivery and three months post-delivery paid leave
2. Enterprises with creches must allow the mother minimum six creche visits daily
3. Women with two children get reduced entitlements.
Codes: (a) 1 and 2 only (b) 2 only (c) 3 only (d) 1,2 and 3

MCQ. As per the provisions of the Maternity Bene^t Act, the maximum period for which a
female employee shall be entitled to leave with wages as maternity bene^t for giving birth to the
third child is: (EPFO-2023) (a) 8 weeks (b) 12 weeks (c) Sixteen weeks (d) Twenty-six weeks

43.8 ♂EASE OF DOING BIZ → FIXED TERM EMPLOYMENT 2018

- Fixed-term employee (9;çश्चY-Q:~r .+6*+,) is a contractual worker hired for a oxed period. If his
contract is not renewed on expiry then heés deemed automatically terminated. No notice for
termination is required. Just like a permanent worker, a oxed-term worker is entitled to all
beneots such as wages, hours of work, allowances, EPFO-ESIC and other statutory beneots (But
only for the duration of contract).
- 2016: Labour Ministry allowed Fixed term employment only to the textile sector using the
powers under Industrial Employment (Standing Orders) Act.
- Budget-2018: permitted in all manufacturing sectors.
- Good$ When factory owner has large production order to fuloll, he can hire more people for
short duration without the compulsion of giving them ºpermanent jobsé. → → Ease of doing
business. (Qy+;. g\)X+*; .+ hƒ+ ©lS, Nà,+ .,;+ ua Ya QU+<- ≥N g\’\, g+,\ eacaj.a .+6 N, ,â+ B+å )
- Bad$ Trade Unions fear the industrialist will convert all the permanent jobs into ºoxed term
contract jobsé → boss may simply refuse to renew contract without giving reasons & replace

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 723
 them with cheaper younger labourers= job security is diminished. Although Govt clarioed that
industrialist canét convert existing permanent jobs into oxed-term contract jobs.

MCQ. Find correct statement(s) about the Industrial Employment (Standing Orders) Central
(Amendment) Rules, 2018: (Prelims-2019)
1. If rules for oxed-term employment are implemented, it becomes easier for the orms/companies to
lay o´ workers
2. No notice of termination of employment shall be necessary in the case of temporary workman.
Codes: (a) 1 only (b) 2 only (c) Both 1 and 2 (d) Neither 1 nor 2

43.9 ♂ MINIMUM WAGES (©ôDe? CgeD)

 (Deonition) According International Labour Organization (ILO) QjY,+S⌧ÉW-< ò6 gjcæ;

(q¶åe—),minimum wage is the minimum amount of remuneration that an employer is legally
required to pay to the worker. Ités usually expressed in amount per day or per hour. (…+;à;; ≥N g\
igg\.6 Y;ख़्व+u/:\Y; 6=6+de. k.g- è- 6§*î, g\.+6 ;u-j.,:+ g.Y+)
 (Origin) fe concept of minimum wages is not a modern-day innovation. Even Arthashastra
written in the 2nd Century BCE ordained the minimum wages for workers based on their skills
and occupation.
 While the Britishers in enacted Payment of Wages Act, 1936 in India to ensure workers are paid
salaries in a timely fashion it did not provide for minimum wages computation or enforcement
or equal remuneration for males and females.
 Aer independence, Directive Principles of State Policy (,+® .\ ;-9Y-9;*ेर्]. Yत्त्व) mandated the
State (,+® ;-9Y .\ NR s*]S. ~g•+jY)
o to secure a living wage, a decent standard of life for all workers (Article 43),
o to provide adequate means of livelihood for all citizens & equal pay for equal work for
men and women (Article 39)

43.9.1 ♂ Minimum Wage Reform: Anoop Satpathy Committee (2019)

fis committee was setup by the labour ministry for Determining the Methodology for Fixation of
the National Minimum Wage. Its recommendation shied to Mains Handout. #Prelims-RAFTAAR.

43.10 ♂ MINIMUM WAGES → CODE ON WAGES 2019 (:\Y; .al/ gjkuY+)

fis new act aims to merge the existing Minimum Wages Act, 1948, the Payment of Wages Act,
1936, the Payment of Bonus Act, 1965 and the Equal Remuneration Act, 1976 into a single Code on
Wages, with following features:

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 724
 Domain Sectors covered
Union  Sectors: Air transport service, Railways, Major Ports, mines, oil oeld,
Government telecommunication, banking and insurance company, Central
Government Jobs, CPSEs, autonomous bodies, their subsidiary bodies
2FA t02/0  To ox minimum wages here, Government will setup a Central Advisory
vD igjlw?F Body of Employers, Employees, Independent Experts and 5 State
©ôDe? CgeD representatives
eE 20gn1  Based on Central Advisory Bodyés recommendations, the Union will ^x
Floor Wages, for di´erent geographical areas Taking into account
minimum living stds. (Meaning AnoopAs idea is accepted) (è+,Y .\ èzcade.
ku∂aj.\ deå ,+V-W< :\Y; g-6+ .\ Qr-; ï;Y6 6B*î,-)
State  Sectors: feyéll look aer all the other sectors of employment which are
Govts not in Unionés domain.
0/¨ t02/0FEÖ/≠  feyéll have individual State Advisory Board.
©ôDe? CgeD eE  fey must keep Minimum wages > or = Floor Wages.
20Fn1
 Update Frequency$ minimum wages norms will be revised every 5 yrs or less.

43.10.1 ♂ Code on Wages 2019 →Salient Features (^gures not IMP)

 Depending on sector: Union / State will ox max. hours in a normal
Overtime Pay working day.
 If worker doing more: mOvertime Wagen =Min. 2x normal wages
Payment  Boss (Employer) may pay wages (i) daily, (ii) weekly, (iii) fortnightly, or
Frequency (iv) monthly.
 In coin, currency, cheque, bank money, e-transfer
Deduction (.ÉzY-)  Boss (Employer) may deduct workerés wages for 1) penalty 2) absence 3)
rental home 4) advance / loan etc.
Right to Bonus  If workerés salary less than mXn ë , then he is given Right to bonus

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 725
  8.33% of wages or ë 100 Whichever higher
 But not more than 20% of his annual wages. + other caveats notIMP
Gender  It is forbidden. Employer must give equal pay for equal work
discrimination  å. g6+; .+6 .\ deå 6kue+ [, N7«‚ .a å. g6+; :\Y; b6e\
Penalty for
 Upto 3 months jail, ë 1 lakh one
violation
- Above Code on Wages is already passed by Parliament and signed by the President. But to
implement it in reality, the Govt of India need to notify the rules & announce the minimum
wages. But, due to Corona, implementation delayed

43.11 ♂ EASE OF DOING BIZ (EOD) → FACTORIES ACT REFORMS

MHb
machine &- -
⑭
use he ④
rhi
hai ④

/ -

Factories Act 1881: Primarily focused on controlling child, labour and child exploitation in factories.
Factories Act 1948 regulates safety, health & welfare of workers. (.+,â+;+ Q~r9;<6: 6§*î,aj.\ ¨+⇢ g7,^+
.»+/ .\ deå)
 fe original act deones a factory as a premise where manufacturing is done using power and
minimum 10/> workers are employed during last 12 months. (20 workers, if no power used).
 If an establishment is classioed as ºfactoryé, then the entrepreneur is required to install
washroom, drinking water facility, spittoons, creche and other amenities depending on how
many workers are employed. (Qc, qN .} i.+¶ .a êC{W- 6=:cीर्.°Y k.<+ c<+ Ya 6B*î,aj.\ deå Rà.*+;,
ß]]7c°u, æjl\N+;-, g+ê ]zy+e< BCg- 9:ßè⁄ g79:r+åj *\;- uac-)
 He cannot engage women workers in night shi or near dangerous machineries.(6kue+—j.a ,+b_
.\ *z,+; [, Y,;+. 6]-;,- .\ N+g .+6 .,;\.} Q;769Y ;u-j)
 His premises will be subjected to government inspection, If any violation he can be arrested and
jailed. (=more opportunity for the factory inspector to demand bribes)

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 726
43.11.1 Factories (Amendment) Bill, 2014
 Aims to relax deonition of factory (20/> workers…) fis will create ease of doing business for
the small entrepreneurs because they will not have to comply with the factory act. (T+∞+ 6=g7r+,
Y+k. äaÉ- i.+i<aj.a êC{W- .\ 9;<6aj.+ Q;7N+e; ; .,;+ Nƒ\)
 Allows the entrepreneur to engage women worker in night shi & near dangerous machineries
subjected to various safety conditions (= women equality & empowerment)
 For smaller violations, the entrepreneur can pay specioed penalty. No arrest/ jail. (äaÉ\-äaÉ\)ãj√;
.\ deå B\e 6=;u-j, ~gêS B76+S;+)
 fe bill is still pending in the parliament, but Rajasthan and other state governments have
amended their state laws to implement these reforms, because Labour is in concurrent list.

MCQ. Te First Indian Factories Act, passed in 1881, dealt primarily with _ _ _ (EPFO-2023)
(a) Women labour (b) Living conditions of factory workers (c) Child labour (d) Textile workers

43.12 (EOD) → INDUSTRIAL DISPUTE ACT 1947, 2010

 If a factory has 100/> workers, and industrialist want to retrench (ore a group of workers to
reduce salary bill) then State Govtés approval is necessary. [`abc. 9::+* Q~r9;<6: 6B*î,aj.a ;z.,- g\
9;.+e;\g\Nue\,+® g,.+, .} Q;769Y e\;+ B≥,-
 Employer must give Advance notice to workers before changing o∏ce hrs, holiday norms etc.
→ If workers are unhappy they can ole complaint to labour ministry o∏cials. .+<S.\ k*;/©kêg
g6< Q:~r 6=h*e+: g\Nue\è- 6B*î,aj.a gà̃yY .,;+ B≥,-
 Result$ NOT EASE of doing Biz because what if entrepreneur wants to adopt new labour saving
Machine/technology or what if he has to work hours during emergency foreign contract.
 To address these issues, Union amended the act in 2010 with certain technical reforms. Further,
Rajasthan, Madhya Pradesh and other states also relaxed norms because labour=concurrent list,
to attract more investment in their states. (.+;à; g6:Yीर् gày- 6=ua;\.\ yeY\.7ä ,+®aj;\g7r+, k.å →
)`acN9Y<aj.+ 9;:\] ); ,+®aj6=h∑ g.\)
 ES19 observed that aer initiating these reforms, Rajasthan has progressed much faster in terms
of employment generation, attracting domestic and foreign companies.
 Whereas inÑexible states like W.Bengal, Bihar, Kerala are unable to create enough employment,
cannot attract adequate capital into their states and their wages are lower as their productivity is
lower. (hjc+e 9hu+, .\,e+ 6=ò6 .+;à; .+ê} g‘ igdeå )`acN9Y êC{W- ec+;\g\uYat+kuY)

43.12.1 ♂⚔ EoD: Jan Vishwas (Amendment of Provisions) Bill, 2022,

It amends 42 Acts to reduce the compliance burden & decriminalization of some o´enses. (cC,-gjc-;
6+6ea 6=B\e ;u-j.\:e B76+S;+)
Example: BEFORE AFTER
Information Technology Act, Jail upto 3 years + one No jail. Just one upto Rs.25
2000, disclosing personal lakhs

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 727
 information

In some laws, it increased the amount of one. (.7ä 6+6ea 6=§76+S;+ h∑+<+ c<+.)
Example: BEFORE AFTER
Patents Act, 1970, false claims Fine upto Rs.1 lakh Increased to Rs.10 lakhs
Notable laws amended by this bill: (9:r\<. Ÿ+,+ 9; .+;à;aj6=ig s.+, .\ g7r+, k.<\cå uC.)
Press and Registration of Books Act 1867, the Boilers Act 1923, Indian Forest Act 1927., Indian Post
O∏ce Act, 1898, the Environment (Protection) Act, 1986, the Public Liability Insurance Act, 1991,
and the Information Technology Act, 2000, Patents Act, 1970, etc.
43.13 ♂ EASE OF DOING BIZ → SHRAM SUVIDHA PORTAL (2014)
Labour Ministryés webportal to facilitates ease of doing business in following manner:
1. Labour inspector has to upload reports within 48 hrs of inspecting the factory. fis reduces the
scope of bribery, corruption & tempering of records.
2. Entrepreneur can do online registration & payment of ESIC and EPFO for his workers.
3. Entrepreneur can upload compliance documents under various factory / labour acts.
Separately, Labour Ministry also launched Samadhan portal (Soware Application for Monitoring
and Disposal, Handling of Industrial Disputes) for handling industrial disputes between workersM
trade union vs industrialist.

43.14 ♂ ♀⚖EOD → CORONA: SUSPENSION OF LABOUR LAWS$

State(s) majority of the labour laws suspended for (2l0lD/ C/E0t 2g âpeg´? 2/DôDlw2/ ÆnD)
UP next 3 years (Qce\Y-; g+eajY. ò6 .+;à;aj6=Uc;!)
Guj, MP orst 1000 days for newly established factories
Some  Small factories will not be subjected to inspection. (9;,-^/ g\67Ø)
other  Factory owners can the number of working hours per day, but without any
states clariocation on how much extra overtime wages need to be paid to workers. (s9Y
k*; .+6 .\ √jÉaj6\h∑aY,-)
Implications: Trade unions And Labour rights activists fear that (D2/0/Ø2 É/C)
 Companies will not invest in workers' safety and amenities- washroom, spittoon, creches etc (ò6
…+;à; UbcY .,;\N, ıC{W- 6+de. 6§*î,aj.} g7,^+ [, g79:r+ .a ;§,Qj*+§ .,=c)\
 Companies may force workers to work for extra hours, without paying overtime/bonus.(Qœ+~r.
.+<Sha∫)
 Companies may randomly hire and ore workers. Yet workers will not be able to complain to
Government o∏cials / courts since the laws are suspended. (6; 67Y+9h. k.g- .a ;z.,- N, ,â;+ <+
9;.+e *\;+)
 fis will undermine workers' right to EPFO, ESIC, payment of bonus, job security and social
security. (òb6. .} g+6+çB. g7,^+ .+ u;;)

43.14.1 ♀⚖Corona Suspension Labour laws: Union says NO¶¶

Constitution → 7th Schedule → Concurrent list → Labour (7 :-jQ;7gy
à - → g6:Yीर् gày- → ò6)

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 728
 Article 254 (1): In the concurrent list topics: Parliament's law will prevail over State's law. .=8/gjg*
.\ .+;à; .a ,+® .\ .+;à; .\ ÀN, :,-<Y+ b6e\c-
 Article 254 (2): In the concurrent list topics: States need to obtain the President's assent to
modify their own State law. (In practice, President of India will act as per the advice of PM) (,+®
;\g6:Yीर् gày- .\ .+;à; 6=g7r+, .\ deå ,+VWN9Y .} Q;769Y e\;+ B≥,-)
 So, Union Govt has clarioed to Parliament, "we'll not entertain that above reforms by State
governments." (.=8 g,.+, ;\ V k.<+ uCk. “u6 ,+® g,.+,ajŸ+,+ ò6 .+;à; .\ Uc; .\ s–+:ajN, 9:y+, ;u-j.,=c\/
Q;769Y ;u-j*=c”\ )
 In other words, UP will not be allowed to suspend labour laws for 3 years, Madhya Pradesh will
not be allowed to suspend it for 1000 days etc.
 Further, the Union Government had enacted Inter-State Migrant Workmen Act, 1979 to protect
migrant workers. Union may take actions under this law, if / when the situation requires. (QjY,-
,+® s:+g- òb6. Q~r9;<6)

43.14.2 Inter-State Migrant Workmen Act, 1979

It requires every contractor to provide following facility to the migrant workers: (a) to ensure regular
payment of wages to such workmen; (b) to ensure equal pay for equal work irrespective of sex; (c) to
ensure suitable conditions of work (d) to give residential accommodation (e) to give free medical
facilities (f) to give protective clothing (g) in case of fatal accident , report to government

MCQ. Which facilities are to be provided by the contractor to Inter-State migrant workers in
connection with the work of an establishment to which the Inter-State Migrant Workmen
(Regulation of Employment and Conditions of Service) Act, 1979 is applicable$ (EPFO-2023)
(1) Equal pay for equal work irrespective of sex (2) Provision for suitable residential accommodation
(3) Provision for protective clothing (4) Provision for old age beneot scheme
(6) Prescribed medical facilities
CODES: (a) 2, 3 and 5 only (b) 2, 4 and 5 only (c) 1, 2, 3 and 5 (d) 1, 3 and 4 only

43.14.3 ♀⚖ Banking = Public Utility Service (t/C~VBD2 -òElmne/ tgC/)

Under the Industrial Disputes Act: workers enjoy a 'statutory right to strike' ([`abc. 9::+* Q~r9;<6 6Õ
6B*î,aj.a uƒY+e N, B+;\.+ .+;à;; u.)
 but there are certain restrictions e.g. (1) Government employees (2) Public Utility Services
employees are not allowed this right. (e.g. Electricity company, Telecom company etc.) (u+e+£k.
.7ä òb6.aj.a <\u… ;u-juC)
 If 'public utility' workers go on strike → it will be deemed "illegal strike" (c\,-.+;à;-)
o = 1) the owner can dismiss such workers from job (;a.,- g\9;.+e *\;+)
o = 2) workers may be required to pay compensation to the owner for business losses.
(;7.g+; .} è,N+¶)

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 729
 if bankers go on strike (for salary rise) → Atma-Nirbhar Bharat initiatives related to MSME
loans etc. will get delayed → Di∏cult to revive the economy. So, (hÕ. .6ीर् è- .a,a;+ :+<,g ;\uƒY+e N,
ye\cå Ya è+,- g6›+)
 2020-April: Union labour ministry notioed that the banking industry will also be treated as
Public Utility Service.

43.15 ♂ EASE OF DOING BIZ → BUILDING HOMES & RUNNING SHOPS

43.15.1 ♂ Ease of doing Biz → Model Shops & Establishments Bill, 2016
- State list subject. Each state has separate Shops and Establishment Act to govern the working
conditions, wage payments, leaves and holidays, work hours, etc. (*.
⇣ +;aj.\ h+,\ 6=u, ,+® .+ Qec
…+;à; uaY+ uC)
- Union govt has circulated Model Shops and Establishments Bill, 2016 to the States & UT with
legislatures to adopt / customize it as per their wish. (.=8 g,.+, ;\q*]S*.
⇣ +;=[, s9Y"+; 9:r\<. ,+®
g,.+,aj.a QN;+;\.\ deå .u+)
- fis bill allows the shopkeeper / malls the freedom to operate for 24/7 and 365 days in a year
without any restriction on opening/closing time and enables employment of women during
night shis with safety provisions. E.g. 2019-Feb Gujarat adopted this bill with certain
⇣ +; ]|9Ncj 6|e â7e+ ,â g.Y\uÕ6kue+—j.a è- ,+b_ 6=;z.,- .,;\.} äàÉ
modiocations. (Nà,+ k*; Nà,- ,+Y Nà,+ :‚S*.
u+e+£k. );.} g7,^+ .+ fi+; ,â;+ uac+)
Bene^ts$ 1) ease of doing biz 2) overtime beneot to worker 3) separate workers may be employed
in day shi and night shi = more jobs. (,+Y .} N+,- 6=Qec 6B*î, .a ,â=c\Ya *a-*a eacaj.a .+6 b6e\= ,a§c+,
g°B; 6=6**)

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 730
43.15.2 ♂
Ease of doing Biz → Real Estate Regulation & Development Act (RERA)
Ç0Ep ù∞gì (BCBDE?D f0 BC2/t) sëÅBDE?/ ±/DôD
Boss$ Ministry of Housing and Urban Poverty Alleviation: q:+g [, ]u,- c,-h- )N]6;
- While mlandn is in the State List of the Constitution, but purchase of home / property / real estate
= ºContracté in the Concurrent List. (Q;7hjr 9:‚< gj9:r+; .} g6:Yीर् gày- 6=uC)
- So, Parliament enacted RERA Act, 2016 to regulate transactions between home/commercial
property buyers and builders of the real estate projects, by setting up state level regulatory
authorities called Real Estate Regulatory Authorities: O,<e åÙ\É 9:9;<+6. s+~r.,/ (RERAs) →
higher appeal to Real Estate Appellate Tribunals (QN-e-< ï+<+~r.,/).
- First, builder must get his project registered @RERAés website. including the facilities like ore
oghting systems, sewage treatment plants, functional lis etc. He canét make advertisements or
accept money from buyers before that registration. (9h#, ;\6.+; 9hP} .+ 9:ª+N; YR+ ग्र+u.ajg\NCg+ e\;\g\
Nue\saB\{ .a ,\,+ :\hg+iÉ N\NjB-.°Y .,:+;+ B≥,-)
- Real estate agents dealing in these projects also need to register with RERAs.
- Aer RERA registration, project details will be published on RERA website where buyer can
cross check / ole complaints. (6.+; .+ .a¶ saB\{ Qge- uC<+ ı§ीर् ,\,+ .} :\hg+iÉ N, ग्र+u. g79;çश्चY ., N+åc+)
- fen builder can accept money from buyers, but in a separate bank account. If the project is not
completed in time → builder will have to pay the home/shop/o∏ce-buyerés monthly interest on
bank loans (if any). RERA can order further relief / refund / arrange another builder to onish the
project. (9h#, ग्र+u.aj.+ NCg+ Qec hÕ. Q.+)jÉ âae., )g6=B6+ .,=.)
- If defects found in building upto 5 years → builder must repair free of cost.(N+£y g+e Y. 6.+; .}
6,‡Y 67$ 6=)
- Punishment$ Penalty + jail upto 3 years. (9h#, N, B\e [, B76+S;\.\ s+:r+;)

RERA-Good$ ê+<*\ RERA-Challenges$ y7;z9Y<+j

- RERA registration system is online & time - Since cost of compliance increases, builders
bound → ease of doing business for the may raise home prices prices (e.g.
Builder as he will not have to make repeated considering the additional business cost of
trips / bribes to govt. o∏cials. (øV+y+, .\ doing ºfree repairsé upto 5 years). 9h#, Ÿ+,+
Q:g,aj6=.6- T+N+, 6=g79:r+) 6.+; .\ *+6 h∑+ k*å B+åjc\≤ajk. N+£y g+e …+;à;;
- Consumer protection.(ग्र+u. g7,^+) 67$ 6,‡Y .,;- uC
- Since building has to be registered at RERA, - fe building projects which were started
money has to be deposited in separate bank before RERA act but still building
account → reduces the opportunities for construction is pending → di∏cult to get
tax evasion and avoidance; malpractice like justice due to legal loopholes.
selling same home to two buyers etc.(., ya,- - Some (non-BJP) state governments have

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 731
 RERA-Good$ ê+<*\ RERA-Challenges$ y7;z9Y<+j
[, r+£re- 6=.6-) not yet appointed RERA chairman or setup
RERA websites.

Conclusion-Template: World bank research indicates that countries that improve Ease of Doing
business can create new businesses → fose new businesses create further job opportunities, which
help reduce poverty & inequality in a country. fus, ease of doing business for ºcorporatesé results
into the ease of living for poor people. fe aforementioned scheme / policies / act / initiatives /
challenges will play pivotal role in that regard / must be addressed on priority basis.
,aBc+, g°B;, c,-h- 9;:+,/ .\ deå B≥,- uC- .|,Na,\É .jN9;<aj.a T+N+, 6=g7c6Y+ uac- Yè- c,-haj.a (,aBc+, .}) g7c6Y+
uac-Æ ).Y g7r+, q:%. / )Ø g6›+— .a Qग्रY+ P6 g\g7e∫+;+ B≥,-

44 SECTORS OF ECONOMY → MFG → TEXTILE & MSME

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 732
44.1 ♀ TEXTILES MINISTRY (2òy/ / C≤ ?wj/pE)
CPSE Cotton Corporation of India, Jute Corporation of India, National Textile
Corporation ltd. and others.
Attached o≥ces Development Commissioners for handloom / handicras
Statutory Bodies National Jute Board, Central Silk Board, National Institute of Fashion
:Cr+9;. gjU+ Technology (NIFT)
+ various autonomous bodies, export promotion councils, research associations and advisory boards
for apparel, textile, wool, silk, carpet etc.

44.1.1 Textile Ministry → Notable schemes / initiatives

Indian textile industry, the second largest manufacturer and exporter in the world. Textile sector is
the biggest employer aer agriculture employing 4.5 crore people directly and another 6 crore people
in allied sectors.
1. Jute Packaging Material (JPM) Act, 1987: requires the foodgrains and sugar companies to pack
mx%n of their produce in jute bags only. "x"=100% for foodgrains and "x"=20% for sugar. fis
ensures that jute bag industry can survive against the competition of cheap plastic bags. â+`+⁄ [,
y-;- .jN9;<aj;\QN;+ .7ä g+6+; Q9;:+<S≥N g\BàÉ hCc 6=u- gjग्रkuY .,;+ uac+ Y+k. BàÉ )`ac .a rjr+ b6eY+ ,u\:,;+ Ya
&+'Ù. .} RCde<ajg\:a r+S;u-j., N+åjc\!
2. Technical textiles = Fishing nets, bullet proof jackets, shoe laces, surgical gowns, parachute etc.
items. Technical Textiles are lightest and toughest. fey have a variety of applications in
automobile, aerospace, architecture and building, occupational therapy, sport and apparel
industries etc. (,a§+;+ g+6+ï ≥N g\Nu;;\.\ .Nƒaj.\ Qe+:+ :+e- y-§=)
- Budget-2020: India imports a technical textiles worth US$ 16 billion every year. So, to
reverse this trend, weéll launch a National Technical Textiles Mission (,+VW-< Y.;-.} :õ
b6];) from 2020-21 to 2023-24.
3. Project India Size: Presently the makers of shoe / shirt / pants etc. refer to size charts developed
by UK / US standards e.g. Size 44 shirt, XL t-shirt etc. Textile ministryés project aims to develop
size charts specioc to Indian consumers' measurements.
4. India Handloom Brand logo (2015): It certioes that given handloom product - sari, dress
material, bedsheet etc. is 1) Indeed handmade 2) has zero defect 3) has zero negative impact on
the environment 4) has authentic Indian traditional design. Such brand logo increases the appeal
of Indian handcras to (mainly foreign) buyers. To obtain this logo, the weaver/entrepreneur
applies online to Textile Ministry → Development Commissioners for handloom. (g79;çश्चY .,Y+ uC,
k. u+R Ÿ+,+ 9;6Y, 9;6+S/ 6=.a¶ +6- ;u-j, N<+S:,/ N, .a¶ ;.+,+¥. Qg, ;u-j[, N+,jNO,. è+,Y-< ]Ce- g\h;+<+ uC)
5. Previously, UPA/Congress had Mahatma Gandhi Bunkar Bima Yojana (MGBBY)- although
gradually Modi switched those beneociaries to Pradhan Mantri Suraksha Bima Yojana. So we
need not worry about this obscure scheme.

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 733
6. 2016: öPehchanM cards given to handicra artisans- linked with their Aadhaar numbers and bank
accounts to help them avail various scheme beneots.
7. e-Cocoon App a mobile application for quality certiocation in silkworm seed sector.
8. E-Dhaga App, BunkarMitra helpline to advising the weavers on business.
9. Budget-2021: Total Seven (7) PRADHAN MANTRI Mega Investment Textiles Parks (PM-
MITRA) will be launched for booting textile exports
- Union govt to give 30% subsidy on project cost. State govt to provide 1000 acre land. 7
such parks will be setup in various states.
- '5F' Formula for Success:- (Cotton/Jute/Silk) Farm to obre → obre to factory → factory
to fashion → fashion to foreign export.
- Locations: 1. Virudhunagar (Tamil Nadu), 2. Warangal (Telangana), 3. Kalaburagi
(Karnataka), 4. Amravati (Maharashtra), 5. Navsari (Gujarat), 6. Dhar (Madhya
Pradesh), 7. Lucknow (Uttar Pradesh).

Textile MinistryMs Central sector schemes = 100% funded by the union →

10. National Handloom Development Programme → Weavers Mudra scheme: Textile ministry
gives interest subvention and credit guarantee for the weaversé bank loans upto prescribed limits.
11. Amended Technology Upgradation Funds Scheme (ATUFS): Provides funding to the textile
industries to upgrade their machineries. Similarly Power Tex scheme for powerlooms.
12. Ambedkar Hasthshilp Vikas Yojana, Handloom Weaver Comprehensive Welfare Scheme
(HWCWS) etc. schemes to provide training / skill development / marketing support etc. to the
artisans. (.z]e:rS; Y+e-6, 9:N/; gu+<Y+)
13. 2016: Pradhan Mantri Paridhan Rojgar Protsahan Yojana: Textile ministry pays ºEPFO
contribution of employerés sideé for the orst three years to encourage formal job creation in the
textile sector. (Ref: Pillar1D Handout) [.Nƒ+ 6j_+e< ;å 6§*î, .\ EPFO â+Y\6=NCg+ B6+ .,Y+ R+- Qh <\
<aB;+ hjr ua c<- uC]
14. 2017: Samarth Scheme for Capacity Building in Textile Sector. Ministry of Skill Development &
Entrepreneurship (MSDE) hires public & private sector institutes for giving training to youth for
textile sector → Textile ministry pays Hcoaching fees⇠ to those institutes. .z]e 9:.+g .\ deå Y+e-6
15. 2019: Rebate of State and Central taxes and Levies (RoSCTL) = it is scheme similar to RODTEP
Scheme (Recall Pillar3A). In RoSCTL textile/garment exporters given Input Tax Credit (ITC)-
till 31st March 2024. How it is similar/di´erent than RODTEP = that PHD not important for
exam, because not a high proole scheme unlike PM-JAY (REF#1D) or PM-KISAN (REF#4A).
16. 2023: Economic Survey identi^ed following challenges:
- competition from Bangladesh and Vietnam. (Qï *\]aj.} r+S)
- slowdown in bank loans, FDI and exports (hÕ.aj.\ ˚/, 9:*\]- sœ^ 9;:\] [, 9;<+SY 6=6j*-)

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 734
 MCQ. (EPFO-2023) Statement I: Govt mandates the packaging of 100% sugar and food
grains in diversi^ed jute bags.
Statement II: Govt enacted the Jute Packaging Materials Act, 1987.
(a) Both I and II are correct and statement II is the correct explanation for statement I
(b) Both I and II are correct and statement II is not the correct explanation for statement I
(c) Statement I is correct but statement II is incorrect
(d) Statement I is incorrect but statement II is correct

44.2 MFG & SERVICES → MSME → MINISTRY

Micro, Small & Medium Enterprises, gà( , e√7[, 6fi6 )`6 6j_+e< : List not exhaustive →
Govt Company National Small Industries Corporation Limited (NSIC) – an NBFC
company registered under RBI.
Helps MSME to get loans. HQ-Delhi, founded in 1955.
Attached o≥ces Development Commissioner (MSME)
Statutory Bodies Khadi & Village Industries Commission (KVIC), Coir Board
44.2.1 MSME Problems: RBIMs UK Sinha report (2019)
Shied to Mains Handout. #Prelims-RAFTAAR

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 735
44.3 MSME: TRUCKLOAD OF SCHEME/INITIATIVES

44.3.1 MSME Ministry → PM's Employment Generation Programme (PMEGP-2008)

Year 2008: ManMohan started → Modi continued it till 31/3/2020. sr+; 6j_- ,aBc+, g°B; .+<SP6
- Boss$ MSME Ministry → KVIC. Central Sector Scheme = 100% funded by the union.
- Bene^ciary$ Min. std.8 pass / Self-help-group wanting to setup a NEW micro-enterprises in the
non-farm sector.
- Suppose the cost to start a business is 100% then entrepreneurs himself has to contribute 5-10%
from his pocket, KVIC gives him 15-35%, rest is given as bank loans. fus ités a ºCredit linked
Subsidyé program.
- fese % depend on whether the business is to be started in rural area or urban area, and whether
the Entrepreneur is General /SCST/ Women/ PH/Minorities/ Ex-Servicemen/North East.

44.3.2 MSME Ministry → Public Procurement Order(t/C~VBD2 ñ01./sëÅÉ/¥µ Ä.gh)

MSME Ministryés Public Procurement Order 2012 requires every Central
Ministry/Department/Govt Company to buy/procure annually,
- At least 25% of their goods & services requirement from Micro and Small Enterprises (MSE).
Further,
- 3% of that 25% must be procured from MSE owned by Women Entrepreneurs: 6kue+
)`b6<aj.\ ¨+b6x :+e\MSE
- 4% of that 25% from SC/ST entrepreneurs.
- Give orst purchase preference to local suppliers. U+;-< 9:P\Y+—j.a sR6 :,-<Y+
- Try to ensure that procured goods/services have minimum 50% local content (to encourage
Make in India). (g,.+,- gjU+; Ÿ+,+ â,-*\cå g+6+; 6=ïà;Y6 50% √É. U+;-< ua;+ y+kuå)
- MSME Ministry → öMSME- SambandhM webportal monitors the progress.
- MSME Ministry gets power to issue such order / quota under MSME development Act 2006.

44.3.3 Public Procurement → GeM Portal

- Government e-Marketplace (GeM) is an online portal that helps Govt organizations at union,
state, PRI/ULB and PSUs to buy common use goods & services in transparent and e∏cient
manner e.g. pen, pencil, stationery. (.=8, ,+® [, U+;-< gjU+; ©;e+i; â,-*- ., g.\ ⌦g+ NaÉSe)
- Verioed sellers list products in this portal→ Govt organizations buy it online from here. Ensures
transparency, e∏ciency, cost saving (compared to individual organization giving newspaper ads
inviting tenders).

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 736
- Boss$ Commerce Ministryés not-for-proot company named ºGeM Special purpose vehicle
(SPV)é. (â+g ))\% g\h;+¶ c¶ .jN;-)
- SWAYATT is Commerce Ministryés initiative to promote Start-ups, Women and Youth
entrepreneurs through GeM portal. (6kue+ [, ;zB:+; )`b6<aj.a ig NaÉSe 6=NjB-.°Y .,;+)
- ES22: Wrote a very lengthy case study-commentary on GEM Portal is ºbahut-mahaané
(very great). But for General Studies = Not very IMP. If Public Administration optional → Read
from Economic Survey 2021-22 (published in Jan-2022) Ch.02: Fiscal Development Page 73
onwards. ()g;\ejh- .u+;- Ya deâ- uCe\k.; 67∫\N,-^+ .\ deå .7ä +g 6§+ ;ku q<+, ~g:+< .\ ea.-s]+g; qN.+
:C.Ò±. 9:‚< ua)

44.3.4 One District One Product (ODOP: 2021)

 By Ministry of Commerce with the help of other union and state government organisations
 To convert each District in Export Hub by identifying products with export potential, e.g.
Rajasthan → Blue Pottery (Jaipur). frough marketing / branding / logistic / infrastructure
support, incubation centres, training, research and development (R&D). sœ\. ç§e\6=g\k.g- å. +g
y-§ .\ 9;<+SY .\ deå 6**

44.3.5 MSME → Atma-Nirbhar Funding/Schemes (2020, Corona)

Ref Pillar#1D3 handout for more details
Scheme What has been done in Atma-Nirbhar$
Loans: MUDRA 2% interest subvention on Shishu Loans(More in Pillar#1D3)
Loans: MSME Non-NPA  Emergency Credit Line Guarantee Scheme (ECLGS:
borrower qN+Y.+e-; P\klÉ e+i; c+,jÉ- <aB;+).
 Guaranteed Emergency Credit Line (GECL) facility.
Both are synonyms of the same scheme.
Loans: MSME NPA  Subordinate Debt (cz/ ˚/)
borrower  [);.\ deå, çB;.} N7,+;- ea; Nue\u- Q;QBS. NO,gjN˜™ √a9‚Y ua y7.} uC]
Equity  infusion via Fund of Funds
Protection from foreign In Government procurement tenders up to ë200 crore. → Foreign
players in public (global) companies will not be allowed to apply. (g,.+,- â,-* .\ 200
procurement .,aƒ Y. .\ É=l, 6\9:*\]- .jN9;<aj.a QBीर् l+e;\N, s9Yhjr.)
Swavalamban Challenge ëë to to non-proot organisations/educational institutions/social
Fund (SCF) startups for promoting entrepreneurship, onancial inclusion,
green technologies etc. Bossp SIDBI with help of UK-based org.

44.3.6 Ubharte Sitaare Programme for MSME Exporters (USP: 2021-Aug)

 Alternative investment fund by EXIM Bank and SIDBI. (More in Pillar#1B1 Classiocation)
 To help export-oriented MSMEs (in goods and services sector).

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 737
 To give them funding (debt and equity), technological support. [å. :C.Ò±. 9;:\] êjl çBgg\9;<+SY
.,;\:+e\e√7)`acaj.a 6**]

44.3.7 PM Vishwakarma Scheme (2023-Sept)

• Boss$ MSME Ministry

• Bene^ciaries$ 18 trades, viz.(i) Carpenter (Suthar/Badhai); (ii) Boat Maker; (iii) Armourer;
(iv) Blacksmith (Lohar); (v) Hammer and Tool Kit Maker; (vi) Locksmith; (vii) Goldsmith
(Sonar); (viii) Potter (Kumhaar); (ix) Sculptor (Moortikar, stone carver), Stone breaker; (x)
Cobbler (Charmkar)/ Shoesmith/Footwear artisan; (xi) Mason (Rajmistri); (xii)
Basket/Mat/Broom Maker/Coir Weaver; (xiii) Doll & Toy Maker (Traditional); (xiv) Barber
(Naai); (xv) Garland maker (Malakaar); (xvi) Washerman (Dhobi); (xvii) Tailor (Darzi); and
(xviii) Fishing Net Maker.
Entitlements are as follows:
✔ Recognition through (A) PM Vishwakarma certiocate and ID card. (B) feyéll be registered
as éentrepreneursé in Udyam Assist Portal.
✔ Skill Upgradation: Basic Training of 5–7 days and Advanced Training of 15 days or more,
with a stipend of Rs. 500 per day;
✔ Toolkit purchase ke liye upto Rs. 15,000 e-vouchers at the start of Basic Skill Training.
✔ Govt to pay bonus/Incentive of Rs.1 per digital transaction, upto max Rs.100 per month
✔ Marketing Support.
✔ Loan support (see next section )

44.3.8 Loan Interest on PM Vishwakarma

Collateral free ºEnterprise Development Loansé upto ë 3 lakhs
Matter %
A) loan interest paid by bene^ciary to banker 5%
B) interest subvention (subsidy) given by government to banker 8%
Total interest earned by banker (A+B) = 13%
FAQ: isnMt this illogical if the 5% paid by bene^ciaries and 8% paid by govt $ Ans. PIB not
bothered to explain mwhyn part in the scheme document. My take is that Bankers may be charging
around 13–16% or more interest rate on businessman (depending on credit rating of the customer).
So if the government did not o´er 8% from its pocket, then bankers will su´er losses/bankers may
not pass the loan-applications very easily. fatés why.

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 738
44.4 MSME MINISTRY → MISC. INITIATIVES
44.4.1 MSME Ministry → ASPIRE (2015)
- A Scheme for Promoting Innovation, Rural Industry and Entrepreneurship.
- Boss$ MSME Ministry. Central Sector Scheme =100% funded by the union.
- To encourage Innovation & Rural Entrepreneurship, this scheme will set up Business Incubators
and Startup fund for agro-based industry.

44.4.2 MSME Ministry → Solar Charkha Mission (2018)

- Boss$ MSME Ministry → KVIC. Central Sector Scheme = 100% funded by the union.
- KVIC to setup solar charkha clusters in rural areas.
- KVIC will provide training, subsidy for purchasing Solar Charkha, and interest subvention on
the loans taken by the weavers / entrepreneurs. gz, y,â\.\ deå Y+e-6, gÒÚl-, *+B 6=6** .} B+åc-
- Target$ Generating 1 new lakh jobs.

44.4.3 MSME Ministry → Gramodyog Vikas Yojana

 MSME Ministry → Khadi and Village Industries Commission (KVIC) → Gramodyog Vikas
Yojana → For the development of village industries
 2020-June: Launched a pilot project for mfg. Agarbatti (Incense Sticks). Artists to be given
Automatic Agarbatti making machines etc.

44.4.4 MSME Ministry → Portals / Helplines

- To register an enterprise as MSME, its entrepreneur has to oll up an
Udyog Aadhaar Memorandum(UAM)-free online form to MSME
ministryés Udyam Registration webportal using Aadhar number.
- (Previously another form called ºEntrepreneursé Memorandumé.)
UAM Portal/ - He/sheéll be allotted a unique Udyog Aadhar id linked with his personal
Udyam Assist Aadhar number. <u+£N, qr+, .+lS.\ g+R NjB-.,/ .,:+;+ uC
portal - Udyog Aadhar id helps applying for Govtés MSME schemes
2015 - Retail traders and wholesale traders can also register as MSMEs in
onwards mUdyam Portalm. but they are not eligible for all MSME-schemes.
However, they are eligible Priority Sector Lending. (REF: Pillar1A2)
(â7*,+ T+N+,- [, Ra. T+N+,- è- å6ågå6¶ .\ ≥N 6=NjB-.°Y ua g.Y\uÕe\k.; )+=
å6ågå6¶ .\ deå h;- g+,- <aB;+—j.\ e+è ;u-jb6eY\uÕÆ u+e+£k. O,§:ShÕ. .\ s+Rb6. ^\_
.\ ˚/ 6+;. .aÉ\.\ ea; )+=b6eY\uCÆ)
- MSME's Complaint & Grievances Redressal (ß].+<Y 9;:+,/)
CHAMPIONS
- Support for various schemes (<aB;+—jŸ+,+ 6**)
WebPortal
- It's a Hub & Spoke Model. Hub = New Delhi main o∏ce of MSME
(2020-May)
Ministry. Spokes = its oeld o∏ces, state govts etc. (Nkuå .+ .=8 [, äƒ)
MSME - MSME Act, 2006 requires State Governments to establish Micro and

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 739
 Small Enterprise Facilitation Council (MSEFC).
- If a buyer (Govt org @Union/State) is not paying money to MSME
supplier within specioed time limit, then MSEFC can order him to pay
money with interest rate.
Samadhaan
- MSME Ministryés ºMSME SAMADHAANé webportal helps oling online
complaint for delayed payments. :, è- è7cY+; ;u-jua ,u+ Ya ß].+<Y
- Budget-2022: When seller gives bill → 75% payment to be released
within 10 days by Govt. with Online bill tracking system
- MSME Ministryés webportal to connect jobseekers (passed out trainees /
MSME- Sampark students of MSME Technology Centres) to recruiters (various
companies).
Udyam Sangam, - MSME ministry organizes such Workshops, Conventions, Mela usually
Udyam Samvad at Delhi.
Udyami Mitra Toll-free helpline mainly to help the orst generation entrepreneurs. Nue- N-∑-
Yojana .\ )`b6<aj.a ge+u 6]:,+ 6** Y+e-6 .\ deå u\±e+i; uC
Udyami Bharat SEMINAR/workshop in Delhi (2022) launched by PM.

44.4.5 MSME: Funds for their development

India Inclusive For promoting grassroot innovations. c+£: 6=, §6-;- –, N, ;:+y+, .a sat+u; .\ deå
Innovation Fund
Scheme of Fund for Regeneration of Traditional Industries → to setup
SFURTI
clusters of Khadi, Coir, Handicra; & help the entrepreneurs inside them.
Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)
funded by MSME Ministry and SIDBI to help the MSE Entrepreneurs get
CGTMSE
loans without collateral from the banks. ( Ref:Pill1D: Financial Inclusion)
Budget-2022: weéll give more funding in this.
by World Bankés International Bank for Reconstruction and Development
RAMP by World
(IBRD) for helping MSME. (è+,Y .\ e√7)`acaj.} 6** .\ deå 9:D hÕ. .+ ramp
Bank
saग्र+6)
Self-Reliant India MSME Ministryés fund of funds to give equity (share) investment to MSME
Fund (or SRI companies.
Fund)

44.5 ES19: MSME DWARFISM SHD BE DISCOURAGED (uäD/òD)

Shied to Mains Handout. #Prelims-RAFTAAR
44.5.1 ATMANI: MSME De^nition Changed by Government
gà(, e√7[, 6fi6 )fiac .} T+â<+ 6\h*e+:

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 740
 NOTE: in above image, please read "<" sign as "NOT MORE THAN (g\Q~r. ;u-j)
Investment: 9;:\] annual turnover: :+ˆ‚. .+,ah+,
Area Number as ES23
Registered Units 1.32 Crores out of them 1.27 crore are Micro Enterprises
Jobs over 9 crore people, out of which 2.3 crore are women
Exports over ë9 lakh crore

45 SERVICE SECTOR (tgC/ igj)

45.1.1 Service Sector- 3/4/5 level (e|e1E2 /âe@∑~2 /òwâ? )
Level examples
Tertiary trade/commerce, transport, communication, banking onance, real estate
Quaternary (1) information /data based (2) research and development (R&D) Based
• Specialists, Consultants, Decision Markers, Policy formulators
• fey focus on the creation, re-arrangement and interpretation of new and
Quinary
existing ideas; data interpretation, use/evaluation of new technologies
• fese workers are called ögold collarM professions.

MCQ. Find correct about service sector$ (UPSC-EPFO-2023)

1. Retail trade falls under tertiary activity.
2. Research and Development based activity comes under quaternary activity.
Codes: (a) 1 only (b) 2 only (c) Both 1 and 2 (d) Neither 1 nor 2

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 741
45.1.2 Service Sector Data from Eco Survey 2023
 (DATA) Services sectorés accounts for more than 50% of GDP and 80% of total FDI inÑows.
è+,Y .+ ®+*+Y, g.e √,\eà)X+* [, 9:*\]- sœ^ 9;:\] g\:+ ^\_ g\qY+ uC
 Services sector share in Gross State Domestic Product (GSDP)= Highest in Delhi, lowest in
Sikkim. (ºg.e ,+® √,\eà)X+*é 6=g\:+ ^\_ .} ku∂\*+,- ghg\®+*+ .|;g\ie+.\ 6=uC?)
 High FDI growth seen in Computer Soware & Hardware, ºe-Retail Tradingé, ºEducation',
pharma-research service, etc. (6u™6 9:*\]- 9;:\] i; ^\_aj6=)
Corona hurt more on contact-intensive services sectors ( ]S Less impact of Corona on non-
gj:\*;]-e g\:+—j.a .a,a;+ g\è+,- ;7.g+; €q) contact services
tourism, retail trade, hotel, entertainment, and recreation. information, communication,
onancial consultancy etc.

45.1.3 MBA-Terms: Outsourcing vs Home-shoring

Outsourcing Home-shoring / work from home
Outsourcing or contracting out is a orm giving practice of employing people to work from
work to an outside agency to improve e∏ciency their homes rather than in a companyés o∏ce
and to reduce costs. or factory.
e.g. Apple phones being made by Tata; American e.g. Infosys company telling Infosys employee
banksé Call Center operation operations handled to coding-work from home. To reduce O∏ce
by Indian company in Bengaluru. space / maintenance cost.
same as le cell. Employee not coming to
Helps reducing cost of running company
o∏ce= electricity bill saved
45.1.4 MBA-Terms: Outsourcing- BPO vs KPO
BPO KPO
Business Process
Knowledge Process Outsourcing (KPO)
Outsourcing (BPO)
advance level e.g. 1) Hollywood producer using Indian VFX artists based in
basic level customer
India, 2) American pharma/legal orms using Indian writers based in India, 3)
support, data entry.
USA coaching institute using Indian online teachers for SAT coaching

45.1.5 Service Sector: IT & BPM

 Over the last decade, the Information Technology & Business Process Management (BPM)
industry grew by 102%.
 Top destination for Indian IT Exports: 1) USA $91 billion 2) UK 3) Europe except UK 3) Asia-
Pacioc. (6u™6 .j.àÉ, g\:+ 9;<+SY i; *\]aj6=è+,Y .,Y+ uC)

45.1.6 : Knowledge economy of India: Treats/Challenges

Knowledge economy is primarily based on intangible assets such as the value of its workers'
knowledge and IPR. e.g. Space, Pharma, IT, e-learning etc. ª+; QRST:U+ 67∞ ≥N g\Q6àYSgjN˜™ BCg\k. ig.\
òb6.aj.\ ª+; <+ hzb•. gjN*+ N, qr+O,Y uaY- uC.

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 742
 Challenges to the knowledge economy of India (/0e 2g opù â@DäBeE/w)
 China is providing tough competition in these sectors. y-; è+,Y .a .+jÉ\.} É,/ r+S*\,u+ uC
 Philippines Indonesia etc Asian economies o´ering graduates with command over english, data
processing, IT, engineering to MNCs. Qï åß]<+¶ *\]aj6=è- Qjग्र\B- YR+ .j.àÉ, .\ 9:]\‚ª .} gj∞+ h∑ ,u- uC
 Space Sector grew because of Govt support to ISRO- But same is missing in case of
Electronics/hardware. g,.+, .\ ig,a .a 6** .\ yeY\, è+,Y Q:.+] ^\_ 6=qc\, e\k.; g,.+, Ÿ+,+ ie\{W|9;. [,
u+lS:<\ , ^\_ .a ig s.+, .} 6** .+ê} :‚π Y. ;u-jb6e-
 Pharma sector growth driven by private sector initiative. But they're not spending an adequate
amount of proots on research and development- as pointed out by the economic survey. ([‚~r
^\_aj6=9;B- ^\_ .} .jN9;<ajŸ+,+ )X+*; :°b• Ya €¶, e\k.; gj]ar;-9:.+g 6=N<+Sü ≥N g\NCg+ âyS;u-j., ,u\, B7c+ƒ
6+;~g.Y+.)
 Brain drain of talented Indians to foreign nations since 1970s. è+,Y .\ s9Yè+:+; <7:+— .+ 9:*\] c6;

45.1.7 Sunrise sector in Budget-2022 (tôE∏.E igj: VÖ/≠egπ C|∫ª 2ê tw/CD/)

- A sunrise industry is a new business sector showing potential for rapid growth.
- Budget-2022: weéll help following Sunrise Sectors: Artiocial Intelligence, Geospatial Systems
and Drones, Semiconductor and its eco-system, Space Economy, Genomics and Pharmaceuticals,
Green Energy, and Clean Mobility Systems. (i; gh gà<¢*< ^\_aj.a ;<+ hBÉ 6** .,\c+.)

45.2 SERVICE SECTOR → E-COMMERCE (º C/Ω3¨ / æDp/vD Buøê)

45.2.1 E-Commerce vs E-Business (v-C/Ω3¨ uD/? º-2/0lu/0 )

• E-commerce = act of buying and selling via digital platform. It is a sub-set of E-Business.
• E-Business = It covers wider varieties of areas such as e-commerce, production, supply,
management, product, development, accounting, onance, employee training, human
resource management.

45.2.2 E-Commerce: types of transactions

Type Example
B2B business- to-business / Intra-B Commerce: e.g. Infosys developing e-banking website for SBI.
B2G business to government e.g. Infosys developing GST portal.
B2C Business to customer e.g. Amazon selling goods to you and me.
C2B Customer raising ticket on Dell company website for laptop warranty claim.
C2C consumer to consumer e.g
1) Customer selling used or second-hands books/products via Olx.com

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 743
 2) car driver stuck in tra∏c is notifying Google maps to alert other users about tra∏c jam.

45.2.3 E-Commerce Challanges

Marketplace E-Commerce companies were engaging in Anti-Competitive ( r+S9:,ar-) behaviour e.g.
- Flipkart / Amazon would enter in exclusive partnerships with top smartphone brands such as
Xiaomi and Oppo- Prohibiting them from selling their mobile phones through other online or
o/ine channels → o/ine mobile shops su´er.
- Flipkart / Amazon run mMarketplace E-Commerce modeln i.e. they allow any merchant to list
their products on their website. However they will also have their own merchant company (e.g.
Amazonés cloudtail pvt ltd) who would o´er deep discounts / cashbacks to the customers. →
Other online merchants on the same web platform will su´er. O/ine brick and mortar shop
merchants (=kiranawalla) will also su´er.
- 2021: Competition Commission of India [a statutory body under the Corporate A´airs ministry]
is investigating this. However Flipkart Amazon went to court to stop investigation but uski ball-
by-ball news commentary not imp. Wait till onal outcome. è+,Y-< s9Y r+Sq<ac B+jy ., ,u+ uC
45.2.4 E-Commerce Rules 2019-Feb
Who$ Consumer A´airs ministry. )NèaØ+ 6+6eaj.+ 6j_+e<
How$ using the powers under Consumer Protection Act 2019. )NèaØ+ gj,^/ Q~r9;<6(Ref:Pill4)
 Such E-commerce companies canét have exclusive agreements with sellers (9hP\Y+— .\ g+R Q;ï
g6BzY\). E.g. Flipkart canét compel Xiaomi ºnot toé sell Mi phones on other online/o/ine
platforms.
 Tightened the technical norms related to cashback and discounts. (.C]hC. [, äàÉ g\gjhj~rY
Y.;-.} 6+;*jlaj.a g‘ k.<+)
 Tightened norms on E-commerce company who were using their own subsidiary
companies/shell companies as mOnline Merchantsn to sell products at deep discount (gu+<.
.jN9;<ajŸ+,+ cu,- äàÉ N, g+6+; h\y;\N, g‘- .} c<-).
 E-commerce companies/E-Tailers must mention the 'expiry date', 'country of origin' of goods, its
policies on return, refund, exchange, warranty and guarantee, delivery, shipment, cancellation
policy. (¶ 9:P\Y+ ;\g6+ûü 9Y~R, )X+*; .+ 6àe *\] iœ+k* .} B+;.+,- *\;- uac- )
 Must display sellers' geographic address, customer care number, rating etc.
Plus many other technical norms. Poor cost:beneot in chasing all them. In MCQs, just apply
logical reasoning that rules are more consumer friendly, and imposes more responsibilities on e-
tailer/seller. Accordingly do logical 50:50 elimination. For example, "E-tailer must not post fake
reviews by creating fake accounts".= Yes this statement is correct.

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 744
45.2.5 E-Commerce: (Dra4) CONSUMER PROTECTION (E-COMMERCE) RULES, 2020
Using powers of the Consumer Protection Act → govt notioed Consumer Protection (E-Commerce)
Rules, 2020 with following features: <Note: For easier understanding, I⇠ve used word Amazon instead
of e-commerce so u can visualize quickly.>
 1) fall-back liability clause= e-commerce entities (e.g. Amazon) will be liable in case suppliers on
the platform fail to deliver the goods to consumers, causing customer a loss. ( ,-*+ €q g+6+; ;
b6e;\N, <k* ग्र+u. .+ ;7…g+; uaY+ uCYa amazon ;\67q:§+ *\;+ uac+)
 2) Amazon need to identify goods based on their country of origin. (6+e .z; g\*\] g\q<+ uC V ≥N g\
hY+;+ uac+)
 3) when customer browsing through the store, amazon need to provide suggestions to customers
(about the product listed by Indian sellers) to ensure mfair opportunityn for domestic sellers.
(ग्र+u. .a¶ y-§ ’àj’ ,u+ uCYh å6\§a; ;\)g\è+,Y-< 9:P\Y+—j.\ )X+*;a .+ g7∫+: *\;+ uac+)
 4) Amazon cannot misuse its dominant position to dictate the commission rates on seller else
consumer protection authority will punish Amazon. (9:P\Y+—jg\k.Y;+ .6-]; å6\§a; 6+£c g.Y+ uC)g
N, .7ä g-6+åj)
 5) Amazon cannot share the personal data of the customer with third party without the approval
of customer. (ग्र+u. .} Q;769Y .\ 9h;+ Q6\B|; )g.+ 9;B- l+É+ k.g- Y-g,- N+Éीर् .\ g+R g+∫+ ;u-j., g.Y+)

45.2.6 Criticism against E-COMMERCE) RULES: (ÄplâD/)

 1) foreign companies are angry that Indian govt is pushing mMake in Indian campaign being
pushed through the Consumer Protection Act. If domestic manufacturers are competitive,
consumers will automatically buy Indian products (9:*\]- .jN9;<+j;+,+§ uÕ.} §h,*–- å6\§a; N, *h+:
l+e+ B+ ,u+ uCk. :a è+,Y-< y-§aj.+ g7∫+: *\Æ Qc, è+,Y-< .jN9;<+jQ⌥+ )X+*; h;+åc- Ya ग्र+u. QN;\qN ,-* e=c\)
 2) consumer protection authority trying to encroach upon the domain of Competition
Commission of India (è+,Y-< s9Y r+Sq<ac .} g™+ N, ग्र+u. g7,^+ s+~r.,/ Ÿ+,+ Q9YP6/ ua ,u+ uC)
 3) Data sharing related rules need to be covered under the Personal Data Protection Bill and not
the Consumer Protection Act. (9;B- l\É+ .+ ≤+ .,;+ y+kuå )g.\ deå Qec …+;à; h; ,u+ uCYa <u+£ग्र+u. g7,^+
6=)g.+ ç§P .,;+ §≥,- ;u-jR+)

45.2.7 E-Commerce: Open Network for Digital Commerce (ONDC):

 ONDC, set up as a non-proot company by Commerce Ministryés DPIIT.
 Seller lists the products → Product visible across all the participating e-commerce websites (e.g.
Flipkart, Amazon, Snapdeal and other big and small e-commerce sites.)
 Open source protocol / structure. To prevent exploitation of seller by e-commerce giants
(Flipkart/Amazon).
BEFORE UPI/BHIM: (REF: Pillar1A1) AFTER UPI/BHIM
Customer paid money to Seller via Paytm→ money directly transferred to sellers bank
PayTM charged fees before seller could transfer account without such fees. = sellerés life
money to bank account. becomes easier.
seller kept product price high, to cover the fees Seller may reduce the product price to attract
of Paytm. more customers because now he does not have
to pay fees to Paytm.

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 745
Similarly, ONDC will make the life easier for seller and buyer.
BEFORE ONDC AFTER ONDC
Amazon Flipkart will deduct platform-fees fese fees will get uniform across platforms.
before transferring customersé money to seller. fese fees will get reduced. = seller life
fese fees may vary from website to website e.g. becomes easier.
Amazon may charge 8%, Flipkart may charge
11%
Customer product return, shipping delay etc. ONDC will have common guidelines across all
policies vary from platform to platform e.g. the e-commerce platforms. = buyer life
Amazon may o´er 3 days product-return, while becomes easier.
Flipkart may o´er 7 days product-return.

“xyΩVìp C/Ω3¨ 2g opù ñ@p//¡òD DgìC2~” = å. åg+ klçBÉe-6jy Ba 9:P\Y+—j.a Qec Qec ¶ .|6gS.jN9;<ajN, QN;+
g+6+; h\y;\6=6** .,\c+Æ igg\9:P\Y+—j.+ NjB-.,/, 9:P\Y+—jN, ec;\:+e- ı}g, :–7— j.} …}6Y=YR+ :/S;, ग्र+u. g7,^+
iœ+k* .\ deå å. q*]S/å.g6+; T:U+/s/+e- h;\c-, çBg6=9:P\Y+ [, ग्र+u. *a;aj.\ kuYaj.} ,^+ uac- [, å6\§a; B\g-
.jN;-<a Ÿ+,+ ]a‚/ .6 uac+Æ

E-Commerce Rules Open Network for Digital Commerce (ONDC):

WHO$ By Ministry of Consumer A´airs By Commerce Ministry
Objective Mainly to protect buyers [very To protect both buyers and sellers
$ few points dedicated to protect
sellers]
Moral Outrage: why not merge above two thingsp Ans. Send your suggestions to PM.

MCQ. Find correct about foreign-owned e-commerce ^rms operating in India$ (Prelims-2022)
1. fey can sell their own goods in addition to o´ering their platforms as market-places.
2. fe degree to which they can own big sellers on their platforms is limited.
Codes: (a) 1 only (b) 2 only (c) Both 1 and 2 (d) Neither 1 nor 2

45.2.8 QCommerce / Quick Commerce

Type of Commerce E-commerce Q-commerce
Delivery Time Range 1–3 days or longer 15 minutes to 1 hour
Examples Amazon, Flipkart Dunzo, Swiggy Instamart, Blinkit, Zepto
45.2.9 E-Commerce: Anti Fake review framework by BIS
 Whop BIS (Bureau of Indian Standards, Statutory body under Ministry of Consumer A´airs).
 Whatp formed technical guidelines to combat fake product reviews on e-commerce websites.
Technically called mIndian Standard (IS) 19000:2022n (êBीर् O,T7.\ ¬âe+ê k*]+ 9;*ेर्])
 e.g. e-commerce company should 1) verify/ban fake reviewers thru email / OTP etc. 2) ban
merchants if they give money to people for giving fake positive reviews.
 fis is not a legal/judicial order. It is voluntary for the e-commerce company to adopt this
framework (<u ¨CÒ⌥. uC. .+;à;; ≥N g\Q9;:+<S;u-j)

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 746
45.2.10 E-Commerce: Google Appstore Anti-Trust: CCI Order in India

 Google compelled the smartphone and smart TV makers to pre-install Google Playstore in their
devices/hardware along with Android operating system.
 then the customer has to compulsorily install apps from playstore.
 then google will charge 15–30% commission on the Apps sold thru Appstore.
 fus, Google was creating monopoly / anticompetitive practice.
 2022: CCI (Competition Commission of India, statutory body under corporate a´airs Ministry)
imposed $161 million (ë1,337.76 crore)
 Google appealed against CCI order at National Company Law Appellate Tribunal (NCLAT) but
failed → went to SC but failed.

ÜÉÜs MwaOL vwyóRqy ¨RnÇïkO JOROfZRsL hkJRqs MN`OXk mféJSO ñaOR ÜÉÜs ≠fÆkS qwÆõs MSZRUL äLê URâM ÜÉÜs cm
≠fÆkS af`JM SofhkJRqs vØ aS \sRsL îR mMfê TRSULX ^`UÅjRÇWXkÜ OfÜÉÜs MV qm vMRåjMRS ôR`aU MSOfMV
∞~SìROÉOL Ü`U`Zåj aS JKR {YhRÇOR sÜRXR o~.

45.2.11 Google Search Engine Anti-Trust case in USA

• 2020: USA Government oled a case ke Google pays $10 billion annually to Apple (Safari
Browser) and Mozilla Firefox Browser and other companies to ensure Google is placed as the
default search provider on smartphones and web browsers.
• fis helps Google company to harvest user data and display targeted advertisement.
• fis is not fair competition, because other search engine companies (DuckDuckGo, Yahoo,
Yandex, Baidu, etc) do not have money power to do this. 2023-Nov: onal judgement awaited.

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 747
 PT365
45.3 ♂ MFG → BODIES FOR QUALITY STANDARDS (n@3Cü/ 2g ?/D2)

/ I
reg Non- O
reg
8
Numbers
p hai .

45.3.1 ♂Consumer A√airs Ministry → Statutory → BIS (1986)

 Bureau of Indian Standards (è+,Y-< 6+;.aj.+ .+<+Se< /*à,a) is the apex regulator of standardization
and quality certiocation of goods.
 It allows the manufacturer to use Indian Standards Institute (ISI) mark on their goods (e.g.
helmet, gas stove, pressure cooker etc.) if they meet BISés standards.
 BIS also has separate hallmark license system for gold and silver jewellery.
 BIS is Indiaés nodal for International organisation for standardization (ISO-standards), WTOés
Technical Barriers to Trade (TBT) agreement.(More in Pillar#3B:WTO)
45.3.1.1 ♂: BIS & Gold -Silver Hallmarking (±öÇUäR dR≤\L oõshR≥MÜ Mf usv `OXhê)

 Bureau of Indian Standards (BIS, Statutory body under Ministry of Consumer A´airs). → Gold
Hallmarking and Silver hallmarking (to certify purity of metal)
000
 Year 2000: BIS started for Gold in 3 grades viz. 14 carat, 18 carat and 22 carat.
 So far it was voluntary (=Non compulsory) BUT From June 2021, Hallmarking became
compulsory for Gold & Silver- with following rules:
● ) Jewellers with annual turnover upto Rs. 40 lac will be exempted from mandatory
hallmarking äaÉ\BzuO,<ajN, <\9;<6 Q9;:+<S;kuÆ
● 2) Jewellers can continue to buy back old gold jewellery without hallmark from
consumer. <k* ग्र+u. 9h;+ u|e6+≠.c .+ è- ga;+ h\y;\qå Ya Bau,- )g\â,-* g.Y+ uCÆ
 Direct bene^t: customer assured of gold quality. ग्र+u.aj.\ deå ¨/Sc7/:™+ g79;çश्चY uac-
 Hidden bene^t: Since big Jewellers must register & get their products certioed so tax
authorities get data mining opportunities about how much gold items traded, whether jeweller
depositing proportionate amount of taxes or evading itp Etc. N,a^ ≥N g\., ya,- N, ec+6.

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 748
45.3.2 BIS certi^cate for Mitticool refrigerator (2022)
• Mitticool refrigeratoré developed by Mansukh Bhai Prajapati from Gujarat
• Operates on the principle of evaporative cooling.
• It is made from clay to store vegetables, fruits, milk, and also for cooling water. It provides
natural coolness to foodstu´s stored in it without requiring any electricity.
• BIS developed an Indian Standards /regulation for such "clay based non-electric cooling
cabinet" - e.g. what type of clay is to be used, product dimension, temperature levels.
• fis standard helps BIS in fulolling 6 out of 17 United Nations Sustainable Development
Goals (SDGs) like No poverty, Zero hunger, Gender equality, A´ordable and clean energy,
Industry, innovation, and infrastructure, and Responsible consumption and production.

MCQ. Which of the following statements regarding the clay based non-electric cooling cabinet,
for which the Bureau of Indian Standards (BIS) has recently developed an Indian Standard (Is
17693: 2022), is/are correct$ (EPFO-2023)
1) It is a natural refrigerator to store vegetables, fruits, milk and also for cooling water.
2) fis standard helps BIS in fulolling 6 out of 17 United Nations Sustainable Development Goals.
Codes: (a) 1 only (b)2 only (c) Both 1 and 2 (d) Neither 1 nor 2
NOTE: I am adding this note, only a4er UPSC-EPFO asked about it. However, in real life, not
possible to remember or keep track of all such random press notes on PIB. If you do not know, then
better to skip and move to next question. Isko EGO pe nahi lena chaahiye ki mere ko harr topic pe
zhandaa leke PhD karni hai and Sherlock Holmes ban jaanaa hai.

45.3.3 ♂ Power Ministry → Statutory → BEE (2001-02)

 Bureau of Energy E∏ciency (ÀB+S*^Y+ *à,a) setup under Energy Conservation Act, 2001.
 BEEMs Energy ö Star labelingM logos help consumers decide which electronic appliance is more
energy e∏cient than other brands.
- fis labelling compulsory for Air Conditioners, Refrigerators, Tubelight, Color TV,
Electric Geysers, Inverter, LED Lamps etc. (Q9;:+<Sgày-)
- fis labelling is voluntary for other appliances like Computers, LPG stoves, ceiling fans-
Although this list keeps updating. (¨CÒ⌥. gày-)
 BEEMs Chiller Star Labelling: fe traditional star labelling program is for consumer appliances
for households use. While chiller star labelling related to the big heating, ventilation, and air
conditioning devices in the commercial / factory buildings. ([`abc. –, .\ ]-Y <j_aj.\ deå)
 Separately, EESLMs Retroot of Air-conditioning to improve Indoor Air Quality for Safety and
E∏ciency (RAISE) it aims to increase quality and e∏ciency of AC. RAISE Joint initiative of
Energy E∏ciency Services Limited (EESL, a company under Power Ministry) and United States
Agency for International Development (USAID) (å<, .jl-];, .} c7/:™+ [, *^Y+ h∑+;\.\ deå)

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 749
45.3.4 ♂ Health ministry→ Statutory → FSSAI (2006)

 Food Safety and Standards Authority of India (è+,Y-< â+` g7,^+ [, 6+;. s+~r.,/) lays down
scientioc standards for food manufacture, storage, distribution, sale and import in India.
 FSSAI chairman may be a non-bureaucrat, food-scientist etc. While FSSAI functions under the
Administrative control of Health ministry, FSSAI Chairperson enjoys rank of an independent
Secretary to Government of India. Heés not ºunderé any department of Health Ministry.
 FSSAI act repealed previous central Acts like Prevention of Food Adulteration Act 1954, & other
laws / orders of Fruits, Meat Edible Oils, Edible Flour, Milk Products etc.
 FSSAI labelling rules 2011: Every package containing vegetarian food item must contain a square
symbol with a Green Colour olled circle inside. If egg / non-vegetarian item then Brown Color.
 FSSAI packaging rules banned the use of recycled plastic and newspaper for packing / wrapping
food articles due to chemicals/cancer fear. (â+` N*+Rπ .a Qâh+, 6=eN\É ;u-jg.Y\≤ajk. .Õg, .+ Ba¬â6)
 FSSAI rules ban the use of calcium carbide and acetylene gas for artiocial ripening of fruits,
however ethylene gas is permitted upto certain limits. (êe N.+;\:+e\,g+<;aj.\ )N<ac N, s9Yhjr)
 Food product should not contain more than 2% Trans Fatty Acids (TFAs) from 1/1/2022
 2021: FSSAI has banned blending of mustard oil with any kind of edible oil from 2021. Because
such mixing/blending associated with dropsy disease/allergy. (g,gaj.+ Y\e k.g- Qï â+` Y\e .\ g+R
b6ßòY .,;\N, s9Yhjr ≤ajk. ⌦g+ b6ò/ .7ä h-6+O,<+£N\*+ .,Y+ uC)
 Monosodium Glutamate (MSG) is a Ñavor enhancer in Chinese food, but leads to obesity and
liver inÑation. Earlier FSSAI had banned sale of Nestle's Maggi noodles because it contained lead
and MSG, although later HC lied the ban.

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 750
 2019: Ministry of Health and Family Welfare will provide training & certiocates to youth → they
become ºFood Safety Mitraé → they help food processing companies / restaurants etc to comply
with FSSAI norms & earn consultancy fees from them.
 2022: working on a packaged/junk-food rating similar to energy rating on Fridge.
Related-Misc.$ AGMARK is given by Agro Ministry→ Directorate of Marketing & Inspection →
under the Agricultural Produce(Grading and Marking ) Act, 1986. It covers Agriculture
commodities, wool, cotton, meat etc.
MCQ. Find correct statement(s): (UPSC-Prelims-2018)
1) fe Food Safety and Standards Act, 2006 replaced the Prevention of Food Adulteration Act, 1954.
2) fe Food Safety and Standards Authority of India (FSSAI) is under the charge of Director General
of Health Services in the Union Ministry of Health and Family Welfare.
3) Both 1 and 2 4) Neither 1 nor 2
45.3.5 ♂ Commerce Ministry → Not-Statutory → QCI (1997)
- Quality Council of India is a non-proot society registered under Societies Registration Act with
the funding from Commerce ministry, Confederation of Indian Industry (CII), Federation of
Indian Chambers of Commerce and Industry (FICCI) & Associated Chambers of Commerce and
Industry (ASSOCHAM). FICCI & ASSOCHAM are non-governmental trade
association/pressure groups of businessmen for highlighting their demand to Govt.
- QCI helps the industries to adopt quality standards like ISI, ISO, OHSAS, KAIZEN etc. ku*j -
]0+:e- <u+jB≥,Y ;u-j≤ajk. 67∞ N,-^+ 6=ig.+ .+6 ;u-j.
- Quality Council of India (QCI) provides certiocation of Zero Defect and Zero E√ect (ZED)
manufacturing to MSME industries.
45.3.6 ♂ Commerce Ministry → Not-Statutory → NPC (1958)
 National Productivity Council of India (NPC)- autonomous body setup under DPIIT, provides
research and consultancy service for Industrial Engineering, Agri-Business, Quality
Management, Human Resources Management etc to companies.
 Commerce minister is the president of this body.

45.3.7 ♂ One Nation, One Standard Scheme (2019)

- Bossp Bureau of Indian Standards (BIS, Statutory body under Ministry of Consumer A´airs).
- A Standards setting organizations such as FSSAI, Bureau of Energy E∏ciency etc. will apply to
BIS & promise to abide by WTOés Technical Barriers to Trade (TBT) Agreementés mCode of
Good Practicen (c7/:™+ 6+;. h;+;\:+e- 9:9:r gjU+—j;\h-q¶åg 6=QBीर् l+e .\ .g6 â+;- uac- k. :u 9:D
T+N+, gjcæ; .\ TBT g6∫zY\.\ Q;7g+, .+6 .,=c\) (TBT: Ref Pillar#3B)
- fen BIS will label such organization as SDO (Standard Developing Organization) under mOne
Nation, One Standardn scheme. (Ya kê, h-q¶åg gjU+ )g gjU+ .a “å. *\] å. 6+;.” <aB;+ .\ QjYcSY
“6+;. 9:.+g gjcæ;” .} )N+~r *\c-)
- 2021: Railway Ministryés RDSO (Research Design & Standards Organization, HQ: Lucknow)
became the orst organization to get SDO label from BIS

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 751
 Beneotp Transparency, Openness, Impartiality, E´ectiveness. HOW exactlyp Ans. NOT IMP.

45.3.8 PARAKH Laboratory Network (2021)

 Bossp Commerce ministry → DPIIT.
 mPARAKHn online portal contains the directory & GPS-addresses of government approved
public sector and private sector laboratories. → entrepreneur can approach those labs for
getting the necessary testing-certiocates. e.g. ISI mark, Gold-hallmarking, FSSAI food-safety tests
etc. (N,â- å. ©;e+i; kl,\{,- uCBu+£g,.+,- 6+ïY+ s+ü s<ac]+e+—j.} gày-/ålW\g k*å uCÆ Y+k. )`acN9Y i;
s<ac]+e+—j6=QN;\)X+*aj.a è\B.\ §≥,- s6+/N_/g‹Ékı.\É/6+;. u+~ge ., g.\Æ)

45.3.9 OIML Certi^cate for weighing machine maker companies

• Body: OIML (Organisation Internationale de Métrologie Légale / International Organization

of Legal Metrology) Certiocates Issuing Authority. HQ: Paris. Founded 1996.
• the company that manufacture weighing machines & measurement instrument - they need
to get certiocate certiocate from this OIML body.

BEFORE AFTER (2023)

India was not member. Indian companies had to get India becomes 13th Member of this OIML
certiocate from Australia, Switzerland, China, Czech Body. . So possible to get the
Republic, Germany, Denmark, France, UK, Japan, the weighing/measurement devices tested
Netherlands, Sweden and Slovakia within India to get certiocates.

45.4 ♂ CONSUMER PROTECTION ACT, 2019 (-òlƒ/ tw0i3)

Nodal$ Ministry of Consumer A´airs, Food and Public Distribution ()NèaØ+ 6+6eaj.+ 6j_+e<)
It replaces replace the original act of 1986.
45.4.1 ♂ Consumer Protection Act 2019 → bodies → Consumer court
Consumer Disputes Redressal Commissions (CDRCs: )NèaØ+ 9::+* 9;:+,/ q<ac).

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 752
 CDRC at District ΩVp/ ≈0 ò0 State 0/¨ ≈0 ò0 National 0/bc1E ≈0 ò0**
hears complaints
>1 cr upto 10 >10 cr (More than ten
upto á Upto ë1 cr
cr crore)
(Original Limit)
REFORM in 2021# Upto ë50 lakh ë50l to 2 cr >2 cr
 # Previously the limits were bigger and as a result district and state commissions were burdened
with too many cases, resulting into case pendency. So, Govt has changed the hearing limits. ग्र+u.
g7,^+ …+;à; 6=çBe+ ,+® [, ,+VW-< ग्र+u. Q*+eY iY;\e+â «N<\Y. .\ 6+6eaj.} g7;:+¶ ., g.Y\uÕ); g-6+—j6=g7r+,.
 ÏÏ2020: National Consumer Dispute Redressal Commission (NCDRC) has launched E-Daakhil
Portal to help the consumers ole online complaints under the Consumer Protection Act.

Appeal structure: District → State → National → Supreme Court

45.4.2 ♂ Consumer Protection Act 2019 → bodies → others

1. Central Consumer Protection Authority (.=8-< )NèaØ+ gj,^/ s+~r.,/): It'll be a body on
consumer issues, headed by the Union Minister of Consumer A´airs.
a. Its investigation wing to be headed by a Director-General (DG).
b. It can intervene to protect consumers from unfair trade practices. It can also launch
class action against a company, order recall or refund of products. fe agency is
designed on the lines of highly e´ective US Federal Trade Commission.
2. Consumer Protection Councils ()NèaØ+ gj,^/ NO,‚*) fese advisory bodies will work for
awareness generation.

45.4.3 ♂ Consumer Protection Act 2019 → Features (É?@ñ/?@« É/CÅ/D)

1. Product Liability (*a‚Nà/Sg+6+; / g\:+ .} çB‡\*+,-): If a consumer su´ers an injury, property damage
or death due to defective goods / services → company will be liable to pay for damages.
2. Unfair Contract (Q;7̃yY Q;7hjr) e.g. asking excessive security deposits for broadband / DTH
connection, company unilaterally terminating the service without cause → Company liable to
compensate the consumer.
3. Complaints can be oled electronically; cases can be heard through video conferencing.
Punishment - Fines upto ë 50 lakhs + upto 5 years jail. (.+,+:+g [, B76+S;+)
*jl - ë50k one on Consumer if oling frivolous complaints.
Celebrity If an endorser is giving a misleading advertisement, then he can be banned from
Ads$ advertising and face onancial penalty. (øb6Y .,;\:+e\9:ª+N;a N\g6RS;.+, .a *jl)
 Provisions for mediation / Alternative Dispute Resolution (ADR) mechanism. However, No
Appeal Against Settlement frough Mediation. (.aÉS.\ h+u, 9::+* 9;NÉ+;+ /g7eu .,;+)
 Stricter rules for eCommerce website (Ref Pill#3A)
 stricter penalties for adulteration/spurious goods. (b6e+:É âa,- /;.e- 6+e h\y;+)
Conclusion$ fus, new act addresses the lacunas of the original act of '86- by providing for new
methods of oling complaints, new bodies for seeking justice and stricter penalties on violators. fis

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 753
will help in long way to protect the rights of consumers in India. <u ;<+ .+;à; N7,+;\.+;à; .} â+b6<aj.a *î,
.,Y+ uC. ß].+<Y 9;:+,/ .\ deå ;¶ skP<+, ;å gjcæ;, [, ®+*+ g‘ gB+ .\ s+:r+;- - ग्र+u. g7,^+ 6=h€Y 6** .,\c+.

45.4.4 Social Media inïuencers pe CCPA Rules 2023

 Central Consumer Protection Authority (CCPA) ordered guidelines.
 whenever celebrity/inÑuencer getting paid in cash / gis for promotion of a product → he/she
must disclose it to audience in such social media posts/videos.
 else one upto ë50 lakh and/or ban on doing ads up to six years.

45.4.5 Royal Entry UPSC Toppers pe CCPA rules (2023)

• CCPA has asked Dept of Personnel and Training (DoPT) to enforce the Central Civil
Services (Conduct) Rules, 1964 on the UPSC Toppers.
• fe conduct rules clearly state that no government servant shall engage in any trade or
business or undertake any private employment. (.=8-< ~g9:e g\:+ Q;7]+g; 9;<6aj.\ YuY .a¶ è-
Qıg, 9;B- T:g+< .\ 9:ª+N; ;u-j., g.Y+.)
45.5 ✍ MAINS QUESTIONS FROM THIS PILLAR$
• Mains Qs from this topic are centred around 4th industrial revolution, Make in India, how to
improve manufacturing sector, e´ect of LPG reforms on Indian companies etc.
• fis Raaar-course (PCB) deals purely with Prelims and NOT with Mains. We'll see Mains
ka Maal in Main-QEP course.

Next Handout: 4C: NITI-PC, FYP, Macro-indicators: unemployment, GDP,

inÑation, WPI, CPI, IIP etc.

(Batch: PCB10-Prelims) Mrunal⇠s Economy Pillar#4B: Sectors of Economy-MFG & EoD → Page 754
 PILLAR#4C: ECONOMIC PLANNING, NITI-PC, UNEMPLOYMENT
Table of Contents

46 Economic Planning & Economic Systems............................................................................757

46.1.1 Anarcho-capitalism and Libertarianism.........................................................................758
46.1.2 Closed vs Open Economy..................................................................................................759
46.1.3 Capitalism- Great Reset Initiative by W.E.F (345 6789 :;< 9= >?@ ABC?@ DEF).................759
46.2 Economic Planning: 6789 IJKLM.........................................................................................760
46.2.1 Types of Economic Planning (6789 IJKLM 9? O9MA).........................................................760
46.2.2 Economy Planning → Before Independence:...........................................................761
46.3 Economy Planning → AQer Independence.....................................................................762
46.4 Planning Commission → Five Year plans.........................................................................762
46.5 Planning Commission: Limitations / Shortcomings........................................................765
46.6 Planning Commission vs Niti Aayog: Structure...............................................................765
46.7 Planning Commission vs Niti Aayog: Functions..............................................................766
46.8 NITI → Notable initiatives / how diVerent from PCW...........................................................767
46.8.1 State Support Mission of NITI Aayog (2022).......................................................................769
46.9 " → Economy Planning PM-EACW.....................................................................................769
46.9.1 → Economy Planning PRAGATIW..................................................................................770
46.10 [Yearbook] MOSPI, NSSO, CSO, NSO.................................................................771
46.11 National Statistical Commission (AM\]BI CM;^_9= 6IJ`)...........................................772
46.11.1 Pronab sen Standing Committee on Statistics (SCoS)-2023.......................................773
46.11.2 Mahalanobis National Award for Statistics.........................................................773
46.11.3 Collection of Statistics Act, 2008...........................................................................773
47 Pillar#4C: Indicators → Unemployment..................................................................................774
47.1 International Labour Organization (ILO: b;cAAM\]BI d: C;`eL).......................................774
47.1.1 ILO- 8 Core Conventions (f O:gh Ci?FL)..............................................................................774
47.2 WAGE jeory (4?cL k8IAB)....................................................................................................775
47.3 Wage → Subsistence wage theory of Adam Smith.......................................................775
47.3.1 Wage → Natural wage theory of David Ricardo.......................................................775
47.3.2 Wages → Misc. jeories..............................................................................................775
47.4 Occupational of Indian Workers (number in Crores)......................................................776

(Batch: PCB10-Prelims ONLY) Mrunal⌧s Economy Pillar#4C: NITI, PC, FYP, Indicators- Unemployment→ Page 755
47.5 " Unemployment → Involuntary → Types..............................................................................776
47.5.1 Unemployment Major Types and Reasons: (n?AJK`MAB 9? O:gh O9MA/ 9MAo)......................776
47.6 Employment related Terms in News............................................................................................778
47.6.1 Baumolps Cost Disease jeory / labour cost rising (1965)............................................778
47.6.2 Moonlighting......................................................................................................................779
47.7 Unemployment → NSO Survey Types..............................................................................779
UNEMPLYOMENT: Periodic Labour Force Survey (PLFS)...................................................779
47.7.1 Indicators → unemployment rate (UR: n?AJq`MAB rA).................................................779
47.7.2 DATA-sets from PLFS.......................................................................................................780
47.7.3 /( ) Indicators → Worker Population Ratio (WPR)..............................................780
47.8 /( ) Indicators → Labour Force Participation Rate (LFPR) .....................................780
47.8.1 Why FEMALE LFPR Declined between 2004 to 2018W.........................................781
47.8.2 Augmented Female LFPR (C;47sc :tEFM uFuvDB6A)..............................................................783
47.9 Workers Types by NSO.......................................................................................................783
47.9.1 Worker Types → Census-2011 classiwcation of workers.........................................784
47.9.2 Worker Types → Unorganized sector...................................................................785
47.9.3 Worker Types Informal worker (bI8M4ks/bLxD<MyA9 :KrzA).................................785
47.9.4 Worker Types → Unorganized workers → E-Shram Portal (2021) ......................786
Worker Types Gig workers & Two sided market - ES21 ..................................787
47.10 Organised sector Jobs related surveys/numbers..............................................................788
47.10.1 Organised sector Jobs → QES....................................................................................788
47.10.2 Organised sector Jobs → Annual Survey of Industries (ASI) .................................788
47.10.3 Organised sector Jobs → EPFO Registered Workers...............................................788
47.11 NITI Report on Gig Workers | How to create more jobsW......................788
47.12 " Mock Questions for Mains → NITI PC Unemployment..............................................788

(Batch: PCB10-Prelims ONLY) Mrunal⌧s Economy Pillar#4C: NITI, PC, FYP, Indicators- Unemployment→ Page 756
46 ECONOMIC PLANNING & ECONOMIC SYSTEMS

Economic System Capitalism Mixed Economies Socialism

⌧ प्र !"# → '()*#+!, /0123 4 56+7!89 :0!*+!,
Ownership of the Pvt. Sector Few industries reserved Public Sector / Govt /
industries$ 3LKB Ä?Å for public sector, Collective ownership.
%&'(')*+ ,+-.* */0 remaining by Pvt. sector. No Çpvtp property.
What goods and ÇFree Market - Essential Govt. will decide
services should we Economyp: Let the goods/services by what must be
produce$ More market forces of Public Sector produced & in how
books or more supply & demand - Others by Pvt sector. much quantity.
bikes$ decide it.
During production Whichever mode of In public sector Preference for labour
shd we use more production is more industries- govt will intensive modes of
labour or more cheaper. decide. In pvt sector- production.
capital (machines)$ entrepreneur will decide.
How to Only the consumers - For essential goods Govt to decide who
sell/distribute those who can aVord them, and services → needs how much, and
goods and services can purchase them. If a government may wx will distribute
among people$ sick man cannot aVord the prices e.g. NPPA- accordingly, using
;<=>? @?+.A medicine, it is not Stent. subsidy / rationing

(Batch: PCB10-Prelims ONLY) Mrunal⌧s Economy Pillar#4C: NITI, PC, FYP, Indicators- Unemployment→ Page 757
 Economic System Capitalism Mixed Economies Socialism
⌧ प्र !"# → '()*#+!, /0123 4 56+7!89 :0!*+!,
govtps problem. For others → market shops.
-
forces will decide.
 Presently, most nations are ÇMixed Economic Systemp including USA and India. While China
oÖcially claims to be ÇSocialistp but, in practice, they too have become a Mixed Economy. (4cÜ:ML
C:I :áàMrMcA r?â 9J ‘ã:d’ b8Üc;Å EB Eç- <BL L?éB ègr 9? C:MK4MrB EJL?9M trhM4M 9AcM Eç, t9;cg‘ã:d’ Eçê)
- je socialist economic system stopped in most nations aQer the collapse of USSR, except a
handful of outliers like North Korea, Cuba & Venezuela.
- Communism is a branch of socialism, (usually) run by a totalitarian government made up of one
and only one party. (CMë4Mr- C:MK4Mr 9= u9 íDâMhM EçKEMìCM:Mî ïD C?u9 cMLMâME CA9MA EJcB Eç.)

46.1.1 Anarcho-capitalism and Libertarianism

• Libertarianism: supremacy to individual liberty / very little government control. (írMA4Mr)

• Anarchism = Society without government / rulers. (âMCL4Mr)
• Anarcho-capitalism = USA Activist Murray Rothbard gave this concept.(1950s)

(Normal) Capitalism Anarcho-capitalism (4H!:I+!,# '()*#+!,)

• Freedom to private sector.
• Every function to done by private sector,
• But Govt will control law and order,
including police station.
contract enforcement, judiciary.
• Judiciary replaced by private arbitrators.
(EMFM;t9 3LKB Ä?Å 9J nóc òô@ ã:F?`B, t9;cgtvA
(DgùFC 8ML?úA îMIMFI 9? 9M: éB 3LKB 9;D3LIM;
éB CA9MA 9MLôL ö4õM, bLgn;s9M DMFL úA
9A?)
îMIDMùF9M <FMu`B.)
• Even in capitalistic nation like USA- • No taxes on imported goods. Free trade
there are taxes on imported goods. among nations.
• Local customer will benewt from imported

(Batch: PCB10-Prelims ONLY) Mrunal⌧s Economy Pillar#4C: NITI, PC, FYP, Indicators- Unemployment→ Page 758
 (Normal) Capitalism Anarcho-capitalism (4H!:I+!,# '()*#+!,)
cheap goods.
• We donpt care, if current account increased
for local industry ruined aQer such actionû
Why in newsL Ans. Argentinaps new Prez. Javier Milei is advocating Anarcho-capitalism.

FAQ: What's the diVerence between libertarianism and anarchyW Notimp unless PolSCI optional.

46.1.2 Closed vs Open Economy

Closed economy (n;r b8Üö4õM) Open Economy (hgFB b8Üö4õM)
A country that does not have any import- an economy that is not a closed economy.
export / economic relations with rest of the
⑰
world ⑰
46.1.3 Capitalism- Great Reset Initiative by W.E.F (T+U ⌧ 0)V W XYZ [#:YZ '\")
 by World Economic Forum founder Klaus Schwab
 Capitalism & its business models need to be "reset", to build a new social contract that honours
the dignity and equality of every human- in health, wnance, energy and education. (Dô;KB4Mr úA
íC9? 3nKL?C :¢£F 9J ABC?@/DgL§ âg•6c 9ALM- ¶C O9MA 9? CM:MßK9 bLgn;s nL?, KEM;EA ¶;CML 9= `yA:M úA C:MLcM 9M
_MF AhM KMu-®M©,34™, ´KMÜ, úA ¨âÄM :áê ≠J;t9 4cÜ:ML Dô;KB4Mr éB `ABnJ;9M âJÆo nóc EJ AEM Eç)
 Coronaps impact on poor people → has revived this debate again. (9JAJLM :á¶C9= qïAc :ECôC óØ)
elimination lagge koi idea uhi
hai

soe
-

-MCQ. Find correct statements about Vietnam: (Prelims-2022) ~

1) Vietnam has been one of the fastest growing economies in the world in the recent years. (EMF 9?

~ Keil
4Ʊ :ác?qB C?4≤ã≥ 9AL?4MF?b8Üc;Å :áC?u9 Eç34IcLM:.)
economicheGrowth
dea nhi hai
iss
2) Vietnam is led by a multi-party political system. (nóDÄBI AMKLB3c9 ö4õM 34IcLM: :áEç) to hoti
- -
~ wajah
se

O
3) Vietnamps economic growth is linked to its integration with global supply chains and focus on
.
- . . . . Khaaske
think
exports. (4çß59 6Dô¥c µ;hFM :áu9=9≤c EJL?9? <Fc?úA 3LIMÜc DA ∂ML r?L?9? <Fc?34IcLM: 9= 6789 4≤ã≥ óØ Eç) to ye
- -
maan lete
O4)
- For a long time Vietnamps low labour costs and stable exchange rates have attracted global
-
-
hain
manufacturers. (C∑?:qrzA úA ∏õA 343L:I rA 9? <Fc?34r?âB íπMr9 34IcLM: :á69¥Æc EJc?E∫)

=
5) Vietnam has the most productive e-service sector in the Indo-Paciwc region. (CnC?àMrM íπMr9 Ø
C?4M Ä?Å DôA? tEª OâM;c ¶FMº? :á)
India

Li
O
X -
Codes: (a) 2 and 4 (b) 3 and 5 (c) 1, 3 and 4 (d) 1 and 2 Service
-
hai
mein gage
1 2 mein
, henhi hai-3, 4 thik
idea
to kaki humein pla
chance hain
&

has
home ke zyada
issmein Le hai-ste
·
s, sig
(Batch: PCB10-Prelims ONLY) Mrunal⌧s Economy Pillar#4C: NITI, PC, FYP, Indicators- Unemployment→ Page 759 Answer
C Risk Lena Pad ta hais
46.2 ECONOMIC PLANNING: ⌧ ^_*I!

DeanitionL It is the process through which Govt. prepares a list of socio-economic problems e.g.
mass poverty, inequality, low productivity in agriculture, lack of industrial and infrastructural
development etc.; and then Govt. sets goals / targets / plans to wx these problems. IE OtæIM EçßKC9?
:M∂: C?CA9MA CM:MßK9-6789 C:øM¿;9= Cô<B cçIMA 9AcM EçírMê n¡?Dç:ML?DA `ABnB, bC:MLcM, 9≤3Æ :á9: íπMr9cM,
ú¬Jã`9 úA ng3LIMrB √M;<M`c 349MC 9= 9:B 6tr; úA íC?eB9 9AL?9? ùFu Fƒ / Fƒ / IJKLM 3LsMÜyAc 9AcB Eç

46.2.1 Types of Economic Planning ( ⌧ ^_*I! Y प्र ![)

 Totalitarian planning (in USSR, N.Korea) vs Democratic planning (India). C4ÜC™M≈9 vs FJ9cM;ãÅ9
 Centralized (in USSR, N.Korea) Vs Decentralized (India- aQer 73rd and 74th Amendments)
9?∆B9≤c vs 349á«B9≤c
Planning by Inducement (प्र"_dI e![!) by Direction (f,H!TI,gHI)
People are induced to act in a certain way through monetary Central authority gives
policy and wscal policy predetermined targets
Indicative Planning (:(V ) Imperative ( ,YH!h )
 Started in France by Monnet plan  State & Public sector
 Found in mixed economies companies have complete
 Government prepares an outline of plan aQer consulting control over resources.
with public and private sector. jey are given funds,  No private sector involved.
incentives, subsidies, tax breaks to maximize production,  No consumer sovereignty.
income & employment  Imperative planning

(Batch: PCB10-Prelims ONLY) Mrunal⌧s Economy Pillar#4C: NITI, PC, FYP, Indicators- Unemployment→ Page 760
 Planning by Inducement (प्र"_dI e![!) by Direction (f,H!TI,gHI)
 Government does not force the private sector but just procedure is strict and
indicates the areas of cooperation and targets to be fulwlled. rigid. E.g. USSR, N Korea
 Indicative planning procedure is soi and jexible. E.g.
India, France
Financial planning (34™BI 6IJKL nLM: éx3c9 6IJKL) Physical planning
technique of planning in which resources are allocated in terms allocation of resources in terms
of money (IJKLM nLML?9= »CB c9LB9 KEMìC;CMsLJ;9M 64;@L :g«M 9? ïD :á) of men, materials and
machinery

Table 1: Types of Planning based on timeframe

④ Planning → Operational Tactical Strategic/Perspective

+
S Timeframe → Short upto 1 year Medium: 3 to 7 years Long: 10 years or more
46.2.2 Economy Planning → Before Independence:
1909 Gandhips book Hind-Swaraj (1909) he opposed industries and machines. Advocated
people should minimize their wants, care for mother nature, become self-reliant, small
scale production using khadi, village and cottage industries. (`M;sBKB L?í¬J` úA :âBLB9Ao 9M
34AJs t9IM. qïAcá9: 9AJ, ®-3LéÜA nLJ, hMrB >M:Bo úA 9g@BA í¬J` 9J OJ…MEL rJ)
1934 M. Visvesvarayaps book je planned economy of IndiaÀ, containing a 10 years plan. He
was an Engineer, Ex-Diwan of Mysore and Bharat Ratna recipient.
1938 Nehrups Congress plan advocated setting up National Planning CommissionÀ.
But not implemented due to World War 2.
1944 15 yearsp Bombay Plan for investment, by 8 noted industrialists JRD Tata, GD Birla et al.
1944 Sriman Narayan Agrawalps Gandhian plan- focusing agricultural and rural economy
1945 MN Royps Peopleps Plan– with socialist leanings. He advocated distribution of resources
by the state only, and mechanization of agricultural production.
1950 Jayprakash Narayanps Sarvodaya Plan based on Vinobaps philosophy focused on
agriculture, small and cottage industries.

MCQ. Find wrong statement about Gandhian approach to developmentL (Geologist-2020)

a) Voluntary limitation of wants b) Development of self-suÖcient village community
c) Achieve balance between man and nature d) Industrialization & private participation

(Batch: PCB10-Prelims ONLY) Mrunal⌧s Economy Pillar#4C: NITI, PC, FYP, Indicators- Unemployment→ Page 761
46.3 ECONOMY PLANNING → AFTER INDEPENDENCE

1950, Inspired from the USSR / Soviet Model, PM Nehru established a Planning Commission
Mar. (CJ34Ic C;Õ C?OéM34c EJ9A OsML:;ÅB L?Eï L?IJKLM 6IJ` 9= õMDLM 9= 8B)
1951 From 1st April, the wrst FYP starts. (DEFB D;<4ÆŒI IJKLM âgï EJcB Eç)
1952 National Development Council (NDC: AM\]BI 349MC DyAÆr) of PM, CM etc. to approve the
Five-Year Plans: D;<4ÆŒI IJKLMuì draQed by Planning Commission.
2014 Modi shuts down Planning Commission. (OsML:;ÅB :JrB L?IJKLM 6IJ` 9J n;r 9A4M trIM)
2015, Modi notiwed the formation of Niti Aayog: National Institution for Transforming India,
Jan to replace the Planning Commission. (úA íC9= K`E LB3c 6IJ` 9= õMDLM 9=)
PC, NDC and NITI were / are neither Constitutional nor Statutory bodies. (C;4çsM3L9/4çsM3L9 C;õM LEB;)

46.4 PLANNING COMMISSION → FIVE YEAR PLANS

Following table is more relevant for CDS, SSC & StatePCS than for UPSC-CSE.

(Batch: PCB10-Prelims ONLY) Mrunal⌧s Economy Pillar#4C: NITI, PC, FYP, Indicators- Unemployment→ Page 762
 Plan Period qeme/Model/Target
1st 51-56 ➢ Harrod Domar Model
➢ Main focus: Agriculture, irrigation and power.
➢ Successful: Got more GDP growth than its original target.
2nd 56-61 ➢ P.C. Mahalanobis model. He was Chief Statistician of India.
➢ Socialist pattern/model of society,
➢ Rapid industrialization, heavy industries.
➢ Successful: Achieved the GDP growth target.
3rd 61-66 ➢ Sukhmoy Chakraborty and John Sandy Model
➢ Also called Gadgil YojanaÀ: to make the economy independent
➢ #EPICFAIL due to droughts and wars with Pak-China
Holidays 66-69  Plan Holiday declared thanks to #EPICFAIL of 3rd FYP.
 During this period, annual plans were made.
4th 69-74 ➢ Ashok Rudra and Alon Manney Model.
➢ growth with stability and self-reliance.
➢ Indira gave ÇGaribi Hataop slogan in 1971 election campaign
➢ #EPICFAIL due to Bangladeshi refugee problem and drought.
5th 74-79 ➢ C.Subramaniam and later redraQing by D.P.Dhar
➢ Focus: agriculture > Industry & Mines
➢ Originally it was a 10 year long term perspective plan with focus on
poverty removal and self-reliance
➢ While it achieved the targets but terminated in 1978 as Morarji Desai
became PM.
Rolling 78-80 Morarji Desaips Janta government: 8we⌧ll measure progress every year and
Plan make new plans accordingly for next year.;
6th 80-85 ➢ Poverty removal, IRDP, NREM, TRYSEM schemes etc.
7th 85-90 ➢ Pranab Mukherjee Model Focus on employment.
➢ For the wrst time, due to the pressure from private sector the private
sector got the priority over public sector
2 annual 90-92 Political instability at Centre. So, only 2 annual plans:
plans (i) 1990-91 & (ii) 1991-92.
8th 92-97 ➢ John W.Miller Model.
➢ PM PV Narasimha Rao- LPG reforms, New Economic Policy
➢ Top priority to human resources i.e. employment, education and
public health.
➢ Successful: Got more GDP growth than its original target.
➢ Fiscal dewcit also but that was done by manipulation, using extra
budgetary resources (EBR) which we saw in Pillar#2

(Batch: PCB10-Prelims ONLY) Mrunal⌧s Economy Pillar#4C: NITI, PC, FYP, Indicators- Unemployment→ Page 763
 Plan Period qeme/Model/Target
9th 97-02 ➢ Growth with social justice and equity. Mostly indicativeÀ planning.
➢ identiwed 7 Basic Minimum Services (BMS) like health, education,
nutrition, roads & gave more –– for that.
➢ #EPICFAIL due to global slowdown aQer Asian Financial Crisis
(which we learned in Pillar#3 currency convertibility).
10th 02-07 Target 8% GDP growth rate, double per capita income in 10 years, reduce
poverty to 15% etc. But failed to achieve targets.
11th 07-12 ➢ qeme: Towards Fast and more Inclusive GrowthÀ
➢ C.Rangarajan framed it with targets: GDP 9% growth rate, 70 million
new jobs, lower IMR, CMR, TFR etc.
➢ But due to US-subprime crisis, failed to achieve targets.
12th 12-17 ➢ qeme: Faster, More Inclusive & Sustainable Growth
Ended on ➢ Target growth: 9% GDP, 4% Agriculture, 10% Mfg. but due to
31/3/201 continued global economic slowdown, most targets not achieved.
7
➢ 10% reduction in poverty, create 50 million new jobs.
➢ Get IMR:26, MMR:1000,Child Sex ratio: 950, TFR: 2.1
➢ Increase mean school years, forest cover, infrastructure investment,
rural tele-density.
MCQ. qe focus of the Second Five Year Plan was : (CAPF-2023)
(a) establishment of a self-reliant and self-generating economy with emphasis on agriculture.
(b) rapid industrialization with emphasis on the development of basic and heavy industries.
(c) removal of poverty and attainment of self-reliance.
(d) acceleration of food-grain production and increase in employment and overall productivity.
MCQ. Which of the following Five Year Plans emphasized the need for establishing a
tSocialist Pattern of Societyu in IndiaL (UPSC-Geologist-2020)
A) 2nd Five year Plan B) 3rd Five Year Plan C) 4th Five Year Plan D) 5th Five Year Plan
MCQ. qe main objective of the 12th Five-Year Plan is (Asked in UPSC-Pre-2014)
(a) inclusive growth and poverty reduction (b) inclusive growth and sustainable growth
(c) sustainable and inclusive growth to reduce unemployment
(d) faster, sustainable and more inclusive growth
MCQ. Arrange the following events in sequential order as they happened in India:
1. Mahalanobis Model 2. Plan Holiday 3. Rolling Plan. (Asked in CDS-II-2017)
Answer Codes: (a) 1, 2, 3 (b) 3, 2, 1 (c) 2, 3, 1 (d) 1, 3, 2
MCQ. Find correct statement(s) about Indiays Five Year Plans (Pre-2019):
1. From the 2nd Five-Year Plan, there was a determined thrust towards substitution of basic and
capital good industries.

(Batch: PCB10-Prelims ONLY) Mrunal⌧s Economy Pillar#4C: NITI, PC, FYP, Indicators- Unemployment→ Page 764
2. je 4th Five-Year Plan adopted the objective of correcting the earlier trend of increased
concentration of wealth and economic power.
3. In the 5th FYP, for the wrst time, the wnancial sector was included as an integral part of the Plan.
Codes: (a) 1 and 2 only (b) 2 only (c) 3 only (d) 1,2 and 3

46.5 ♂ PLANNING COMMISSION: LIMITATIONS / SHORTCOMINGS

shiQed to Mains handout. #Prelmis-RAFTAAR

46.6 PLANNING COMMISSION VS NITI AAYOG: STRUCTURE ⑭

Position Planning Commission NITI Aayog
Born: 15/3/1950 National Institution for Transforming India was
Born
Dissolved: 13/8/2014 born on 1/1/2015
Chairman Prime Minister same
He enjoys ÇCabinet Ministerp rank
Vice Last Dy.Chairman was
1. Dr. Arvind Panagariya (2015-17, resigned)
Chairman Montek Singh Ahluwalia
2. Dr. Rajiv Kumar (2017-22, resigned)
íDM∂Ä (Cabinet minister Rank).
3. Dr. Suman K Bery (2022- Current)
A Secretary level bureaucrat with wxed tenure.
CEO Member-Secretary (IAS)
Presently, Parameswaran Iyer (IAS)
Ex-oJcio
1. Finance Minister PM will nominate Max 4 Union ministers. Presently,
members
2. Planning minister Minister for- Home, Defense, Finance, Agriculture
(Dr?L Crø)
Full time 4-7 full time members,
1. Dr Arvind Virmani (Economist, got job in 2022)
members who enjoyed Minister of

(Batch: PCB10-Prelims ONLY) Mrunal⌧s Economy Pillar#4C: NITI, PC, FYP, Indicators- Unemployment→ Page 765
 Position Planning Commission NITI Aayog
2. Dr. Ramesh Chand (Economist)
3. Dr. V.K. Saraswat (Technocrat, missile scientist
(DôoÜ9MùF9 and Ex-DRDO chief.)
StateÀ rank.
Crø) 4. Dr. Vinod Kumar Paul (Pediatrician, Public
(9á« 9? AM“ 9ÄM 9? :;ÅB 9M Dr)
Health Expert)
jey enjoy Minister of State rank in warrant of
precedence, but salary = Secretary rank (IAS)
- Union ministers for Transport, Social Justice,
Special MSME, Textiles, Women-Child, HRD,
Invitees commerce, statistics, planning.(these ministers
N/A
(34â?ÆïD C? are sometimes added/removed. List keeps
6:;ãÅc ö^”) changing dynamically) Cyen)
- PM can invite other experts as and when needed.
Part-time Tech experts from research institutes. Currently
(b;â9MùF9 Crø) N/A
members none declared as of 2020-Jan. (Yes)
 Chairman: Prime minister
 CM of all states incl. Delhi, Puducherry
National Development
Governing  Lieutenant governors of UT.
Council (NDC: AM\]BI 349MC
Council  Although cooperative federalism spirit
DyAÆr) with PM, CM etc.
missing, West Bengal, Telangana and Punjab
boycotted meeting in June 2019
Ad hoc
CMs & Lt.Govs of states/UTs that fall in the region.
(cr8Ü)
N/A jeypll be dealing with speciwc issue aVected them
Regional
e.g. irrigation, Naxal-problem, infrastructure etc.
Councils
‘‘ Nominated ministers keeps on changing. Earlier, Railway minister and Minister of state for
planning, were in it. Now only 1) Defense 2) Home 3) Finance 4) Agri
‘‘ jere is discrepancy between the theory given in Govtps India 2020 (yearbook) which says ÇFull
time and part-time members will be maximum of 2À vs real life composition from
niti.gov.in/content/overview where fulltime members = 3. Ipve kept NITI webpage as reference.

46.7 PLANNING COMMISSION VS NITI AAYOG: FUNCTIONS

While Finance commission (a constitutional body under Art.280) is responsible for the tax-
devolution from Union to states, these two non-constitutional bodies look/looked aQer →
♂ Planning Commission NITI Aayog
Prepared the Five-Year Plans of India Itps given responsibility to draQ
D;<4ÆŒI IJKLM nLMLM ✓ jree Year Action Agenda (2017-20).
✓ Seven Year Strategy Document.

(Batch: PCB10-Prelims ONLY) Mrunal⌧s Economy Pillar#4C: NITI, PC, FYP, Indicators- Unemployment→ Page 766
 ♂ Planning Commission NITI Aayog
✓ FiQeen Year Vision Document (2017-32).
2018: draQed Strategy for New India @ 75 covering
the period 2017 to 2022-23.##
1. How much money should union give to NITI doesnpt decide how much money should be
each state for implementation of given to each state. jat component is decided by
centrally sponsored schemes (CSS)W the Finance Commission (tax devolution and
2. How much money should union give to grants) and Finance Ministry (Allocations for
the wve year plans of the state schemes).
governmentsW 1. NITI primarily serves as the think tank, helps

PC would answer these questions using in policy design.

Gadgil Mukherjee formula (designed in 2. Helps in monitoring schemesp implementation
8TH FYP)- based on population, per capita through its dashboard e.g. ÇSchool Education
income, special problems etc. of a state. Quality Indexp, ÇSDG India Indexp, ÇDigital
Transformation Indexp etc.
FAQ: ##tDo Iyve to read Nitiys report India@75- as recommended by some toppersW Ans. No
Need, because Its important points already embedded in this handout, particularly in Pillar4D: GDP.

46.8 NITI → NOTABLE INITIATIVES / HOW DIFFERENT FROM PCL

Darpan 2017 onwards: NGO (Non-Governmental Organization) register here, get unique
Portal id → apply for grants under various govt schemes. LB3c 6IJ` 9? ¶C 4?n DJ@ÜF DA
D;KB9Ao 9AL?9? nMr EB ÷çA CA9MAB C;`eL CA9MAB IJKLM¿;:áKg¡ C9c?E∫

(Batch: PCB10-Prelims ONLY) Mrunal⌧s Economy Pillar#4C: NITI, PC, FYP, Indicators- Unemployment→ Page 767
Aspirational - 2018 onwards: to rapidly transform 115 backward districts on 49 key
District performance indicators (KPIs ::g_ 3L◊MrL C;9?c9) related to Health, Nutrition,
Programme Education, Agriculture, Water Resources, Financial Inclusion, Skill
Development, Infrastructure etc.
69M;ÄM≈9 ßKFM
- progress monitored in NITI online portal called ÇChampions of Changep
9MIÜæ:
Strategic - NITI Aayog suggested strategic disinvestment of 30+ sick / loss making
disinvestment CPSEs such as Air India, Pawan Hans Helicopter, Scooters India etc.
AoLB3c9343L4?â (PC wouldnpt have done this because of their Nehruvian mindset.)
POSHAN - Ministry of Women and Child Development (MWCD) is implementing
Abhiyaan POSHAN Abhiyaan to make India malnutrition free India by 2022 with focus
9gDJÆo 3L4MAo 9? on pregnant women, mothers and children. (More in Pillar#6)
ùFu - NITI Vice-Chairman is the head of POSHAN Abhiyaanps National Council.
(Planning Commissionps focus would had been Food-calorie security through
cheap wheat /grain only, whereas Nutritional Security is bigger.)
Bills and Since its inception Niti Aayog has
policies - Helped framing various policies on Energy, Mineral etc.
9MLôLJ;9? 3L:MÜo :á - Helped framing various bills, Model Acts on Agricultural Land Leasing,
CFME Livestock Selling etc.
NITI helped revamping the MSP by suggesting price dewciency payments (under
Agriculture PM-AASHA), & revamping fertilizer subsidies through DBT mechanism to
9≤3Æ Ä?Å fertilizer companies. (Ref: Pill#4: Agro Handout)
SDG For Sustainable Development Goals (Ccc 349MC Fƒ)
(More in - NITI developed SDG India Index to monitor our progress in 17 SDG goals
Pillar#6) - NITI suggested Govt. to focus on methanol / biofuel based economy for
reducing the fuel bill by around 30% by 2030.
GIRG Niti Aayog Global Indices to Drive Reforms and Growth (GIRG) dashboard to
Dashboard monitor Indiaps performance on various global socio-economic parameters in
(CM:MßK9 6789 such as Multidimensional poverty index of United Nations Development
349MC 9? 6;9¡?) Program (UNDP-C;Ig” AM\]349MC 9MIÜæ: 9M nó6IM:B `ABnB Cô<9M;9). ( Ref: Pill#6)

CSS NITI helped developing Output Outcome Monitoring Framework to monitor the
9á« ŸMAM OMIJßKc implementation of Govt schemes. PC simply launched schemes aQer schemes,
IJKLMu; without much attention to performance monitoring.
Seminars NITI regularly organizes seminars, workshops, conferences for idea exchange
with industries and academicians. PC was Çclosed / introvert bodyp (b;c:gÜhB) in
terms of interaction with others.

(Batch: PCB10-Prelims ONLY) Mrunal⌧s Economy Pillar#4C: NITI, PC, FYP, Indicators- Unemployment→ Page 768
 Startups - NITI runs Atal Innovation Mission (AIM) →grant of upto – 10 crores to
setup Atal Incubation Centres incubators. → AIM also started Mentor
IndiaÀ program, wherein experts from industry provide mentorship to
students in Atal incubator labs.
- SETU to help startups.(More in Pillar#4B: Startup)
Digital Age NITI developing National Program on Artiwcial Intelligence.

46.8.1 State Support Mission of NITI Aayog (2022)

 NITI Aayog to provide funding and support to State Government setup NITI-Aayog like
thinktanks/bodies @State Govt level.
 Such bodies will be called State Institutions of Transformation (SIT)À.
 TargetW SIT will help State governments to design good policies, eVective implementation of the
schemes etc. to make India a developed country by 2047.
 Budget-2023: the scheme will continue for three years.
>+N'),OPA "RS><=T0 *U >+N V)W+0 (XVYZ[A)” ]0+^O(U, `' *a 0A;= Y^'( `bV+ *+, *>O(Uc >+N V>*+>')*' def 0A;=^+)
]0+0U=g+ V>*+>A ^'`0+h)*U @P+<A d,. ,O,ii *>O(Uc

ConclusionL From above aspects, it is evident that NITIps approach is more modernised, forward-
looking, less bureaucratic and less status-quo oriented than the erstwhile Planning Commission.
With such initiatives, NITI Ayog is playing a pivotal role for economic growth, human development
and good governance in India. LB3c 6IJ` 9M ⁄3\9Jo bks9 6sg3L9, rzA;r?âB, 9: Lx9AâMEB úA 9: 'I8M∏õ3c'
4MFM Eç- ßKCC?4E 6789 4≤ã≥, :ML4 349MC, úA CgâMCL :á:rr 9A?`M

MCQ. Which among the following is/are the objective/objectives of the NITI AayogL (CDS-2023-I)
1. Imposing policies on the States/UTS
2. Allocation of funds at National and State levels
3. Design strategies and long-term policies and programme frame- works
Codes: (a) 1 and 2 only (b) 2 and 3 only (c) 1, 2 and 3 (d) 3 only

46.9 ♂ ECONOMY PLANNING → PM-EACL

Prime Minister's Economic Advisory Council (OsML:;ÅB 9= 6789 CFME9MA DyAÆr)
- Just like PC and NITI, this is also neither constitutional nor statutory body.
- Started in the 2000s to give advice on economic issues to the Prime Minister.
- AQer PM Manmohan Singhps term wnished (2014), PM Modi did not reconstitute it for a while.
But in 2017, our growth rate in the aQermath of demonetisation and GST, so opposition
parties & critics were making lot of hue and cry about PMps faulty economic policies. In that
atmosphere, PM Modi again reconstituted this Economic Advisory Council (2017-Sept).

(Batch: PCB10-Prelims ONLY) Mrunal⌧s Economy Pillar#4C: NITI, PC, FYP, Indicators- Unemployment→ Page 769
- CompositionL Economist Bibek Debroy (as Chairman) & other notable full time and part time
members= Total 7 persons. NITI provides administrative / secretarial support to PM-EAC.
PMEAC has suggested to government to:
- 1) Set up a GST Council like body on public expenditure(More in Pillar#2)
- 2) the number of GST slabs.(More in Pillar#2)
- 3) the Direct Taxes to boost the demand & economy.

46.9.1 Economy Planning → PRAGATIL

2015: Pro-Active Governance and Timely Implementation (PRAGATI) is a web platform under
Prime Minister's OÖce (PMO) for
1. Monitoring scheme implementation (IJKLM¿;9? b:F 9= 3L`AMLB)
2. Addressing common manps grievances related to tax refunds, EPFO claims etc. (6: 6r:B 9=
¨â9MIcJ;9M 3L4MAo)
PM uses this digital platform for monthly video conferencing with ministries & departments
@Union, and Chief Secretaries(IAS) @States.
Table 2: Some Other related Organizations

eSamikSha - 2014: PM Modi launched web portal under Cabinet Secretariat.

- AQer the Ministers / oÖcials meet PM → decisions / follow up actions are
monitored through this portal.
- If an IAS is sitting on a wle, this webportal allows PM / Cabinet Secretary to
digitally ask that IAS to explain the delay or expedite the decision-making.
Project - 2013: PM Manmohan formed PMGÀ in Cabinet Secretariat for fast tracking
Monitoring approval / implementation of public sector, private sector and PPP Projects.
Group - jey operate a webportal Çe-Nivesh Monitorp for investment / biz proposals.
Investment - (2004-09: Under Ratan Tata to make recommendations to the government on
Commission policies and procedures to facilitate investment.
- 2016 Government thought to revive it but faded topic. (vô@M ó6 9MAcôC)
CPGRAMS - 2007: Personnel Ministry → Department of Administrative Reforms & Public
(€\M<MA Grievances (DARPG: OâMC3L9 CgsMA úA FJ9 ¨â9MIc 34éM`) launched the portal
éMØ écBKM4Mr Centralized Public Grievance Redress And Monitoring System (CPGRAMS)
sMìsFB 9= - Any citizens can wle complaint against any Central
¨â9MIc 9? ùFu) Ministries/Departments/Organisations for Corruption, Nepotism,
harassment, mismanagement, absenteeism, Delay in providing services etc.
jey also launched a mobile app }My Grievancey.

(Batch: PCB10-Prelims ONLY) Mrunal⌧s Economy Pillar#4C: NITI, PC, FYP, Indicators- Unemployment→ Page 770
 [Yearbook] Following donpt fall under any ÇMinistry or Deptp
Misc. APEX/ INDEPENDENT OFFICES/Dept
1) Presidentps Secretariat (AM\]D3c C‹<4MFI)
2) Cabinet Secretariat (:;ÅB:;£F C‹<4MFI) → Research & Analysis Wing
3) Prime Ministerps OÖce (OsML :;ÅB 9MIMÜFI) → National Security Advisor (NSA:
AM\]BI CgAÄM CFME9MA)
4) NITI Aayog (National Institution for Transforming India)
5) Department of Atomic Energy (DA:Mog´KMÜ34éM`)
6) Department of Space (b;cyAÄ 34éM`)
7) National Security Council Secretariat (AM\]BI CgAÄM DyAÆr C‹<4MFI)
MCQ Which of following is correct chronology sequence of formation of the CommissionsL (UPSC-
CDS-i-2020)
A. Finance Commission (FC), Planning Commission, Investment Commission, Election
Commission (34c›6IJ`, IJKLM 6IJ`, 3L4?â 6IJ`, <gLM4 6IJ`)
B. Election Commission, Planning Commission, FC, Investment Commission
C. Planning Commission, Election Commission, FC, Investment Commission
D. Investment Commission, FC, Planning Commission, Election Commission

46.10 ♂ [YEARBOOK] MOSPI, NSSO, CSO, NSO

Ministry of Statistics and Programme Implementation (MOSPI: CM;^_9= úA 9MIÜæ: 9MIMÜfiIL :;ÅMFI)ps
administrative head is called ÇSecretary & Chief Statistician of Indiap (éMAc 9? :g_ CM;^_9=34r)› .- usually,
Indian Statistical Service oÖcer recruited by UPSC. MoSPI has →
1. National Statistical OÅce (NSO: AM\]BI CM;^_9= 9MIMÜFI) →
a. A] Central Statistics OÅce (CSO: 9á«BI CM;^_9= 9MIMÜFI) → computation of GDP, GSDP,
IIP, ASI, CPI (Rural, Urban, All India) and Economic Census (6th was done in 2013);
b. B] National Sample Survey OÅce (NSSO: AMfl@]BI O3crâÜC4‡Äo 9MIMÜFI) → data collection
for various socio-economic indicators, Annual Survey of Industries (ASI), Rural-urban
prices and other data required for CSOps calculations.
c. 2019: MoSPI merged A+B, henceforth itpll be called National Statistical OÅce (NSO)
only. it will be headed by Chief statistician of India-cum-Secretary of MoSPI. (Earlier, C
Rangarajanps National Statistical Commission in 2005 had recommended this
CSO+NSSO Merger). Further, MoSPI also planning to setup a National-Level Data
Warehouse: Itpll act as a central repository of all the statistical data collected various
ministries, and provide big data analytics.
2. Programme Implementation wing (9MIÜæ: 9MIMÜfiIL ·;s) →

(Batch: PCB10-Prelims ONLY) Mrunal⌧s Economy Pillar#4C: NITI, PC, FYP, Indicators- Unemployment→ Page 771
 a. Member of Parliament Local Area Development Scheme (MPLADS-1993: CM;Cr õMLBI
Ä?Å 349MC IJKLM) → each MP can suggest development works worth – 5 crore per year in
his constituency. ( More in Pillar#5: Rural infra)
b. Twenty Point Programme (2006: nBC CôÅB 9MIÜæ:) to measure performance of various
schemes related to poverty alleviation, employment, housing, education, health, etc.
c. Infrastructure Monitoring and Project Monitoring.

46.11 ♂ NATIONAL STATISTICAL COMMISSION ([!ÇÉ#^ :!)ÑÖ W ^_Ü)

Setup in 2005 in MOSPI by Cabinet resolution based on recommendations of C.Rangarajan
Committee. So, neither constitutional nor statutory.
- (C;A<LM) StructureL 1 part time chairman, 4 part time members + NITI Secretary is ex-oÖcio
member = 6 people. Chief Statistician of India serves as ÇSecretaryp to this commission.
- FunctionsL It replaced the Governing council of the NSSO. It designs the standards of data
collection - data publication, coordination among the diVerent agencies involved.
- ControversyL 2019-Jan: Two members resigned citing Over the months, we have been feeling
that we were not been taken seriously and being sidelined by the govt. NSC had approved the
Employment Survey 2017-18 but it⌧s not yet released.À Critics allege this Employment survey
shows jobs fell aQer demonetization / GST so Modi did not want data released.

If this type of data manipulation & window-dressing is continued then eventually,

(Batch: PCB10-Prelims ONLY) Mrunal⌧s Economy Pillar#4C: NITI, PC, FYP, Indicators- Unemployment→ Page 772
 international organisations will lose conwdence in India's data collection methodologies. jey
will not believe fully, even if the Indian economy is growing really. (E:MA? 6;9¡J;9= 345CLBIcM 9:)
 Large sized economy has to contribute more money to IMF & in return gets more voting rights
in IMF board (e.g. USA). But, if IMF loses conwdence in our data collection methodologies, they
may not our quota, even if we become an economic superpower.
 International credit rating agencies such as Standard & Poor's (S&P), Moody's, and Fitch Group
will give poor ratings to Indian G-Sec and corporate bonds → Foreign investors will feel shy
about investing in India or they will demand higher interest rates.

To install faith in oÅcial statistical data, Government is doing following

1) Drai National Statistical Commission (NSC) Bill 2019 to give statutory status to National
Statistical Commission, so it may work more independently. [4çsM3L9 õML r?L?9? ùFu]
2) DraQ new National Policy on OÖcial Statistics. [LØ LB3c nLMIB KM AEB Eç]
3) 2019-Dec: MOSPI setup a Standing Committee on Economic Statistics (SCES). Its Chairman
Pronab Sen suggested that
o Govt should announce a speciac calendar that on Çxp date of each month or quarter, Çyp
Macroeconomic indicator data will be released. [3LIã:c ïD C?u9 cI cMABè DA C4‡Äo 9? 6;9¡?
KMAB 9=u KMu, cMt9 34DÄ úA DÅ9MA 6AJD L F`M C9? t9 6ì9¡J 9? CM8 ò?¡-òM¡ 9= KM AEB Eç]
o jis way critiques will have more conadence in the data released by the Govt.

46.11.1 Pronab sen Standing Committee on Statistics (SCoS)-2023

• 2019: MoSPI setup Standing Committee on Economic Statistics (SCES).
• 2023: SCES renamed into Standing Committee on Statistics.(SCoS)
• Committee will advise on the subject/results/methodology, etc related to all surveys.
• Chairman is Pronab Sen

46.11.2 Mahalanobis National Award for Statistics

 P. C. Mahalanobis= Father of Indian Statistics. Architect of 2nd Five Year Plan (FYP)
 MoSPI gives P. C. Mahalanobis National Award for outstanding work in statistics.
 2020: Given to C. Rangarajan (ex-RBI governor). He's the 1st person to win it.

46.11.3 Collection of Statistics Act, 2008

 It regulates the collection of statistics related to social, economic, demographic, scientiwc and
environmental aspects, by central, state and local governments.
 Penalty if companies, individuals and households doesnpt give information / give false
information to the data collectors. CA9MAB C4‡ÄoJ;9J 6;9¡?LEB;r?L?DA ö^” 9J CKM 9? OM4sMLê

(Batch: PCB10-Prelims ONLY) Mrunal⌧s Economy Pillar#4C: NITI, PC, FYP, Indicators- Unemployment→ Page 773
Sidenote: Data collection / classiwcation is done as per the System of National Accounts 2008 (SNA
2008) by United Nations Statistical Commission (UNSC).

MCQ. National Statistical Commission was established on the basis of the recommendations
of which one of the following commissions/committeesL (UPSC-Geologist-2020) main
A) Rangarajan B)Lodha C) Santhanam D) M.G.K. Menon Committee Economics
yesb Kaafi **
~

47 ♂ PILLAR#4C: INDICATORS → UNEMPLOYMENT - O

A hai

47.1 INTERNATIONAL LABOUR ORGANIZATION (ILO: 4)3[[!ÇÉ#^ 20 :)ÜàI)

 1919: ILO was created as part of the Treaty of Versailles that ended World War I.
 It is a specialised agency of United Nations, HQ: Geneva, Switzerland.
 Famous for its World Employment and Social Outlook report.

47.1.1 ILO- 8 Core Conventions (â प्र0äã :åY"I)

Ratiaed by IndiaL
Conventions
d![3 e![! 4Iä0_f,3?
1. Forced Labour Convention Yes
2. Abolition of Forced Labour Convention Yes
3. Equal Remuneration Convention Yes
4. Discrimination Yes
5. Freedom of Association and Protection of Right to Organize Not yet
6. Right to Organise and Collective Bargaining Convention Not yet
7. Minimum Age Convention Not Yet
8. Worst forms of Child Labour Convention Not yet
MCQ. Which one of the following core conventions adopted by the International Labour
Organization (ILO) has not been ratiaed by IndiaL (EPFO-2023)
(a) je Forced Labour Convention (b) je Equal Remuneration Convention (c) je Freedom of
Association and Protection of the Right to Organize Convention (d) je Discrimination
(Employment and Occupation) Convention

(Batch: PCB10-Prelims ONLY) Mrunal⌧s Economy Pillar#4C: NITI, PC, FYP, Indicators- Unemployment→ Page 774
47.2 WAGE THEORY (+Y3I é ^[#)

47.3 Wage → Subsistence wage theory of Adam Smith

• Wages paid to workers should to be enough so they can aVord food, shelter and family
expenses. (:qrzA 9J ¶cLM 4?cL ã:FLM <MtEu t9 4J bDLM KB4L 3L4MÜE 9A C9?)
• jis is called Çsubsistence wagep. (3L4MÜE :KrzAB)

IF then
If wages rose above then → more workers will join that sector → labour supply increased
subsistence level → wages will decrease back to subsistence level.
If wages fell below then → number of workers would decrease and push the wage rates up
subsistence-level to the subsistence level.

47.3.1 Wage → Natural wage theory of David Ricardo

• also called Iron law of wages.À
• It says real wages always move toward the minimum wage necessary to sustain the life of the
worker. (4M∑349 4?cL KB4L 3L4MÜE 9? ùFu KïAB îôLc: 4?cL 9= trâM :áKMc?Eç)
FAQ: Arenpt Ricardo and Smith saying almost similar thingsW Ans. jere are some
sophisticated diVerences between their theories, but we will not PhD.

47.3.2 Wages → Misc. qeories

qeory Meaning
AQer an entrepreneur pays other factors: 1) land pe rent 2) loan pe interest
Residual-claimant 3) investors ko prowt → whatever money is remained → thatpll be the level
theory of wages of wages. (í¬J`D3c t9AMIM, ‚MK úA :gLMv? 9M DçCM u9 cAv Ah r?cM EçtvA KJ A9: n<?`B,
cJ 4E 4?cL 9? ïD :á:KrzAJ;9J r?`M)

(Batch: PCB10-Prelims ONLY) Mrunal⌧s Economy Pillar#4C: NITI, PC, FYP, Indicators- Unemployment→ Page 775
 Bargaining theory of Workers, factory owners, and trade unions, who determine wages via
wages negotiation. (vç„]B :MùF9 4›:KrzA C;Õ 9? 6DCB C:‰xc?C?cI EJcM Eç- 4?cL t9cLM ã:F?`M)
How much salary will owner pay to the workerW depends on how much
Marginal
value, the worker is adding to the company. (u9 :KrzA 9;DLB 9= 9:MØ :át9cLM
productivity theory
IJ`rML r?AEM Eç? íC?tECMn C?íC?4?cL ã:F?`M)

47.4 OCCUPATIONAL OF INDIAN WORKERS (NUMBER IN CRORES)

47.5 ♂ UNEMPLOYMENT → INVOLUNTARY → TYPES

1) Voluntary Unemployment (®çÊÁ9 n?AJK`MAB): a person is out of job on his own choice. Either he
wants higher wages or doesnpt want to work at all.
2) Involuntary unemployment (bLç9ÊÁ9 n?AJK`MAB): person is willing to work at the prevailing wage
rates, but unable to wnd work due to factors beyond his control.

47.5.1 ♂ Unemployment Major Types and Reasons: (èY[_*Ü![# Y प्र0äã प्र ![/ ![ )
 Slow Economic Growth vs Rapid Population Growth. 6nMrB 9= 4≤ã≥ 9? CM:L?6789 4≤ã≥ 9:
 Defective Educational System, Lack of skill / employability.[¨âÄM OoMFB, 9xâË 9= 9:B]
 Lack of Banking/Transport/Communication Infrastructure in some areas → people unable to
pursue educational and economic goals [n∫t9;`, C;<MA, DyA4EL t9 ng3LIMrB b4C;A<LM 9= 9:B- ¶CùFu 9gò
`ABn FJ` ¨âÄM úA 6789 b4CA √ôì√ LEB;DMc?]
 Social Factors- discrimination against SC/ST/Women/PH. [9:KJA 4`Ü9? ÈhFMÍ é?réM4]
 (More in Pillar#6: HRD- Education, Skill, Poverty)

(Batch: PCB10-Prelims ONLY) Mrunal⌧s Economy Pillar#4C: NITI, PC, FYP, Indicators- Unemployment→ Page 776
 This Table is 4- Please #Ruf
Types Features Lo

Cyclical (VêW^ èY[_*Ü![# )  Economy goes through boom-bust cycles. [6789 c?qB/:;rB]
 during bust / recession / depression when workers are laid oV on
mass scale.
 E.g. Maruti removed 3000 workers in 2019 because car sales .
Frictional  When a person is out of one job and is searching for another job.
(प्रT3[_ë!h ) During this transition time, heps deemed frictionally
unemployed.[u9 Lx9AB òJ¡ 9? rzCAB √ôì√ AEM Eç]
Disguised  Unemployment which is not visible because person seems visibly
Unemployment working but his marginal productivity / contribution is zero.
(प्रíì)  E.g. Farming family of 4 persons produces 200 kgs of grapes, but
⑰ even if you remove 3 persons still production remains at 200 kgs.
 »CB n?AJq`MAB KJ ⁄Î:ML cJ LEB;t9Ïg:qrzA 9M CB:M;c íπMrL âôî E∫ê
Seasonal (0î:0#)  Labourers in Agriculture, Salt-pans, Sugar Mills, Ice-factory,
Tourist spots, Marriage Catering-Orchestra etc.
Underemployment  Person is employed but not in a bewtting position or salary
(4ï[_ñÜ![) or Educated corresponding to his qualiwcation.
unemployment  e.g. M.Com working as Swiggy delivery boy, M. Tech working as

* -
PYR
(Batch: PCB10-Prelims ONLY) Mrunal⌧s Economy Pillar#4C: NITI, PC, FYP, Indicators- Unemployment→ Page 777
 Types Features
Bank clerk etc.
Technological  When men are replaced with machines e.g. Handloom workers
Unemployment vs Textile Machines, Horse carriage vs Automobile.
(प्रîó_/Ü W / 0H#I# [ / [_è_Z-  2018-Sept: World Economic Forum released Future of Jobs
^)ò0!I+ Y ô'^_Ü :Y0ñ,ö[_) W ReportÀ. It says, by 2025, machines will do more work than
èY[_ñÜ![#) humans. As a result, 75 million worker jobs may be lost, but 133
million new jobs may emerge in robot repair/robot soQware
design etc. Hence urgently workers need to be reskilled.
Open / Structural  Lack of jobs when personps skill/qualiwcation is insuÖcient for
(:)[VI!h ) [6r:B 9M the jobs available in the market
9xâË, nMqMA 9= qïAcJ;9?  e.g. An IT Graduate knows C++ language but demand is for
bLg9ôF LEB;] soQware developers of Python/JAVA computer language.
Natural rate of sum of frictional unemployment and structural unemployment is
unemployment. (NROU) referred as the natural rate of unemployment. (NIOS Textbook)
èY[_*Ü![# ! प्र! õT3 ,[
Non-accelerating Refer to pillar4E: InÌation and Phillips Curve.
Injation rate of
unemployment (NAIRU)
MCQ. qe unemployment that occurs due to changes in the technology or in the demand for
particular products is called _ _ (CDS-2023-I)
(a) frictional unemployment (b) structural unemployment
(c) cyclical unemployment (d) disguised unemployment

47.6 EMPLOYMENT RELATED TERMS IN NEWS

47.6.1 Baumolys Cost Disease qeory / labour cost rising (1965)

 by American economists William J. Baumol and William G. Bowden.
 increase in the wages of some labourers even though their productivity or skill has not increased
commensurately. (:qrzA 9= íπMr9cM/ 9xâË LEB;nÓM, F?t9L nC íL9M 4?cL/cLÔME nÓ AEB Eç)
Reason: shortage of worker. Examples given below:
 USA: salaries of doctors / college professors etc.
 India: wages of farm labourers in Punjab/Haryana due to labour shortage created by
MGNREGA. (Ref: Pillar#4A: Farm mechanisation)

(Batch: PCB10-Prelims ONLY) Mrunal⌧s Economy Pillar#4C: NITI, PC, FYP, Indicators- Unemployment→ Page 778
47.6.2 Moonlighting
 Moonlighting means taking up a second job or multiple other work assignments apart from
oneps full-time job. (:g_ Lx9AB 9? bFM4M úA éB rzCAB Lx9AB 9ALM, cMt9 àMrM DçCM 9:ML?9? ùFuê)
 Wipro, Infosys, etc. have removed workers for this because such worker may disclose parent
companyps trade secrets / soQware codes / client list to other rival companies.

47.7 ♂ UNEMPLOYMENT → NSO SURVEY TYPES

NSO surveys → Quinquennial Employment and Periodic Labour Force Survey (PLFS
Unemployment Surveys +ùë 20 è" :+gû )
Survey frequencyL Every 5 years. Starting from  Annual. Started since 2017
(:+gû W +õùü † 3I# 1972 Last survey done in 2011-  PLFS Survey: workers aged 15
:0^!+ùë '[) 12. jen discontinued years or higher are counted.
Which households are Non-agriculture workers in  Both urban & rural, agro & non-
surveyedL († 3IY°[_) ! rural and urban areas (9?4F ÷çA agro covered. (âEAB >M:Bo 9≤3Æ
:+gû ) 9≤3Æ :qrzAJ;9M C4‡Äo) ÷çA9≤3Æ CéB 9M C4‡Äo)

♂ UNEMPLYOMENT: PERIODIC LABOUR FORCE SURVEY (PLFS)

PLFS Annual Release Year Time period Covered
Report No. ( è प्र !¢H3 £ ) (ô: §['_Z50•† I +¶ß ! ®YZ! \©?)
Report #1 2019-May July 2017- June 2018
Report #5 2022-Oct July 2022-June 2023.
Apart from this, MOSPI → NSO also releases quarterly bulletins e.g.

Quarter Released in
Q2:Jul-Sept-2020 2021-Aug
Q3:Oct-Dec-2020 2021-Sept
But preparing the quarterly data = poor cost:benewt from exam point of view. . 3c:MEB
6;9¡J;9? D≤8Ao 9M £?@M cçIMA 9AL?:áDABÄM 9= :?ELc “MrM úA DABÄM :ávMIrM 9: Eç.

47.7.1 ♂ Indicators → unemployment rate (UR: èY[_ñÜ![# ,[)

♂ ♂Labour force (dã:9 4`Ü)= jose who are 'working' (or employed) + jose 'seeking or
available for work' (=involuntarily unemployed).

For example: 2018: Unemployment Rate= (3 cr divided by 51.8cr) x 100 = 5.8%

Table 3: NSO measures unemployment in 3 diAerent approaches viz.
Current Weekly Status If not employed even 1 hr work in a week
Current Daily Status If not employed even 1 hr work in a day in a given week.

(Batch: PCB10-Prelims ONLY) Mrunal⌧s Economy Pillar#4C: NITI, PC, FYP, Indicators- Unemployment→ Page 779
 Usual Status - Itps further subdivided into Principal Activity Status (ps) and
(US: :!0!´ ¨' :Y) Subsidiary Economic Activity Status (ss) but internal diVerence
poor cost benewt.
- If personps usual status (pp+ss) was UnemployedÀ for majority
of the year → heps deemed unemployed.
- In oÖcial reports, this wgure is given more prominence.
- NSOps periodic labour force survey for 2017-18 says
unemployment rate = 6.0% as per (US PP+SS: 2017) which is
highest in last 45 years.
- As per Eco survey: High % of unemployment: Arunachal, Kerala, Manipur, and Bihar
- Low % of unemployment: Gujarat, Karnataka, West Bengal and Sikkim
- Unemployment %: highest among urban youth (20%) and is lowest among "illiterates" at
1.1% (n?AJq`MAB 9M O3câc âEAB Ig4M¿;:áCnC?àMrM Eçê bLDÓJ;:án?AJq`MAB CnC?9:)

47.7.2 DATA-sets from PLFS

Note: usual state for 15age & above male female urban rural combined

UNEMPLOYMENT Worker Population Ratio Labour Force Participation

Year
Rate (WPR) Rate (LFPR)
2022-23 3.2 56 57.9
2021-22 4.1 52.9 55.2
2020-21 4.2 52.6 54.9
2019-20 4.8 50.9 53.5
2018-19 5.8 47.3 50.2
2017-18 6 46.8 49.8

47.7.3 /( ) Indicators → Worker Population Ratio (WPR)

It is the percentage of employed persons in the population.
no of employed persons
WPR= [ total population of the country ] ×100

47.8 /( ) INDICATORS → LABOUR FORCE PARTICIPATION RATE (LFPR)

(LFPR) is the % of persons in labour force (i.e. working or seeking or available for work) in the
population. (d: nF éM`BrMAB rA)

no of employed persons no of involuntarily unemployed persons

[ +
total persons of the country
× 100 ]
(Batch: PCB10-Prelims ONLY) Mrunal⌧s Economy Pillar#4C: NITI, PC, FYP, Indicators- Unemployment→ Page 780
- 2017: 37% (male+female in rural+urban combined). It canpt be 100% because there will be
children, elderly outside the Ç15-59p age group meant for workers.
- ♀LFPR for female: Replace the word Çpersonp with Çfemalep in above formula. Itps lower than
male LFPR.
no of employed female no of involuntarily unemployed female
LFPR ( female ) = [ +
total female of the country
×100 ]
% LFPR (all ages) 2017 2018 2019 2020 Comment,if any
!FEMALE 15 16 18.5 18.6  Urban Female less LFPR than
Urban rural due to city women
18 pursuing higher education so
!FEMALE 19 24 27.7
not looking for job at present,
Rural
husband is earning big so
housewife staying @home.
 More than 75% rural female
workers are working in
Agriculture
!FEMALE 17 19 23 25 Female LFPR(All India)@25% is
Urban+Rural=All (male is much less than MALE LFPR(All
India 57%) India)@57%
All India 37 37.5 40 41.6
:tEFM¿;9M d: nF éM`BrMAB rA, Dg•ÆJ;9?
(Urban+Rural) (
:g9MnF?9Mv= 9: Eç
"Male+
!Female)

47.8.1 ♀ Why FEMALE LFPR Declined between 2004 to 2018L

From 2004 to 2017, LFPR (Female: rural+urban) steadily declined (from 45% to 17%) because-
 women pursuing higher studies → their entry in the job market is delayed.
 in income of (some) rural men → their wives have stopped working as labourer and just
playing domestic housewives role.[9gò >M:Bo :r± 9= 6:rLB nÓB cJ DÒB 9= Lx9AB n;r 9A4MØ]
 mechanization of agriculture & animal husbandry → demand for female agri workers.
 textile/leather exports due to US/EU protectionism → demand for female workers
 real estate sales → construction of new buildings → female laborers
 Cultural factors, social constraints and patriarchal norms restricting mobility and freedom of
women. (CM;·≤3c9 9MA9, CM:MßK9 nMsMu; úA 3Dc≤C™M≈9 :MLr;£ 9? <Fc?:tEFM¿;9= 6KMrB DA DMn;rB)

(Batch: PCB10-Prelims ONLY) Mrunal⌧s Economy Pillar#4C: NITI, PC, FYP, Indicators- Unemployment→ Page 781
 Many rural / small-town girls donpt have require knowledge of computer and English to get jobs
in emergent startup sectors. (b;>K
? B úA 9;Úô@A ÛML 9= 9:B)
 NSO's Time Use Survey, 2019 reported that females spend relatively more time in unpaid
domestic and caregiving activities (7.5 hours) than in paid/employment activities (5.7 hours) per
day. (:tEFMuì AJq`MA C?àMrM C:I ÕA?Fôb4çc3L9 9MI± :á3ncMcB Eç)
 Examples of unpaid domestic activities = taking care of children, elderly in the household,
Cooking, cleaning home etc. (KçC?9= nÙ?úA ngKg`± 9= r?héMF, ACJØ, CMÍ CÍMØ)
 SolutionW Government should invest in child care / day care facilities, paid parental leave, family-
friendly work environment, and elderly care facilities, Equal pay and career progression for
women, medical and social security benewts for female workers. If these things are not available
then there will be more family pressure on the women not to do the job and take care of the
house. (CA9MA L?»CB Cg34sMuì OrML 9ALB <MtEu KEMìLx9ABâgrM :tEFM¿;9? nÙ?úA ngKg`± 9= r?héMF 9= ö4õM EJ,
:tEFM¿;9? ùFu 4?cL c8M DrJı3c :áDg•ÆJ;9? C:ML b4CA íDFˆ EJ, bî8M DyA4MA 9= cAÍ C?:tEFM DA Lx9AB 9= K`E
ÕA 9= r?héMF 9M nJ‰ 9M rnM4 àMrM AE?`M)

Solution to improve LFPRL [ ©:YØñ!∞! / è±_3[# [•?]

 Government schemes for skill development and entrepreneurship among women → Ref:
Pillar6-HRD → Women empowerment. (:tEFM Câ^”9Ao 9? ùFu 3434s 9xâF 349MC IJKLMu;)
 Government should invest in child care / day care facilities, paid parental leave, family-friendly
work environment, and elderly care facilities, Equal pay and career progression for women,
medical and social security benewts for female workers.( Lx9ABâgrM :tEFM¿;9? nÙ?úA ngKg`± 9= r?héMF
9= ö4õM, :tEFM¿;9? ùFu 4?cL c8M DrJı3c :áDg•ÆJ;9? C:ML b4CA íDFˆ EJ)

(Batch: PCB10-Prelims ONLY) Mrunal⌧s Economy Pillar#4C: NITI, PC, FYP, Indicators- Unemployment→ Page 782
 If these things are not available then there will be more family pressure on the women not to do
the job and take care of the house. (bî8M DyA4MA 9= cAÍ C?:tEFM DA Lx9AB 9= K`E ÕA 9= r?héMF 9M rnM4)

47.8.2 Augmented Female LFPR (:)+≤ë3 0†\"! 8"8≥'# [)

 1) PLFS only counts women whopre doing or looking for PAID Work.
 2) so, PLFS survey does not count women who are doing (UNPAID) domestic duties including
free collection of goods (vegetable, wrewood, cattle feed, etc.), tailoring, etc. for household useÀ =
PLFS doesnpt count them as Çworkersp
 3) so ES23 came up with a new formula

Augmented Female LFPR = (regular) female LFPR PLUS (+) UNPAID women mentioned in above
bulletpoint#2.

FAQ: tnumbers given in above chart are not matching with previous table¥u
Ans. Yes, because previous table gives LFPR of ALL ages, whereas above chart shows LFPR only for
age 15 and above. I am simply copy pasting the data given in Economic Survey.
47.9 ♂ ♂ WORKERS TYPES BY NSO

self-employed  those who work for themselves & charge 'fees'. jey do not sell their
µ-[_*Ü![# labour power to anyone else for a "wage", so they are their own 'boss'. C?4M
9? nrF?v=C F?c?Eç.cL˜ME/4?cL LEB

(Batch: PCB10-Prelims ONLY) Mrunal⌧s Economy Pillar#4C: NITI, PC, FYP, Indicators- Unemployment→ Page 783
  subcategories: 1) Own Account 2) Partners / Owners / Employers Of
Business Firm 3) Unpaid Family Labourers
wage/salaried jey sell their labour to 'boss (employer)', for predetermined wages/salary.
employees jeir job continuous round the year. 3LIc 4?cLéJ`B 9:Ü<MAB
jeir numbers decreased as per latest PLFS (it was bound to happen due
to Corona) 9JAJLM :EM:MAB 9? <Fc?4?cLéJ`B dã:9J;/ 9:Ü<MyAIJ;9= C;_M 9: óØ

casual workers  jey sell labour for 'wage' but 'boss (employer) hires them for very short
4TI^3 05V![# time period on daily or monthly basis. [n¯c òJ@? C:I 9? ùFu 9M: ã:F?`M]
 As per Latest PLFS: Male = no signiwcant %change (9gò hMC nrFM4 LEB;)
 Female = jeir proportion in Corona-2020 (female ragpickers,
construction workers etc removed from job in lockdown)

47.9.1 ♂ ♂ Worker Types → Census-2011 classiacation of workers

Worker type Employed for this much duration in a year
Main worker 6 months or more. (183 days to be precise)
Marginal worker less than 6 months. (CB:M;c dã:9)
MCQ. As per Census, }Main Workery is a person who works for at least _ _ days in a year
(Geologist-2020) A) 100 days in a yr. B) 153 days C) 183 days in a year. D) 200 days in a year.
MCQ. Find correct statement(s) about Indian economy aier the 1991 (Prelims-2020)
1. Worker productivity per worker (at 2004-05 prices) increased in urban areas while it
decreased in rural areas. (:qrzAJ;9= íπMr9cM âEAJ;:ánÓB `Mì4 :á9: EJ`B)
2. je percentage share of rural areas in the workforce steadily increased.
3. In rural areas, the growth in the non-farm economy increased.
4. je growth rate in rural employment decreased.(`Mì4 :áAJq`MA 4≤ã≥ rA :áã`AM4@)
Codes: (a) 1 and 2 only (b) 3 and 4 only (c) 3 only (d) 1, 2 and 4
MCQ. Which of the following statements about the employment situation in India according to the
periodic Labour Force Survey 2017-18 is/are correctL (UPSC-CAPF-2020)
1. Construction sector gave employment to nearly 1/10th of urban male workforce in India
2. Nearly 1/4th of urban female workers in India were working in manufacturing sector
3. 1/4th of rural female workers in India were engaged in the agriculture sector
Codes: (a) 2 only (b) 1 and 2 only (c) 1 and 3 only (d) 1, 2 and 3
MCQ. In India, which one of the following compiles information on industrial disputes, closures,
retrenchments and lay-o∂s in factories employing workersL (Prelims-2022)
(a) Central Statistics OÖce (b) DPIIT (c) Labour Bureau
(d) National Technical Manpower Information System

(Batch: PCB10-Prelims ONLY) Mrunal⌧s Economy Pillar#4C: NITI, PC, FYP, Indicators- Unemployment→ Page 784
47.9.2 ♂ Worker Types → Unorganized sector

 An unorganized sector (bC;`tec Ä?Å) wrm is not registered under any law such as Shop
Establishment Act, Factory Act, Companies Act, Statutory Corporation, Govt org etc.
 Unorganized sector consists of individuals / self employed workers engaged in non-trade-
unionized casual / seasonal work with irregular payments & lack of social security like
EPFO/ESIC. (:KrzA C;Õ LEB;EJcM õMØ/3LIã:c ïD C?9M:/6:rLB LEB;, CM:MßK9 CgAÄM 9M béM4)
 Government has enacted Unorganized Sector Workers' Social Security Act, 2008 to provide
them with life and disability cover, health and maternity benewts, old age protection etc.
(KB4LnB:M, úA 349FM;`cM nB:M, ®M© úA :Mc≤˘ FMé, ngÓMD?9= CgAÄM 6trê)

47.9.3 Worker Types → Informal worker (4^ !+ùë/4Iî'V!§[ 0*,ö[)

 = Person who is not in the formal records / contract of a wrm. So he could be in unorganized
sector and he could be even in Çorganized sectorp e.g. driver / Security Guard / Chowkidaar /
gardener in Reliance ltd.
 Non-Agri Sectors where large % of workers are Informal workers: Construction (>80% of its
workers), Mining (>30% of its workers) , Transport Hotel restaurant (>10% of its workers) I?֍A-
9≤3Æ Ä?Å EçKEMì9? :qrzAJ;:á, àMrMcA bLxD<MyA9 / bI8M4ks :qrzA Eç
 jey are usually deprived of Minimum wages, EPFO/ESIC's Insurance/pension/social security
=Cannot aVord to stay in the city area during Corona uncertainty.
 So they would quickly Ìee to the village home in panic.
 Corona: more than 60 lakh migrant workers travelled through Shramik Special trains in May-
August 2020. = factory production / Supply (bI8M4ks ¶L :qrzAJ;9J CM:Mî ïD C?îôLc: 4?cL, c8M

(Batch: PCB10-Prelims ONLY) Mrunal⌧s Economy Pillar#4C: NITI, PC, FYP, Indicators- Unemployment→ Page 785
 CM:MßK9 CgAÄM FMéJ;C?4;‹<c AhM KMcM Eç¶CùFu :EM:MAB t9 b3Lß˙ccM 9? rxAML 4?cgA;c 4cL 4MDCB 9Ac?E∫. ßKCC?Íç„]B
íπMrL/ 6Dô¥c :áã`AM4@)
Table 4: Number of workers in Crores each category.

So, basically, 1) workers in unorganized > organized. 2) workers in Informal > Formal.
Formalization of jobs = when proportion of formal workers , in above table.

MCQ. Which about India's unorganised sector are trueL [UPSC-CDS-2014-I]

1. Labour is more in number than that in the organised sector.
2. Job security and work regulation are better in unorganised sector.
3. jey are usually not organised into trade unions.
4. Workers are usually employed for a limited number of days.
Answer Codes: (a) 1, 2 and 4 (b) 1, 3 and 4 (c) 3 and 4 (d) 1 and 3
MCQ. With reference to the casual workers employed in India, consider the following
statements: [4^ !+ùë 0*,ö[_) Y è![Y0•:\# +!∏ π()fπ8] (Prelims-2021)
1) All casual workers are entitled for Employees Provident Fund coverage. [CéB bI8M4ks :KrzA
ØDBuv¿ 9? ùFu E9rMA E∫]
2) All casual workers are entitled for regular working hours and overtime payment. [CéB bI8M4ks
:KrzA CM:Mî Õ;@J;:át9u `u 9MIÜ4c? L úA ¿4A@M¶: 4?cL 9? ùFu E9rMA Eç]
3) je government can by a notiwcation specify that an establishment or industry shall pay wages
only through its bank account. [CA9MA IE 3Lr‡â KMAB 9A C9cB Eçt9 ‹<˚¸c í¬J`J;L?9?4F n∫9 hMc?ŸMAM 4?cL
ég`cML 9ALM EJ`M]
Codes: a) 1 and 2 only b) 2 and 3 only c) 1 and 3 only d) 1, 2 and 3

47.9.4 ♂ Worker Types → Unorganized workers → E-Shram Portal (2021)

 National Database of Unorganized Workers By Ministry of Labour & Employment
 to register approx 38 crore Unorganised Workers of India such as construction workers, migrant
workers, street vendors, domestic workers, milkman, truck drivers, wsherman, agriculture
workers etc. bC;`tec Ä?Å 9? :qrzAJ;9? D;KB9Ao 9? ùFu d: :;ÅMFI 9M u9 ˝LFM¶L DJ@ÜF nLMIM `IM Eç
 jere is no registration free. Upon registration the workers shall be issued a e-SHRAM card with
unique Universal Account Number (UAN). D;KB9Ao 9? ùFu 9JØ v=C LEB;F`á`B
 He can use it for various social security schemes through this Card anywhere anytime.
 E-Shram Portal registered worker will get Rs 1.0 lakh on partial disability and Rs 2.0 Lakh
Accidental Death. 6;¨â9 349FM;`cM úA 69˛ˇ9 :≤त्यgDA :g64KM ã:F?`M
- ES23: So far more than 28 cr registered.

(Batch: PCB10-Prelims ONLY) Mrunal⌧s Economy Pillar#4C: NITI, PC, FYP, Indicators- Unemployment→ Page 786
 o Area-wise Highest from: UP (29%) > Bihar (10%) > W.Bengal (9%)
o Sector wise: Highest: Agri (52%) > Domestic Workers (9.8%) > Construction. (9.1%)

Worker Types → Gig workers & Two sided market - ES21

 Dewnition: Gig workers are temporary workers who are engaged in livelihoods outside the
traditional employer-employee arrangement. Delivery boys, app-based taxi drivers, service
providers such as cleaners and technicians, and freelance workers are all part of the gig economy.
(ã``-:qrzA/dã:9 - bõMØ :qrzA EçKJ t9CB ˝LFM¶L :JnM¶F »D 9? ŸMAM u9 ®c;Å e?9?rMA 9? ïD :ábDLB C?4Muì r?cM Eç
K?C?9= KJ:?@J;uD ŸMAM >ME9 9J A?⇥JAá@ 9M hMLM Dóì<MLMê)
 DATA: 7.5 million+ workers were engaged in the gig economy in 2020-21, and this number
could grow to more than 20 million in the next 8 year.
 Problem: usually deprived of social security benewts such as maternity leave, EPFO, ESIC,
unemployment allowance, disability allowance etc. (¶¸áCM:Mî dã:9 9= cAE 9;DLB ŸMAM nB:M, DáâL,
EPFO, nB:MAB 9? rxAML C4?cL òg⇤B, :Mc≤˘ FMé ¶त्यMtr CM:MßK9 CgAÄM IJKLM¿;9M FMé LEB;ã:FcMê)

Digital technology enables such two-sided markets. Its features are: (rJ nMqô¿ ;4MFM nMqMA)

 1) two sets of agents (Buyer and seller) interact through an intermediary or platform or
Aggregator app (Amazon, Ola, Uber etc) (rJ uKá@ 6DC :áu9 3n<xùFu 9? ŸMAM 6rML OrML 9Ac?E∫)
 2) the decisions of each set of agents aVects the outcomes of the other set of agents (e.g.
Customer gives 5-star delivery rating or not → Delivery boy's payment aVected etc)
Gig worker- Characteristics/Features: (Ü#Ü 0∫ W "!û¢ 3!)

 1) He/she works in a digital technology enabled two sided market. In the company's
records/contracts- such workers are usually shown as "independent service
providers/contractor" and not as "employees". So they are usually deprived of the
EPFO/ESIC/And other social security benewts (Ref: #1D3) Although Code on Social Security
2020 aims to wx this problem. (9;DLB 9? bLgn;s 9? tECMn C?IE 9:Œ 9;DLB 9M 9:Ü<MAB LEB;t9;cgu9 ®c;Å C?4M r?L?
4MFM e?9?rMA Eç. ¶CùFu 4J OMI 34¨éı O9MA 9= CM:MßK9 CgAÄM IJKLM¿;C?4;‹<c AE KMcM Eç.)
 2) work-contract is usually shorter, temporary, Not permanent. (¶C FÕgb4ks 9M bõMIB bLgn;s)
 3) jeir payment may include

(Batch: PCB10-Prelims ONLY) Mrunal⌧s Economy Pillar#4C: NITI, PC, FYP, Indicators- Unemployment→ Page 787
 o a) piece rate (e.g. How many deliveries made)
o b) partly reward above a wxed salary (e.g. How many 5 star ratings received on delivery)
(3Lß˙c cLÔME 9? bFM4M b3cyA” ØLM: DgA·MA)
o c) partly prowt (e.g. Taxi owner, Amazon seller) 6;¨â9 :gLMÍM

47.10 ORGANISED SECTOR JOBS RELATED SURVEYS/NUMBERS

47.10.1 Organised sector Jobs → QES
 Quarterly employment Survey (QeS) conducted by Labour Ministry → Labour Bureau.
 covers establishments with ten or more workers
 in nine major sectors viz. manufacturing, construction, trade, transport, education, health,
accommodation & restaurants, IT/BPOs, and wnancial services.
ES23: largest employers in 9 sectors are 1) Mfg 2) Education 3) IT/BPO 4) Healthcare 5) Hotel
47.10.2 Organised sector Jobs → Annual Survey of Industries (ASI)
 ASI survey done by the NATIONAL STATISTICAL OFFICE (NSO) under Ministry of Statistics
& Programme Implementation (MOSPI)
 It covers all registered units under factories act, and electricity companies. ES23 gave
following data from LATEST ASI:
Data Largest Employer
State-wise Tamil Nadu (26.6 lakh), Gujarat (20.7 lakh), Maharashtra (20.4 lakh), Uttar
Pradesh (11.3 lakh), Karnataka (10.8 lakh).
Sector-wise food products (11.1%), apparel (7.6%), basic metals (7.3%),vehicle (6.5%).
FAQ: but isnyt textile sector the (second) largest employer aier agriculture, as per some booksL
Ans. Yes, but ASI Survey only covers factories. Many of the textile units do not fall under the
dewnition of factory (Refer to dewnition of factory in Pillar4B).

47.10.3 Organised sector Jobs → EPFO Registered Workers

Year 2019–20 2020–21 2021–22
EPFO workers in (lakhs) 78.6 77.1 122.3
Highest number of EPFO workers are from following sectors:
 1) Expert services (consisting of manpower agencies, private security agencies, and small
contractors, etc.) = total 51 lakhs in 2021–22.
 2) Trading - Commercial Establishments 3) Engineering

47.11 NITI Report on Gig Workers | How to create more jobsL

ShiQed to Mains Handout. #Prelims-RAFTAAR

47.12✍ MOCK QUESTIONS FOR MAINS → NITI PC UNEMPLOYMENT

Questions centred around: how to create more jobs, problems in gig-economy, NITI vs Planning
commission etc. We'll see it in the Mains Course (QEP)

Next: Pillar#4D: GDP, GNP, V-Shaped Recovery, $5 Trillion Economy

(Batch: PCB10-Prelims ONLY) Mrunal⌧s Economy Pillar#4C: NITI, PC, FYP, Indicators- Unemployment→ Page 788
 PILLAR#4D: MACROECONOMIC INDICATORS- GDP,GNP,ATMA-NIRBHAR

Table of Contents

48 Pillar#4: Indicators → GDP.............................................................................................791

48.1 →GDP Calculation Method#1 via Expenditure ( ! "#$#).................................................791
48.1.1 (C) Consumption of .nal goods and services 45678 9:;<=>?;@ 4A#B................................792
48.1.2 (I) Investments ?FG:H...........................................................................................................792
48.1.3 (G) Government Purchases K$L#$ "#$# LM N#F:G#OP Q$PB....................................................792
48.2 GDP Calculation Method → via Expenditure (NSO Real Life)........................................793
48.2.1 GDP growth projections.........................................................................................................793
48.3 GDP Calc Method → via Production/GVA (4A#BF "#$#)...................................................793
48.3.1 GVA of various Sectors...........................................................................................................795
48.3.2 From GVA to GDP..................................................................................................................795
48.3.3 GVA & GDP: Growth Rates @Current vs Constant Price..................................................796
48.3.4 AGRICULTURE GVA is the [SAVIOUR\ in Corona Year 2020_......................796
48.3.5 Agri showed +ve growth despite Corona in 2020 [Lb?c Gbde B$ f7>F9P>d8$# L7$7F# @g]..797
48.3.6 GDP Misc Topics Discrepancy (?GK>8?;)_................................................................797
48.4 GDP Calculation Method via Income (WIPR)............................................................797
48.5 GDP Calculation Method → via Income (CSO real life)..................................................798
48.6 →: GDP Growth Rate & De5ator (Gbde B$, =5kM?;L#$L)..............................................799
48.6.1 : GDP vs CPI&WPI....................................................................................................800
48.6.2 GDP Misc Topics → 2015 calculation reform.......................................................800
48.6.3 GDP Misc Topics → Backseries Controversy_ (?GG#B).....................................801
48.6.4 ES20 Vol1ch10: India GDP is not overstated.........................................................801
48.6.5 GDP Misc Topics → Changing base years to 2017 & 18................................................801
48.7 GDP → Growth Rate → Economic Cycle.....................................................................801
48.7.1 Post-Corona: V-shaped recovery for India_...........................................................802
48.7.2 Low base enect in GDP growth......................................................................802

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#4D: Indicators- GDP, GNP, Atma-Nirbhar → Page 789
 48.7.3 Misc. Terms: Animal spirit in the economy.....................................................................803
48.7.4 Misc. Terms: Pent up demand (BoP pq @#>8).......................................................................803
48.7.5 Misc. Terms: Hysteresis....................................................................................................803
48.7.6 Misc. Terms: Doom Loop (L!#@; LM L<rP/t>B#)................................................................803
48.7.7 Misc. Terms: Financial contagion (?GuP! K>v@w).............................................................804
48.7.8 ⇥ Misc. Terms: Goldilocks scenario ...............................................................................804
48.8 GDP Growth Rate & 5 Trillion Economy..................................................................804
48.8.1 World Bank-ICP's GDP series based on PPP.........................................................804
48.8.2 Budget-2019: $5 Trillion economy..................................................................................804
48.9 GDP Growth Rate BEFORE Corona..........................................................................805
48.9.1 Growth rate: why fall / decline_ (B4 Corona).............................................................805
48.9.2 Negative GDP growth: Post Independence...................................................805
48.9.3 Declining Growth rate: future risks / challenges- ES22...................................805
48.10 GDP → $5 Trillion → How to Achieve>: ES strategy....................................806
48.10.1 Capital Output Ratio........................................................................................................806
48.10.2 ICOR.................................................................................................................................. 807
48.10.3 Investment more imp than Savings .......................................................................807
48.10.4 " GDP → $5 Trillion → How to Achieve_: NITI strategy...............................808
48.10.5 ES20 Vol1Ch1 on Wealth Creation (zF KbNF)...........................................................808
48.10.6 ES20: Countercyclic Fiscal Policy, Interest Rate Growth Rate Dinerential (IRGD)
.............................................................................................................................................................. 808
48.10.7 ES22: supply-side reforms to GDP ({|}L Gbde L: ~O {5ÄÅ; Ç:É L: K<z#$)...............808
48.10.8 ES19: GDP growth harmed during Economic Policy Uncertainty........................808
Global Risk Report 2023 (GÑÖÜL N7áQ@ à$57âä)...........................................................................808
48.11 " GDP → $5 Trillion → Atma-Nirbhar Bharat...................................................808
48.11.1 Chronology wise total allotment as per ES21..................................................809
48.11.2 Atma-Nirbhar Bharat Salient features........................................................809
48.11.3 Atmanirbhar-Criticism: Comparing Modi with Nehruãs model..................811
48.11.4 Misc. Terms: Chinese Atma Nirbhar/ Dual circulation (B79$# 5à$K>å$w).................811
48.12 GDP Growth - ES23 observations / analysis....................................................................811
48.12.1 Real GDP Growth projection (2023–24) by ES23...................................................811

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#4D: Indicators- GDP, GNP, Atma-Nirbhar → Page 790
 48.12.2 GDP Growth what more should be done_ as per ES23...........................................811
48.12.3 Reforms Roadblocks and delayed/lagged result - ES23...........................................812
48.12.4 Frontloaded economic stimulus in USA/EU caused overheating says ES23........813
48.13 GDP → GNP to NNP to Per Capita Income........................................................................814
48.13.1 GDP → National Income → Misc. concepts...............................................................815
48.14 Depreciation of Fixed assets: Meaning (@;Oo)....................................................................816
48.14.1 Depreciation: factors causing it (éF L#$L7>K:97;# 9ÑèêK#G)..............................................816
48.14.2 Depreciation: Features (èêK#G LM O#ÇëwL;#)..................................................................816
48.14.3 Depletion and amortisation............................................................................................817
48.14.4 Types of Nations : High Income, Low Income...................................................................817
48.14.5 Types of Nations : Advanced Economies (AE : 4í; =}ä Gì#>)...................................818
48.14.6 Types of Nations : EMDEs (46$;:o#N#$ î$ ?GL#KHPO =}ä;>É)..........................................818
48.14.7 Types of Nations : Bangladesh transition from LDC to Developing Country...........818
48.14.8 Bangladesh Per Capita GDP higher than India_............................................................819
48.14.9 Bhutan graduates from LDC (2023)....................................................................................819
48.14.10 India As A ïDevelopedã Country_ (6#$; L ?GLèK; B:H?)..............................................819
48.15 GDP & Per Capita Income→ Criticism / Limitations....................................................820
48.15.1 GDP → Economic Growth vs Economic Development...................................................821
48.16 Mains Questions: GDP, Economic Growth......................................................................821

48 PILLAR#4: INDICATORS → GDP

 Gross Domestic Product= is the market value of all the goods and services produced within the
domestic territory of a country during a speci.ed time period, usually one year. (óLKP B:H L: ê$:OÄ
Ç:É @g4A#óB; K6P Gò<ô >î$ K:G#ô>L# o#N#$ @Äö L7 KLO ê$:OÄ4A#B L9# N#;# 9Ñ)
 Here, domestic territory = political frontiers of the country including its territorial waters, ships,
aircraús, .shing vessels operated by the normal residents of the country; AND its embassies,
consulates located abroad. (as per NIOS textbook)
 GDP potential= is the Highest or maximum output that a country can produce using the
available labour and capital (at a constant inüation rate). K>6# NP†P5P = {5L: B:H @g45O° K6P @NB¢$
î$ 5Ä>NP K:N7 @9u@ 4A#BF 97 KL;# 9Ñ.
 GDP gap = dinerence between potential GDP and real GDP. NP†P5P =>;$ / Q#q = G#ò?GL î$ K>6#
NP†P5P L: oPå L# =>;$
48.1 GDP CALCULATION METHOD#1→ VIA EXPENDITURE (,- ./0/)

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#4D: Indicators- GDP, GNP, Atma-Nirbhar → Page 791
If anything is produced in India then someone must have paid money for that. So, accordingly we
can derive GDP = C + I + G + X – M

48.1.1 (C) Consumption of 3nal goods and services 56789 :;<=>?@<A 5B/C
• Purchasing new car, mobiles, computer etc. Both India made & (Imported) foreign made
are counted.
• If existing house is self-occupied, its ïnotional rentã is counted (i.e. even if owner didnot
rent the property.)
• IGNORE purchase of second hand goods, because we are only measuring ïnewã things
[MADE in India\ in present year.
• IGNORE construction of new house. It is not counted here, itãs counted in (I:
Investment)
48.1.2 (I) Investments @EF;G
• Tangible capital assets (@Ä;ä5Ä>NP8; K>5§u) like New House, Land, Building, Factory, Truck,
Machinery.
• Intangible capital assets (=@Ä;)ä like IPR / Patents, Computer Soúware etc.
• Raw material & intermediate goods, wages to workers for production.
• UNSOLD inventory. (N7 @#O =6P ?oLF# o#LM 9Ñ)
• IGNORE savings in bank, shares and bonds etc. (because itãd have been given to
entrepreneur as ïCapitalã to buy above things).

48.1.3 (G) Government Purchases J0K/0 ./0/ KL M/E;F/NO P0OC

• Salaries to employees, Procurement of computer, stationery, fans, tube lights, vehicles etc.
• IGNORE Governmentãs scholarship, subsidy etc. ïTransfer Paymentsã. •eyãre counted in
[C\ (Private) consumption by the respective bene.ciaries.

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#4D: Indicators- GDP, GNP, Atma-Nirbhar → Page 792
 GDP
-

Facte cost
Tracket Price

·
F Cf Indirect Taxes
.

subsidia

Profit
Rent
Salaria
Inflation affects
Wage &
cost - ↑
interest facter
*
GDPT
Which is better ?
- -
& F.
GDP GDP &M P .

I
B4 2018 ·
India
National-Expenditure = Income =
Roducts
Income

I
National Income

of Indians Abroad
> NP =
GDP + Income

Income of Foreignas in

Bharat
L
income
: "Net Facter
also called
From . "
Abroad
INFIAD)

NIFFAD

L -
Put Remittance

/ I ( External

·ni
Grants

fe VC
-

1 fre
/ I
- VC

external crit
Interest on

it
-

an
Loans

tue/ - V -
 components Description and Examples
♂ (X-M) Export  Export is added because it means a foreigner must have bought
MINUS Imports goods/services [MADE in India\ so itãs part of Indiaãs GDP.
 Whereas, Import is subtracted because some Indians must have
?F!#ä; -{!#;
Consumed (C) foreign products that were not [MADE in India\, So
if you do not subtract the ïImport(M)ã, it will give wrong estimation
of Indiaãs GDP.
Total = GDP  •us, we get GDP at Current Market Price (G;ä@#F @Äö 5$).
 When we adjust it with inüation against base year 2011 → GDP at
Constant Market Price (¶ì$ @Äö 5$).

48.2 GDP CALCULATION METHOD → VIA EXPENDITURE (NSO REAL LIFE)

Textbook formula NSOUs Real life formula (Approx numbers) 2022-23
(C) Consumption of 3nal goods (+) Private Final Consumption Expenditure (PFCE) 164 lcr
and services
(I) Investments (+) Gross Fixed Capital Formation (GFCF)+ Change in 79 lcr
Stocks (CIS)
(G) Govt Purchases (+) Government Final Consumption Expenditure (GFCE) 28 lcr
(X-M) Export MINUS Imports (+) Net Export of Goods & Services. (-) 12 lcr
(+) Discrepancies (?GK>8?;!#>) 6 Lcr
Total = Total = GDP @Current Market Price (G;ä@#F o#ß#$ @Äö 5$) >270 lcr
GDP @Constant Market Price (2011) approx. 159 Lcr
Now letUs 3nd growth rate for 2020-21→
Year GDP at Constant Market Price (Z[0 A\] 60)
2021-22 ©149 lakh cr
2022-23 ©159 lakh cr
GDP Growth rate in
2020 against 2019 ( 159−149
149 )
∗100=(7 %) (approx)

48.2.1 GDP growth projections

48.3 GDP CALC METHOD → VIA PRODUCTION/GVA (4A#BF "#$#)

Production method is also known as Gross Value Added method (GVA: KLO G|z; @Äö)

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#4D: Indicators- GDP, GNP, Atma-Nirbhar → Page 793
 Amt in a Mining Engine Tractor Total
Company → Company → Company →
A) Total 1+5+10=16 lakh
Production → Steel: 1 lakh Engine: 5 lakh Tractor: 10 lakh Value of Final Goods
produced by .rms
B) Intermediate 00 (suppose 0+1+5= 6 lakh Value
1 lakh (Steel 5 lakh (Engine
Goods → ore dug from of Intermediate Goods
purchased) purchased)
@™G;´ Gò<¨ free land≠) used by .rms
Value Added GVA =16-6
1 lakh → 4 lakh → 5 lakh →
(A-B)= = 1+4+5 =10
 Here, GVA = Value of .nal MINUS intermediate = (16-6) = 10 lakh. Alternatively, GVA =
Value added at each stage = 1 + 4 + 5 = 10 lakh.
 •e amount thus derived is called GVA (at basic price: @ÄO LM@; 5$).

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#4D: Indicators- GDP, GNP, Atma-Nirbhar → Page 794
48.3.1 GVA of various Sectors

48.3.2 From GVA to GDP

GVA at Basic price: (Suppose a country only produce LPG cylinders) a 600
Indirect Taxes: CGST + SGST (Earlier, Excise + VAT) (+) a 100

But Petro ministry is also giving subsidy on the purchase of LPG cylinders under (-) a 200
PAHAL scheme
= GVA (+) Indirect Taxes (-) Subsidies a 500
= GVA + [NET Taxes\
= GDP at Current Market Price (F<eA/E f/M/0 KLA<)
When we adjust Current Prices (G;ä@#F) with inüation against base year 2011, we get GVA / GDP
Constant Prices (¶ì$ @Äö).

MCQ. Which of the following activities constitute real sector in the economy j (2022)
1. Farmers harvesting their crops
2. Textile mills converting raw cotton into fabrics
3. A commercial bank lending money to a trading company
4. A corporate body issuing Rupee Denominated Bonds overseas
Codes: (a) 1 and 2 only. (b) 2, 3 and 4 only (c) 1, 3 and 4 only (d) 1, 2, 3 and 4

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#4D: Indicators- GDP, GNP, Atma-Nirbhar → Page 795
48.3.3 GVA & GDP: Growth Rates @Current vs Constant Price

Figure 1 Screenshot for observation. No need to memorize

In above table, Net Taxes = Indirect Taxes minus subsidies given on the product.

 While GVA gives a picture of economy from the producers' side or supply side, GDP gives
picture from consumers' / demand side perspective. (GDP 9@g4567Æ#ô>L# Fßà$!# óBQ#;# 9Ñ)
 Because GDP considers impact of Indirect taxes and subsidies. (f7>óL 4K@gL$#z#F î$ KØ∞†P LM =K$
L7 N7±# N#;# 9Ñ)
 •erefore, from 2018, RBI decided to use GDP instead of GVA to measure the economic
analysis. (éK~O à$ßGäo≤L {|}L ?G≥:cw @gGVA L: @<¥#oO:GDP L: {L̈±7 5$ µ#B# ß7$ B:;P 9Ñ)

48.3.4 AGRICULTURE GVA is the mSAVIOURn in Corona Year 2020j

Gist of many news columns/explained series is [While overall growth is negative for 2020, but
growth is positive in Agriculture sector, so Agriculture is the saviour- in the sense that IF there was no
agriculture, there d be bigger loss/shame in our GVA/GDP numbers for 2020.= [[9#O#>óL L7$7F# @gGÑK:;7
NP†P5P Gbde B$ d8$ 8!# O:óLF Lb?c Ç:É @g∂?;H; L: ∑5 @go∏7;$P B:QP 8q, G$F# =8$ Lb?c Ç:É F9P>97;# ;7 9@#$# NP†P5P L#
{>L±# éKK:6P π#B# 5?;;/d8$# p{ óBQ;#\- ∫KP â#é@5#K ó†o:â L<ª ºÄN5:5$ LΩO@ @gL#tM K@! K:åO $9P 9Ñ.]

Figure 2 : Screenshot for observation. No need to memorize all data

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#4D: Indicators- GDP, GNP, Atma-Nirbhar → Page 796
 shep For Prelines
Not
.

Read If once
~ but pleas
48.3.5 Agri showed +ve growth despite Corona in 2020 [Kp@q Fprs C0 t8?E:O?u90/ K808E/ Av]
Agriculture production was largely insulated / unanected from Corona reasons (L7$7F# G#!$K L: o#GNÄB
Lb?c 4A#BF @gæ#K FL#$#øL =K$ F9P>B:QP 8q f7>óL)
 Return of the migrant labourers from city area → More agriculture workers available (éF H9$7>K:
G;F G#5K { ∂G#KP @ßB¢$7>"#$# Lb?c L#!ä@g@BB)
 farms were not subjected to lockdown, unlike factories. Even during the lockdown, the Govt
provided many exemptions to transport of agri products, Increased the fertilizer subsidy. (éK
;#O#o>BP L: B¡$#F 6P K$L#$ "#$# Lb?c 4A#B7>L: 5à$G9F L7 ªÄâ BP 8q)
 Good monsoon → Good harvest (=¬√ o#à$H L: åO;:=¬√ 5ÑB#G#$)
 Agriculture doesnãt require lots of imported inputs [except Potash & Phosphate fertilizer] while
car company require imported inputs (Chips from Taiwan)…so, global lockdown hurts agro
production less than car production. (Lb?c 4A#BF @g?GB:HP {!#?;; L∆# @#O F9P>å#ó9 97;#)
 Faster vaccination in the USA, Europe → Opening of restaurants/fast food etc → Demand for
sugar, wheat, rice and other agricultural commodities → Indian agriculture exports bene.ted
(?GB:H7>@gâPL#L$w L: 5«#; $:ò$#>4»78 5<FN´?G; → 6#$; K:å#GO åPFP é…#óB L: Lb?c ?F!#ä; @g@BB)
48.3.6 GDP Misc Topics → Discrepancy (@FJ?9@<)j ⑲

·
What does above chart mean_ Ans. Explained in the video.

48.4 GDP CALCULATION METHOD → VIA INCOME (WIPR)

•is method follows the simple idea that whatever is [MADE in India\, its revenues must have been
distributed among the factors of production. So,
- GDP = Wages to labourers (W) + Interest on Capital to Lenders (I) + Pro.ts to Entrepreneur /
Owners of the .rm (P) + Rent on land (R).
- •e GDP thus arrived is called GDP at Current Factor Cost (G;ä@#F L#$L O#8; 5$).

Discrepancy GDP calculation mein hoti hai jab income approach aur expenditure
approach se calculate kiya gaya GDP ka data match nahi karta. Iska matlab hai ki
agar hum national income ke sabhi components ko total karte hain aur usse total
expenditure ko minus karte hain, toh ideally dono ka result same hona chahiye.
Lekin practical scenario mein, yeh dono results match nahi karte aur is difference ko
discrepancy kehte hain. Yeh discrepancy ho sakta hai accounting errors, data
collection errors, ya statistical errors ki wajah se bhi ho.
(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#4D: Indicators- GDP, GNP, Atma-Nirbhar → Page 797
48.5 GDP CALCULATION METHOD → VIA INCOME (CSO REAL LIFE)

xeoretical NSOU real life income formula

1. (+) Compensation (i.e. Employees salary + Employerãs
1. (+) Wages contribution to his Social Security Account e.g. EPFO / ESIC).
2. (+) Interest 2. (+) Operating Surplus and Mixed Income. (Because in a family
3. (+) Pro3t run farm / enterprise it is di cult to separate income and pro.t,
4. (+) Rent unlike a Companyãs balancesheet)
3. (+) Consumption of 3xed assets during production
Total sum= Here total is called mGVA @Factor Costn

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#4D: Indicators- GDP, GNP, Atma-Nirbhar → Page 798
48.6 : GDP → GROWTH RATE & DEFLATOR (Gbde B$, =5kM?;L#$L)

- Growth Rate (%) = {GDP (Present year - Last Year) / Last Year} x 100
- But, quantitatively production may not have (From 1 kg onions to 2 kg onions), and only
because of inüation in the prices (© 10/kg onion to © 100/kg) the growth rate may be appear high.
- •erefore (to remove the inüation impact on growth rate), we must select a base year, and
convert the current prices to constant prices. (4A#BF @Äö @g@9>8#q L: =K$ L7 9â#F:L: ~O óLKP L {z#$
GcäL: B#@7>L: K#} N7±L$ B:QF# å#ó9)

Nominal GDP at Current Prices(2019)

GDP Deflator = ×100
Real GDP at Constant Prices(BaseYear 2011)

Table 1: As per data from ES22

NSO in 2019-Feb → a lakh crores (Approx) 2017-18 2018-19 2019-20 2020-21
A) Nominal GDP @Current Prices in crores 171 lakh cr 190 lakh cr 203 lakh cr 197
[Production GVA Method]
Nominal Growth Rate @Current Prices 11.3% growth 11.0 % growth 7.5% growth than (-3)%
(against Previous Year) than 2016≠ than 2017≠ 2018≠
B) Real GDP @Constant Prices (BaseYear2011) 132 140 145 135
Real Growth Rate @Constant Prices (against 7.2% growth 6.1% growth than 4.2% growth (-)6to7%
Previous Year) than 2016 2017 than 2018
GDP De5ator = {A÷B} x 100 129 135 138 146
135−129
GDP De5ator based year-on-year in5ation ( )∗100= 4.65% 2.22% 5.80%
129

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#4D: Indicators- GDP, GNP, Atma-Nirbhar → Page 799
 GDP Dezator is also known as Implicit Price Dezator

48.6.1 : GDP vs CPI&WPI

GDP Dezator CPI, WPI (More in 4C: Inzation section)
GDP deüator is the most comprehensive - CPI: Only few/selected goods/services
indicator to measure inüation, because it covers prices monitored.
all goods and servicesã prices. So, it helps - WPI: Only few/selected goods prices
tracking changes in consumption pattern and monitored. Services price not covered.
investment pattern. [f7>óL NP†P5P ó†Œ:â$ @gK6P LM [@9>8#q L: éF KÄåL#>L7>@gK6P LM K6P Gò<ô >î$ K:G#ô>
K6P Gò<ô >î$ K:G#ô>L: B#@7>L: @Äö @≤o∏7;$P L# 5;# L: B#@7>L7 F9P>F#5# N#;#– L:GO L<ª å<?FB> # Gò<ô >î$
åO;# 9ÑéK~O NP†P5P ó†Œ:â$ L: ?G≥:cw K:9@ 45678 K:G#ô>L: B#@7>5$ ?F8$#FP $QP N#;P 9Ñ]
î$ ?FG:HL î$ ?FG:H @≤{ $9:oBO#G L7 K@œ KL;:9Ñ]
DATA released quarterly basis (3-3- months) DATA released monthly basis
but RBI doesnãt use it for monetary policy RBI uses CPI (All India) to target inüation in its
making because GDP deüator data comes monetary policy making (More in
quarterly (and not monthly basis). [6#$;P! à$ßGä Pillar#1A2)
o≤L =5FP @¡ó—L FP;P oF#;:GÆ éK {>L±:L# O“ F9P>
$Q;# f7>óL !:;PF ;PF @9PF:5$ ∂L#ëH; 97;# 9Ñ]
MCQ. xe 8% growth rate registered by Indian economy during 2015-16 is based on [UPSC-CDS-2017-I]
(a) Gross National Product at market prices. (b) Gross Value Added at constant prices.
(c) Gross Domestic Product at market prices (d) Gross Domestic Product at constant prices.

48.6.2 GDP Misc Topics → 2015 calculation reform

To comply with the United Nations System of National Accounts (SNA-2008) (K>!<Æ $#”‘L: $#”P‘!-ó9K#o
@#FL7>L: @<;#?o¥ K:6#$; @gGDP LM d8F;P L$F:L: ~O ?F’ K<z#$ óL 8 2015 @g)

- Base Year Changed from 2004 to 2011. ({z#$ Gcä@goBO#G óL!#)

- Updated the system of data collection and classi.cation and value calculation for: (?F’ Ç:É7>L: †:â#
LdÉ;-L$w î$ @Äö GzäF LM d8F;P LM ∂w#OP @g=»;F K<z#$ óL 8)
- Crop data and livestock data, handicraú industries (=F#N 5H<5#OF 9ò-LO# 4»78)
- Meat value calculation (@#>K L# 4A#BF)
- services produced by local bodies e.g. municipal bus, municipal school-water-sanitation
(F8$ ?F8@ î$ ì#FP! éL#é!7>"#$# N7 K:G#¨ 4A#BF LM N# $9P 9Ñ)
- goods/services produced by the informal sector e.g. domestic maids (=F¡5å#à$L Ç:É )
- sand extraction, construction sector, mining sector (o#OÄ-QFF, @L#F ?F@#äw)
BEFORE From 2015
Companiesã goods/service production data Using companiesã balancesheet details
was computed using Annual survey of submitted to Ministry of Corporate Anairs.

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#4D: Indicators- GDP, GNP, Atma-Nirbhar → Page 800
 BEFORE From 2015
industries (ASI) and index of industrial (L>5?F!7>L: 4A#BF L# †:â# LΩ5÷$:â @#@O7>L: @>É#O! K:
production (IIP). ~O!# N#)
Bank/NBFCãs .nancial services production will be captured in more comprehensive
data collection methods were not manner with the help of RBI, SEBI, IRDAI,
modern/comprehensive PFRDA. (?GuP! K:G#ô>L: 4A#BF L# †:â#)
Private coaching, hotel-tourism etc. servicesã
Will use service-tax collection data to cross-
production data capturing methods were not check the production/growth of such
modern/comprehensive services. (K:G#-L$ @gK$L#$ L7 pq {@BFP LM @BB K:
!:N#å̈ óL!# N# LM K:G# Ç:É @góL;F# 4A#BF p{)
++ many other things but this is more than su cient to handle the random Mains Question
asked in GSM3-2021 for 150 words.(†:∏-K¡ Hÿ7>@gN7 Mains Qs 5Ī#, 4KL: ~O !:@#O L#ŸM 9Ñ–)

48.6.3 GDP Misc Topics → Backseries Controversyj (@FF/C)

Too old/outdated/faded topic, so removing it. #Prelims-RAFTAAR.

48.6.4 ES20 Vol1ch10: India GDP is not overstated

Shiúed to Mains Handout. #Prelims-RAFTAAR.

48.6.5 GDP Misc Topics → Changing base years to 2017 & 18

2018-Feb: MoSPI declared that itãll ïinitiateã steps to change base years:
Indicator Present Base year Proposed New Base Year (∂ò#?G; F!# {z#$ Gcä)
GDP & IIP 2011 2017-18
CPI 2012 2018-19
•is is proposed to ïaccommodateã the changes take place in the economic scenario of the country
(e.g. GST, Demonetization, RERA). =o !9 ∂ò#?G; 9ÑO:óLF G#òG @g=@O @g{!# F9P>

48.7 GDP → GROWTH RATE → ECONOMIC CYCLE

1) Expansion, Prosperity, Boom, Upswing of economy (;:NP L# B¡$).
2) Recession Phase (@>BP): from peak prosperity to moving downwards. Usually evident from
continuous negative growth rate for two successive quarters (=6 months). E.g. USA 2007-09 in
the aúermath of Subprime crisis .
3) Depression Phase (ê7$ @>BP): Severe and long lasting Recession e.g. USA 1929-39 in the aúermath
of stock market crash. It resulted in great fall in GDP, income, employment, industrial
production, and wholesale-retail sales.
4) Recovery Phase (K@<⁄#F): from recession / depression towards prosperity.

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#4D: Indicators- GDP, GNP, Atma-Nirbhar → Page 801
 Technical Recession when GDP growth for, at least, two consecutive quarters.
A?CO KL <KEOKL ,/}/ K;; B7 ?;@#9P ;L Gbde B$ @gd8$#Gâ
Recessionary Phase If GDP growth in present quarter than previous quarter
A?CO K/ C~0 ?5ªOP ?;@#9P LM =5:Ç# éK ?;@#9P Gbde B$ @gd8$#Gâ
Expansionary Phase If GDP growth in present quarter than previous quarter
<;MO K/ C~0 ?5ªOP ?;@#9P LM =5:Ç# éK ?;@#9P Gbde B$ @go∏7;$P
48.7.1 Post-Corona: V-shaped recovery for Indiaj
Table 2: Types of Recoveries

V-Shaped IF GDP growth suners a sharp → then quickly recovers. So graph will appear
"V-shaped". E.g. 1918-1920: Spanish Flu: USA growth falls to (3.5%) → aúerwards
quickly recovers to (7.5%) = V-shaped recovery.
U-shaped If GDP growth takes more time to recover, then rises.
W-shaped If GDP growth then then again .
K-shaped If GDP growth for some sectors e.g. E-Learning, E-Commerce sectors while
Recovery
GDP growth in some sectors e.g. Tourism, Restaurants, Gyms, •eatre
L<ª Ç:É7>@g;:NP L<ª Ç:É7>@g@>BP N#$P $9:.
- ES21 (Published in 2021 January) projected V-shaped recovery, assuming 1) mass
vaccination of people → business of contact-sensitive sectors like trade, hotels, transport,
tourism, 2) unlocking of pent-up demand 3) Low Base Enect. (=èzL;$ {o#BP L# âPL#L$w 97F:L:
5«#; K>5Lä {z#à$; K:G# Ç:É NÑK: #5#$ éK $:›7$gâ 5à$G9F 5!äâF é…#óB @go∏7;$P, BoP pq @#8̈ L# 5<FN´GF, K>B6äGcä@g
ª7âP $¥@ LM =K$- L: 5à$w#@ fi∑5,'GP' {L#$ L: ∂Ç:5Gv K:6#$;P! =}ä;>É 5<FN´?G; 978#)

48.7.2 ✌ Low base eÄect in GDP growth

 It means the choice of the reference/comparison year anects the % growth.
Numerator
Denominator ( 149−145
145 )
∗100 ( 149−134
134 )
∗100
Result =2% =11%

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#4D: Indicators- GDP, GNP, Atma-Nirbhar → Page 802
 In maths/fractions, whenever denominator gets smaller, the % answer will get bigger.
 •us, if reference/comparison year had a small .gure then → % growth will look big.
 Usually India's real GDP growth is in single digit in 6-7% range. However in 2021: GDP growth
rate is in 9% range. •is big .gure is possible due to the low-base enect of Corona 2020 (K#@#º
∑5 K:6#$; L# G#ò?GL GDP Gbde B$ 6-7% @<ØflO K:97;# 9Ñ, óL>;<2021 @g!:o±# óBQ;# 9Ñf7>óL “K>B6äGcä@gª7âP
$¥@ LM =K$” K:åO;:%∂?;H; NG#o o±# 97 N#;# 9Ñ)

48.7.3 Misc. Terms: Animal spirit in the economy

 British economist John Maynard Keynes (book General •eory of Employment, Interest, &
Money) argued that investors and consumers are guided by animal spirit / psychological urge
than unbiased & rational analysis of facts. (?FG:HL î$ 4567Æ# =5F:?Fwä! ;„7>L# ?F‰Ç î$ ;LäK>8;
?G≥:cw L$F:LM N89, 5H<6#GF# !# @F7GÑÂ#?FL é¬#, L: {z#$ 5$ O:;:9≤)
 When their animal spirit is more active, they will do more investment and spending.
 2019: RBI report observed that despite govt enorts, domestic Demand not therefore Animal
spirit not reviving, hence slowdown in economy.

48.7.4 Misc. Terms: Pent up demand (CfO ÅÇ A/?9)

 During recession / slowdown, People postpone their shopping plans. Once economy recovers or
if there is a festival season → sudden in the shopping, called "Pent up Demand". (@F @gBoP pq
@#>8 N7 4ªOL$ o#9$ {- éK~O óBG#OP-K:-óvK@K @gO787>F:L7$7F# @g6P N@L$ æ$PBP LM 978P)
 2020-Oct/Nov: Due to Diwali season, sudden in online & oÊine shopping due to various
discounts / sale-oners so, GST collection . But critics argue it was just a festival based 'pent-up'
demand and it may not sustain for a long time, once the Diwali to Christmas season is over.
(O:óLF f# 4ÁG Qø 97F:L: o#B 6P KP 6#$P H7?58> /@#8̈ N#$P $9:8P?)

48.7.5 Misc. Terms: Hysteresis

Hysteresis= refers to an event in the economy that persists even aúer the factors that led to that event
have been removed. e.g. Even aúer the corona is controlled, People continue to spend less, fearing
another lockdown/job-loss. (ÖNKL: L#$L =o K@#Ë 97 å<L: 9≤ót$ 6P G9 êâF# N#$P $9:. NÑK:L7$7F# G#!$K ?F!>Éw @g
{F:L: o#GNÄB 6P, éK †$ K:óL G#5K @9#@#$P {8P, O78 Q$PB#$P L@ L$g8:, î$ oå; µ#B# L$g8):

48.7.6 Misc. Terms: Doom Loop (K-/A< KL K=ÉO/Ñ?C/)

 Doom loop occurs when one negative economic condition creates a second negative condition,
which in turn creates repeats/magni.es the enect of the .rst negative condition. (L K@È# B¢K$P
K@È# L7 NÍ B:;P 9ÑÖNKL: åO;:59OP K@È# î$ 89$P 97 N#;P 9Ñ)
 e.g. 1) Pak Govt not having enough money to run the country → Pak government canãt run
schemes like Indiaãs MUDRA/PLI etc. → Pak manufacturing will not improve → Pak
government will not earn enough direct/indirect taxes → 1) Pak Govt not having enough money
to run the country.

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#4D: Indicators- GDP, GNP, Atma-Nirbhar → Page 803
48.7.7 Misc. Terms: Financial contagion (@FÖO- J?ÜAá)
 Spread of .nancial market disruptions from one country/region/sector to another
country/region/sector.
 e.g. Collapse of Silicon Valley Bank (SVB) in USA → Indian startup foundersã money got stuck
→ Problems in Indian IT Sector → problems in Indian Banksã loan recovery & problems in
Indian sharemarket performance.

48.7.8 ⇥ Misc. Terms: Goldilocks scenario

• in an economy refers to an ideal situation where there is a steady growth - not too high, not
too low (oÎ; L@ 6P F9P>î$ o797; µ#B# 6P F9P>)
• •e economic growth is neither too high to trigger inüation due to heavy consumer demand
vs low supply (No {|}L Gbde é;F# ;:ß 6P F# 97 LM o∏;P @#8̈ L: K#@F:{5ÄÅ; L@ 97 N# î$ o∏P @9¨8#q LM
K@È# 97) AND
• •e economic growth is neither too low for a slowdown.(î$ K#} 9P K#} {|}L Gbde B$ é;F# L@ 6P
F 97 óL @>BP LM K@È# Q±P 97 N#)

48.8 GDP GROWTH RATE & 5 TRILLION ECONOMY

48.8.1 ♂ World Bank-ICP's GDP series based on PPP
Faded outdated topic. Deleting it. CA-PDF wallas had over-hyped it unnecessarily.

48.8.2 Budget-2019: $5 Trillion economy

Year IndiaUs GDP in trillion $ (Current Prices)
2014-15 1.85 trillion
2018-19 2.70 trillion
2019-20 2.90 trillion
2021-24 ….. whatever N7 6P 978#
2024-25 5 trillion targeted (i.e.by 31/3/2025)
- ES19 has given blueprint for this and said, [We kept the cover of this survey in skyblue color,
because weãve given blueprint for $5 trillion economy.\
- Counterview: Former RBI Governor C.Rangarajan said India cannot achieve 5 trillion dollar
economy by 2025, because to achieve it, weãll have to grow at 9-10% annually but at present we
are struggling with 5-6% growth rate. (!#?F LM 9@K:F# 97 5#8#)

FAQ: Can we quote [$5 trillion GDP target\ number in our Mains answer writing- especially
when in reality it seems impossible to achieve_ Ans. Even aúer Corona, government/NITI/Eco-
Survey has not admitted o cially that they cannot achieve it and they are quitting this target. So we
can still use this $ 5 trillion number in our Mains Answer Writing.

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#4D: Indicators- GDP, GNP, Atma-Nirbhar → Page 804
Protectionism ek aarthik neeti hai jisme ek desh apne aap ko videshi maal aur sevaon ke prati
surakshit karne ki koshish karta hai, aksar customs duties aur tariffs ke madhyam se. Iska mool
uddeshya desh ke sthaaniya udyogon ko badhaava dena hota hai.

Udaharan ke liye, ek desh apne kisaanon ko surakshit karne ke liye videshi kisaanon se anaj par
lagam laga sakta hai, jisse desh ke kisaan apni fasalon ko bechne mein aasaani ho aur sthaaniya
arthik vikas ko badhava mile.
"Twin balance sheet syndrome" ek aarthik sthiti hai jahan ek desh
ke banking sector aur corporate sector dono ke balance sheets
kharab hoti hain. Yeh tab hota hai jab banks ke paas karz ka bojh
hota hai aur saath hi saath, companies ke paas bhi adhik karz hota
hai. Isse financial stability aur economic growth par asar hota hai.

Udaharan ke liye, agar ek desh mein banks ne adhik udhaar diya

ho aur companies ne bhi adhik karz liya ho, toh isse loan default
ka khatra badh jaata hai aur financial system mein instability paida
hoti hai, jisse economy ko nuksan hota hai.

"Gross Fixed Capital Formation (GFCF) Rate" ek Economic indicator hai jo

ek desh mein investment ki dar ko darshata hai jo sambhavit utpadan ke
liye kiya gaya hai. Yeh darshata hai ki ek desh ne ek nirdharit samay mein
kitna paisa nivesh kiya hai jo fixed assets ya capital goods ke roop mein
istemaal kiya ja sakta hai, jaise ki factories, buildings, machinery, aur
infrastructure.

Udaharan ke liye, agar ek desh ke Gross Fixed Capital Formation Rate 25%
hai, toh yeh matlab hai ki har saal desh ke GDP ka 25% ka hissa nivesh ke
roop mein lagaya ja raha hai jiske madhyam se naye capital assets ka
nirman ho sakta hai.
- 4) IF US Fed Tapering completed in an orderly fashion without new surprises or random
changes. (?oF# L7é F!:=∂…#ëH; oBO#G óL, G¶ì;/ =F<@#?F; ;$P¥: K:Ÿ:†-â:5à$>8 æø 97)
- 5) IF global supply chain disruptions (caused by Ukraine war & other geopolitical crisis)
will get solved. (6Ä-$#NFP?;L {5B#ô>L: åO;:97 $9P GÑÖÜL {5ÄÅ; Ô>QO# LM K@È#> K<Oœ N#>. !óB !:Ko åPßg
¥#oÄ@g$9P → ;7 =5F# {|}L Gbde B$ 8.0-8.5% 97 KL;# 9Ñ)

48.10 GDP → $5 TRILLION → HOW TO ACHIEVEj: ES STRATEGY

Savings Itãs the Income excess of Consumption. Subdivided into Private Savings [by
oå; households & business .rm] and Public Savings by Govt organizations.
 It's the domestic Savings + foreign money WHICH IS put in Real (physical)
Assets like machines, tools, buildings, o ce spaces, storehouses, roads, bridges,
airports and unsold inventory (∫K# K#@#F ÖNKL# ?F@#äw p{ O:óLF ?oL# F9P>)
Investment
 In an Open Economy Country, Investment may become higher than
?FG:H
(Domestic) Savings: - IF there is inüow of Foreign Capital.
 In a Closed Economy, Investment EQUAL = Savings [with many conditions
like 0% taxes, etc. but that MA(Economics) is not IMP]
Gross Fixed Capital Formation Rate (KLO ?FÖ«; 5Ä>NP ?F@#äw B$)
= INVESTMENT – DISPOSAL of assets (liquidation, condemnation).
GFCF
•us, GFCF shows the net increase in physical assets. It IGNORES depreciation,
and land purchases.

48.10.1 Capital Output Ratio

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#4D: Indicators- GDP, GNP, Atma-Nirbhar → Page 806
 USA India
Cost of bottling plant → $ 3 lakh 3
How many bottles it can produce → 2 lakh 1 lakh
Capital Output Ratio 3/2 = 1.5 3/1= 3
(Smaller number better) (Higher is bad)
It is the amount of capital needed to produce one unit of output. It depends on factors such as
technological progress, prices of capital goods / machinery. In India, High Capital Ratio is among the
reasons for subdued growth rates.

48.10.2 ICOR
 ICOR = additional unit of capital or investment needed to produce an additional unit of output.
(L =?;à$Æ 5<N#äoF#F:L: ~O óL;FP =?;à$Æ 5Ä>NP å#ó9 978P?)
 ICOR in India: 3.8 (2016) → 4.9 (2018) → 6.9 (2019).
 A higher ICOR means is a country's production is less e cient

48.10.3 Investment more imp than Savings

ES18 had observed: If we want to quickly recover, & bring our growth to 9% then we must
investment → GFCF will → then growth rate will automatically → savings will
automatically •erefore,

Increasing Investment / GFCF: should be Increasing / mobilizing savings is important

our urgent priority but should not be our urgent priority
Resolve TBS, encourage Make in India & PMJDY, Pension-Insurance schemes, Sovereign
Startup India, Reforms in Tax Laws, Labour Gold Bonds, Unearthing black money,
Laws, Environment Clearance, FDI approval Demonetization etc. •eyãre important but not
etc. ?FG:H L7 o∏#F# 9@#$P ∂#}d@L;# 97FP å#ó9 [URGENT\ oå; L7 o∏#F# ∂#}d@L;# F9P>97FP å#ó9
Similar theme is also reiterated by ES19 that private investment is necessary for boosting growth.

MCQ. Economic growth in country X will occur if: (Asked in UPSC-Pre-2013)

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#4D: Indicators- GDP, GNP, Atma-Nirbhar → Page 807
(a) there is technical progress in the world economy.(b) there is population growth in X.
(c) there is capital formation in X.(d) the volume of trade grows in the world economy.
MCQ. Despite being a high saving economy, capital formation may not result in signi3cant
increase in output due to(Asked in UPSC-Pre-2018)
(a) weak administrative machinery (b) illiteracy
(c) high population density (d) high capital-output ratio

48.10.4 GDP → $5 Trillion → How to Achievej: NITI strategy

SHIFTED to Mains Handout. #Prelims-RAFTAAR

48.10.5 ES20 Vol1Ch1 on Wealth Creation (ãE JpME)

Shiúed to Mains Handout. #Prelims-RAFTAAR.

48.10.6 ES20: Countercyclic Fiscal Policy, Interest Rate Growth Rate DiÄerential (IRGD)
Covered in Pillar#2D

MCQ. Which of the following was recognized as 'invisible hand' by Adam Smithj (UPSC-
CAPF-2020) (a) Government (b) Market/Price Mechanism (c) Judiciary (d) Legislature

48.10.7 ES22: supply-side reforms to GDP (åçéK Fprs K; èNê å6\ë< í;ì K; J=ã/0)
Shiúed to Mains Handout. #Prelims-RAFTAAR.

48.10.8 ♂ ES19: GDP growth harmed during Economic Policy Uncertainty

Shiúed to Mains Handout. #Prelims-RAFTAAR.

Global Risk Report 2023 (FîïñK M8óPA ò068ôe)

 Published by World Economic Forum (WEF, Switzerland)
 Findings / suggestions shiúed to Mains Handout.
48.11 GDP → $5 TRILLION → ATMA-NIRBHAR BHARAT

 (Origin) 2020-March: Government of India initiated nationwide lockdown to prevent the spread
of Corona/COVID-19 pandemic. (L7$7F# @9#@#$P L: åO;:B:H #5P ;#O#o>BP)
 •is lockdown anected the income and livelihood of everyone from corporate companies to
common citizens of India. (KoLM {NP?GL# L7 9#FP pq)
 •erefore, to revive economy, PM launched Atma Nirbhar Bharat stimulus package in 2020-May
to revive the Indian economy. (=}ä Gì# L7 5<FNPGF / ∂7ò#9F L# {|}L 5:L:N)

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#4D: Indicators- GDP, GNP, Atma-Nirbhar → Page 808
 Itãs centred on .ve pillars of – Economy, Infrastructure, System, Demand and Vibrant
Demography (kÄÅ;OP NFK#>ÒLM).

48.11.1 Chronology wise total allotment as per ES21

Sr Item → aa allotted as of 2020-Nov a
1. Pradhan Mantri Garib Kalyan Package (PMGKP, 2020-April): >2Lcr
 ©© transferred in PM Jandhan bank account of women, poor senior citizens, PH
 PMGKP Anna Yojana: Free food grains and pulses to poor families
 Advance installment /frontloading of PM-KISAN bene.ciaries
 PM-Ujjwala: Free LPG cylinder to poor people
 Insurance for the health workers
EPFO contributions ( Ref: HDT-Pillar#1D)
2. Atmanirbhar Bharat Abhiyaan 1.0 (2020-May 12th) 11Lcr
4. Atmanirbhar Bharat Abhiyaan 2.0 (2020-October 12th) 73Kcr
 Festival advance via SBI Utsav Cards for Govt employees, LTC bene.ts to Govt
employees, (More in Pillar#2)
 Addl ©© for defense and roads., States given interest free loans
5. Atmanirbhar Bharat Abhiyaan 3.0 (2020-Nov 12th) 2.65Lcr
 Income Tax relief for real estate developers & Home Buyers,
 Production Linked Incentive (PLI) to boost mfg
 Atmanirbhar Bharat Rozgar Yojana / EPFO contribution
 addl ©© for fertilizer subsidy, addl ©© for PM Awaas Yojana – Urban (PMAY-U)
6. RBI measures announced till 31st Oct 2020: e.g. CRR, Repo, WMA, Special 13LCr
loan Windows ( Ref: HDT-Pillar#1A2)
Total Atma-Nirbhar Package (originally it was a20 lcr however later it was ~30Lcr

48.11.2 Atma-Nirbhar Bharat Salient features

<REFER To respective pillar s handouts>
Mrunal's Pillars Atma-Nirbhar Salient Features (List not exhaustive)
 RBI's easy monetary policy, loan moratorium, Additional loan towards
States (WMA, CSF), NBFCs & Mutual Funds, Postponed Basel norms
1A, B,C:
 Government schemes for loans towards NBFCs, MSME
Money Banking
 IBC code suspended
Finance
 Allowed Indian companies to directly list their shares in foreign exchange
 Relaxed penalties in the Companies Act
1D: insurance  ©50 lakh insurance if Corona health worker died
& Fin Inclusion  Expanded the coverage of workers in ESIC
 Atmanirbhar Bharat Rozgar Yojana / EPFO contribution
 Promised social security, health check up etc for unorganized sector
workers (=K>8óÚ; Ç:É L: @NB¢$7>L: ~O K#@#ÖNL K<$Ç#)

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#4D: Indicators- GDP, GNP, Atma-Nirbhar → Page 809
Mrunal's Pillars Atma-Nirbhar Salient Features (List not exhaustive)
 Direct money transfer of 500-1000 rupees in PM-JDY women accounts,
Senior citizen accounts, PH etc. (∂…Ç O#6 =>;$w)
 Loans for SHG, MSME, Street Vendors (SVANIDHI)
 Extended the deadline for .ling taxes, Reduced TDS rates
 Changed the policy of disinvestment
2: Public Finance  Promise to help the states .nances
taxation  PM CARES fund for accepting donation
 Festival advance via SBI Utsav Cards for Govt employees, LTC bene.ts
 States given interest free loans for Capital Expenditure
 RBI's VRR and FAR windows for attracting $$
 Borrowed billions of $$ from BRICS-NDB, AIIB, ADB, World bank etc To
3: International revive Indian economy (op5ÇP! ?GL#K o≤L7>K:LN#ä)
trade  Banned the import of 101 defense items. FDI in defense
 Global companies canãt apply for Indian Government tenders below [X\
amount. (to reduce import bill & help local biz)
 Paid the PM-KISAN installments ahead of its due date (Frontloading)
 3 Ordinance to Reform the agriculture and food processing sector
(APMC, Contract Farming, Essential commodities)
4A: Agriculture,  MSP, Operation Green expanded to all fruits and veggies
 funding / loans for Food processing industry in Dairy cooperatives
 Agriculture Infrastructure Fund, Animal Husbandry Infrastructure Fund,
Pradhan Mantri Kisan Sampada Yojana
 Change the de.nition of MSME, MSME Loan schemes, equity infusion
 Interest subvention in Mudra loans (Û#N @gKØ∞†P)
4B: mfg, Ease of
 Portals: (MSME) CHAMPIONS portal, YUKTI 2.0 (Corona innovation),
Doing Biz
 Global companies canãt apply for Indian Government tenders below [X\
amount. (to reduce import bill & help local biz)
 Reforms to encourage more commercial Mining
 Funding for DISCOMs to increase electricity production
 PM-Awas yojana sub-components deadline extended
 Rental housing will be promoted (óL$# L: @L#F7>L: ?F@#äw L7 ∂7Á#9F)
5: Infrastructure  PPP for airports, atomic energy, space tech
 Transport → Vande Bharat mission and Shramik special trains to help the
migrants reach their home
 Force Majeure in RERA act, No penalty on road contractors If projects
not .nished in time
6: Poverty,  New portals & TV channels for online education
hunger,  One Nation one ration card, free grains, pulses, LPG cylinders for poor
education  MGNREGA wages and funding
 DBT of money in PM-JDY women, poor senior citizens, poor PH

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#4D: Indicators- GDP, GNP, Atma-Nirbhar → Page 810
 Mrunal's Pillars Atma-Nirbhar Salient Features (List not exhaustive)
 SHG: loans, procure masks and sanitizers produced by them
 Street vendors ko ©10k loans (SVANiDHI scheme)
As such Atma-Nirbhar criticism is not important for UPSC exam nowadays. But some idea may be
required for interviews.
MCQ. Which steps is most likely to be taken at the time of an economic recessionj [åçéK A?CO
K; C~0/E @Eõ AvJ;K~E J/ KCA 5ú/ê M/E;KL J?7/FE/ JfJ;ù/C/ :î] (Prelims-2021)
a) Cut in tax rates accompanied by increase in interest rate [ L$7>@gLâ¡;P î$ Û#N B$7>@go∏7;$P]
b) Increase in expenditure on public projects [K$L#$P ∂7N:Ì L: Qåä@go∏7;$P]
c) Increase in tax rates accompanied by reduction of interest rate [L$7>@go∏7;$P î$ Û#N B$7>@gLâ¡;P]
d) Reduction of expenditure on public projects [ K$L#$P ∂7N:Ì L: QåÙ @gLâ¡;P]
48.11.3 Atmanirbhar-Criticism: Comparing Modi with NehruUs model
Shiúed to Mains Handout. #Prelims-RAFTAAR.

48.11.4 Misc. Terms: Chinese Atma Nirbhar/ Dual circulation (C8:0/ 6ò0J?û0á)
To revive Chinese economy Post-Corona, Chinese government has launched "Double circulation
program". It focuses on production in the local economy using certain Foreign Technology &
Foreign Investment. How it works actually_NOTIMP

48.12 GDP GROWTH - ES23 OBSERVATIONS / ANALYSIS

48.12.1 Real GDP Growth projection (2023–24) by ES23

 expectation: 6.5% (G#ò?GL Gbde B$)
 range: 6.0–6.8% due to variety of global uncertainties such as
 US Fed Tapering, weakening of Rupee
 inüation → RBI Repo hike → loans getting expensive
 Geopolitical issues (Ukraine, Taiwan) → cross-border trade and supply chain anected.

48.12.2 GDP Growth what more should be donej as per ES23

 Continue focusing on ease of doing business. deregulation and simpli.cation
 MSME - easier /faster loan approval facility
 State govts have to address power/electricity sector issues
 Education and skill development.
 Healthy lifestyle to combat both 1) obesity 2) malnutrition
 supply chain reforms, acquiring metals and critical minerals e-vehicles etc.
 disinvestment and reduction of .scal de.cit

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#4D: Indicators- GDP, GNP, Atma-Nirbhar → Page 811
 MNONP QRSTUQVN, WXYZ[\XUX]^X _SN`a SZ^bNcdQeZ, fgbea SQhN ijP kX, lmnN oP ^pme fq^NS OP rN` sitN bNu,
^TOXvw oP QXYNOZSZexX, QkyOzwc{f`bX ^Z |eu _Oz}V ~]{eN Äg]Å`, fqf`qZm VÇN SP^NPa ÉNYZ^X ^Q ^P`N - Ñ` ÖabX
OZSP^NP `ZrN` iZ`N kXUNÜ

48.12.3 Reforms Roadblocks and delayed/lagged result - ES23

^Te dQeN^P _áÇ^ Sqànw ^N tk ^k`N kâä^ kNeN]ä^ SP^NP `Z^Nãå SNPZ_áÇ^ STÅNP VX ä^u ÇZeZä^` ^TW çÄéNlmV
gNÅNè]^Z ÖeVZ[` STÅNPX]^N S^NPNê^ çSP iZPa SZsi{N.
Era 1998–2002
Reforms†† Privatisation of Maruti etc, entry of private mobile telecoms companies, SARFAESI
Act 2002, Infrastructure (Golden quadrilateral Ref Pillar5),FRBM Act 2003
Roadblocks 1998: nuclear testing → Western powers imposed sanctions on India: trade and
investment declined temporarily, Twin Balance Sheet Syndrome/NPA,
El-Nino-Droughts (2000–02), 9/11 terror attack USA (2001)
Result Once shocks faded away → structural reforms showed result from 2003 to 2007–08

Era 2014–2022
Reforms†† 1) UPI-BHIM, JAM-DBT, inüation-MPC target, IBC, MUDRA & other loan
schemes for MSME etc
2) GST, DDT abolished, New Income Tax Regime, Demonetisation to combat
black money, Atma-Nirbhar Bharat counter cyclic .scal policy, privatisation of
Air India
3) GIFT-city IFSC, FDI relax in defense & insurance
4) e-NAM, Soil Health Cards, Fasal Bima & irrigation, Matsya Sampada, Agri infra
fund; PLI, Make in India 2.0, ease of doing business/ decriminalisation,
5) RERA, PM Gati Shakti, Smart Cities, Sagarmala, UDAN-Airtravel, 5G, telecom
spectrum reforms,
6) new education policy, Poshan Abhiyan & many schemes for HRD etc
Roadblocks Corona, ILFS Crisis, PNB Scam,
Russia-Ukraine, US Fed Tapering
Result Economic Survey expects similar here.

ıı FAQ: What exactly was done in above reforms_ Ans. It is covered in respective pillars and/or
mains handout. If I narrate the entire Avenger movies timeline again → it will be 150 page handout.

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#4D: Indicators- GDP, GNP, Atma-Nirbhar → Page 812
48.12.4 Frontloaded economic stimulus in USA/EU caused overheating says ES23

Term Meaning
Economic Set of (temporary) measures taken by the government and central bank to
Stimulus revive the economy thru tax cuts, subsidies, cheap loans, money transfer to
({|}L ∂7Á#9F) poor people etc.
Frontloading situation where large amount of money is delivered in the early stages of the
(=ˆ6#$ K:5ÑK# B:F#) program. e.g. 3–3–1–1 instead of 2–2–2–2
Overheating Of a situation where the economy is growing at an unsustainably high rate,
xe Economy leading inüation and potentially other economic problems-especially, aúer the
(=}ä Gì# @g=?;- economic stimulus is withdrawn (No {|}L ∂7Á#9F 5ÑL:N L: åO;:=}ä;>É =∂…#ëH;
;#5) ˜>åP B$ K:Gbde L$g, N7 óL O>o:K@! L: ~O óâL#˜ F# 97, ;o =}ä;>É @g@9>8#q î$ B¢K$P K@È#> o∏
N#;P 9Ñ- éK:=?;-;#5 L9;:9≤– )

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#4D: Indicators- GDP, GNP, Atma-Nirbhar → Page 813
48.13 GDP → GNP TO NNP TO PER CAPITA INCOME

- Primary income (or factor income) = wages, interest, pro.t, rent

- Secondary income (or transfer payments) = giús, donations, charities, .nes
Now, .rst, weãve to derive Gross National [Product\ (GNP: KLO $#”‘P! 4A#B) i.e.
- Indiaãs GDP
- PLUS Primary income earned by residents## from overseas.
- MINUS Primary income earned by non-residents from India.
IGNORE secondary income. (e.g. giú, donation, remittance)
IGNORE the incomes from sale of second hand (=used) goods.

NCERT says citizens. But, for the purpose of GNP. I have gone with the college-level academic
##

book- ïMacro economics by George Mankiwã. He uses the term [residents\. Q. who is resident_ =
[Depends on up to how many months the person is staying in the given country- as de.ned by
OECD.\ In real exam MCQ, tick depending on context/options.

GNP (Market Prices) = GDP + [NET\ factor income from abroad.

Whenever something is produced, capital assets get consumed due to wear and tear. •is wear and
tear is called Depreciation (@Äö¯#K). Since, depreciation does not become part of anybodyãs income,
so it has to be subtracted.

Net National Product (NNP@Market Price) = GNP MINUS Depreciation.

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#4D: Indicators- GDP, GNP, Atma-Nirbhar → Page 814
However, here we are getting the NNP at ïMarket Pricesã. Weãve to convert it to Factor cost.

NNP (Factor Cost) = NNP (Market Price) (-) Indirect Taxes (+) Subsidies.

NNP (Factor Cost) is the National Income of India, says NCERT Class12.

Per Capita Income = NNP ÷ population of India

Per Capita Income 2016 2020-21 2021-22 2022-23
(∂?; Æ {!)
Population in 129 135.5 cr 136.9 cr 138.3 cr
Crores
Per capita income 1,04,659 >1,28,000 >1.50 lakh >1.70 lakh
@a Current Prices
At a Constant 82,931 >86,000 >93,000 >98,000
Prices
(@BaseYear2011)
Note: Budget-2023 says since 2014 •e per capita income has more than doubled to ©1.97 lakh.
However, I cudnot .nd that data in latest MOSPI release. Above table contains data from MOSPI
release. •en which answer is right_ Ans. Tick as per MCQ Options.

MCQ. National product at factor cost is equal to [UPSC-CDS-2014-II]

(a) Domestic product + Net factor income from abroad.
(b) National product at market prices - indirect taxes + subsidies.
(c) Gross domestic-product - depreciation.
(d) National product at market prices + Indirect taxes + subsidies.

MCQ. Suppose an Indian citizen makes an investment abroad and earns a positive return on her
investment. Which of the following is correctj (CAPF-2023)
- (a) Her income is part of India's GDP, but not part of India's national income.
- (b) Her income is part of India's national income, but not part of India's GDP.
- (c) Her income is part of both India's GDP and national income.
- (d) Her income is neither part of India's GDP, nor its national income.

48.13.1 GDP → National Income → Misc. concepts

Gross National Income OECD de.nes it as GDP + NET receipts from abroad (wages, interest,
(GNI) pro.t, rent) plus net taxes & subsidies receivable from abroad. Here,
ïWages and salariesã from abroad = ïGuestã workers who reside abroad
KLO $#”‘P! {! for less than 12 months and whose centre of economic interest remains

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#4D: Indicators- GDP, GNP, Atma-Nirbhar → Page 815
 in their home country.
•e technical dinerence between GNP and GNI=notIMP
National disposable = NNP + Other Current Transfers from rest of the world (remittances,
income giú, donations etc.)
$#”‘P! ∂!7π {! National Disposable Income gives an idea of what is the maximum
amount of goods and services the domestic economy has at its disposal.
Personal income (PI) Very contrived formula, not important.
Personal Disposable Personal Income MINUS Personal Tax Payments
Income (e.g.income tax) MINUS Non-tax Payments (e.g. .nes)
What is National Name of the NCERT chapter dealing with above topics
Income Accounting D
You can satiate further scholastic curiosity by studying (new) NCERT macroeconomics class 12 Ch.
National Income Accounting page 24 onwards but poor cost : beneEt.

MCQ. CDS2019-II-Q61 Which of the following equals Personal Disposable Incomej

a) Personal Income - Direct taxes paid by households and miscellaneous fees, .nes , etc.
b) Private Income - Saving of Private Corporate Sectors - Corporation Tax
c) Private Income - Taxes
d) Total expenditure of Households - Income Tax - Giús received

48.14 DEPRECIATION OF FIXED ASSETS: MEANING (A<Nf)

• Fixed assets are the assets which are used in business for more than one accounting year.
(Also called [depreciable assets\)
• e.g. machines, plants, furnitures, buildings, computers, trucks, vans, equipments, etc.
• [Depreciation\ means decline in the value of a .xed assets (ì#G$/ì#!P K>5?;!7 L: @Äö-9#K L7
èêK#G L9;:9Ñ)
48.14.1 Depreciation: factors causing it (£E K/0K8?J;:8</ :îr§J/F)
• Wear and Tear due to use.
• Passage of Time
• Arrival of a new machine/model (= obsolescence)
• Exposure to natural phenomenon like weather, winds, rains, moisture etc.
• Abnormal factors such as accidents due to .re, earthquake, üoods, etc.
48.14.2 Depreciation: Features (r§J/F KL N/í•áK</ê)
• Depreciation is permanent, continuing and gradual shrinkage in value of .xed assets.
• Depreciation is deducted before calculating the taxable income. (âÑ˘ @g@#ŸM d@O;P 9Ñ) e.g.
Component Amount a
A. Pro3t (+) ©50,000
B. Depreciation (-) © 10,000

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#4D: Indicators- GDP, GNP, Atma-Nirbhar → Page 816
Taxable pro3t or taxable income (= A-B) = ©40,000
• •us Depreciation helps to ascertain true pro.t or loss of a business. (z>z:L: G#ò?GL @<F#Ÿ: !# ê#â:
L7 d8$F:@g@BB L$;# 9Ñ)
• Depreciation is a non-cash expense. It does not involve any cash outüow. Because It is the
process of writing-on the capital expenditure already incurred. (éK@gL7q 5ÑK# o#9$ N#;# F9P>9Ñ)
48.14.3 Depletion and amortisation
Term Meaning
Depletion concept similar to depreciation, but in context of natural
(¶/Kp@<K J?J/ãE8?K/ ß:J/f/A\]:/J) resources like mines, quarries, etc.
concept similar to depreciation, but in context of intangible
Amortisation
assets like patents, copyright, trade marks, franchises, goodwill.
(>A\<eJ?6®Ö-8?K/ r§J/F/A\]:/J )
(Ref: Pillar#1C for more on goodwill)
MCQ. Which one of the following statements is not correctj (EPFO-2023)
(a) Depreciation is a non-cash expense.
(b) Depreciation is the process of valuation of assets.
(c) •e main cause of depreciation is wear and tear caused by usage.
(d) Depreciation must be charged so as to ascertain true pro.t or loss of a business.

48.14.4 TYPES OF NATIONS : HIGH INCOME, LOW INCOME

 World Bank has publishes [World Development Report\ annually since 1978.
 2020- theme: Trading for Development in the Age of Global Value Chains
 2021-theme : Data for better lives.
Type of country De3ned in terms of per capita gross national income (GNI)
High Income (5©) $12,696 or more e.g. Israel (>$40,000), USA (>6o,000)
Upper-Middle Income $4096 and $12,695 e.g. China (>$10,000)
(5© A™A åACEO)
Lower-Middle Income $1,046 and $4095; e.g. India (its >$1928 in year 2020)
(@Eõ A™A åACEO)
Low Income (@Eõ) $1,045 or less
 Earlier, World Bank used above income classi.cations for analytical purposes only. But since
2018, International Bank for Reconstruction and Development (IBRD, Ref#3B) charges [extra
surcharge\ on loan interest on high income countries. (?GÜ o≤L K:LßäO:;:G˙ 4∆ {! G#O:B:H7>F:µ#B#
Û#N B$ å<L#FP 978P–)
 2022-Jan: India has complained to WTO that China is an upper middle income country so it
should be given less relaxation/concessions in the trade agreements. (Ref#3B) (åPF 4∆ @™@ {!
G#O# B:H 9ÑéK~O 4K:?GÜ #5#$ K>8ÚF L: #5#$ K>èz!7>@gL@ à$!#!;gd@OFP å#ó9 ∫KP 6#$; F:ëHL#!; LM)

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#4D: Indicators- GDP, GNP, Atma-Nirbhar → Page 817
48.14.5 Types of Nations : Advanced Economies (AE : 5´< >ée,F[/ê?)
It is a term used by IMF to describe "Developed nations" or "Mature economies whoãve :
1. per capita income level = high. ∂?; Æ {! L#ŸM ˜¨åP
2. export diversi.cation = Exporting many types of goods and services. Not just single type of
good/service. So, If 70% of Kuwait export income just comes from crude oil then it is not
"diversi.ed" = Kuwait Not advanced economy. ?F!#ä; @g?G?Gz;#
3. Highly integrated into the global .nancial system= So it is more likely that they would be
members of the OECD group much before the 1990s. (e.g. USA,UK, Germany France, Japan etc)
(GÑÖÜL ?GuP! ∂w#OP é;F:89$:∑5 K:K<ˆè};)

48.14.6 Types of Nations : EMDEs (570<;f/M/0 ¨0 @FK/JGON >ée<?ì)

Emerging Market and Developing Economies (EMDEs)

It is a term used by IMF to describe Emerging Market and Developing Economies (EMDEs) = All the
other countries who are advanced economies (AE) yet.
EMDEs may be further sub-classi.ed into two parts
1. Low Income Countries (LIC) e.g. Afghanistan Myanmar Nepal etc L@ {@BFP G#O:B:H
2. Emerging market economies (EM) = neither "AE" nor "LIC" e.g. Brazil, India, China South
Africa Russia etc. 46$;:o#ß#$ =}ä;>É- ∫K:B:H N7 óL F ;7 4í; =}ä Gì# ˚:wP @g9Ñ, F ;7 L@ {@BFP G#O:B:H7>@g9Ñ

48.14.7 Types of Nations : Bangladesh transition from LDC to Developing Country

United Nation's Economic and Social Council (ECOSOC, New York, USA) → its Subsidiary body
United Nations Committee for Development Policy (CDP) has set following parameters for
classifying Least Developed Countries (L.D.C- =¸ ?GLèK; B:H):

- 1) Per Capita Gross National Income (GNI) of $1230 or lower. (∂?; Æ KLO $#”‘P! {!)

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#4D: Indicators- GDP, GNP, Atma-Nirbhar → Page 818
- 2) Economic and Environmental Vulnerability Index (EVI): based on % Population living in
low elevation coastal zones, Victims of natural disasters, Instability of Agriculture production
and Exports etc. ({|}L G> 5!#äG$w 6:»;# KÄåL#>L:- ÖNK@gLM L@-˜>å#q L: ;âG;´ éO#L7>@g$9F:G#OP {o#BP,
∂#Lb?;L {5B# K:5Pó±; Æ, Lb?c 4A#BF î$ ?F!#ä; @g¶ì$;# é…#óB L7 B:Q# N#;# 9Ñ)
- 3) Human Assets Index (HAI): based on % of Undernourished population, Mother and child
mortality, School enrolment, adult literacy etc. (@#FG K>5§u KÄåL#>L: L<57?c; {o#BP, @#;bî$ o#O @b…<B$,
˝ÄO @gB#áQO:, ∂¡∏ K#Ç$;# é…#óB L7 B:Q# N#;# 9Ñ)
- 2021-Nov: United Nations General Assembly has announced that based on above 3 indicators:
Bangladesh, Nepal and Republic of Lao will 'upgrade' from LDC to a 'Developing country by
2026. (K>!<Æ $#”‘LM K#@#º K6# F:L9# óL !9 ;PF B:H ?GL#KHPO B:H @#F:N#>)
Negative outcomes of exiting L.D.C Statusj

1. Bangladeshi exports will not be eligible for duty-free-quota-free access under WTO agreements.
(?F!#ä; L7 H<˛-@<Æ-L7â#-@<Æ ∂G:H F9P>d@O:8# =º B:H7>@g)
2. WTO norms related to agriculture-subsidy & IPR will become tighter. (?GÜ #5#$ K>8ÚF L: Lb?c-
KØ∞†P î$ o¡deL K>5B# =èzL#$ L: ?F!@ Kˇ 97>8:)
3. Bangladesh will not get interest-free loans from World Bank & other multilateral Development
Banks (=>;$$#”P‘! K>8ÚF7>K:Û#N @<Æ O7F/LßäF9P>d@Og8:)
4. Aid/Donations/Grants from International organisations will decline. (=F<B#F @g$L@ L@ d@O:8P)
5. Tighter Norms related to Climate Change / Pollution Control under International agreements.
(NOG#!<5à$G;äF ∂B¢cw ?F!>Éw L: =>;$$#”P‘! K@œ¡;:/?F!@ KˇP K:O#8Ä97>8):
Positive Outcomes of exiting L.D.C Statusj
Itãll send signal to foreign investors that Bangladesh can be a large consumer market = Incoming
Foreign Investment → job creation & GDP. (?GB:HP ?FG:H @go∏7;$P 978P-$7N8#$ KÄNF î$ NP†P5P @g@BB)
48.14.8 Bangladesh Per Capita GDP higher than Indiaj
•is debate is faded for 2024-25 exam. So deleting it.
48.14.9 Bhutan graduates from LDC (2023)
 Bhutan will also exit from LDC list in 2023-December.
 Matter similar to Bangladesh case study given above.

48.14.10 India As A ≠DevelopedU Countryj (7/0< êK @FK®J< C;G?)

 15th August 2022: PM Modi Speech - Goal to become a developed country by 2047 when we
celebrates 100 years of independence.
 While there is no unanimous commonly accepted de.nition of developed country.
 United Nations, the World Bank, the World Trade Organization, and the World Economic
Forum use their indicators to classify [developed\ and [developing\ countries.
 but some features of a developed nation are:
 GDP is very high. Per capita gross national income (GNI) very high.

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#4D: Indicators- GDP, GNP, Atma-Nirbhar → Page 819
 Standard of living and Human Development Index (HDI) very high.
 Now what should India do, to become a developed country_ Ans. recycle the points that we have
learnt / will learn in the Pillar4-5-6.
 I am sure economic survey 2023 will write in great detail about this, so we will revisit it in free
Win23 series.
(6#$; L7 2047 ;L L ?GLèK; B:H oF#>8:. 9#O#ó̈L ?GLèK; B:H LM #Ò# L: o#$: @g=O8 =O8 K>ì#ô>@gL@; F9P>9Ñ.
O:óLF @<œ:!¥MF 9Ñ=8O:{|}L KGÓÇw @géK 5$ L#ŸM åå#ä978P ;o éKL7 9@ {$#@ K:B:Q Og8:.)

48.15 GDP & PER CAPITA INCOME→ CRITICISM / LIMITATIONS

Figure 3: if India becomes #1 producer of cigarette= good for GDP. But is it good for societyD

1. GDP doesnãt give us true picture of Indian economy because

(a) Presence of unorganised sector of economy = not all the production data is captured.
(b) To avoid any scrutiny by income tax and GST tax o cials, the businessmen deliberately
show low level of production during the surveys conducted by CSO/NSSO/NSO/MOSPI.
(c) Large size of parallel economy which functions on black money and cash.
2. Provides only quantitative picture and does not consider the qualitative aspects / negative
externalities (EK/0/ØK f/∞</ê) e.g. More coal based thermal power production= more GDP,
disregarding how much pollution it created. L7!O:K:åOF:G#O:;#5 ?G»<; Lg—, G#!<∂B¢cw
a. So, Economist Peter Wood (1980s) came up with the Green (:ò0<) accounting & Green
GDP concept to consider environmental costs as well.
b. 2021: Uttarakhand became the .rst state in India to take into account Gross
Environment Product (GEP: KLO 5!#äG$w 4A#B) while calculating its Gross State Domestic

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#4D: Indicators- GDP, GNP, Atma-Nirbhar → Page 820
 Product (GSDP). Forest, air, water & soil quality and quantity to be measured, assigned
monetary value.•en if every year if GEP that means environmental degradation is
happening → public /media pressure → state government will be forced to take action
3. Ignores non-marketed activities e.g. domestic work done by mother.
4. Ignores the Opportunity Cost (=GK$ O#8;) e.g. A child labour produced © 50000 rupees worth
.recracker annually = added in GDP. But, child labourer could not pursue education ELSE he
could have become a doctor/engineer and produced © 5,00,000 worth of annual goods and
services - such angles are not considered in computing GDP.
5. Ignores inequality of income among people. ({! LM =K@#F;#)
a. So, later on Gross Happiness Index, Physical Quality Of Life Index, Human
Development Index etc were invented (Ref: Pillar#6)
48.15.1 GDP → Economic Growth vs Economic Development

What does this chart mean_ Ans. Watch video. More about economic development in pillar6: HRD.

MCQ. Increase in absolute and per capita real GNP do not connote a higher level of economic
development, if(Asked in UPSC-Pre-2018)
A] industrial output fails to keep pace with agricultural output.
B] agricultural output fails to keep pace with industrial output.
C] poverty and unemployment increase. D] imports grow faster than exports.
MCQ. A decrease in tax to GDP ratio of a country indicates __j (Prelims-2015)
1) Slowing economic growth rates 2) Less equitable distribution of national income
Codes: (a) 1 only (b) 2 only (c) Both 1 and 2(d) Neither 1 nor 2

48.16✍ MAINS QUESTIONS: GDP, ECONOMIC GROWTH

Mainly centred around what should be done to increase GDP, whether capitalism is good for
economic development etc_ Only once they asked random bomb question about [calculation
changes in GDP in 2015.\

Next Handout Pillar#4E: Macro Indicators → Inüation

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#4D: Indicators- GDP, GNP, Atma-Nirbhar → Page 821
 PILLAR#4E: MACROECONOMIC INDICATORS: INFLATION, WPI-CPI; ETC
Table of Contents

49 Pillar#4C: Indicators → In◆ation.............................................................................................823

49.1 In◆ationary and de◆ationary gaps.........................................................................................824
49.2 Combating in◆ation or de◆ation..................................................................................825
49.2.1 Neutral rate of interest / natural rate of interest.........................................................826
49.2.2 NAIRU: Non-accelerating In-ation rate of unemployment & Philip Curve....................826
49.3 In◆ation: Types based on causation (456475 48 9:;<56)......................................................827
49.4 In◆ation types based on Speed / Quantum........................................................................829
49.4.1 Runaway in-ation and Runaway depreciation...............................................................830
49.4.2 In-ation → Base EBectC....................................................................................................830
49.5 In◆ation's E*ects on individuals......................................................................................830
49.5.1 in-ation impact on exports...........................................................................................832
49.6 Pillar#4: Indices: CPI, WPI, IIP & others......................................................................832
49.7 Index → In◆ation indices.............................................................................................833
49.7.1 Wage Rate Index (WRI: H87: I6 <JK45L4) – calculation reforms in 2021...........833
49.7.2 CPI-IW: New reforms in data collection (2020)................................................834
49.7.3 Index → In-ation → CPI (All India), NSO, Base: 2012.......................................834
49.7.4 In-ation rate %: how is it calculatedC.....................................................................834
49.7.5 Headline vs Core CPIC..............................................................................................835
49.7.6 QReRned Core In-ationSC.........................................................................................835
49.7.7 CPI In-ation is higher in urban areas than rural area (2021)..............................836
49.7.8 CPI rural getting higher than urban (2022)..........................................................................836
: In-ation targeting by RBI- focus on Core CPI or Headline CPIC.............................836
49.7.9 Index → Consumer Food Price Index (CFPI: TUVWX5 Y5Z [\L]5^ <JK45L4)............838
49.7.10 Index → In-ation → Wholesale Price Index, EA-DPIIT, Base: 2011 ...............838
49.7.11 WPI Kabhi kabhi ..........................................................................................839
49.7.12 CPI WPI Divergence.............................................................................................................840
49.7.13 Index → In-ation → Other Indices......................................................................841
49.7.14 Housing in-ation.............................................................................................................841
49.7.15 : In-ation observations by ES20 Vol2Ch5...................................................842

(Batch: PCB10:RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#4E: Indicators- In(ation-CPI, WPI; IIP→ Page 822
 49.7.16 : In-ation observations by ES22....................................................................842
49.7.17 : In-ation observations by ES23....................................................................842
49.7.18 balinomics by ES20: Vol1Ch11.................................................................842
49.7.19 In-ation in other countries..................................................................................................843
49.7.20 American In-ation Impact on IndiaC........................................................................843
49.8 Index → Production → Index of Industrial Production (IIP).....................................844
49.8.1 IIP's weights in ascending order (classiRcation: use based)................................................845
49.8.2 IIP's weights in (sector-based).................................................................................845
49.8.3 : IIP Before Corona Year 2020..................................................................................845
49.8.4 : IIP trend....................................................................................................................845
49.9 Index → Production → Index of Eight Core Industries................................................845
49.10 Index → Production → Misc. indices.........................................................................846
49.11 High frequency indicators (HFIs)-.......................................................................................846
49.11.1 HFI Examples...................................................................................................................847
49.11.2 HFI: Pros and Cons...............................................................................................847

49 PILLAR#4C: INDICATORS → INFLATION

(Batch: PCB10:RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#4E: Indicators- In(ation-CPI, WPI; IIP→ Page 823
 In◆ation is the rise in the general level of prices of goods and services in an economy over a
period of time. (⇠⇡⇢ ⌧ ⇠ !"# $ % "#$&'!$()'* ⇠ +, -.'&⌧, "' $)!/ 0 1 $⇢2 3#4& ")& )5)
 De◆ation is inverse of above deRnition. De-ation occurs when the in-ation rate falls below 0%
($⇢2 7⇠3#4&- $)!/ 0 8- 0% 9, "$ )' 8 :)
49.1 INFLATIONARY AND DEFLATIONARY GAPS
- In his book QGeneral beory on employment, interest, moneyS, British Economist J.M.Keynes
(1883) said, Qwhen economy is functioning at full employment, aggregate supply will match
aggregate demand.S At this equilibrium, wehll have iGeneral Priceh level → any increase →
in-ation, decrease → de-ation.
Aggregate Demand (AD)
= Consumption(C) + Investments(I) + Govt Purchases (G) + Exports (X)- Import (M)

In◆ationary Gap De◆ationary Gap

([;j5klm7456n 9L76 ) (9Hklm7456n 9L76 )
It could have occurred because of It could have occurred because of
1. ↑ Money supply 1. ↓ Money supply
2. ↑ Propensity to consume, 2. ↑ Propensity to SAVE / Consumer delaying
3. ↑ Investment expenditure purchase with hopes of further fall in prices.
4. ↑ Fiscal deRcit 3. ↓ Investment expenditure,
5. ↑ NET exports 4. ↑ Fiscal consolidation
6. High growth → higher Aggregate demand 5. ↓ NET exports
→ could lead to in-ation. 6. Depression / Recession that results into
falling iAggregate demandh.
In◆ationary Spiral De◆ationary Spiral
([;j5klm7 [oTp6Wp6 Hqrs) Fall in prices → lower proRt to Rrm → lower
When in-ation increases, workers demand production, lower wages / workers laid oB →
higher wages to keep up with the cost of living lower demand → lower prices → ...
→ Rrms pass these higher labor costs on to
their customers → higher prices → more
in-ation → …...
MCQ. A rise in general level of prices may be caused by (UPSC-Pre-2013)
1. An increase in the money supply. ([;j5 uUJv7 [oHqrs)
2. A decrease in the aggregate level of output.(Tw5I: [o4[n)
3. An increase in the demand. ([5L] [oxyW76n)
Answer Codes: (a) 1 only (b) 1 and 2 only (c) 2 and 3 only (d) 1, 2 and 3

(Batch: PCB10:RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#4E: Indicators- In(ation-CPI, WPI; IIP→ Page 824
 "Inflationary gap" ek aarthik sthiti hai jab ek desh ke actual output ya production uske
potential output se adhik hoti hai, jo ki samanya sthiti mein hone wala hai. Jab yeh ghatna
hoti hai, toh iske ashrupradh prabhav hote hain, jaise ki mudra ki kimat mein vriddhi ya saman
aur sevaon ki kimat mein vriddhi.

Ex: ek desh ke GDP ka actual growth rate 6% hai jabki uska potential growth rate 4% hai. Is
sthiti mein, desh mein ek inflationary gap utpann hota hai. Yeh darshata hai ki desh ke output
ka vikas potential output se adhik hai, jo ki adhik demand ya kam supply ke karan ho sakta
hai. Is prakar ki sthiti mein sarkar ko monetary ya fiscal policies ke madhyam se is vridhi ko
niyantrit karna hota hai taki samanya sthiti banaye rakh sake.

"Deflationary gap" ek aarthik sthiti hai jab ek desh ke actual output ya production uske potential
output se kam hoti hai. Iska mukhya karan hota hai ki saman aur sevaon ki kam maang ke karan ya
fir adhik supply ke karan, jisse keematon mein ghatav hota hai.

Ex: ek desh ka actual GDP growth rate 2% hai, jabki uska potential growth rate 4% hai. Is sthiti
mein, desh mein ek deflationary gap utpann hota hai. Yeh darshata hai ki desh ke output ka vikas
potential output se kam hai, jo ki kam demand ya adhik supply ke karan ho sakta hai. Is prakar ki
sthiti mein sarkar ko upay uthane hote hain taki yeh gap bhartiya ja sake aur arthik sthiti ko sudharne
mein madad mile.
 MCQ. Economic growth is usually coupled withX (UPSC-Pre-2011)
(a) De-ation (b) In-ation (c) Stag-ation (d) Hyperin-ation
MCQ. Which is an appropriate description of de◆ationX [UPSC-CDS-2012-II]
(a) it is a sudden fall in the value of a currency against other currencies.
(b) It is a persistent recession in the economy.
(c) It is a persistent fall in the general price level of goods and services.
(d) It is fall in the rate of in-ation over a period of time.
MCQ. _e sustained decrease in the general price level is called as (CDS-2023-I)
(a) de-ation (b) stag-ation (c) devaluation (d) recession

49.2 COMBATING INFLATION OR DEFLATION

Fighting in◆ation Fighting de◆ation

RBI Tight / dear / Hawkish Monetary Policy to Cheap / Easy / Dovish - to make loans
make the loans expensive cheaper
Govt - Tax deduction / exemption / - Tax deduction / exemption / subsidy
subsidy beneRts towards producers to type beneRts to consumers to encourage
decrease the cost of production. purchase / consumption. (e.g. cut GST
- Curtailing Fiscal DeRcit. on Television, Computers, Cars) Y6nI56n
- Curtailing schemes/subsidies that 4W {W|5\: I8:848 }~ 46-ÄJÅ/<ÇÉÑn
- Increasing the expenditure on public
money in the hands of beneRciary
projects e.g. highway, dam etc. to boost
without increasing production.
demand in steel / cement industry →
- Ordering RBI to issue in-ation
workers get money → demand →
Indexed Bonds, Sovereign Gold Bonds
towards in-ation. x;m:Ü5In 9H<L6K:5 U6
- Essential commodities act, Stock
<5Háàm:4 YKá4W xy5Ü5 à5
limits, Minimum Export Price, FCIhs
Open Market Sale Scheme, Operation
Greens for TOP, Price stabilization
fund, OBering higher MSP to farmers
to cultivation of a particular crops

(Batch: PCB10:RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#4E: Indicators- In(ation-CPI, WPI; IIP→ Page 825
49.2.1 Neutral rate of interest / natural rate of interest

• [\L]5^ <8~â:848 }~ ~W: [\L]8ä4Ü87W ~W] Y6nI56n 4[ 46o]8-> 7W Tw5I: 4[ \W]5 7W -> uåç4 Hqrs I6 r]6
à5]5é
• 7W äè6 ~W: 45 uIêáI6 ë5 \W:5 K5ä\ íà<<8[\L]5^ Vn 45xJ[o6\8, <5ç \n <5ç, uåç4 Hqrs I6 Vn : r]68? T<8
‘d 8 " &ef g⌧’ 4\78\î.

49.2.2 NAIRU: Non-accelerating In◆ation rate of unemployment & Philip Curve

 As per Philiphs curve then in-ation then unemployment

 bat means, if unemployment then in-ation (because people with jobs will do more
shopping → increase in consumer demand → thereby increase in product prices.)
 NAIRU refers to the level of unemployment below which in-ation tends to rise.
:;< =><?@;A<B CA D< EF G< F>HADA CI J? KAL;A, M? IJN;AO =PQ>R;>;BS TF =><?@;A<B G< C? QAEU D< CJ>M>JVS

(Batch: PCB10:RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#4E: Indicators- In(ation-CPI, WPI; IIP→ Page 826
 MCQ. Which of the following measures should be taken when an economy is going through
in in◆ationary pressuresX [UPSC-CDS-2012-I]
1. be direct taxes should be increased. 2. be interest rate should be reduced.
3. be public spending should be increased.
Answer Codes: (a) Only 1 (b) Only 2 (c) 2 and 3 (d) 1 and 2
MCQ. Which measure(s) can be used by the Govt for combatting in◆ationX (CDS-2023-I)
(a) Increasing the non-planned expenditure on defence, police, etc.
(b) Providing more subsidies on exports
(c) Increasing the rate of interest on savings and Rxed deposits (d) Reduction in CRR
MCQ. Which one of the following situations can lead to in◆ationX (CDS-2023-I)
(a) Rapid growth of aggregate demand outweighing supply
(b) Sluggish growth of aggregate demand
(c) Reduction in the money supply (d) Higher levels of unemployment

49.3 INFLATION: TYPES BASED ON CAUSATION (456475 48 9:;<56)

Iths itoo much money chasing too few goodsh i.e. Prices are rising because
Demand-Pull
people have excess money → demand for goods and services exceeds the
In◆ation
available supply. MNREGA, Pay Commission, PM KISAN6k/Rahulhs
($ /! 84*&)
NYAY72k/Universal Basic Income(UBI) etc. could lead to this.
Monetary When RBI printing of more money results in in-ation (Recall 2Monetising
in◆ation the de3cit from Pillar#2: FRBM Handout).
Price rise due to increased cost of inputs e.g.

Cost-Push In◆ation - Expensive crude oil → higher costs for Transport Companies.
- Trade / labour unionsh protests / strikes → wage hike.
(~5]7àm:7)
- Natural disasters → Lower potato / chilly production → Chips
makers have to pay more for inputs.
When Cartels / Monopolists / Oligopolists deliberately cut down the supply
Prokt – Push
/ production or hike the prices because of greed / proRt motive. E.g. OPEC
In◆ation
group oil production cut.
Linked to the Qprice/wage in-ationary spiralS i.e. when in-ation rises,
workers demand higher wages to keep up with the cost of living → Rrms
Built-in-In◆ation
passing these higher labor costs on to their customers as higher prices →
more in-ation.
During war, Govt imposes price controls and rationing to keep prices
Repressed In◆ation under check. But the moment such controls are withdrawn, prices will go
(Ir[7 klm7) up (because traders will want to cover up their previous losses by raising
prices). bis is called Repressed In(ation.
Persistent high in-ation, high unemployment and low growth resulting
Stag◆ation
into a stagnant economy.
Skew◆ation Term to denote episodic price rise in one / small group of commodities

(Batch: PCB10:RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#4E: Indicators- In(ation-CPI, WPI; IIP→ Page 827
 while In-ation in the remaining goods and services remain usual. E.g. pulse
/ tomato / onion in-ation in india.
Headline It is the measure of the total in-ation within an economy, usually presented
In◆ation (<;ïY) in the form of CPI or WPI.

Core in◆ation Headline in-ation MINUS in-ation in food & energy articles.
({[;Y [;j5klm7) Accordingly, it can be CPI (Headline) or WPI (Headline)
In Pillar#1: Philip curve we learned that de-ation → unemployment, so,
RBI tries to stimulate economy by increasing the money supply, Govt tries
Re◆ation
to give iRscal stimulush by reducing taxes / increasing public
(U;:: [;j5klm7)
procurement…. Such actions take economy from de-ationary path
towards in-ation path, this is process is iRe-ationh.
In-ation that is part of a particular economic system. A complete change in
economic policy would be needed to get rid of it. e.g.
- To keep farmers happy, Govt keeps raising MSP for wheat / rice but
Structural In◆ation not so much for pulses → Farmers do not grow more pulses→
(<L6K:5ñ4 [;j5klm7) shortage of pulses→ in-ation in pulses.
- APMC reforms not taken → cartelization & hoarding → in-ation.
- When global crude prices falling, Govt raises Excise / VAT to get more
money for their schemes, so, petrol-diesel not getting cheaper
MCQ. Which one of the following is likely to be the most in◆ationary in its enectsX [o*$( "p*
, q,8 - r g $)!/ 0 stg "⌧/,] (Prelims-2021)
A. Repayment of Public debt [ ⌧" ⌧, uv " 9⇢/& *]
B. Borrowing from public to Rnance a budget deRcit [ -8e w e " 4⇠x s'yv "⌧* " z+: 8*& "8 {]
C. Borrowing from the banks to Rnance a budget deRcit [-5"'! "8 {z+1 ]
D. Creation of new money to Rnance a budget deRcit [-8e w e " 4⇠x s'yv "⌧* " z+: *1 st | s 8 :]
MCQ. With reference to Indian economy, demand pull-in◆ation can be caused/increased by
which of the followingX [$ /! -84*& $)!/ 0 $(-.'&⌧, "- )'/,?] (Prelims-2021)
1) Expansionary policies [mHô56 H5In :nm7Ü5L] 2) Fiscal stimulus [65àö {W|5\:]
3) In-ation-indexing wages [[\L]5^ <JK45L4 <8àWâ8] H87:]
4) Higher – purchasing power [Y6nI êõX [oxyW76n]
5) Rising interest rates [ú5à I6WL[oxyW76n]
Codes: a) 1, 2 and 4 Only b) 3, 4 and 5 Only c) 1, 2, 3 and 5 Only d) 1, 2, 3, 4 and 5

(Batch: PCB10:RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#4E: Indicators- In(ation-CPI, WPI; IIP→ Page 828
49.4 INFLATION TYPES BASED ON SPEED / QUANTUM

1. Creeping In◆ation: ~4% per annum. It's regarded safe and essential for job creation and
economic growth.
2. Walking / Trotting: >4% onwards → Running In◆ation: When shiûs to double digit.
3. Galloping / Hyperin◆ation (9m7 klm7): Very high level. 20%-100%-even 10,000% or more, as
observed in Germany aûer Treaty of Versailles due to monetized deRcit. Modern day Venezuela,
Zimbabwe, Iran due to misgovernance of ruling parties resulting into broken economy &
shortage of essential commodities. Here, money becomes quite worthless and new currency may
have to be introduced. (Related: redenomination, More in Pillar#1A1)

MCQ. Which is likely to be the most in◆ationary in its enectX (Asked in UPSC-Pre-2013)
(a) Repayment of public debt (b) Borrowing from the public to Rnance a budget deRcit
(c) Borrowing from banks to Rnance a budget deRcit
(d) Creating new money to Rnance a budget deRcit

(Batch: PCB10:RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#4E: Indicators- In(ation-CPI, WPI; IIP→ Page 829
49.4.1 Runaway in◆ation and Runaway depreciation
QrunawayS is a word to describe a situation in which something increases or develops very quickly
and cannot be controlled.

Term Meaning
Runaway
When prices of goods & services rise at an extremely fast and uncontrollable rate.
in◆ation
Runaway When local currency faces an extremely rapid and big decline in value relative to
depreciation other currencies. e.g. $ 1= 175 Pakistani rupees (2022) to 300 Paki Rupees (2023)

49.4.2 In◆ation → Base EnectX

- Suppose price of 1 kg onion = 100 (2010), 110 (2011), 120 (2012). So, as such their price is
increasing at the rate of ¢ 10 per year.
- However, the % rise in in-ation over previous year is 10% for 2011 (110 vs 100), and 9.09% for
2012 (=120 vs 110).
- bus, the choice of base (denominator) could make the in-ation look too high or too low even if
the price rise has been same as the same.
- ES21 Has given a lengthy commentary about the base eBect in Corona-2020, but poor cost
beneRt in chasing it for exam point of view. # çWâ5-UyW-u]8-xyW
MCQ. A rapid increase in the rate of in◆ation is sometimes attributed to the "base enect".
What is "base enect"X(Asked in UPSC-Pre-2011)
(a) It is the impact of drastic deRciency in supply due to failure of crops
(b) It is the impact of the surge in demand due to rapid economic growth
(c) It is the impact of the price levels of previous year on the calculation of in-ation rate
(d) None of the statements

49.5 INFLATION'S EFFECTS ON INDIVIDUALS

What does above chart meanC Ans. Watch lecture Video:

(Batch: PCB10:RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#4E: Indicators- In(ation-CPI, WPI; IIP→ Page 830
 Enect During In◆ation During De◆ation
bey make huge proRts because the price bey make losses because
Businessman, of Rnal product is rising at a much faster prices of Rnal products fall
Borrowers speed than the price of raw materials. faster than the cost of
TZW]Um7 £6 production→ lay-oB workers
4àáI56 to cut salary bill.
- Salaried individual, pensions suBer. While they will beneRt
Fixed - Lenders suBer because even if borrowed because the value (=purchasing
Income money is returned their ireal Purchasing power) of money will increase,
Groups, Powerh would have declined due to the but some workers / employees
Lenders fall in Real Interest Rate. will lose their jobs during
m:í§7 u[I:n H5~8
de-ation as per the Philip
<[J\
Curve.
- Since rupeehs purchasing power will , Reverse will happen.
its exchange rate value will weaken HowC Ans. Explained in Video
against foreign currencies, as foreigners lecture.
get less keen to buy from India.
Currency :\nL<[• uÜ5 7W HnäÑÜW I8YW. 4;Ä ~W]
- E.g. if 1kg onion = ¢50 rises to 1kg =
exchange rate mx:5 HnäÑÜW I8Yo<n¶5 Uy:8xîß à578\®
¢100. then even if currency exchange
[;j5 mHm:[Ü I6 £6 äè6 T:4W <[• :\nLu75 7W UJÄ78
rate moving from $1 = ¢50 to $1=¢70
rupee (rupee weaking)= still foreign will 6\78\®4l ©<5 ëWL\î? 7W V5^ 7;[ U\~8
be able to purchase less quantity of goods HnäÑÜW I8YW.
from India. ben $ supply → rupee
gets weak (Ref Pillar#3A)
MCQ. Find correct statement(s): (Asked in UPSC-Pre-2013)
A) In-ation beneRts the debtors. B) In-ation beneRts the bondholders.
C) Both A and B D) Neither A nor B

(Batch: PCB10:RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#4E: Indicators- In(ation-CPI, WPI; IIP→ Page 831
49.5.1 in◆ation impact on exports

Above chart requires knowledge of pillar3A. So Rnish backlog, if youhre unable to understand.

MCQ. Which is/are the enects of devaluation or depreciation of currencyX (CDS-2023-II)

1. It leads to increase in imports and decrease in exports.
2. It leads to increase in exports and decrease in imports.
3. It leads to increase in domestic in-ation. 4. It leads to decrease in domestic in-ation.
Codes: (a) 1 and 3 only (b) 1 and 4 only (c) 2 and 3 only (d) 3 only

49.6 PILLAR#4: INDICES: CPI, WPI, IIP & OTHERS

Laspeyres German economist Etienne Laspeyres formula is used in calculation of WPI, CPI
and IIP index. It is a weighted arithmetic mean (average) of a basket of commodities
that tracks price / production level against the base year. Formula NOTIMP.
Paasche German economist Hermann Paaschehs index tells us what todayhs QBasketS of
Index commodities, would have cost @base yearhs price.
Fisher American Economist Irving Fisherhs index is the Geometric mean of (Laspeyrese
Index and Passche), to give a more accurate picture.

(Batch: PCB10:RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#4E: Indicators- In(ation-CPI, WPI; IIP→ Page 832
Inflation can have several impacts on exports:

1. **Competitiveness:** When a country experiences higher inflation rates compared to

its trading partners, its exports may become relatively more expensive in foreign markets.
This can lead to a decrease in the competitiveness of the country's exports, as foreign
buyers may prefer cheaper alternatives from other countries.

2. **Cost of Production:** Inflation can increase the cost of production for exporters,
including the cost of raw materials, labor, and other inputs. Higher production costs can
reduce profit margins for exporters or lead to higher prices for exported goods, making
them less attractive to foreign buyers.

3. **Exchange Rates:** Inflation can influence exchange rates, which in turn can affect
the competitiveness of exports. If a country's currency depreciates due to inflation, its
exports may become cheaper for foreign buyers, potentially offsetting some of the
negative effects of inflation on exports. However, this relationship can vary depending on
various factors such as the elasticity of demand for exports and the degree of pass-
through of exchange rate changes to export prices.

4. **Demand:** Inflation can also affect the overall demand for exports. Higher inflation
rates may reduce real incomes and consumer purchasing power in foreign markets,
leading to a decrease in demand for imported goods, including exports from other
countries. Additionally, if inflation leads to economic instability or uncertainty in trading
partners' economies, it can further dampen demand for exports.

Example:
Suppose Country A experiences higher inflation rates compared to its trading partners.
As a result, the prices of goods produced in Country A increase relative to similar goods
produced in other countries. This makes Country A's exports less competitive in foreign
markets, leading to a decline in export volumes. Additionally, the increased cost of
production due to inflation further reduces the profitability of exporting for firms in
Country A.
 Se P
Very
49.7 INDEX → INFLATION INDICES -

Note: In above chart 2022-23 Data for WPI and CPI is upto April- to Nov.2022 only. Bare
year
yaad Rakhna
In◆ation Index As By
* A Base year ↓
Consumer Price Index: 1) Rural 2) Urban 3) All India. NSO, MoSPI 2012
-
TUVWX5 [J´ <JK45L4
Consumer Food Price Index (CFPI) ④ 2012
- TUVWX5 Y5Z [J´ <JK45L4
CPI Industrial Workers (IW) 2016
-
Labour Ministryhs
CPI Rural labourers (RL),Agri. labourers (AL) 1986##
- Labour Bureau @Shimla
-
Wage Rate Index (WRI) ④ 2016
Wholesale Price Index (WPI) Economic Advisor to 2011
-
çW4 [J´ <JK45L4 DPIIT, Commerce Min. ④
## News reports suggest that Govt thinking of changing this base year from 1986 to 2019

49.7.1 Wage Rate Index (WRI: ⇠&* g⌧ q Ü ""

! ) – calculation reforms in 2021
- prepared by Labour Bureau, an attached o¨ce of the Ministry of Labour.
- It surveys/monitors the wages across various industries.
Before Reforms in 2021
Base year 1963-65. Base year 2016
Less number of industries surveyed Added more number of industry in the survey list- e.g.
synthetic textiles, textile garments, printing and
publishing, footwear, petroleum, chemical & gases,
fertilizers, drugs & medicines

(Batch: PCB10:RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#4E: Indicators- In(ation-CPI, WPI; IIP→ Page 833
- Utility of WRIC bis database will be helpful in designing the minimum wages under the new
wage code law. (⇠&* g⌧ q
Ü ""
! á8 $(à$ $!â +1 ä" ãåç é ⌧ 4⇠4⇠è êë'/'!$(⇠&* " í g⌧ q+ ⌧) )t
ê " ⇠ìîv ä"1 8 : ⌧ ê ä) - %Ü*&$ ⇠&* "# g⌧'!$( ⇢è ⌧ ä"1 8 :ï)

49.7.2 CPI-IW: New reforms in data collection (2020)

Faded topic for 2023 exam cycle so removed.

MCQ. Which of the following brings out the CPI for Industrial WorkersX( UPSC-Pre-2015)
(a) be Reserve Bank of India (b) be Department of Economic ABairs
(c) be Labour Bureau (d) be Department of Personnel and Training
MCQ. Indexation is a method can be associated with ____X (CDS2019)
(a) Controlling in-ation (b) Nominal GDP estimation
(c) Measurement of savings rate (d) Fixing of wage compensation

49.7.3 Index → In◆ation → CPI (All India), NSO, Base: 2012

Monthly CPI Components in (All India) Index → (decreasing order) Wt.
Food & Beverages 45.86
Services: (Transport & communication > Health > Education > Recreation) 20.62
Housing 10.07
Fuel & Light 6.84
Clothing / footwear 6.53
Misc. Personal care (soap etc) 3.89
Household goods & Services 3.80
Pan Masala, Tobacco, Intoxicants 2.38
Total Weight 100
- For Individual CPI for Urban and Rural areas, these weights are assigned diBerently. E.g. CPI
rural has zero weight to housing & 54.18 weight to food and beverages.

49.7.4 In◆ation rate %: how is it calculatedX

Index value of Headline CPI (All India) was 148.6 (2019-Nov) and 140.8 (2018-Nov). berefore,

CPI Inflation Rate ( Nov 2019 )=

Current Month−Same month last year 148.6−140.8
(
Same month last year
)∗100=
140.8 ( ∗100=5.54 % )
Ü5m: 4l Nov-2019 [o[L\]5^ mUÄ~8<5~ 4l 7;~:5 [o5.54% xyn \î.

 TrendX CPI was towards In-ationary path in UPA/Manmohan era. → CPI was towards
De-ationary path during Modi 1.0 era (2014-19)- mainly due to falling food prices. Food
commands ~46% weight in CPI calculation. ( Ref: 4A: Agro Handout)
 Modi 2.0 era (2019-May onwards): back to in-ationary path due to oil, onion etc.

(Batch: PCB10:RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#4E: Indicators- In(ation-CPI, WPI; IIP→ Page 834
49.7.5 Headline vs Core CPIX

- Headline CPI (<;ïY [;j5klm7) = be in-ation Rgure arrived based on all of the above components
of CPI (All India).
- Core CPI ({[;Y [;j5 klm7) = Headline CPI MINUS (in-ation in food & energy)

49.7.6 òRekned Core In◆ationôX

 Conventionally, core in-ation is calculated by excluding ifood and beveragesh and ifuel and lighth
from overall in-ation.
 However, in NSOhs CPI- the petrol and diesel are counted under itransport and communicationh
and NOT under ifuel and lighth. (:*: "# ö/*&, $(seõ'+-ú,ù+ " g $ ‘ûè*’ *ä) ‘sü⌧⇠)*’ àv, $(†g° :
8 & )to z+: ,è ,è "'⌧/¢$⇢° $)!/ 0 ö/** $⇢£§+)
 berefore, it is di¨cult to directly calculate core in-ation using NSO data tables
 So, ES22 proposed a new iReRned Core In-ationh concept to deduct the petrol-diesel prices
(which are under itransport and communicationh category). What are its interpretationsC NOT-
IMP. (&' *: •¶ß" ⇠ìîv * ö/*&, " *1 &⌧,® © ° 1 ) + ä™" $⇢´ s⌧,î " z+: ⇠' -¨& ù'⌧g ⌧ *),!+/& )

(Batch: PCB10:RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#4E: Indicators- In(ation-CPI, WPI; IIP→ Page 835
49.7.7 CPI In◆ation is higher in urban areas than rural area (2021)

1. Housing prices are counted in the urban area's CPI calculation, but not in rural area. ≠5[nÆ
Ø~54WL4l [\L]5^ r]:7n [o[45:WL48 I5[ :\nLr]:8à578.
2. Fuel & light component, Clothing and footwear component = bese have higher weightage
in urban areas' CPI than in rural areas. ê\6n Ø~54WL4l [\L]5^ 4l r]:7n [o∞à5á, {45ê, 4Uâ8àJ7WL4l
±l[7WL4W ≠5[nÆ <nUnu^ 48 [;45x~8≤5I5 Hà: äIÜ5 à575 \î.

49.7.8 CPI rural getting higher than urban (2022)

 Rural in-ation has remained above its urban in-ation 2022- said ES23.
 reason: Parts of rural Assam, Manipur etc faced more in-ation in food, fuel and clothing. So
when we take all India average of all rural areas, it looks high. thin
Remember
NO
: In◆ation targeting by RBI- focus on Core CPI or Headline CPIX
-

M
 At present the RBI act requires the central bank to control the in-ation between 2 to 6%
->
-

(Headline) CPI (All India combined) Q4ojnÜ x®4 :8[\L]5^ 4W TUVWX5 [J´ <JK45L4 48 ä\<5x <82-6% [®
m:ÜLr≥7/45xJ[o6Y:5 \îS- ©<5 RBI ±5:J: [o}~Y5 \î(More in Pillar#1A2)

(Batch: PCB10:RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#4E: Indicators- In(ation-CPI, WPI; IIP→ Page 836
 However, Some experts say that instead of headline CPI, RBI should target the core in-ation i.e.
CPI minus fuel & food. 4;Ä mHê8¥µ 4\78\®ä4 ∂6àHáx®4 :848H~ [J~/x;m:Ü5In [\L]5^ U6 \n ∑5: I8:5 K5ä\, 7ç5
Y5Z [\L]5^ £6 ∞à5á[\L]5^ 4W :à69LI5à 46:5 K5ä\.
 bis is because food and fuel price shocks are transitory, mainly supply driven and therefore
can't be controlled by RBI's monetary policy tools. ëWLä4 H\ (Y5Z £6 4∏5 78~) [\L]5^ 7W π5I576 uUJv7
U6 u¶5∂67 \®, £6 ∂6àHáx®4 4l [∫äj4 :nm7 48 <5¶:WL<8m:ÜLr≥7 :\nL\W <47n.
ES21 says above argument may be correct for Rrst world, but not for third world because (\5~5Lä4
Ü\ I~n~ {ç[ mHª [o<º \W <47n \îä4L7;7n<68 mHª [o:\nLëWLä4:)

 1) Consumption smoothing is di¨cult for many Indians i.e. Striking a good balance between
their spending and saving. Because they do not have a steady source of income / permanent job,
agriculture monsoon uncertainty, lack of life/health/crop/cattle insurance, lack of Rnancial
planning/Rnancial inclusion etc. So, food in-ation hurts them the most & RBI can't turn blind
eye to their welfare/plight. (≤5I576 V567nÜ 9U:8YKá£6 xK7 [o<;K5∂675 \5Ω<~ :\nL46 U578ëWLä4 u[I:n 48
æ5Ün <5¶: :\nL, x5∂6ê U6 4qm¥ m:Vá6, xn[5 ~8:8[oTI5<n:75, mHpnÜ <[5H8ê: / uåç4 uÜWà: 4l 4[n. Ø<}~ Y5Z
[\L]5^ Tøox¿7 U68ê5: 467n \î£6 ∂6àHáx®4 T:48 4´5Æ/U68ê5:n 4W :à69LI5à :\nL46 <47n)
 2) In poor families' household expenditure- food cost occupies a high share. food prices very
volatile in India. (]6nx U∂6H56WL48 ¡68~JYKá[oY5Z 4 xâ5 ä\¬5 \î, V567 [oY5Z KnàWL48 I5[ 45èl 9√æ6 6\78\®)
Food item its price changes in India within how many monthsX
Vegetable Twice a month (\6 1 [\n:82 x56 <ƒ≈ÜWL48 I5[ [oxI~5H u à575 \î)
Pulses brice every 2 months (\6 2 [\n:8[o3 x56 I5~ 48 I5[ xI~ à578\®)
Cereal Every 3.5 months
Milk Every 5 months
So, if RBI totally neglects the food in-ation and focuses only on the CPI Core in-ation, It will not be
in the best interest of the Indian citizens. So ES21 suggestion:

1. RBI should focus on more core in-ation. And separately look at food in-ation data. In other
words, RBI should ignore fuel in-ation∆ (∂6àHáx®4 :8{[;Y/[J~/x;m:Ü5In [;j5klm7 U6 ≤5I5 ∑5: I8:5 K5ä\
~8ä4: <5ç \n <5ç Y5Z [\L]5^ 45 Vn «5~ 6Y:5 K5ä\.)
2. CPI base year 2012. CPI gives very high weightage to the food. But people's food habits have
undergone changes between 2011-2020 so, Index components need to be updated. (mUÄ~84 Iê4
[o~W]WL4l VWà: uI7WL[o45èl xI~5H uÜ5 \îØ<}~ TUVWX5 [J´ <JK45L4 [o<;¶56 4l uH»475)
3. Number of e-commerce transactions . So, CPI price survey data should also captured E-
Commerce websites prices as well. (…:~5Ø: H8x<5ØÅ <8Vn àW Y6nI-mx l \W 6\n \î, T: [J´WL4W Vn [\À]5^
<HÃÕÆ [oê5r[~ ä4Ü5 à5)

(Batch: PCB10:RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#4E: Indicators- In(ation-CPI, WPI; IIP→ Page 837
49.7.9 Index → Consumer Food Price Index (CFPI: ês9'Æ ° ë $)!/ 0 q
Ü ""
!)

 NSO's CFPI is prepared from the datasets collected in above CPI-survey.

 CFPI includes: Cereals, Meat, Rsh egg, Milk, Oils, fats, Fruits, Vegetables, Pulses, Sugar &
Confectionery, Spices.
 CFPI doesn't include: Non-alcoholic beverages, Prepared meals, snacks, sweets, Pan, tobacco
and intoxicants (° ë $)!/ 0 g⌧ $(o*"' *),!ö/*&)
 What was the Food in-ation scene in CoronaC Ans Ref Pillar4A- Agriculture

49.7.10 Index → In◆ation → Wholesale Price Index, EA-DPIIT, Base: 2011

Monthly WPI Components in descending order→ Wt.
Manufactured products: Processed Food, Edible Oil, Paper Products, Chemicals, ~64%
Plastic, Cement, Metal Products, Transport Equipments etc.
Primary Articles: ~23%
A. (Unprocessed) food articles, eggs, meat-Rshes, oil seeds etc. (~19%)
B. Crude Petroleum (~2%)
C. Minerals (~0.8%)
Fuel & Power: High Speed Diesel (HSD) > Petrol > LPG ~13%
Total 100%
WPI: monthly growth is zigzag although towards de-ationary path nowadays. During initial Modi
raj it even went into negative zone for some months due to fall in global crude price (although since
Union/State Govts kept raising Excise/VAT so it was not felt in real life).

(Batch: PCB10:RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#4E: Indicators- In(ation-CPI, WPI; IIP→ Page 838
49.7.11 WPI Kabhi kabhi

WPI Between 2020-January to April 2020: Crude oil price had declined signiRcantly due to
lockdown, fall in demand all over the world. As a result, Indian WPI also declined signiRcantly. (Ø:
2020 48 ê;Œu7n [\n:WL[o4∏878~ 4l ±l[7WL[o45œl r]65HÅ uÜn çn, Ø<}~ WPI [oVn r]65HÅ I8Yn ]^)
 WPI (aûer reforms in 2017) doesnht count indirect taxes on any commodity. It only looks at the
basic price (without indirect taxes). So, even if petrol diesel appears expensive to Indian
customers due to high level of Excise+VAT taxes, ithll not re-ect that in WPI. (WPI [oHô;— LU6
~]:8H5~8Åî“/ 4W :\nLI8Y5 à575, 48H~ Hô;48 [J~ [J´ I8Yoà578\®, Ø<}~ ≠5\4WL4W 4oj £6 65≤ <6456 48 mH”V‘ 46WL
48 K~78U8Å’W~ Ñn÷~ [\À]5 ~]8, ä4◊;WPI 4W :\nL~]8]5) For more on crude oil prices Ref: Pillar#3A]
 2021: be surge in energy, food, non-food commodities, and input prices, supply constraints,
disruption of global supply chains, and rising freight costs across the globe= WPI increased.

(Batch: PCB10:RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#4E: Indicators- In(ation-CPI, WPI; IIP→ Page 839
 ES23: WPI rose in 2022 due to international level in-ation in petroleum products, basic
metals, chemicals & chemical products, and edible oils aûer Russia-Ukraine Crisis. However
now it is gradually falling down aûer favourable monsoon, vaccination-led economic recovery ->
supply increased, etc.,

49.7.12 CPI WPI Divergence

 April-July 2020 : WPI in-ation in the negative Rgure, while CPI-C in-ation more than 6% (also
known as QDivergence between WPI and CPIS) as because

 CPI monitors price+ (indirect taxes) on it. Whereas WPI ignores taxes.
 CPI gives higher weightage to Food than WPI [ês9'Æ Üq" " ! $5° ë sg ß≤ "' r g ⇠8* †g1 8 & )t]
 2021: WPI from (4.83% Feb) → (7.39% Mar) → (10.49% April:). WhyC
 global commodity prices due to vaccination & revival in USA/EU (7$ü⌧" 1Ü⌧'s $(e," "⌧v " - g
•¶ß" s⇢*8≥⇠* " q+& "¥ $ + êµ g* ⇠⇡⇢ !"# $ /! ⌧ "#$&'!$(-.'&⌧,)
 costs in the production and distribution = wholesale prices increased. (êµ g* &ß 4⇠&⌧v "#
+ /& ∂q{$(-.'&⌧,)
 labour shortages by reverse migration & social distancing in factories (¢⇠ , $ùg∑⌧'!"# ⇠&* ⇠ s ,,
$ á8" g∑⌧, 4*1$'!" q+& êµ g* $(- è :™,)
 ES22: again talked about the divergence between CPI and WPI and hoped that ultimately it
will reduce.
 ES22: also talked abt idivergence between CPI (Rural) vs CPI (Urban) because both have
diBerent weights to some goods/services. (∏ $,v ⌧ π)⌧, ês9'Æ $)™/ 0 Üq" " ! $("⇢| q,ù'!"' 7+/
7+/ 9 ⌧& †g1 /1 )to z+: g'*'!" 8⇠ - 7+/ 7+/ •& )t)
MCQ. Find correct statement(s) (UPSC-Prelims-2020)
1. be weightage of food in CPI is higher than that in Wholesale Price Index (WPI).
2. be WPI does not capture changes in the prices of services, which CPI does.
3. RBI has adopted WPI as its key measure of in-ation and to decide on the key policy rates.
Codes: [a) 1 and 2 only [b) 2 only [c) 3 only 4, [d) 1, 2 and 3

(Batch: PCB10:RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#4E: Indicators- In(ation-CPI, WPI; IIP→ Page 840
 MCQ. Which goods are included to estimate food in◆ation in IndiaX (UPSC-CAPF-2020)
1. Wheat 2. Paddy 3. Tobacco 4. Sugar.
Codes: (a) 1, 2 and 3 (b) 2, 3 and 4 (c) 1, 3 & 4 (d) 1, 2 & 4
MCQ. WPI has increased in India during 2021 - 2022. WHYX (CDS-2023-II)
1. Sharp increase in international prices of crude oil
2. Decrease in economic activity post-Covid
3. Disruption of global supply chain 4. High freight cost
Codes: (a) 2 and 3 only (b) 1, 3 and 4 (c) 1 and 2 only (d) 1 and 4 only
49.7.13 Index → In◆ation → Other Indices
Index Features
Producer∫s Price - WPI covers only goods but not services.
Index - Whereas, PPI covers both goods and services. It measures price
(PPI: êµ g" $ܪ change from sellersh perspective. OECD nations use PPI to measure
Üq" "
!) in-ation @wholesale level. beir PPI only measures price (and not
PRICE + Taxes).
- 2014: DPIIT setup Dr. B.N.Goldar Committee to explore this.
Experimental Service EA to DPIIT preparing these experimental indices separately for Railway
Price Index Services, Port Services, Air Services, Postal Services, Telecom Services,
Banking Services, Insurance,
Banking Business It measures the in-ation in the fees charged by Banks for NEFT-RTGS,
Service Price by RBI. Mobile Banking, Card Transactions, Issuing Demand Draûs / Bank
Guarantee, annual fees for opening DEMAT account etc. [Base Year
2011]
In◆ation Expectation RBI quarterly survey of ~5k households across 18 cities, asking them
Survey for households what is their iexpected levelh of in-ation for next 3 months and 1 year.
Business In◆ation by Indian Institute of Management (IIM) Ahmedabad
Expectations Survey
49.7.14 Housing in◆ation
Organization Indicator for monitoring housing prices
National Housing  RESIDEX to monitor residential house prices in selected Indian
Bank (NHB) cities against base year 2017. It is also labelled as Housing Price
Index (HPI)
 Separately, NHB also publishes in-ation in Land Price, Building
Materials & Housing Rental.
RBI Home Price Index
home prices increasing because: 1) Corona Atma Nirbhar → RBI made loans cheap to revive
economy → home demand increased for iinvestmenth purpose. 2) recall Cantillon eBect in
pillar1A2.

(Batch: PCB10:RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#4E: Indicators- In(ation-CPI, WPI; IIP→ Page 841
49.7.15 : In◆ation observations by ES20 Vol2Ch5
 be World bank observed that In-ation has across developing nations between (119%) 1993
to 4.8%(2018) because of 1) monetary and Rscal policy 2) structural reforms to raise production.
 Some areas have witness higher level of in-ation than all India average. E.g. Lakshadweep
Andaman (geographical isolation), Manipur (frequent highway Bandh/blockades), Kerala
(-oods) etc. ("⇢| o+ "'!$(9 ⌧& " & " $⇢" -+ r g $)!/ 0 s 0 8 &, )t)
 Rest of the Chapter is mostly bol Bacchan about reason for the price in onion and tomato, and
some contrived mathematical models and graphs to downplay the problem of in-ation ä" " ∏!
⌧" ⌧ 4*"º, ß,,$'g, ⌧" ⌧ $($)!/ 0 " -Ü$(), )t.

49.7.16 : In◆ation observations by ES22

 Corona Un-lockdown → demand in 1st world → in-ation
 OECD group oil supply & geopolitical crisis (Ukraine) → oil prices.
 During Corona-2020- Number of home sales but price of home is not declined (meaning,
sellers were not willing to reduce prices) ("'⌧'* $($" *'!"# ∂⌧,g ⌧, &' "$ Ω0 ß, +ä"* 9 ⇠ "$ *),!Ω:)
 Post-Corona-2021: Banks home loan interest rates + Union Govt is giving home loan subsidy
+ State govts have the stamp duty tax on home buying → Housing demand → so
housing prices are (79, ⇠ s -5" +'* ⇡ )'* " " ⌧v, &ß "(2 ⌧ ⌧ r ⌧" ⌧'!"# 1'8* !" q+&
$" *'!"# 4-æ# -. ⌧), )t, $ /™ -. ⌧), )t ⌧ ê " q+& $" *'!" g $ -. ⌧) )5)
 We should sign long-term import agreements / memorandum of understandings (MoUs) with
other nations for purchase of pulses and edible oils. (7% gπ'!" ß +!-, 7⇠©è " ®⌧ ⌧ s⌧ g⇡∂& ä"1
/1 )tä" ⇠ )$(4*1ö$& øs g + ⌧ ° ë &+ -q& ⌧)(, & "# 9 ⌧& $(ê* q,8'!"# ®#$&(4*1!âv $(⌧)ï)
 Rest of the Chapter is mostly timepass about onion and tomato seasonal in-ation, which we have
already studied in Pillar4A. (¿ ù e$ e⌧ " g $ -. 8 & )5⇠' - -'+ -¥* )$ s)+ 9, s¡ q⇢")

49.7.17 : In◆ation observations by ES23

 2022: Agriculture in-ation and Government actions → discussed in (Ref: Pillar#4A)
 2022: Government did following to control non-agri in-ation
o government decreased excise duties on petrol and diesel.
o Reduced customs duty on imported raw materials such as plastic, coal, metals,
diamonds, chemicals namely methanol, acetic acid etc.
2023 following challenges:

 IF China returns to normalcy from Covid-19 → its mfg & demand will increase → in-ation in
global commodity price
 USA rising demand for oil due to geopolitical issues in Ukraine / Taiwan.
 Climate change /drought → shortage of food, green fodder, milk.
49.7.18 _alinomics by ES20: Vol1Ch11
balinomics is a concept to estimate how much ¢¢ a common person pays for a bali (platter of
food) across IndiaC VWà: 4 ç5~n U6 ÿõX ä47:5 V;]75: 4675 \î?

(Batch: PCB10:RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#4E: Indicators- In(ation-CPI, WPI; IIP→ Page 842
 Between 2015 to 2018, the bali price has reduced: 1) Across all regions of India 2) for both veg
and non-veg thalis. sÜ⌧ 9 ⌧& $(π " ) ⌧, ⌧ $ ! ) ⌧, ß +, " $ܪ $(ö/⌧ ⇠e
 While bali prices reduced between 2015-18, they have increased in 2019.
 But overall, thali aBordability has for poor families. /⌧,-'!" z+: ⇡, / ä"¬ 1&, / ⇠)*,1 Ω0 )t
 Consequently, a family of Rve people is able to save >¢10,000/per year because of reduced prices.
ben, ES20 appreciated various Modi schemes for 1) increasing food production and 2)
making food more aBordable. (wehve learned those schemes in Pillar#4A)

June to Dec 2020 Urban: most Urban: cheapest Rural: most Rural: cheapest
expensive expensive
Veg. thali Andaman & Madhya Pradesh Andaman & Uttar Pradesh
(ê545\56n) Nicobar ¢40 ¢24 Nicobar ¢39 ¢23
Non veg thali Mizoram ¢52 Haryana ¢28 Arunachal ¢49 Chandigarh ¢30
While above trend is not important for the scope of MCQs, but think for interviews- Even though
bali is cheapest in Uttar Pradesh (rural) and Madhya Pradesh (Urban) ben why is there
malnutrition in these StatesC [9]6 Ø: 65≤WL[oç5~n Ø7:n <ôn \î7W 4;UW¥Æ ëWL\î? Ø< {456 ä4 65≤ u¶5∂67
UPSC ØLÅ6ÿJ{⁄ 48 }~ <WK mHK56 46o]

49.7.19 In◆ation in other countries

ES23 said consumer price in-ation in India remained under moderate level compared to many
other nations.

49.7.20 American In◆ation Impact on IndiaX

2021: USA in-ation at 6.2% (highest in 30 years). It may have following negative consequences for
India (Note: following bullets requires prior knowledge of Pillar 1A1, 1A2, 2B & 3A)

(Batch: PCB10:RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#4E: Indicators- In(ation-CPI, WPI; IIP→ Page 843
 Fed Tapping - YouTube
Munal sir .

 1) US Feds will repo to combat American in-ation. US Feds will reduce bond purchase
program (=Fed-Tapering) → loan interest rates in India → Foreign Portfolio Investors (FPI-
who invest upto 10% in a single Indian companyhs shares)- those FPIs may pullout money from
India to give it as loans in American market → Indian share market . → Indian investors also
lose money → Indian investors -ock towards gold, real-estate & cryptocurrency for better
returns → new set of problems related to tax evasion that we learned in Pillar2B.
 2) When FPI pullout money from Indian sharemarket → Rupee weakens → imports
become more expensive → in-ation → RBI forced to repo to combat in-ation = expensive
loans will harm Indiahs post-Corona economic revival.
 3) Imported goods and services from America will become expensive for India.
 (7$⌧," $($)™/ 0/$⇢2 3#4& 4s|+ 30 ⇠y≤ $( - √ g 7©è" s 0 /0 )to +ƒ* " z+: 7$ü⌧"# "(2,1 -5" 8'
®g$ ê≈ :/, ê " sü⌧v $∆øs 4⇠gπ, s'e{¬'z+1' 4*⇠π"- 9 ⌧&,1 π1⌧ - ù ⌧ 9 / 8 :!/ï á8 9 ⌧&,1 «s1
"$ù'⌧ )'/ ,9 ⌧& $("¥ &+ ⌧ 7% •1 & $)™/ )'!/, å¬⌧ 9 ⌧& $(9, $)™/ 0 g⌧ -./ ï ê 9 ⌧&,1 $)™/ 0 +ƒ*
" z+: 9 ⌧&,1 ü⌧ù⇠{-5" +'* "# d 8 g⌧ $)™/ "⌧/, &' "'⌧'* s» & 9 ⌧&,1 7ß{…⇠f "' s⇢*8≥4⇠& "⌧* $(
$ /†gÀ&(• "&, )t)

49.8 INDEX → PRODUCTION → INDEX OF INDUSTRIAL PRODUCTION (IIP)

* IMP
A -
.
V
↑

£ZWr]4 Tw5I: <JK45L4 is a monthly index prepared by NSO, Base Year 2011 and Laspeyres Formula.
IIP measures production of 407 item groups related to (ClassiRcation#1: type of goods):
Note: % shows the weights assigned to them in IIP formula:
 Primary goods (34% ¢ ßö$" ⇠Ã&⇢): directly obtained from natural sources e.g. Ores, Minerals,
Crude Oil; energy goods -Petrol, Diesel, Electricity (Both Renewable and Non-Renewable).
 Capital goods (8% sÜ!8,/& $ *): Plants & machinery used for further production e.g. Boilers, Air
& Gas Compressors, Engines, Transformers, Commercial Vehicles etc.

(Batch: PCB10:RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#4E: Indicators- In(ation-CPI, WPI; IIP→ Page 844
 Infrastructure/ construction goods (12% -⇢4*1 g, ¡ q
! /&/4*$ {v ⇠Ã&⇢): e.g. paints, cement, cables,
bricks and tiles, rail materials, etc.
 Intermediate goods (17% -⇢4*1 g, ¡ q
! /&/4*$ {v ⇠Ã&⇢): which goes as input in production e.g.
Cotton yarn, Plywood, Steel Tubes/ Pipes, Fasteners, etc.
 Consumer durables (13% †e" Õ ês9'Œ& $ *): Products directly used by consumers and having
a longer durability (2 years or more). E.g. Pressure Cooker, TV, AC, Tyres, Telephone , Mobile,
Cars, Motorcycles, Scooters, Jewellery etc.
 Consumer non-durables (15% /t⌧-†e" Õ): Products that are directly used by consumers and canht
be preserved for long periods. e.g.: Soyabean Oil, Milk Powder, Maida, Rice, Biscuits, Sugar, Tea,
Cigarettes etc.
MCQ. In use-based classikcation of IIP, the maximum weight is assigned to _ _(CDS-2020-ii)
(a) primary goods (b) intermediate goods (c) consumer durables (d) consumer non-durables
49.8.1 IIP's weights in ascending order (classikcation: use based)
Capital goods (8%), Infrastructure/Construction goods (12%), Consumer durables (13%), Consumer
Non-durables (15%), Intermediate goods (17%), Primary goods (34%)
49.8.2 IIP's weights in (sector-based)
Sector Weight(%) Item groups
Mining 14.373 1
Manufacturing 77.633 405
Electricity 7.994 1
Total 100 407
49.8.3 : IIP Before Corona Year 2020
Compared to 2017 → there has been a fall in IIP for 2018 and 2019 because
 NPA problem, ILFS-NBFC crisis = amount of Loans moving toward the MSME
 Protectionism= US/EU levying import taxes on Indian products → demand of Indian
goods in foreign market → Indian production.
 demand in automobile, real estate sector. → steel, cement production
 Coal production by heavy rain, labour strike in mining States in 2019.

49.8.4 : IIP trend

 2020: be IIP growth started falling immediately aûer the Corona lockdown reaching its
historical low in April-2020. ben it began recovering in the subsequent months.
 2021-March: IIP to 22%, but mostly due to low base eBect.
 ES23: IIP indicators are improving at a healthy pace. (∆f øs -. ⌧) )t)

49.9 INDEX → PRODUCTION → INDEX OF EIGHT CORE INDUSTRIES

Prepared by EA-DPIIT, Base Year 2011, Iths similar to IIP index focusing 8 core industries

(Batch: PCB10:RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#4E: Indicators- In(ation-CPI, WPI; IIP→ Page 845
- ReRnery Products > Electricity> Steel> Coal> Crude Oil> Natural Gas> Cement> Fertilizers.
(Arranged in the descending order of weight).
- Collectively, these 8 industries command 40.27% weight in the overall IIP.
MCQ. In the 'Index of Eight Core Industries', which is given highest weightX (Pre-2015)
(a) Coal production(b) Electricity generation (c) Fertilizer production(d) Steel production
MCQ. Which are among the 8 Core Industries of IIPX(Asked in UPSC-Pre-2012)
1.Cement 2.Fertilizers 3.Natural Gas 4.ReRnery products 5.Textiles
Answer Codes: (a) 1 and 5 only (b) 2, 3 and 4 only (c) 1, 2, 3 and 4 only (d) 1, 2, 3, 4 and 5

49.10 INDEX → PRODUCTION → MISC. INDICES

Indices Features
 By NSO, covering all registered units under factories act, and
Annual Survey of electricity companies.
Industries (ASI)  NOT Surveyed: Defense Factories, Oil-gas Storage, Restaurants,
TZW]WL45 H5v¥4 <HÃÕÆ Hotels, Café, Computer Services, Departmental Units such as
Railway Workshops, Govt. Mints, Sanitary, Water Supply, etc.
Because IIP & ASI only cover manufactured items & electricity, so, NSO
Index of Service
working on (Experimental) Index of Service Production covering
Production (ISP)
Banking, Insurance, Education, Telecom and transport.
Services Business  Also known as Services Purchasing Managersh Index. Iths done by A
Activity Index private sector company IHS Markit India. mentioned in ES21.
 Order Books, Inventories and Capacity Utilization Survey.
RBI∫s OBICUS
 Quarterly survey to assess consumption & investment demand.
 HSBC∫s Purchasing Manager Index (PMI) : by surveying 400+
companies senior executives.
Economic Health
Indices by  SBI∫s Composite Index based on its loan portfolio, in-ation,
consumer spending etc.
Commercial Banks
Such indices have scale of 0-100 points. Above 50 means economic
growth, below 50 means contraction compared to previous period.
Londonhs Baltic Exchange measures the cost to transport raw material by

Baltic Dry Index sea. If → world economy is growing, and vice versa. Post-Subprime
crisis fell, then rose from 2016-18, then again falling in 2018 due to
protectionism. (<[;j 48 65ô84∏8[5~ 45 9L7665‹n’Ü U∂6H\: 46:84l ~5]7YKá)

49.11 HIGH FREQUENCY INDICATORS (HFIS)-

High-frequency indicators (HFIs) refer to economic data that are released more frequently and
provide more up-to-date information about the current state of the economy compared to
traditional (Slow moving) economic indicators (e.g. Annual GDP).

(Batch: PCB10:RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#4E: Indicators- In(ation-CPI, WPI; IIP→ Page 846
 Slow moving indicator High-frequency indicators (HFIs)
è,$, /4& ¢" áπ& )'* ⇠ + !"&" ê¥ &,œ& ⇠ + !"&"
• e.g. GDP → subtopic GVA: • e.g. Monthly Tractor Sales down. Reasons could
Agriculture growth is down. be → A) farmer distress / crop failure and/or B)
• But this is ipost-mortemh aûer Bank loan issue.
murder. bis does not help • So if these problems are addressed in time, it can
prevent the murder. help preventing the falling agriculture production.

49.11.1 HFI Examples

Economic Survey 2021–22 listed following examples of HFI

AREA examples of HFI

In◆ation Retail In-ation (CPI)
Financial UPI and ATM Transactions; Currency in circulation, money supply, Equity
indicators market (SENSEX, NIFTY), Bond Yield of G-Sec(10 years maturity) (Ref#1C)
Taxation Monthly GST and E-way bills data
Arrival of onion and tomato in APMC Mandi, Domestic Tractor Sales,
Rural/Agro
MNREGA work generated and demanded (Ref Pill6)
Production IIP, Monthly Power Consumption, Vehicle Sales
Transport Tra¨c- railway, port, airways; Road Toll collection
Global FDI and FPI, Crude Oil prices, Non-oil import and exports, Baltic dry index,
Trade/Investment Currency exchange rate, foreign exchange reserve.

49.11.2 HFI: Pros and Cons

Pros Cons
Noise to signal ratio could be higher. e.g. frequent ups downs
HFI help the policy-makers to pick
in the share market and currency exchange due to
up useful signals that allow for
rumours/external factors = but this inoiseh doesnht not
faster /real-time response and better
necessarily signal/ re-ect that the foundation of economy is
targeting.
weak. (êW6];~ ≤5I5 \W75 \î, V~8H5ôH [oT7:5 65Ü75 èî~5 : ¿u \W.)

MCQ. Which of the following are High Frequency Indicators of the Indian economyX (CAPF-2023)
1. Power Consumption 2. IIP General Index 3. 10-year G-sec yield
Codes: (a) 1 only (b) 1 and 2 only (c) 2 and 3 only (d) 1, 2 and 3

Next: Pillar#5A Infrastructure- Energy, Water, Transport (BIPASA)

(Batch: PCB10:RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#4E: Indicators- In(ation-CPI, WPI; IIP→ Page 847
 FAQ: Do I have to remember all this Ministries/Govt orgs/Schemes/Portals/Rails given here
Ans. NOT Necessary. However, Some rough idea necessary for occasional [Yearbook] /
Scheme/Portal type MCQs. I(ve pasted info here so as to save your time in not having to google.
)*+,-./, -/0./1 -23.+ 4/ 567+.82 5.9 /:,*6 ;10, </+. +129 =6+,0> 7?/* +:12@ AB+,*6 A.C DE6/ 0, FG06 H95. :I*.H0
FG0> A,:+* DJ,, )K/-MK/ google / CA-PDF pe QR2Q+. +:12GS,.
Pillar#5A: INFRASTRUCTURE Part#1- Bijli, Paani, Sadak
Table of Contents
50 Infrastructure → Meaning & Characteristics..........................................................................851
50.1 →Infrastructure Mining
=++)(/ Basic Industries.....................................................................852
50.1.1 [Yearbook] Ministry of Heavy Industries & Public Enterprises ..............................853
50.1.2 [Yearbook] Ministry of Steel ()].* A2^.C5)................................................................853
50.1.2.1 Steel → Purvodaya Initiative (2020)........................................................................854
50.1.3 [Yearbook] Ministry of Chemicals & Fertilizers........................................................854
50.1.4 [Yearbook] Yearbook: Ministry of Petroleum & Natural Gas..................................855
50.1.5 Lakhshya portal by petroleum ministry (2021)...............................................................855
50.1.6 Dutch Disease & Resource Curse- ES2016-17......................................................856
50.1.7 Crude Oil Prices, Petrol Diesel pe Taxes, Oil Bonds, NELP-HELP Policies.................856
50.1.8 [Yearbook] Ministry of Mines ( =.+ A2^.C5)......................................................................856
50.1.9 Mineral Products in India: (k./* 0, =l+7 Mm.9+)....................................................857
50.1.10 National Mineral Policy (NMP) 2019..................................................................858
50.1.11 Mining →MMDR Act 2015...................................................................................858
50.1.12 Mines & Minerals (Development & Regulation) Amendment Bill/Act, 2021.858
50.2 Royalty rates for critical minerals reduced (2023) (nl* A:oGRpq=l+7)..................................859
50.2.1 Benerts of Reduced royaltys.......................................................................................860
50.3 MMDR Amendment, 2023.....................................................................................................860
50.3.1 !"MMDR → private sector: companies can do atomic mineral mining ............................860
50.3.2 !"MMDR →NEW Type of Mining licenses..........................................................................860
50.3.3 !"MMDR → Specired Minerals : Who will give what type of licenses ( l+u9v =l+7)..........861
50.3.4 !"MMDR →Reconnaissance - sub-surface method allowed ( kRwkqAxk1 GR<qG/1yp).............862
50.4 O+shore Areas Mineral (Development and Regulation) amendment 2023...............................862
50.5 → Mining Coal065C.)...............................................................................................................863
(
50.5.1 [Yearbook] Coal Ministry (065C. A2^.C5) consists of →............................................863
50.5.2 Coal Mining- Nationalization & Entry of Private Sector..........................................864
50.5.3 Mineral Laws (Amendment) Ordinance/Act 2020...................................................865

(Batch: PCB10-RAFTAAR-ONLY-PRELIMS) Mrunal s Economy Pillar#5A: Infra: Bijali & Paani (Energy, Water) → Page 848
 50.5.4 Coal selling – Shakti Policy (2017)s............................................................................866
50.5.5 →Mining Atma-Nirbhar (=++)..............................................................................866
50.5.6 Coal Crisis/Shortage in 2021-Oct...........................................................................867
50.5.7 Coal Energy: Economic survey suggestions / observations:................................867
50.5.8 Mining → Misc. Schemes, Apps, Portals, Issues...................................................868
51 →Infra → Energy Electricity (|7.q→ l<}~*).............................................................................869
51.1.1 Electricity generation in terms of company ownership......................................................870
51.1.2 [Yearbook] Ministry of Power (l<}~*-|7.qA2^.C5).......................................................870
51.2 National Electricity Distribution Company......................................................................871
51.2.1 IEX = Current-PDF-walla gone crazy ()-0, G1Å, PDF <.C,91<.+,:6 w8 :I).........................871
51.3 Electricity → One Nation-One Grid..........................................................................871
51.3.1 Grid → Green Energy Corridor Project (:É/* |7.qwÑC5./. GÉ/567+.)..........................871
51.3.2 Grid GREEN Grids / OSOWOG............................................................................872
51.4 Electricity Power Ministry6s Apps/Portal Overdoze ................................................872
51.5 Electricity → Integrated Power Development Scheme.................................................873
51.5.1 Electricity → Prepaid Smart Meters for Electricity...................................................873
51.6 : Electricity: NPA Solve UDAY (2015)..................................................................874
51.6.1 Energy → DISCOMs Liquidity injection (GI-. 0> */C*. 9,0, 7.+ ÜR20+.).......................876
51.6.2 Energy infra→ Electricity reforms in Atma-Nirbhar ( lD7C1 y,^ Ax-~K./)...................876
51.7 Electricity (Amendment) Bill 2022 (lD7C1 -~K./ l<K,50 )..........................................................876
51.7.1 Electricity (Rights of Consumers) Rules,2020: lD7C1 MGk6á. nàK0./ l+5A............877
51.7.2 Time-of-Day (ToD) tariâ for electricity use..........................................................877
51.8 Electricity → Deen dayal gram jyoti Yojana (2015)....................................................878
51.9 Electricity → PM Sahaj Bijli Har Ghar Yojana (saubhagya).....................................878
51.9.1 Revamped Distribution Sector Scheme (2021-June)........................................879
51.9.1.1 RDSS: Featuress............................................................................................879
51.10 Electricity → Use >Less6 → Energy E@ciency.............................................................880
51.10.1 Electricity → Use åLess( → PAT Mechanism............................................880
51.11 Green Credit Programme....................................................................................880
51.11.1 ⇥⇤ Trading: RPO, PAT, CCTS, GCP..........................................................................880
51.11.2 ⇥⇤ Diâerence between GCP and CCTS......................................................................881
51.11.3 Electricity → Use åLess( → National LED Programme...........................882
51.11.4 Electricity → Use åLess( → Gram Ujala Programme ..............................882

(Batch: PCB10-RAFTAAR-ONLY-PRELIMS) Mrunal s Economy Pillar#5A: Infra: Bijali & Paani (Energy, Water) → Page 849
 51.11.5 Electricity → Use åLess( → Misc. Schemes & Topics..............................882
51.11.6 Energy → Index → Global Reports..........................................................883
51.12 Infra Energy Renewable (+<10/p15 |7.q).........................................................................884
51.12.1 PM Modi(s Panchamrit @COP-26 Glasgow, UK.....................................................884
51.12.2 ⇥⇤Mission èLiFEê / Lifestyle for Environment..................................................................885
51.12.3 Energy Renewable [Yearbook] MNRE......................................................885
51.12.4 Renewable → KUSUM (Solar for farmer) 2019......................................886
51.12.5 Renewable → Jawaharlal Nehru National Solar Mission ..............................886
51.12.6 Renewable Renewable Purchase Obligation (RPO)..................................887
51.12.7 Renewable World's largest Hybrid renewable energy park- Khavda .......887
51.12.8 Renewable /energy Eíciency → Ranking / Portals.......................................887
51.13 ⇥⇤⇥ : Energy Fossil Fuel Use E20 Blending.......................................................888
51.14 Biogas Blending in natural gas (ì.0îl*0 wI- AxD.56 wI- 0. ïAñp@)..................................888
51.14.1 Benert of Biogas blendings.............................................................................................889
51.15 Sustainable Aviation Fuel / blending target...............................................................889
51.15.1 Energy → Fossil Fuel Use→ Green Grey & Blue Hydrogen.......................................889
51.15.2 : Energy → Fossil Fuel Use→ National Hydrogen Mission.....................890
51.15.3 Green H2: èSIGHTê Subsidy Program......................................................................890
51.15.4 Green H2: èSHIPê Partnership (:É/* :.)óò67+ l+A.qp 0, ÑC8 -.<q7l+0 l+71 k.w19./1)......890
51.16 MAHIR Research for Energy (2023)................................................................................891
51.17 : TRANSPORT→ Fossil Fuel Use→ Misc. Schemes...........................................................891
51.18 →
Infra → Energy Cooking (/-6ô 0, ÑC8)..................................................................................892
51.18.1 →: Cooking Pratyaksh Hanstantrit Labh (PAHAL-2015)...........................892
51.18.2 : : LPG PAHAL-subsidy paused in Corona (2020-21)..........................893
51.18.3 : Cooking → Pradhan Mantri Ujjwala Yojana 1.0 (PMUY).....................893
51.18.4 : Pradhan Mantri Ujjwala Yojana 2.0 [ìK.+A2^1 MöC. 567+. 0. 9õ-/. J/p]. 893
51.18.5 Cooking → Kerosene subsidy stopped (2020)..............................................894
51.18.6 Energy → Gas → GOBARdhan (2018)..........................................................894
51.18.7 Natural Gas Price: Kirit Parikh panel (2022–23)...............................................................894
51.18.8 Energy → Gas →Misc. (l<l<K 567+.82).............................................................895
51.18.9 Energy infra→Atomic energy →Atma-Nirbhar ( G/A.p~|7.q)..............................896
52 → Infra Water & Sanitation (7C <úùû*.)..............................................................................896
52.1 → Infra → Sanitation Swachh Bharat Mission (SBM: 2014)......................................896

(Batch: PCB10-RAFTAAR-ONLY-PRELIMS) Mrunal s Economy Pillar#5A: Infra: Bijali & Paani (Energy, Water) → Page 850
 52.1.1 → Target of Swatchhta Diwas 2/10/2019 Gandhi(s 150 th Birth Anniversary.........896
52.1.2 SBM → How to achieve targetss.................................................................................897
52.1.3 SBM → Who implements this schemes (0ü+-. A2^.C5 0/*. :I)...................................897
52.2 SBM Gramin Phase 2 (ùû k./* 0. 9õ-/. J/p).........................................................................897
52.2.1 Urban Swachh Bharat Mission 2.0 announced in Budget-2021....................................897
52.2.2 SBM Protocols (0.5qG†l*)....................................................................................................898
52.2.3 → Sanitation Index: Swachh Sarvekshan 2022 by Urban Ministry ........................898
52.2.4 Sanitation → Index: Prerak Dauur Samman..................................................898
52.2.5 Swachh Vayu Sarvekshan 2023 (Clean Air ranking)................................................898
52.2.6 Infra → Sanitation → Swachhta Udyami Yojana (2014) ..............................................898

50 INFRASTRUCTURE → MEANING & CHARACTERISTICS

De0nition: Infrastructure is the set of basic facilities that help an economy to function & grow such
as Energy, Irrigation, Roads, Railway & Telecommunication. (D~l+5.91 -2/J+. / n<-2/J+.- <6 ¢R+*A -~l<K.8£
:B76 80 n§q*2^ 06 0.5q/* /=+,, 4/ l<0à-* 0/+,AxA99 0/*1 :I- 7I-,0> lD7C1 G.+1 -S0 GÉ/<:+ -2J./.)

Infrastructure sector may exhibit following characteristics → (C.y•p0*.8/l<¶,ß*.8£)

1. Sometimes a natural monopoly e.g. Railways (aviation and telecom before LPG Reforms).
2. Sunk costs are high. It's the investment that cannot be recovered even when the rrm go out of
business. e.g. If airport closed down, airstrip's asphalt will have little or no resale value because
very bulky to dig-oâ and transport. (ì67,® n-ÜC :6+,G/ C.w* ©Jq0. 80 A6E. H:™. óRD 7.*. :I)
3. åOutput: is o;en Non-Tradable. e.g. A road / bridge / airport constructed at one place cannot be
åtransferred( to another place unlike a box of carrots.

(Batch: PCB10-RAFTAAR-ONLY-PRELIMS) Mrunal s Economy Pillar#5A: Infra: Bijali & Paani (Energy, Water) → Page 851
4. Sometimes intangible in nature e.g. we can(t touch spectrum or electricity. (nAR*q:I, ÅR +H: -0*,)
5. Consumption is o´en åNon-Rival: in nature e.g. 1 person using a road or street light it doesn(t
make product åunavailable( for others (unlike a privately owned iphone.)
6. Price Exclusion o;en di<cult. A rural road/street light can(t be ådenied(, even if a person not
paying taxes or user-fees. (whereas if a person cannot aâord iPhone, he is excluded from buying)
7. Usually creates positive externality: e.g. new railway station / airport → that much more
business for taxi-walla & hotel owners in the surrounding area. (-0./.¨0 D.≠*.)
Category Sectors granted =infra: status by FinMin → Dept. of Economic A>airs
Transport & - Roads and bridges, Ports, Shipyard, Inland Waterways, Airport, Railway,
Logistics: tunnels, bridges, Transport, Logistics Infrastructure.
@ABCDE FB BGH
- Commerce Ministry is working ong a åNational Logistics Policy(
Energy Electricity, Oil, Gas (lD7C1, *,C, wI-)
Water & Water supply & treatment, Sewage/Solid Waste Management, Irrigation
Sanitation 7C FGRÆ*, ;6- nG•¶v ìD2K+, à-J 2 .ô
Communication Telecommunication (9õ/-2J./)
Social & - Hospitals, Education Institutions, Sports Infrastructure, Tourism
Commercial infrastructure -hotels, ropeways and cable cars etc.
Infrastructure - Industrial Parks, food parks, textile parks, SEZ etc.
(-.A.Ø70 4/ - Cold storage, Soil-testing laboratories
<.•p∞±0) - Aâordable Housing
If a sector gets infrastructure åstatus( → its entrepreneurs may get following benerts:
1. Govt could give tax benerts, lease public land at a token price, faster environment clearance,
faster FDI approval etc. (0/62AxÅRE, 7A1+ É/5.5*1 9.A62G/, oÉ/* ?G -,G5.q</p/l<9,¶1 l+<,¶ 0> A27R/1)
2. RBI could help them by relaxing the External Commercial Borrowing (ECB) norms, Debt
restructuring (e.g. RBI(s 5/25 rule), Changing PSL norms etc. (l<9,¶1 ≥p 0> -1A.¥2G/ ÅRE)
3. SEBI could relax norms for REITS/InvITs etc. funds to help them mobilize capital easily for the
infrastructure sector. Similarly, IRDAI & PFRDA could oblige insurance and pension cos. to
invest minimum X% in infrastructure companies etc. (l+<,¶ 0, l+5A6206 -/C H05. 7.8)
4. ∂ey could get easier funding from World bank & other multilateral banks.

Budget-2022:- We(ll give èinfrastructureê status to Data Centres, Energy Storage Systems, grid-
scale battery systems, EV charging infra → so they can benert from tax/subsidies/schemes benerts
meant for other infrastructure sectors. (ó,E. -xE/ |7.q-2/yp )∑.H9 y,^6206 )2∏.πò∫/ 0> -2ª./97.q915. 7.8w1
*.H0 Mºxk1 <:1 EIΩ, -æøó1, C6+ 0> É/5.5*x/ÅRE ïACx76 n¢ )¿∏.πò∫/ M}6w6206 ïAC*1 :I.)

50.1 INFRASTRUCTURE → MINING (=++) / BASIC INDUSTRIES

Basic industries (D~l+5.91 supply their products to manufacture other goods. Examples: Iron and

(Batch: PCB10-RAFTAAR-ONLY-PRELIMS) Mrunal s Economy Pillar#5A: Infra: Bijali & Paani (Energy, Water) → Page 852
 M}6w) steel, copper, aluminum, chemical etc.
Capital goods industries goods that are used in producing other goods e.g. textile machinery,
(GR271w* A.C M}6w) conveyor belts, mining equipment etc.
Heavy industries (k./1 producing large and heavy products e.g. Ship building, bulldozers,
M}6w) industrial machinery, electric transformers etc.
♂Di>erence between Dept/Statutory/Attached/Autonomous Body etcs =
https://unacademy.com/lesson/mrunals-yearbook-ministries-and-departments-forms-of-
government-organisations-in-hindi/7KCEZHT4
50.1.1 ♂ [Yearbook] Ministry of Heavy Industries & Public Enterprises
k./1 M}6w 8<2 -.<q7l+0-y,^ 0, MG¡A6 0. A2^.C5
Dept  1] Department of Heavy Industry
l<k.w  2] Department of Public Enterprises: is responsible for i) Allotting
Ratna Status (Ref: Pillar2) and ii) conduct Public Enterprises Survey.
2021- ∂is department was shi´ed to Finance Ministry. (More in
Pillar#2A)
Attached, Subordinate,  N/A or not MCQ worthy
Statutory
Autonomous  National Automotive Testing and Research and Development
ù.5√ -23. Infrastructure Project (NATRiP) → implements FAME-India project
for faster adoption of electric vehicles.
CPSE: Central  List not exhaustive: (l+≈ÑC∆=* 0, nC.<. 4/ k1 02Gl+5.2:6 -0*1 :I)
Public Sector  Bharat Heavy Electricals Ltd. (BHEL) etc.
Enterprises  («) Cement Corporation of India Ltd.
0xƒ -/0./ 0,  («) Hindustan Newsprint Ltd, («) Scooters India Ltd.
-.<q7l+0 y,^ 0,  («)Bharat Pumps and Compressors Ltd.
MG¡A/  («) Andrew Yule; Braithwaite, Burn & Jessop Construction,
-/0./1 02Gl+5.2
Notable Schemes  Faster Adoption and Manufacturing of Electric Vehicles (FAME
India );
 National Programme on Advanced Chemistry Cell (ACC) Battery
Storage;
 Productivity Linked Incentive (PLI) scheme for automobile and auto
components.
(2) means approved for Strategic Disinvestment (=privatization) in 2019

50.1.2 ♂ [Yearbook] Ministry of Steel (NOPQ RSTPUV)

Dept N/A
Attached, Subordinate, N/A or not MCQ worthy
Statutory
CPSE Many Govt Companies, among them notable are:
0xƒ -/0./ 0,  Steel Authority of India Ltd (SAIL), Rashtriya Ispat Nigam Ltd (RINL)
-.<q7l+0 y,^ 0,  National Mineral Development Corporation (NMDC) iron ore.

(Batch: PCB10-RAFTAAR-ONLY-PRELIMS) Mrunal s Economy Pillar#5A: Infra: Bijali & Paani (Energy, Water) → Page 853
 MG¡A/  («) Salem Steel Plant (Tamilnadu), Bhadrwati Steel Plant (Karnataka),
-/0./1 02Gl+5.2 Ferro Scrap Nigam Ltd, & a few misc.
E-governance Steel Import Monitoring System (SIMS) portal.
Policy National Steel Policy 2017:
- increase per capita steel consumption from 74kg (present) to 160kg (by
2030-31)
- reduce import of coking coal from 85% (present) to 65% (by 2030-31)
- 100% indigenous/local mfg of high grade automobile steel.
(2) means approved for strategic disinvestment (=privatization) in 2019
Largest Steel 1 2 3
Producer China (54%) India (6%) Japan
Consumer China (49%) USA India (6%)
50.1.2.1 Steel → Purvodaya Initiative (2020)
 ∂e eastern states of India (Odisha, Jharkhand, West Bengal, Chhattisgarh, and Northern
Andhra Pradesh) are home to 80% of Indian iron reserves.
 Purvodaya Initiative: Setup new steel plants, transport infra etc. Boss Steel Ministry will
coordinate with other Central Ministries, State Governments and Private Companies.

50.1.3 ♂ [Yearbook] Ministry of Chemicals & Fertilizers

Dept 1) Dept of Chemicals and Petrochemicals 2) Department of Fertilizers

3) Dept of Pharmaceuticals
Attached,  Fertilizers Industry Coordination Committee (FICC).
 National Pharmaceutical Pricing Authority (NPPA) More in Pillar#6:
Subordinate, Either non-existent / not MCQ worthy (5. *6 Aü7R9 +:12:I5. *6 G/1y. 0, ÑC8 0.A 0> +:12)
Statutory
Autonomous ∂ese bodies are set up under either Societies Registration Act or Multistate
Cooperative Societies Act= Di>erent NOTIMP.
 Multi State Cooperative Societies: IFFCO, KRIBHCO
 Bureau of Pharma PSUs of India(BPPI) for supplying cheap medicines to PM
Jan Aushadhi Kendras ( More in Pillar6)
 National Institute of Pharmaceutical Education Research (NIPER)
 Central Institute of Plastics Engineering & Technology (CIPET), Ranchi
CPSE Many Government companies. Among them, notable are:
Z[\ GBZPB Z]  Hindustan Insecticide Limited (HIL) → responsible for mfg of Di-chloro-di-
GPC^_`EZ a]T Z] phenyl-tri-chloro-ethane (DDT) for mosquito control in Nation vector borne
b@cR/ disease control program
GBZPBd ZS@`EVPS  Indian Drugs and Pharmaceuticals, Bengal Chemicals and Pharmaceuticals
 («) Hindustan Antibiotics, («) Karnataka Antibiotics & Pharma, («) Bengal

(Batch: PCB10-RAFTAAR-ONLY-PRELIMS) Mrunal s Economy Pillar#5A: Infra: Bijali & Paani (Energy, Water) → Page 854
 Chemicals and Pharmaceuticals, («) Hindustan Fluorocarbon Ltd
 («) Madras Fertilizer; («) Brahmaputra Valley Fertiliser, («) Aravali Gypsum
notable • Setting up plastic parks for plastic industry.
schemes • Setting up Petroleum Chemical and Petrochemical Investment Regions
(PCPIRs) at Andhra Pradesh (Vishakhapatnam), Gujarat (Dahej),
Odisha (Paradeep) and Tamil Nadu (Cuddalore and Nagapattinam).
• Pradhan Mantri Bhartiya Janaushadhi Pariyojana for cheap medicines.
(2) means approved for strategic disinvestment (=privatization) in 2019

50.1.4 ♂ [Yearbook] Yearbook: Ministry of Petroleum & Natural Gas

G,Eò6ÑC5A 8<2 ì.0îl*0 wI- A2^.C5
Dept  N/A
Attached /  Directorate General of Hydrocarbons: regulator for the upstream
Subordinate activities i.e. oil and gas exploration and production activities. 2018:
oíces: proposal to give it statutory status was REJECTED.
Statutory  2006(s Act: Petroleum and Natural Gas Regulatory Board: regulator for
the downstream activities i.e. laying of pipelines and fuel marketing
CPSE  («) Bharat Petroleum Corp Ltd, («) Hindustan Petroleum Corp Ltd
0xƒ -/0./ 0,  Engineers India Limited → consultancy services for petro rerneries etc
-.<q7l+0 y,^ 0,  Gas Authority of India, Indian Oil Corporation, Oil India,
MG¡A/  Oil & Natural Gas Corporation (ONGC),
-/0./1 02Gl+5.2  ONGC-Videsh Ltd (OVL)- associated with foreign exploration projects
like Sakhalin (Russia), Al-Furat (Syria), Greater Nile (Sudan), San
Cristobal ( Venezuela).
 Indian Strategic Petroleum Reserve Limited (ISPRL) to buy and store
crude oil in buâer, when international prices are low. (refer to Pillar3A).
Presently three storage-plants have started working at Visakhapatnam,
Mangaluru and Padur.
(«) means approved for strategic disinvestment (=privatization) in 2019

50.1.5 Lakhshya portal by petroleum ministry (2021)

 Requires all oil-gas companies to upload list of machines (capital goods) & repair-maintenance
services bought by them. → So, Indian businessman can look at the list → if Indian
businessmen can design and supply such åswadeshi( machines / repair services → he can contact
the oil company. → reliance on imported machines.
 (k./*15 …)C-wI- 02Gl+5.276 76 A¶1+x©/19*1 :BM+0> -RJ1 )- <,D-.)E G/ ó.Cxw,→ *.H0 k./*15 M}6wGl* M-,G 0,
nw/ <6 M}6wGl* À-1 A¶1+620. ‘ù9,¶1’ Mm.9+ 0/0, k./*15 …)C-wI- 02Gl+56206 A~:5I ./MGCŒ 0/. -0, *.H0
F5.l** l<9,¶1 A¶1+62G/ :A./1 l+kq/*. 0A :6@)

(Batch: PCB10-RAFTAAR-ONLY-PRELIMS) Mrunal s Economy Pillar#5A: Infra: Bijali & Paani (Energy, Water) → Page 855
50.1.6 Dutch Disease & Resource Curse- ES2016-17
 Dutch Disease: Discovery of Natural Gas in Netherlands → Higher inœow of Foreign Currency
($) for import, investment, bribes to win oil exploration rights → Local currency strong → Non-
Energy Exports decline [Agri, textile etc.] → farmer shi´ to work in oil/gas wells & rerneries →
food shortage → hyperinœation → food riots. |7.q-2-.K+620, JC*,Q,/ -./. l<9,¶1 l+<,¶ F+,G/ 3.l+0
A~ƒ. 0A76/ :6 7.*1 :IØ7--,n¢ M}6w6206 +~0-.+ 4/ =.} A:2w.ô 0> -A—.
 Resource Curse / Paradox of Plenty: Venezuela is #1 oil reserves in OPEC group yet food riots.
Because of 'Dutch Disease'. (-2-.K+620. n•k¶.G)
 Resource Curse in context of India: Chhattisgarh, Jharkhand = large mineral wealth → mining
mara, Naxalite, politician nexus → bribery, corruption, ransom, rent-seeking → high level of
poverty, malnutrition. (=l+7 -2G√1 0, JC*,“v.J./ HÜ/ü*1 w/1D1, 0~G6ßp)

50.1.7 Crude Oil Prices, Petrol Diesel pe Taxes, Oil Bonds, NELP-HELP Policies
Ref: Pillar2A2- Indirect Taxes and Pillar3A: Import Export.
MCQ. Find correct statements: (UPSC Pre19)
1. Petroleum Natural Gas Regulatory Board (PNGRB) is the rrst regulatory body set up by the Govt.
2. One of the tasks of PNGRB is to ensure competitive markets for gas.
3. Appeals against the decisions of PNGRB go before the Appellate Tribunals of Electricity.
Codes: (a) 1 and 2 only (b) 2 and 3 only (c) 1 and 3 only (d) 1,2 and 3

50.1.8 ♂[Yearbook] Ministry of Mines ( iPE RSTPUV)

Dept / Statutory N/A or Not exam worthy. (5. *6 l<}A.+ú+:125. *6 G/1y. 0, ÑC8 MG56w1 +:12)
- National Mineral Exploration Trust /.vò15 =l+7 n”,ßp ¢.-
Attached /
- Geological Survey of India k./*15 kR<ªI .l+0 -<‘yp
subordinate o<ces
- Indian Bureau of Mines k./*15 =.+ ’R/6
- National Aluminum Company Limited (NALCO), Bhubaneswar;
CPSE - Hindustan Copper Limited (HCL), Kolkata;
- Mineral Exploration Corporation Limited (MECL), Nagpur.
- National Inst of Rock Mechanics, Kolar Gold Fields (KGF, Karnataka)
- Districts Mineral Foundations (DMF) in mining districts.
Autonomous
bodies / Trusts - National Institute of Miners( Health (NIMH in Karnataka). Although
in 2020, Govt merged it with Health Ministry(s ICMR-National
Institute of Occupational Health (NIOH, Ahmedabad, Guj)

(Batch: PCB10-RAFTAAR-ONLY-PRELIMS) Mrunal s Economy Pillar#5A: Infra: Bijali & Paani (Energy, Water) → Page 856
50.1.9 Mineral Products in India: (kPBQ Z] i`E_ blPHE)
Hydrocarbon Energy Minerals (Coal, Lignite, Petroleum & Natural Gas 4 types
Atomic Minerals (Ilmenite, Rutile, Zircon, Uranium, And Monazite) 5 types
Metallic 10
Non-Metallic 21
Minor Minerals. 55
Total number of products 95 types
By default, the åregulation of mines and mineral development(, falls under Union List. But,
- Minor minerals: wüp =l+7 = ∂eir legislation, royalty, administrative work is delegated to
the States( domain e.g. Sand, Mica, Marble, Granite, Agate, Chalk, Gypsum, Shale etc.
- Major minerals: ìA~= =l+7 = Any mineral that is not in Minor mineral list is called åMajor
Mineral( → Union(s domain e.g. atomic minerals, bauxite, iron, coal, petroleum, natural gas etc.

MCQ. Find correct statement(s) about minor minerals in India: (Prelims-2019)

1. Sand is a åminor mineral( according to the prevailing law in the country.
2. State Governments have the power to grant mining leases of minor minerals, but the powers
regarding the formation of rules related to the grant of minor minerals lie with the Centre Govt.
3. State Governments have the power to frame rules to prevent illegal mining of minor minerals.
Ans Codes: (a) 1 and 3 only (b) 2 and 3 only (c) 3 only (d) 1, 2 and 3 only
MCQ. Which of the following are designated as major minerals 1) Bentonite 2) Chromite 3)
Kyanite 4) Sillimanite (Prelims-2020)
[a) 1 and 2 only [b) 4 only [c) 1 and 3 only [d) 2, 3 and 4 only

(Batch: PCB10-RAFTAAR-ONLY-PRELIMS) Mrunal s Economy Pillar#5A: Infra: Bijali & Paani (Energy, Water) → Page 857
50.1.10 National Mineral Policy (NMP) 2019
- India produces 95 minerals including 4 hydrocarbon energy minerals (coal, lignite, petroleum &
natural gas), 5 atomic minerals (ilmenite, rutile, zircon, uranium, and monazite), 10 metallic, 21
non-metallic, and 55 minor minerals
- Boss Mining Ministry, to replace 2008(s policy.
- Target: For non-fuel and non-coal minerals
- We(ll allow transfer of mining leases from one company to another, help in their merger and
acquisition (02Gl+5620, l<C5 4/ nàK÷:p -,7~S,l+5A6206 F-.+ D+.5. 7.8w.).
- We(ll grant åindustry( status to mining. (so they become eligible for certain tax benerts / schemes
meant for åindustry( sector, if any.) (=++ y,^ 06 M}6w 0. 97.qH95. 7.8w. *.H0 n¢ MK6w6 06 ïAC+,<.C1 EIΩ
/-æøó1 ÅRE -D =++ M}6wGl*56206 k1 ïAC,)
- We(ll harmonize India(s mining taxes & royalty rates to global benchmarks. (<IØ◊0 ÿ/ 0, -A.2*/
EIΩ 4/ /Ÿ5⁄1 0, l+5A, H0 l<9,¶1 02Gl+5.2k1 k./* AxF+,Ax€‹J H9=.8)
- We(ve already allowed 100% FDI in mineral exploration but we(ll work for ease of doing biz, so
that FDI actually comes. (<.ÿl<0 ?G -,l<9,¶1 02Gl+5.2k./* Axì∑y l<9,¶1 l+<,¶ AxH9CJ]1 C,M-0, ÑC8 09A)
- R&D, manpower skilling, environmental conservation etc. (-2¶6K+, 0ü¶C l<0.-, G5.q</p -~/y.)

50.1.11 Mining → MMDR Act 2015

Mines and Minerals Development and Regulation Act, (2015: =.+ 4/ =l+7 l<0.- 4/ l<l+5A+ nàKl+5A)
replaced the 1957(s act for ease of doing biz.
- Mining Lease (= Concessions n+~ª. G^) will be granted only through auction. No discretionary
allotment to any company. (=9.+620> à-Üq +1C.A1 :6w1. l<<,0.K1+ F<2E+ +:12ïAC,w.)
- Mining Lease shall be given for 50 years, then it(ll be put up for auction (and not renewal unlike
the earlier system).
- Establish a National Mineral Exploration Trust (/.vò15 =l+7 n”,ßp Eòπ). Mining companies
required to pay them → it(ll carry out exploration of minerals.
- Establish åNot-for-Prort Trusts( District Mineral Foundations (DMF: Ø7C. =l+7 ìl*›.+) in all
districts where mining takes place. Mining company required to pay them fi fi → DMF to use it
for the welfare of people in the district who are aâected by the mining related operations. State
govt to prescribe the administrative structure and guidelines of DMFs.
- Higher penalties and jail terms for illegal mining (n<IK =++ 0, ÑC8 0./.<.- 4/ 7~A.q+.).

50.1.12 Mines & Minerals (Development & Regulation) Amendment Bill/Act, 2021
NOTE: following amendment does not apply to coal and atomic minerals
BEFORE AFTER
- Union government to could reserve any - (In future) when new mines are
mine a particular end-use. auction….No mineral can be reserved for

(Batch: PCB10-RAFTAAR-ONLY-PRELIMS) Mrunal s Economy Pillar#5A: Infra: Bijali & Paani (Energy, Water) → Page 858
 BEFORE AFTER
- e.g. if Tata was allotted an iron ore mine, he captive use.
could only use its ore for his own steel plant - ∂e mining company may do whatever it
and cannot send the iron or to any other wishes e.g. Tata can use the iron ore for his
company. Such mines are known as captive own steel plant AND/OR Sale it to some
mines. other company. [=9.+ 02G+1 J.:,*6 nG+,Mm.9+
0, ÑC8 =l+7 0. )ÿ,A.C 0/x 5. H0-1 4/ 02G+1 06
D,J+,-/0./ – -/0./ )+ A.AC62G/ 06ô G.D291 +:12]
Union govt had allowed State government to Union Govt will specify the time period within
conducted the auction of mines (except Coal which state government must complete the
and atomic minerals) auction. otherwise union government will do
But some states were very lazy and not auction for that state@ [5H9 *5 -A5 -1A. Ax/.±
completing the auction process in a timely and -/0./ =9.+620> +1C.A1 +:120/,w1, *6 0xƒ -/0./ M- /.±
transparent fashion. 0, ÑC8 +1C.A1 0/ 9,w1]
If mining company doesn(t do mining for 2 Govt may give 2 years + one-year extra
years then their lease will expire. (=Govt may extension/relief = total 3 years relief to exiting
sell the mine, to some other company)@ =++ company. (e.g. in case Company could not start
02G+1 +,=9.+ ïAC+,0, D.9 96 <߇ 0, k1*/ :1 Mm.9+ ¶~? the mining process due to Corona
0/+. :6w. </+. M-0. F<2E+ /· :6 7.8w. lockdown/labour/disaster) [80 -.C nl*É/á ÅRE
5.+1 *1+ -.C *0 k1 Mm.9+ +:12¶~? H05. *6 -/0./
F<2E+ /· +:120/,w1]

MCQ. What is the purpose of 'District Mineral Foundations' in India (UPSC-Pre-2016)

1. Promoting mineral exploration activities in mineral-rich districts
2. Protecting the interests of the persons aâected by mining operations
3. Authorizing State Governments to issue licences for mineral exploration
Answer Codes: (a) 1 and 2 only (b) 2 only (c) 1 and 3 only (d) 1, 2 and 3

50.2 ROYALTY RATES FOR CRITICAL MINERALS REDUCED (2023) (n`Q RDo@pq^i`E_)
BEFORE Royalty on Average Sales Price A;er 2023-Oct Reform
1) 3% royalty on Lithium- it(s used in batteries of mobiles, laptops, electric vehicles, and
12%
medical devices like pacemakers.
2) 3% royalty on Niobium: it has superconducting properties. Used in n jet engines,
12% rockets, beams for buildings, oil and gas pipelines, MRI scanners, Nuclear Magnetic
Resonance equipment (for spectroscopy).
12% 3) 1% royalty on Rare Earth Elements or oxides(REE): It refers to a group of 17-odd
minerals like scandium, yttrium, and cerium etc. Most of these are used as catalysts and
magnets, in alloys, glass, electronics, petroleum extraction, electric motors of hybrid and
EVS and wind turbines, digital cameras, computer hard disks, smart phones, œuorescent

(Batch: PCB10-RAFTAAR-ONLY-PRELIMS) Mrunal s Economy Pillar#5A: Infra: Bijali & Paani (Energy, Water) → Page 859
 and light-emitting-diode (LED) lights, etc.
Note: Sales price of some of these critical minerals is decided based on data from London Metal
Exchange (LME).

50.2.1 Bene0ts of Reduced royalty

1. Reduced royalty → Improved prortability for the mining companies Will attract more
investment / foreign companies to India.
2. Reduced royalty → cheaper electric vehicle batteries → pollution control. → achieving net-
zero emission by 2070.
3. reduced reliance on the imported minerals → reduced current account dercit → stable
currency exchange rate. (Ref: Pillar#3B)

50.3 MMDR AMENDMENT, 2023

Mines and Minerals (Development and Regulation) Amendment Act, 2023

50.3.1 MMDR → private sector: companies can do atomic mineral mining

BEFORE AFTER
➢ six minerals classired as atomic minerals
➢ Delisted these 6 minerals from
under the Act: (i) beryl and beryllium, (ii)
Atomic mineral list.
lithium, (iii) niobium, (iv) titanium, (v)
➢ So, now private sector companies
tantallium, and (vi) zirconium.
can also explore/mine them. [0~Å
➢ Implicationss Private sector companies
=l+76206 G/A.p~ñ,p1 -,:E.5. w5. §. H0
were prohibited from exploring /mining them.
l+71 y,^ 0> 02Gl+5.2k1 M-0. =++ 0/
Only government companies / government
-0,]
org could explore / mining them.

50.3.2 MMDR →NEW Type of Mining licenses

(Batch: PCB10-RAFTAAR-ONLY-PRELIMS) Mrunal s Economy Pillar#5A: Infra: Bijali & Paani (Energy, Water) → Page 860
BEFORE AFTER
1) reconnaissance license for a preliminary survey
to determine mineral resources in an area (GR<q-
1 and 2 continued for normal minerals. ()-
G/1yp)
ì0./ 0, C.)-x-/ ;,0, 7./1 /:xw,@)
2) prospecting license for exploring, locating, or
proving mineral deposits. (QR2 +.)
New category: exploration licence for
Not present reconnaissance/prospecting of specired
minerals (list given in next section) (n”,ßp)
3) Mining license for the commercial activity of
digging/ extraction of minerals (=++ /=~9.ô 0, ÑC8,)
4) Composite licence: prospecting and mining. Yes these licenses also continued
QR2Q+,4/ =~9 +,96+620, ÑC8 80 -.§ H95. 7.+,<.C. -A÷
C.)-x-)

50.3.3 MMDR → Speci0ed Minerals : Who will give what type of license ( `EsHt i`E_)

➢ 29 mineral such as: Gold, silver, copper, cobalt, nickel, lead, potash, rock phosphate; and
critical minerals such as (i) beryl and beryllium, (ii) lithium, (iii) niobium, (iv) titanium, (v)
tantallium, and (vi) zirconium etc.
➢ following clarity given for them in MMDR Act(s 2023(s amendment →
Type of License for above minerals Who will give
State Government to give.
1) Exploration license for
but, Union government will prescribe details such as
reconnaissance/ prospecting
auction method, terms and conditions.
2) Mining lease: for commercial
digging
Union Government
3) composite licence: for prospecting
and mining.

(Batch: PCB10-RAFTAAR-ONLY-PRELIMS) Mrunal s Economy Pillar#5A: Infra: Bijali & Paani (Energy, Water) → Page 861
50.3.4 MMDR →Reconnaissance - sub-surface method allowed (kpuk^R[kd @pC^@Bdaq)

➢ reconnaissance= a preliminary survey to determine mineral resources.

➢ following clarity given in MMDR Act(s 2023(s amendment →
BEFORE AFTER
Allowed (i) aerial surveys, (ii) geophysical, (iii) geochemical surveys (iv)
Allowed
geological mapping.
forbidden below-surface /sub-surface activities like trenching, drilling, and
Allowed.
sub-surface excavation

50.4 OFFSHORE AREAS MINERAL (DEVELOPMENT AND REGULATION) AMENDMENT 2023

To amend the Year 2002(s original Act (nG*E15 /-A29/ y,^ Ax=++ 0. „.+R+)

BEFORE AFTER
License for 30 years. can be renewed for
another 20 years. (this increased the Directly 50 years ka license = more ease of doing biz. (50
scope for minister/IAS to demand bribe <ßq0. ;,0. 80 -.§ ïAC,w.)
during renewal application)
License given based on administrative
discretion. (this increased the scope for via competitive bidding/auction. (ì¶.-l+0 l<<,0/D.DR-A2ï^562
crony-capitalism, bribery and collusion, 0> A‰Â -,+:12, DæÊ ]K.q¨0 +1C.A1 -,ïAC,w. ;,0.@ )--,“v.J./ 0,
depending on which company paid bribe n<-/ 0A :62w@, )
to the minister.)

(Batch: PCB10-RAFTAAR-ONLY-PRELIMS) Mrunal s Economy Pillar#5A: Infra: Bijali & Paani (Energy, Water) → Page 862
 BEFORE AFTER
only Govt companies will be allowed to do oâshore
mining of atomic minerals such as uranium, monazite,
Less clarity
thorium etc. (0,<C -/0./1 0Ál+5.2:1 G/A.p~=l+7 0. -A29/ Ax
=++ 0/ G.82w1@)
Setup åOâshore Areas Mineral Trust(: companies Will be
required to pay some money to this org. It(ll be used for
research, environment conservation and disaster
No such statutory body.
management near the oâshore mining areas. (nG*E15 y,^
=l+7 Eòπ → 5,-23. =++ 02Gl+562-,GI-. C,w1 4/ É/-JqG5.q</p
-2/yp 4/ FG9. ìD2K+ 0, ÑC8 0.A 0/,w1@)
increased the jail/penalty for illegal mining in oâshore
Less penalty /less jail
areas. (n<IK -A~ƒ1 =++ G/ 7,C/0./.<.- 4/ 7~A.q+,06 D .5. w5.@)

50.5 MINING → COAL (ZwVUP)

 Top 0ve largest coal reserves: USA > Russia > China > Australia > #5: India. (ì.0îl*0 k2ó./)
 Although India is the world's 2nd largest coal producer (blPHE) but our requirements are higher
than production, so, we import >fi1.50 Lcr coal, annually.
 Coal is used in many industries such as electricity, steel, cement, paper, brick-kilns, etc
Coal Type Note Carbon %
Peat Highest moisture = smoke pollution. Most inferior in energy 40
Lignite Important states: TN (Neyveli), Gujarat, Rajasthan 40-60
/Brown Coal
Bituminous/ - Upon heating, it releases a liquid called Bitumin. 60-80
Black-Coal
- Used to make coking coal, gas coal, steam coal.
- Imp states: Chattisgarh, Jharkhand, WB, MP, Odisha
Anthracite Burns with short blue œame, lowest moisture, highest energy. 80-90
Hard Coal ¢R+*A +A1 4/ A:√A |7.q

50.5.1 ♂ [Yearbook] Coal Ministry (ZwVUP RSTPUV) consists of →

Dept - N/A
Attached / - Coal Controller(s Organization: functions- (1) Data collection, research,
subordinate quality monitoring for coal. (2) hear public(s objection against govt(s
notircation related to coal bearing areas.

(Batch: PCB10-RAFTAAR-ONLY-PRELIMS) Mrunal s Economy Pillar#5A: Infra: Bijali & Paani (Energy, Water) → Page 863
 CPSE (-/0./1 - Coal India Ltd (CIL) & its subsidiaries. HQ: Kolkata, Maharatna company,
0Ál+5.2) single largest coal producing company.
- Neyveli Lignite Corporation, Tamil Nadu.
- Singareni Collieries Company Limited: Telangana Govt 51%: Union: 49%
Statutory - Coal Mines Provident Fund Organization

MCQ. In India, what is the role of the Coal Controller:s Organization (CCO)
1. CCO is the major source of Coal Statistics in Government of India. (065C,0, D./, AxF20S,7A. 0/+.)
2. It monitors progress of development of Captive Coal/Lignite blocks. (0IlÈ< 065C. =9.+620, l<0.- 0.
A~F5+./ l+/1yp 0/+.)
3. It hears any objection to the Government(s notircation relating to acquisition of coal-bearing
areas. (065C. l<ÿ./620, ‰A1+ nàK÷:p 0, -/0./1 ÀC.+620, ∆©C.Í l</6K/•¶0.5*6206 -~++.)
4. It ensures that coal mining companies deliver the coal to end users in the prescribed time. (5:
-~l+ØÎ* 0/+. H0 065C. 02Gl+5.2*5 -A5 G/ ÷.:0 06 065C. GÏ£J.5,)
Codes: (a) 1, 2 and 3 (b) 3 and 4 only (c) 1 and 2 only (d) 1, 2 and 4
MCQ. Find correct about the Coal India Limited : (UPSC-CDS-2019-i)
1. It is designated as a åMaha Ratna( company under the Ministry of Coal.
2. It is the single largest coal producing company in the world.
3. ∂e Headquarters of Coal India Limited is located at Ranchi Jharkhand.
Codes: a) 1 only b) 1 and 2 only c) 2 and 3 only d) 1, 2 and 3
Find correct statement(s) about Coal India Limited CIL (UPSC-CDS-i-2020)
1. CIL has its headquarters Kolkata.
2. CIL operates through 82 mining areas spread over twenty provincial States of India.
3. CIL is the single largest coal-producing company in the world.
Codes: a) 1 only b) 1 and 3 only c) 2 and 3 only d)1, 2 and 3

50.5.2 Coal Mining- Nationalization & Entry of Private Sector

- 1973: Coal Mines Nationalization Act → Coal India and other CPSEs took over private coal
mining companies. ∂ey will dig coal, sell it to thermal power plants & other industries.

(Batch: PCB10-RAFTAAR-ONLY-PRELIMS) Mrunal s Economy Pillar#5A: Infra: Bijali & Paani (Energy, Water) → Page 864
- 1993: Private Coal mining allowed for ONLY for captive use (n20~•¶* MG56w) i.e. industrialist
wanting coal for his own steel, cement, aluminium etc. manufacturing processes → UPA-raj
Captive Mining rights given to ministers( relatives → they sold rights to needy companies
@higher price= SCAM, then 2014: SC cancelled coal block allocations.
- 2015: Coal Mines Special Provision Act: It opens up commercial coal mining for both private
and public entities, and thus ends monopoly of Coal India. (doesn(t mean captive mining is
outlawed. Companies who already have such captive mining rights, which were not cancelled by
SC- they(re allowed to operate. ∂en Govt takes some reforms # §6S.-G 6-Fw,-D 6
Find correct statement(s) (Prelims-2019)
1. Coal sector was nationalized by the Govt of India under Indira Gandhi.
2. Now, coal blocks are allocated on lottery basis.
3. Till recently, India imported coal to meet shortages of domestic supply, but now India is self-
suícient in coal production.
Codes: (a) 1 only (b) 2 and 3 only (c) 3 only (d) 1,2 and 3

50.5.3 Mineral Laws (Amendment) Ordinance/Act 2020

=l+7 0.+R+ (-2¶6K+) nÌ.9,¶/ 0.+R+ amends the
 Mines and Minerals (Development and Regulation) Act, 1957 (MMDR Act) AND
 Coal Mines (Special Provisions) Act, 2015 (CMSP Act).
Before ordinance/Act A;er
Who can do Only companies related to Any India-registered company. So it(ll also
bidding in the iron steel, power coal sectors. encourage competition and attract FDI in
coal mining such Indian companies
auction
Prior experience Yes. =++ 0, n+~k< 0> F<Ó0*. Prior experience in mining not required.
required before :6w1, *k1 +1C.A1 AxH:™. C,-0*,:B n+~k< F<Ó0 +:12
bidding
What type of Separate licenses for Single/Composite license called åprospecting
license is /are i. prospecting (survey) license-cum-mining lease(
given ii. actual mining (GR<‘yp--:-=++ 0. -25~á nàK0./G^')
How does Govt Companies to pay a rxed Rs.  Revenue sharing model= i.e. Mining
earn money amount per tonne of coal company needs to give a certain portion
mined. 0Á+1 ìl* E+ 065C,0, of its revenue (=income from coal sales)
Mm.9+ 0, H:-.D -,l+ØÎ* /„A to the govt irrespective of prort or loss in
-/0./ 06 9,91 §1 that sale. 02G+1 +,065C,0> lD¡> 0> FA9+1 0.
0~Å H:™. -/0./ 06 9,+. :6w.
 During the auction: minimum bidding
is 4% revenue share to the government.
∂en whichever company is oâering

(Batch: PCB10-RAFTAAR-ONLY-PRELIMS) Mrunal s Economy Pillar#5A: Infra: Bijali & Paani (Energy, Water) → Page 865
 Before ordinance/Act A;er
higher % revenue share (e.g.5%,10%...)
will be given the mining rights.
Captive Miner Captive miner can(t sell coal  Can sell upto 50% of production. [n20~•¶*
n20~•¶* 065C. =++ to third party. He must use 065C. =++ 02G+1=G:C,065C,06 à-Íq nG+,π1C
02G+1 coal for his own steel, cement -1AxE M}6w Ax)ÿ,A.C 0/ -0*,. nD <,M- 065C.
etc industry only. Mm.9+ 0. 50% =~C,D.‰./ AxD,J k1 -0*,:B]

50.5.4 Coal selling – Shakti Policy (2017)

- Explained in above image.

- National Coal Index: Coal Ministry's index to measure coal price change compared to the base
year 2017-18. It monitors the price of both domestically produced coal & imported coal. [)+ /.vò15
065C. -RJ0.20- k./* AxMm.H9* *§. l<9,¶62-,F5.l** 065C,0> „>A*62G/ +‰/ /=*. :I]
Apps
1. Coal Mitra App by Power Ministry to help companies in buying / selling coal.
2. UTTAM App by coal ministry to monitor coal quality coming from a particular mine.

50.5.5 Mining → Atma-Nirbhar (iEE)

 ATMANI→ PM GaribKalyan → District Mineral Foundation Fund (DMF) fifi → can be
used for COVID-19 testing & related infra (Ø7C. =l+7 ìl*›.+ l+àK)
 Mineral Index (=++ -RJ0.20) for diâerent minerals to be prepared. But, details not yet announced.
 Joint Auction of Bauxite and Coal mineral blocks so that: Coal → electricity → use it for
smelting Bauxite into Aluminium = electricity costs for mining company. (065C,4/ DŸΩ.)E
=9.+620> -.Ô. +1C.A1 *.H0 D6Ω.)E lGC.+,0, ÑC8 lD7C1 C.w*/=Jq0A :6. )
 We(ll encourage Coal Gasircation / Coal Liquefaction, Coal Bed Methane Extraction → creation
of a gas based Indian economy.
 Commercial Mining allowed in the Coal Sector, through revenue sharing model. (<.•p∞±0 =++:
F5 A,-,H:™,9./1 0. A6ó,C).

(Batch: PCB10-RAFTAAR-ONLY-PRELIMS) Mrunal s Economy Pillar#5A: Infra: Bijali & Paani (Energy, Water) → Page 866
50.5.6 Coal Crisis/Shortage in 2021-Oct
While India has the world(s r´h-largest coal reserves. But Govt company Coal India's capacity is
limited.In 2021-Oct: nearly 80% of India(s coal based electricity power-plants had less than eight
days of coal supplies le´: ( lD7C1 /62Axà-Íq F; H9+62*0 lD7C1 GI9. :6 -0, M*+. :1 065C. DJ. §..)
 1) Coal India does not have the technology for mining in the rainy season (<I-,*6 k./* Ax065C,0,
F/•y* k2ó./ l<G~C A.^. Ax:IC,H0+ -/0./1 02G+1 06C )2Hó5. 0, G.- D.É/¶ Ax=++ 0/+,0> nûÒ E,Ú6CŸ71 +:12:I.)
 2) Coal India(s prorts are not reinvested in expansion of the mining activities/research but rather
to give as dividend (so as to help government in its welfare schemes and Fiscal dercit
management. Ref Pillar2D) (-/0./1 0Á+1 06 76 k1 A~+.Í. :6*. :IM--,-,065C. =++ 0> +ô +ô E,Ú6CŸ71 4/
A¶1+/1 ©/191 J.H:8@ C,H0+ <,Û.9.*/ A~+.Í. C.k.2¶/Hól<óxó 0, ?G Ax-/0./ 06 9,*1 :I, *.H0 -/0./ 0. /.706ß15 .E.
0A :6 -0,, J~+.<620, ÑC8 Ù/1D 0ı.p 567+. JC. -0,@ )
 3) so we have to rely on imported coal but China and Australia coal mining activities have facing
problems by the foreign environment activists like Greta ∂urnberg. → ∂ose foreign coal
mining company is required to invest in the green technology, which is increasing their cost of
production → expensive coal import for India. (J1+ 4/ …πò,ÑC5. Axk1 065C. =++ G/ l<l<K G5.q</p
l+5A620, JC*,k./* 0, ÑC8 F5.l** 065C. A:£w. ÏF :I)
 4) Corona-lockdown: supply chain issues. (*.C.D291 0, JC*,FGRÆ* ˆ2=C. AxH9˜*x)

50.5.7 Coal Energy: Economic survey suggestions / observations:

1. Carbon Imperialism (0.Dq+ -.¯.±<.9) is a modern day type of imperialism wherein the 1st world
nations are trying to enforce their views about energy-consumption upon the 3rd nations with
hidden agenda to 1) To sell their nuclear fuel & technology. 2) To portray 3rd world in bad light
for using coal power and thereby their own culpability for global warming. India's
Contribution to GHG <10% and Per capita emission is less than 2 tons, yet 1st world nations
portray us as villains. (l<0.-¶1C 9,¶6206 nG+1 G/A.p~|7.q4/ *0+10 D,J+,0, ÑC8 *§. 7C<.5~GÉ/<*q+ AxnG+1
nG/.àK0 *. 06 Å~G.+,0, ÑC8 l<0à-* 9,¶ 065C. *.G FK.É/* |7.q0> l+92 . 0/*,:I)
2. But for India coal based electricity is a necessary evil because
a. Wind and solar power are Non-dispatchable (wI/ ì,ßp15), meaning electricity can be
generated only when there is fast wind blowing or there is appropriate sunshine
b. Land requirement for solar based powerplant is 10 times that of thermal power plant.
c. Challenges in acquiring Nuclear Fuel and Nuclear Technology
d. Unemployment if we shut down coal mining & thermal plants. Further mains self study
at mrunal.org/2017/09/upsc-mains-answer-writing-gsm3-carbon-imperialism.html

(Batch: PCB10-RAFTAAR-ONLY-PRELIMS) Mrunal s Economy Pillar#5A: Infra: Bijali & Paani (Energy, Water) → Page 867
3. Budget-2020: Some of the Indian thermal power plants are old and their carbon emission
levels are high. We(ll close them & use their vacated land for alternative use. (D,:9 ì9õßp 0/+,<.C,
G~/.+,˙.2Eú- D2K 0/xw,4/ M- 7A1+ 0. 06ô ¥/ <I0æ˚0 )ÿ,A.C 0/xw,)
4. Budget-2022:- Carbon Neutral Economy: 5-7% biomass pellets will be co-rred in thermal
power plants → extra income to farmers + stubble burning in agriculture relds. (Í-C
n<¶,ß/G/.C1 06 7C.+,0> 7w: M-Ax-,D.56A.--G,CE, D+.0/ 065C. lD7C1 /62Ax)ÿ,A.C H08 7.82w,@)
5. Budget-2022:- Announced projects for 1) coal gasircation 2) conversion of coal into
chemicals.
a. Gasircation of coal is a process in which coal is partially oxidated by air, oxygen, steam
or carbon dioxide → to produce a fuel gas. (065C,0, F2•¶0 ¥¸Ωó,¶+ ˝./. ˛K+ wI- D+.+.@)
b. Coal can be used for producing chemicals like Formaldehyde, ethylene and propylene,
acetic acid. (065C,Ax-,l<l<K /-.5+620. Mm.9+)
6. ES22 quoted World bank(s report Minerals for Climate Action: we need following minerals
to clean energy:- (1) Copper, Aluminum, Iron, Manganese, Nickel for developing solar cells,
wind turbines, nuclear reactors. (2) Lithium and Graphite for storing electricity. But India
doesn(t have enough of these mineral resources. (ùû |7.q0, -.K+624/ -2÷:p 0, ÑC8 )+ =l+7620>
‰?/*, H0ˇ~k./* 0, G.- G5.qप्त A.^. Ax5,=l+7 -Á‹√ MGCŒ +:12)

50.5.8 Mining → Misc. Schemes, Apps, Portals, Issues

FAQ: Do I:ve to remember all this Ans. No. I:ve given to prevent your FOMO feeling from
CA-PDFs/365s. (FG06 5,ó/ +:12/:,H0 FG0, G.- :1 A.C +:12:I)-ÑC8 FG06 5: A.C H95. :I. +129 =6+,0> ‰?/* +:12.)
Lakshya Bharat - Bosss Petroleum and natural gas Ministry.
Portal - annually Indian oil companies import machinery and instrument
instruments worth 35 billion dollars. ∂is portal contains the list of items
imported by Indian oil-gas company so that local manufacturing
companies can explore making such products domestically, to make
India Atma-nirbhar / self-reliant.
Pradhan Mantri - Boss Mining Ministry.
Khanij Kshetra - It aims to use the funds of the DMFs to complement the ongoing union
Kalyan Yojana and state schemes in that district e.g. drinking water supply, health care,
(2015)
sanitation, education, skill development, women and child care etc.
Star Rating Of Mining Ministry → Indian Bureau of Mines gives 0-5 Star to a mine
Mines, 2016 depending on whether the mining company is working without adversely
aâecting the social, economic and environmental well-being of present and
future generation. H0-1 =9.+ 0> -.A.Ø70 F⇥§0 4/ G5.q</p15 n-/
Illegal mining It(s bad for environment & Govt deprived of royalty so….

(Batch: PCB10-RAFTAAR-ONLY-PRELIMS) Mrunal s Economy Pillar#5A: Infra: Bijali & Paani (Energy, Water) → Page 868
 wI/ 0.+R+1 =++ - Mining Surveillance System (MSS): satellite-based system by Indian
Bureau of Mines under Mining ministry.
- Khan Prahari App: Ministry(s app for reporting illegal coal mining.
- Sidenote: cVIGIL App: Election Commission of India(s app to report
violation of model code of conduct / expenditure.
TAMRA Mining ministry(s TAMRA App/portal for helping the businessmen to bid in
App/portal mining auctions online (2017) (…+C.)+ */1„, -,+1C.A1 AxH:™. C,+,0, ÑC8)
PRAKASH Portal  PRAKASH (Power Rail Koyla Availability through Supply Harmony)
(2019) portal launched jointly by Power Ministry and Coal Ministry
/,C<,˝./. 065C,0.  To connect the Coal mining companies, Railways and ∂ermal Power
GÉ/<:+ Plants on a single platform = better supply chain management.
Satyabhama Mining Ministry's portal for mining related research, science & technology.
Portal (2020-Jun) Satyabhama = wife of Lord Krishna. (=++ 0, -.§ 7~S1 -2¶6K+ l<ª.+ ìü}6ïw0>)
CIMS and AIMS Mining Ministry's online èAluminium Import Monitoring Systemê (AIMS)
& Copper Import Monitoring System (CIMS)
Pollution - Red Mud is a solid waste generated during the Bauxite to aluminum
By mining production process. Ministry of Mines making eâorts to utilize red mud
=++ ˝./. ì9õßp in cement and ceramic etc industries.
- Fly Ash is the pollutant generated by ∂ermal Power Plants while
burning coal. Can be used in making cement, Bricks, Tiles, roads. Power
ministry launched ASH TRACK Mobile App to monitor œy ash

51 INFRA → ENERGY → ELECTRICITY (|7.q→ l<}~*)

- (Origin) Electricity is a key element in modern day life. Right from running irrigation pumps to
charging mobile phones, electricity is a prerequisite for agricultural growth and digital
connectivity. (lD7C1 :IFK~l+0 71<+ 0. nl+<.5qH:™. - J.:,0îlß à-J 2 .ô :6 5. A6D.)C Ü6+ -2J./)
- 1897: Electricity supply starts in Darjeeling, 1902: Hydro powerstation at Shivasamudram in
Karnataka. In the pre-Independence era, the power supply was mainly in the private sector, that
too restricted to the urban areas. (lD7C1 0. K2K. l+71 02Gl+5620, :.§ Ax§., 4/ Û.9.*/ ¶:/62*0 -1ïA* §.@)
- (Signi0cance) Greater access to energy improves both economic growth & human development
of a country. If India wants to improve its Human Development → we must per capita
energy consumption by 4xtimes. (A.+< l<0.- 06 D,:*/ 0/+,0, ÑC8 ìl* ⇤⌅á |7.q=G* D .+1 :6w1)
- (DATA) India(s per-capita energy consumption of only ~1/3rd of the global average. OR ∂ough
India accounts for ~18% world(s population, it uses only around 6%of world(s energy.
- (DATA) India is the 3rd largest consumer of energy resources in the world, next only to USA
and China. It is also the 3rd largest importer of crude oil and 4th largest importer of LNG in the
world as per India Yearbook 2023.

(Batch: PCB10-RAFTAAR-ONLY-PRELIMS) Mrunal s Economy Pillar#5A: Infra: Bijali & Paani (Energy, Water) → Page 869
Image source: Economic Survey.

51.1.1 Electricity generation in terms of company ownership

Owned by Union Owned by State Owned by private sector Total generation
25% 26% 49% = 100%

51.1.2 ♂ [Yearbook] Ministry of Power (`C{|Q-}_P^ RSTPUV)

Dept & N/A but they(ve truckload of other bodies & apps:
Attached
Statutory  Joint Electricity Regulatory Commission (JERC) for UT of J&K & Ladakh
Bodies  Central Electricity Authority (CEA: 0,⌃15 l<95~ ú * ì.àK0/p): prescribes the standards
for construction of electrical plants, electric lines etc.
 Central & State Electricity Regulatory Commissions (l<}~* l+5.A0 F56w) for rxing
the electricity tariâ (prices).
 Appellate Tribunal for Electricity (APTEL), Bureau of Energy E<ciency (BEE);
 Damodar Valley Corporation (DVC); Bhakra Beas Management Board
 Joint Electricity Regulatory Commission (JERC) for GOA & UTs
 JERC for Manipur and Mizoram
Autonom Central Power Research Institute, National Power Training Institute
CPSE  National ∂ermal Power Corporation (NTPC)
GBZPBd  National Hydroelectric Power Corporation (NHPC)
ZS@Ed  SJVN ltd: Satluj Vidhyut (GoI 62%, Himachal 27%, rest % with other investors)
 Power Finance Corp (PFC), Power Grid Corporation of India (POWER GRID)
 Power System Operation Corporation Limited (POSOCO)
 EESL- Energy Eíciency Services Limited- joint venture of NTPC Limited, PFC,
REC and POWERGRID- known for its subsidized UJALA LED bulbs
 («) THDC India Limited: Tehri Hydro (GoI: 75%, UP State:25%)
 («) Rural Electrircation Corporation (REC)- known for DD Gram Jyoti.
 («) North Eastern Electric Power Corporation (NEEPCO)
(2) means approved for strategic disinvestment (=privatization) in 2019

(Batch: PCB10-RAFTAAR-ONLY-PRELIMS) Mrunal s Economy Pillar#5A: Infra: Bijali & Paani (Energy, Water) → Page 870
51.2 ♂ NATIONAL ELECTRICITY DISTRIBUTION COMPANY
- PM Modi had announced 24x7 power to all by 2022. But, since private and State-Government
owned electricity distribution companies are suâering NPA/debt issues, the electricity
distribution sector is not expanding fast enough to achieve this target.
- So, 2019-June: NTPC and Power Grid Corporation of India have formed a 50:50 joint venture
company → named National Electricity Distribution Company.
- Objective electricity distribution business on a pan-India basis.

51.2.1 IEX = Current-PDF-walla gone crazy (NGZ] @dÅ] PDF CPU]HdCPE]Dw uÇ DÉ)

A private sector company: Indian Energy Exchange Limited (IEX) this GK very poor cost benert
for exam, But CA-PDF walla gone crazy. # §6S.-G 6-Fw,-D 6
51.3 ☪ ELECTRICITY → ONE NATION-ONE GRID

- Initially, individual states( electricity grids (lD7C1 ï÷ó) were interconnected to form 5 regional
grid regions namely Northern, Eastern, Western, North Eastern & Southern region. If a state
had surplus electricity, it could sell ONLY to other states in that region.
- So, One Nation-One Grid concept aims to connect all 5 regional grids into one national grid so,
electricity can be transferred from surplus region to dercient region.
- Here buying-selling of surplus electricity is done through power exchanges like —Power
Exchange of India (PXIL) and India Energy Exchange (IEX).
- Boss Power ministry → Power Grid Corporation of India Limited.

51.3.1 Grid → Green Energy Corridor Project (DABQ }_P^uÑUVPBP @ABVw_EP)

- Project will enable the œow of renewable energy into this National Grid Network. So that

(Batch: PCB10-RAFTAAR-ONLY-PRELIMS) Mrunal s Economy Pillar#5A: Infra: Bijali & Paani (Energy, Water) → Page 871
 renewable energy rich States like Rajasthan (solar), Tamil Nadu (wind) can sell the electricity to
other states. (80 /.± 0> :É/* lD7C1 n¢ /.±6206 A~:5I ./MGCŒ 0> 7. -0,@)
- 2022- Phase-II of the scheme started. Union govt to give 33% subsidy on project cost.

51.3.2 Grid → GREEN Grids / OSOWOG

- 2018: India had rrst proposed connecting solar energy supply across borders at the International
Solar Alliance (HQ: Gurugram, India).
- 2021: PM Modi and UK PM Boris Johnson launched a ågreen grids( initiative- also known as the
One Sun One World One Grid (OSOWOG) project— on the sidelines of the COP26 Glasgow
summit in UK.
- To connect renewable energy grids across borders. (l<•kन्न 9,¶620, D1J :É/* |7.q/lD7C1 06 76S. 7.8)
- (Benert) If the countries in diâerent time zones are connected then they can continue to work
on solar energy even a´er the sun is set in their own country. (*.H0 80 9,¶ Axnw/ -R5.qÿ k1 :6 7.8, *6
k1 9õ-/, 9,¶ 0> -ü/ |7.q-,M-0. 0.A JC*. /:,w.)
51.4 ELECTRICITY → POWER MINISTRY:S APPS/PORTAL OVERDOZE
FAQ: Do I:ve to remember all this Ans. No. I:ve given to prevent your FOMO feeling from
CA-PDFs/365s. (FG06 5,ó/ +:12/:,H0 FG0, G.- :1 A.C +:12:I)-ÑC8 FG06 5: A.C H95. :I. +129 =6+,0> ‰?/* +:12.)
Garv app to monitor progress of how many villages electrired under DD Gram Jyoti
Yojana.
DEEP portal to help DISCOM companies buy electricity from thermal plants through
auction.
Vidyut PRAVAH & to let people know how much electricity is generated in India, vs. current
MERIT app price, demand & shortages, inter-state purchase of electricity etc.
Urja Mitra App to notify users about upcoming electricity outages.
TARANG App to monitor upcoming power projects & stalled projects.
And lastly, Power Ministry → Central Electricity Authority (CEA) → National Power Portal (NPP)
where above Apps( data can be displayed

(Batch: PCB10-RAFTAAR-ONLY-PRELIMS) Mrunal s Economy Pillar#5A: Infra: Bijali & Paani (Energy, Water) → Page 872
51.5 ELECTRICITY → INTEGRATED POWER DEVELOPMENT SCHEME

¶:/62AxlD7C1 MGCŒ D,:*/ 0/+,0, ÑC8 80>0î* lD7C1 l<0.- 567+.

- Boss Ministry of Power (2014). Central Sector Scheme = 100% funded by Union.
- Target To strengthen power infrastructure, especially in urban areas.
- How All Electricity Distribution Companies (Discoms: lD7C1 l<*/p 02Gl+5.2) are given fi fi
assistance for improving distribution network, installing ICT enabled smart meters for billing
and collection. Install solar panels if not possible to join an area with grid.

51.5.1 Electricity → Prepaid Smart Meters for Electricity

 A smart prepaid meter has an internet modem. Electricity co can remotely connect, supply the
electricity as per amount of fifi balance le´ in the device (similar to a prepaid mobile talktime).
 Electricity usage data collected in a server → scope of electricity the´ by tempering with the
meter box. (A1E/ -,Å,ó=
ú .+1 A~AH0+ +:1)
 Budget-2020: We(ll replace conventional meters by prepaid smart meters in the next 3 years.

(Batch: PCB10-RAFTAAR-ONLY-PRELIMS) Mrunal s Economy Pillar#5A: Infra: Bijali & Paani (Energy, Water) → Page 873
Note: Prices quoted in above chart are only for illustration, they may not be real/accurate.
51.6 : ELECTRICITY: NPA SOLVE → UDAY (2015)
(BPÜ GBZPBwS Q|R `á_Ud ZS@`EVwSZP áàZ Z_^kBw Vw_EP)

During UPA/Congress-raj, DISCOMs were suâering losses because:

1. Floods and cyclones, environmental activism by NGT/SC, scams in coal allocation → coal
mining → Coal became expensive → ∂ermal electricity production became expensive.
(D. J¡<.*, G5.q</p15 nl* -*0q*., 065C. =9.+ F<2E+ AxK.2KC1)
2. 20% of the electricity is lost wasted during the transmission and distribution. But electricity
companies do not have enough money to upgrade their network/equipment. (+8 MG0/p/ -.K+
©/19+,0, ÑC8 GI-. +H:, )-ÑC8 G~/.+1/77qÉ/* C.)+62Ax-2J./ 0, 9ü/.+ ⌦% lD7C1 DD.q9 :6 7.*1 :I)

(Batch: PCB10-RAFTAAR-ONLY-PRELIMS) Mrunal s Economy Pillar#5A: Infra: Bijali & Paani (Energy, Water) → Page 874
3. Under the Electricity Act 2003 →
a. Central Electricity Regulatory Commission regulate the price of Inter-State sale of
electricity.
b. State Electricity Regulatory Commissions regulate the price of intra-state sale.
c. ∂e electricity price slabs are kept diâerent for industrial use, household use and
agriculture use. (4}6ïw0 É/:.)¶1 4/ 0îlß MG56w 0, ÑC8 lD7C1 0, nCw nCw 9.A :6*,:B)
d. To keep farmers happy, agri electricity will be subjected to lower tariâs. But State
Govts not releasing subsidies on time to electricity companies. (H0-.+6 06 -ÿ,/ A~↵ Ax
lD7C1 91 7.*1 :I@ :.C.£H0 lD7C1 02G+1 06 Ï8 +~„-.+ 0> -æøó1- /.± -/0./ l+5* -A5 G/ J~0.*1 +:12:I)
4. Electricity the´s rampant but State Govts ignore it for vote bank politics. (C60C~k.<+ 0, ÑC8
H0-.+6206 -ÿ,AxlD7C1, *§. -/0./620> lD7C1 J6/1 0, ∆=C.Ü CS+,AxM9.-1+*. 0, JC*,lD7C1 02Gl+5.26/ +~0-.+1 Ax)
DISCOM making huge losses → Modi launches =Ujwal Discom Assurance Yojana: (UDAY).
Boss Ministry of Power (2014)
Target Financial revival of DISCOMs via following method:
- Whatever was the debt of a DISCOM on 30/9/15: State Govt will take over 75% of the debt in
a phased manner. [It is optional for States to do this.]
- To repay this debt, State govt. will mobilize fi issuing bonds in the market. ∂ese bonds will
be non-SLR in nature. So, banks are buying them, it will be not counted in their SLR quota.
What is SLRs (More in Pillar#1A2: Monetary Policy).
 (if States do above thing) → Union will give them extra fifi for Deendayal Upadhyaya Gram
Jyoti Yojana (DDUGJY), Integrated Power Development Scheme (IPDS), and other such
schemes of (1) Ministry of Power and (2) Ministry of New and Renewable Energy.
 By 2019-20, rrst phase completed. Data showed that scheme failed to completely solve the
problem of the electricity companies. ∂en power minister said we will launch UDAY 2.0

(Batch: PCB10-RAFTAAR-ONLY-PRELIMS) Mrunal s Economy Pillar#5A: Infra: Bijali & Paani (Energy, Water) → Page 875
 scheme with better features but no development yet. [G:C,J/p Ax0~Å ©.- -ÜC*. :.à-C +:12Ïô
:.C.£H0 9õ-/. J/p ¶~? 0/+. D.„> :I]

51.6.1 Energy → DISCOMs Liquidity injection (@ÉGP Zâ QBUQP H]Z] _PE äpSZEP)
faded / outdated topic. so, I'm deleting it from handout.

51.6.2 Energy infra→ Electricity reforms in Atma-Nirbhar (`á_Ud a]T R[G|ãPB)

 Corona lockdown → Industry and railways shutdown → demand for electricity → losses
for Electricity/Power Distribution Company (DISCOM).
 Atma-Nirbhar: Govt will give fifi to (i) Power Finance Corporation (ii) Rural Electrircation
Corporation (PFC-REC) → they(ll invest fifi in DISCOMS.
 encourage DBT for electricity subsidy to farmers (-Dà-ó1 0. ì∑y :ÿ.2*/p);
 install smart prepaid meters
 Will privatise the Union Territories( DISCOM/Power departments → More eícient operations
in UT (0xƒ ¶.à-* ì9,¶62AxlD7C1 0> -/0./1 02Gl+5620. l+710/p 0/xw,)

51.7 ELECTRICITY (AMENDMENT) BILL 2022 (`á_Ud G|ãPB `Cã]VZ )

 electricity is mentioned in the Concurrent List.
 So, Both Parliament and state legislatures can frame laws on electricity.
 In case of a conœict between two laws, Union law will prevail.
 In real life the responsibilities have been divided in such manner that:
♂Union looks a;er States look a;er
electricity supply chain electricity distribution
electricity generation
electricity transmission
ELECTRICITY (AMENDMENT) BILL, 2022 aims to amend the Electricity Act, 2003. But it is mostly
in negative news because of the following reasons: (l+≈ 0./p62-,l<<.962Ax:I)
If a DISCOM wants to distribute electricity in more than one state, then
♂ Central Electricity Regulatory State electricity regulatory commission
Commission (CERC) (SERC)
give license To operate in multiple states (80 -, power to reject license to a discom to operate in
nàK0 /.±62AxlD7C1 l<*/p 0/+. J.:*1 02Gl+56206 their State (lD7C1 l<*/p 02G+1 0. C.)-x- /· -0*1 :I)
C.)-x- 9,-0*1 :I)
Decide minimum capital, code of conduct etc. Decide the minimum and maximum tariâ
for the applicant company (lD7C1 l<*/p 02Gl+562 (Electricity prices) that a discom can charge in
0> 0, G.- H0*+1 GR271 :6+1 J.H:8, M+0> FJ./ -2H:*.) their state (lD7C1 0> Mच्च√A 4/ ¢R+*A/C~√A „>A*x)
Critics fear above division of responsibilities will create confusion and power struggle between
union and state electricity regulatory bodies. (؉म्म,9.É/5620, Má l<k.7+ -,0xƒ 4/ /.± 0> lD7C1 l+52^0
-23.¥20, D1J -√. -2ßq4/ 9l<K.8£ D ,w1@).
Some more notable features

(Batch: PCB10-RAFTAAR-ONLY-PRELIMS) Mrunal s Economy Pillar#5A: Infra: Bijali & Paani (Energy, Water) → Page 876
 Feature Why criticism
Bill makes it easier for multiple electricity State govt owned electricity companies don(t
discoms to operate within an area. ∂is will want more competition from private sector. (80
increase the competition )C.„, Ax1 -,Û.9. lD7C1 l<*/p 02Gl+5. 0.A 0/ G.8£w1 @
Ø7--,]K.qD ,w1, C,H0+ /.± 0> -/0./1 lD7C1 02Gl+5.2
)--,+./.7.)
Discoms will compulsorily have to buy Renewable energy is more expensive than
minimum X% renewable electricity & distribute thermal (Coal) energy, so Discoms
it to customers. Else there will be penalty. ∂is apprehensive/opposed (nl+<.5q?G -,lD7C1 l<*/p
mechanism is known as Renewable Purchase 02G+1 +,0~Å ùû |7.q©/190, ÷.:06206 D,J+1 :6w1@ </+.
Obligation (RPO). 7~A.q+. Cw,w.@ C,H0+ ùû |7.q, 065C. |7.q0, A~„.DC,
A:£w1 :6*1 :I)-ÑC8 lD7C1 02Gl+562Ax8*/.‰@)
Requires state govt to setup Cross-subsidy  Non BJP States don(t want to take such
Balancing Fund. How it(ll works Not imp. (/.± additional responsibilities. (*6 /.± -/0./6206
-/0./62+,80 ¡Ÿ- -æøó1 DICàx-w2 /-2*~C+ 06ß/Ü2ó D+.+. +./.‰w1 :IH0 :A G/ 5,n+.<Ó0 ؉म्म,9./1 §6G1 wô@ )
:6w.)

51.7.1 Electricity (Rights of Consumers) Rules,2020: `á_Ud b@kwåP nçãZPB `EVR

 Power ministry announced them under the Electricity Act 2003.
 It requires the electricity distribution companies to provide 24/7 Electricity, Grievance redressal
and penalty/compensation mechanism etc to consumers. (÷.:06206 24 2E, lD7C1 0. nàK0./)
 Although Electricity Commission may specify less hours of supply for some categories e.g.
agriculture (Else it may result in over-exploitation of groundwater)
 Bene0t Electricity distribution companies have become èmonopoliesê for a particular city
because consumers have no alternative to buy electricity from other companies, even if they are
unhappy with the service. So, govt deemed it necessary to provide such rights to customers.
(-.A.¢ ?G -,1 ¶:/ Ax80 -,Û.9. lD7C1 02G+1 +:12:6*1 )-ÑC8 80 ì0./ -,M+0. 80.àK0./ JC*. :I@ )-ÑC8 ÷.:0
•¶0.5* l+<./p *2^ 0> 3.G+. 0> 7.8w1)

51.7.2 Time-of-Day (ToD) tari> for electricity use.

• By the power ministry using the provisions under Electricity (Rights of Consumers)
Amendment Rules, 2023
• Makes rules for diâerent electricity price based on time of the day. (H9+ 0, -A5 n+~-./ lD7C1 0.
k.</„>A* 0A 5. ±.9. :6w1)

Time of the day electricity price

Normal sunny day Price need to be 20% less than normal price
Peak hours (e.g. Price cannot be more than 1.10 to 1.20x times than normal price
evening) (depending on customer type).

(Batch: PCB10-RAFTAAR-ONLY-PRELIMS) Mrunal s Economy Pillar#5A: Infra: Bijali & Paani (Energy, Water) → Page 877
Note: In the taxi, there is similar concept called ésurge priceè e.g. during the evening hours when
everyone is going from oíce to home, taxi operator, increase the price per kilometer, due to increase
in demand. Ministry of Road issued some guidelines for it. State governments have powers decide
the fares of rickshaws and taxis.

51.8 ELECTRICITY → DEEN DAYAL GRAM JYOTI YOJANA (2015)

(uPSC CPUwSZw `á_Ud ZE]êE ëHUCPí Vw_EP)

Lack of rural lighting= use of kerosene lamps → pollution, import bill, subsidy bill. So, PM
Manmohan(s Rajiv Gandhi Grameen Vidyutikaran Yojana → Modi restructured as DDUGJY.
 Boss Ministry of Power → Rural Electrircation Corporation-REC (2015)
 Central Sector Scheme = 100% funded by Union.
 Target 24✏7 uninterrupted åmetered( electricity supply to each rural household by 2022, by
doing following →
 1) Separate feeder lines for rural households vs agricultural use. (0îlß 4/ ÷.A1p É/:.5¶1 0, ÑC8 96 nCw
nCw -2k/0 C.)+) 2) Strengthen sub-transmission and distribution network to reduce power
losses. 3) Install electricity meters.

51.9 ELECTRICITY → PM SAHAJ BIJLI HAR GHAR YOJANA (SAUBHAGYA)

(uPSC CPUwSZw `á_Ud ZE]êE ëHUCPí Vw_EP)
Boss Ministry of Power→ Rural Electrircation Corporation-REC (2017)
Target  To give electricity connections to all remaining un-electrired households in rural
and urban areas. To provide 24x7 power supply for all
How  Based on SECC-2011, identify benerciaries, give them free electricity connection
with meter.
 If a household in remote area → not possible to join with grid connected
electricity lines→ then solar cell, DC battery pack, LED lights will be given.

(Batch: PCB10-RAFTAAR-ONLY-PRELIMS) Mrunal s Economy Pillar#5A: Infra: Bijali & Paani (Energy, Water) → Page 878
51.9.1 ⌅ Revamped Distribution Sector Scheme (2021-June)
[@|BPEd `C{|Q Vw_EPíSZ] }@B ÅQBd Vw_EP]
Bosss Power ministry with >fi3 lakh cr funding. - it will act as an åumbrella scheme( subsuming
previous schemes:
 Deen Dayal Upadhyaya Gram Jyoti Yojana [DDUGJY] / SAUBHAGYA = for improving the
electricity supply in rural area. (w.£<6 0, ÑC8)
 Integrated Power Development Scheme(IPDS) = for electricity supply in urban area. (¶:/)
 Prime Minister(s Development Program (PMDP) = for electricity infrastructure in Union
Territories of J&K and Ladakh (7म्मR0⇣1/ 4/ C·.= 0, ÑC8)
 ES22: thanks to all these initiatives, 96% Indian families have electricity connection.

51.9.1.1 ⌅ RDSS: FeaturesE

Basically the similar features like the previous schemes like DDUGJY, IDPS etc i.e.
 Separation of Agriculture feeder lines. [0îlß MG56w 0> lD7C1 0, ÑC8 nCw *./ lDÅ.ô 7.8w1]
 Solarization of electricity feeder lines under KUSUM = Basically, farmer can sell the excess
electricity from their solarplant to electricity company → extra income for farmer⌘ [0~-~A 567+. Ax
H0-.+ +,76 -R5q|7.q-,lD7C1 D+.51 :IM-,<6 lD7C1 02G+1 06 D,J G.8w.]
 Smart electricity meters will be installed [for all users other than agriculture]→ electricity
consumption level will be monitored through artircial intelligence (AI) → power outages solved
in a faster manner. Government will give upto 15-50% subsidy to DISCOM companies,
depending on performance & gen-vs- sp.category state. [0îlß 0, nC.<. <.C,÷.:0620, H;0.+62G/ ✓.Eq
lD7C1 A1E/ Cw.8 7.82w,Ø7-0> 0îï^A D~ï†A√. -,l+w/.+1 :6w1, *.H0 lD7C1 0Eü*1 0. *~/2* MGJ./ :6 -0x]
 modernisation of state-level electricity distribution infra. [/.± ÿ/ G/ lD7C1 n<-2/J+. 0.
FK~l+0>0/p]
 Special focus/ extra funding for special category states. Furthermore, UT JK, Ladakh, Andaman
& Nicobar Islands, and Lakshadweep Will also be considered under èspecial category statesê [So,
they can also get extra funding] [l<¶,ß ñ,p1 0, /.±6206 nl*É/á GI-. 9xw,]
 Annually the electricity distribution companies [DISCOMs] will be reviewed for their
performance. ONLY If a DISCOM scores minimum 60% marks in performance review= Will be
given government funding. [76 lD7C1 02G+1 ì9¶q+ A.+062G/ 0A -,0A 60 ìl*¶* w~p -.C.+. :.à-C 0/,w1, M-1
06 -/0./ GI-. 9,w1]

Saubhagya, a Govt Scheme, relates to which of the following areas (UPSC-CDS-i-2020)

a) Achieving universal household electrircation b) Providing clean cooking fuel to poor households
c) Rationalizing subsidies on LPG d) Stopping female foeticide
SAUBHAGYA, a Central Government scheme, is related to (UPSC-CAPF-2020)
(a) providing cash money to women giving birth of single female child
(b) connecting kitchen of every household with piped cooking gas
(c) strengthening and augmenting infrastructure for piped water supply
(d) achieving universal household electrircation in the country

(Batch: PCB10-RAFTAAR-ONLY-PRELIMS) Mrunal s Economy Pillar#5A: Infra: Bijali & Paani (Energy, Water) → Page 879
 ^SEE basically same MCQ reused/recycled in two diâerent exams of UPSC

51.10 ELECTRICITY → USE =LESS: → ENERGY EFFICIENCY

∂e term energy eíciency means using lesser amount of energy to produce a given amount of
output. E.g, a light-emitting diode (LED) light bulb requires energy than an incandescent light.
∂us LED is more energy eícient than incandescent lights. (|7.q9y*.: 0A |7.q-,±.9. ì0.¶ 5. Mm.9+)

51.10.1 Electricity → Use =Less: → PAT Mechanism

(`á_Ud i@Q ZR ZB Z] GsìîäZ]ì G]@ÉGP ZRPí Vw_EP)

2008: Environment Ministry(s National Action Plan on Climate Change (NAPCC: 7C<.5~GÉ/<*q+ G/
/.vò15 0.5q567+. ) One of its 8 components is National Mission for Enhanced Energy Eíciency
(NMEEE: <⇥K* |7.q0.5qyA*. 0. /.vò15 l+56w ) → PAT.
Boss Power Ministry → Bureau of Energy Eíciency (BEE).
 Under Perform Achieve and Trade (PAT: ì9¶q+, :.à-C 4/ ⇤.G./ 0/+.) mechanism:
 8 energy intensive industries are given åquotas( viz. ∂ermal Power, Aluminium, Cement,
Fertilizer, Iron-steel, Pulp-paper, Textiles and Chlor-alkali.
 ∂ey(ve to cut their energy consumption according to the quotas, else face penalties.
 Overachieving rrm can obtain Energy Saving Certi0cates (ESCerts) from BEE(s PATNET portal
and sell it to the underachieving rrm (similar to PSLC certircates).
 Central Electricity Regulatory Commission (a statutory body) regulates the prices.

51.11 GREEN CREDIT PROGRAMME

Budget-2023: we will notify a green credit programme under Environment (Protection) Act.

51.11.1 Trading: RPO, PAT, CCTS, GCP

Year Scheme Objective Compulsory Ministry
2014 Renewable Purchase requires electricity Yes, under Electricity Ministry of New &
Obligation (RPO) companies to buy some Act, 2003. Renewable Energy

(Batch: PCB10-RAFTAAR-ONLY-PRELIMS) Mrunal s Economy Pillar#5A: Infra: Bijali & Paani (Energy, Water) → Page 880
 Year Scheme Objective Compulsory Ministry
of the electricity from
(MNRE)
renewable sources.
Perform, Achieve and Yes under Energy Power Ministry
for reducing energy use
2012 Trade (PAT) Conservation (EC)
in large industries.
[Legal-Compulsory] Act, 2001.
(1) To replace PAT Yes under Energy
Carbon Credit and
2023- scheme« Conservation (EC)
Trading Scheme Power Ministry
June (2) To reduce GHG Act 2001 (its 2022-
(CCTS)
emission Amendment)
Green Credit Program For activities that help Voluntary, under PM Environment
2023- (GCP) environment e.g water Modi(s Mission-LIFE Ministry
Oct saving, waste
management.

51.11.2 Di>erence between GCP and CCTS

Carbon Credit and Trading Scheme
Matter Green Credit Program (GCP)
(CCTS)
Legally required on specired
Compulsory industries under Energy Voluntary under PM-Modi(s Mission-LiFE
Conservation Act.
Ministry Power Ministry Environment Ministry
Central Electricity Regulatory
Regulator N/A bcoz Voluntary under
Commission (CERC)
1) Bureau of Energy Eíciency (BEE,
Indian Council of Forestry Research and
Administrato under Power Ministry)
Education (autonomous body under the
r 2) National steering committee
environment ministry)
headed by power secretary (IAS)
Beyond GHG e.g.
(i) tree plantation (i) water management
(ili) sustainable agriculture (iv) waste
Objective Reduce GHG Emission management (v) air pollution reduction
(vi) mangrove conservation(vi) ecomark
label development
(vii) sustainable building and infrastructure
1 Carbon Credit = ton of carbon
Certi0cate Administrator will decide.
dioxide equivalent (tCO2e)

(Batch: PCB10-RAFTAAR-ONLY-PRELIMS) Mrunal s Economy Pillar#5A: Infra: Bijali & Paani (Energy, Water) → Page 881
51.11.3 Electricity → Use =Less: → National LED Programme

C6w6206 -ÿ,Ax8Côó1 D 9,96 567+.

Boss Power Ministry gives fi fi to Energy Eíciency Services Ltd (EESL) for:
 Unnat Jeevan by A>ordable LEDs and Appliances for All (UJALA) for subsidized home Light-
emitting Diode (LEDs) bulbs. Previously called DELP (Domestic Eícient Lighting Program).
 Street Lighting National Program: whereas EESL replaces conventional Halogen Street Bulbs
with LED street bulbs, free of cost.

51.11.4 Electricity → Use =Less: → Gram Ujala Programme

w.2< <.C6206 -ÿ,Ax8Côó1 D 9,96 567+.

Bosss Ministry of Power → its company Energy Eíciency Services Limited (EESL) → its company
Convergence Energy Services Limited (CESL).
 What Exchange villagers' yellow bulbs with LED bulbs i.e. Villager submits working
incandescent (Filament-walla yellow) bulbs → plus pays fi10 = gets LED bulb with 3 years
warranty. Maximum quota=5 LED bulbs per villager. w.£< <.C6206 M+0> HÍC.AxE D 0> 8<‰ AxLED
D -ÿ,AxH98 7.82w,.
 Bene0t a 12 Watt LED bulb = light of 100 watt incandescent bulb so Energy bill for villager,
CO2 Emission from ∂ermal power plants, Waste generation (LED bulbs have longer
lifespan than incandescent).

51.11.5 Electricity → Use =Less: → Misc. Schemes & Topics

Budget-2022:- We(ll setup an Energy Service Company (ESCO) to promote
ESCO
energy eíciency in large commercial buildings (DS1 <.•p∞±0 )A./*62Ax|7.q0.5q9y*.
Company
06 D .+,0, ÑC8 80 +ô 0Á+1 D+.51 7.8w1.)
Atal Jyoti Yojana (Ajay): FREE Solar Street Light with LED in
1. Special category states
2. 5 states - Assam, Bihar, Jharkhand, Odisha and Uttar Pradesh.
AJAY
3. NITI-ayog-walle Aspirational districts in other states
4. Andaman Nicobar and Lakshadweep
Funding: MNRE 75% + 25% from MPLADS of given constituency.
- Ministry of Power and Ministry of Textiles give money to Energy Eíciency
SAATHI Services Limited (EESL) → give energy eícient instruments to small and
medium Powerlooms to reduce their energy consumption.
Star Label To help the customer to use energy eícient appliances. Refer BEE in Pillar #4B
Smart Ministry of Power → Energy Eíciency Services Ltd. (EESL) helps DISCOMs to
Electricity

(Batch: PCB10-RAFTAAR-ONLY-PRELIMS) Mrunal s Economy Pillar#5A: Infra: Bijali & Paani (Energy, Water) → Page 882
 Meters install Smart Electricity Meters. Bene0ts IT enabled monitoring, no need to
manually read the meters, power the´ diícult etc.
- Since 2019: Govt allowed ethanol production from surplus rice/maize available
FCI
with the Food Corporation of India (FCI).(More in Pillar#4A)
 BEE(s National strategy document åUNNATEE( (Unlocking NATional Energy
UNNATEE
Eíciency Potential) for developing an energy eícient nation (2017-2031).
 Power Ministry(s knowledge portal namely Simplired Digital Hands-on
SIDHIEE
Information on Energy E<ciency in MSMEs for sharing best practices
 BEE:s Eco-Niwas Samhita for minimum energy conservation standards in
Residential Buildings.
Buildings
 EESL:s Building Energy E<ciency Programme (BEEP) for commercial
buildings
Self Study: Nuclear Power from Unacademy Sci/geography-Booklet

51.11.6 Energy → Index → Global Reports

WORLD was released by International Energy Agency (IEA).
ENERGY In 2021: largest energy consumer = 1) China 2) USA 3) EU 4) India
INVESTMENT Future by 2040, = India will be @#3, and EU@#4. India(s domestic oil and gas
REPORT production not enough so, India(s import bill will .
Global Energy  World Economic Forum (HQ Geneva, Swiz)(s index to measure countries
Transition on how much CO2 / pollution is generated while producing energy, And
Index CÉïñZ whether the country is serious abt reducing it.
}_P^@ABCQ^E  Ranking 2023-June: Rank#1) Sweden, 2) Denmark, 3) Norway, #67 India.
GpóZPSZ (India's rank has improved in recent years.)
World Energy  by International Renewable Energy Agency (IRENA, HQ: Abu Dhabi,
Transitions United Arab Emirates)
Outlook
India Energy  by International Energy Agency (IEA, Setup under OECD framework, HQ:
Outlook Paris, France)
Report [kPBQ  2021: Largest energy consuming countries= China, USA, EU, India.
}_P^ò`tZwq  2030=India will replace EU as 3rd largest. India's fuel import bill will
AB@wì^] become 3x in next 20 years.
 [Note as per ES21= India is the 3rd-largest energy a´er USA, China. So
it depends on the context of MCQ, you've to tick]
State State by Power Ministry's Bureau of Energy Eíciency (BEE) in association with a
Energy non-prort body called Alliance for an Energy Eícient Economy (AEEE).
E<ciency
Index
Which of the following is the top ranking country in World Economic Forum's Global Energy
Transition Index 2020 (UPSC-CAPF-2020) (a) China (b) Switzerland (c) Sweden(d) India

(Batch: PCB10-RAFTAAR-ONLY-PRELIMS) Mrunal s Economy Pillar#5A: Infra: Bijali & Paani (Energy, Water) → Page 883
 ↘ ✍ Energy E<ciency Conclusion Under the Paris agreement, India has pledged to
emissions intensity of its GDP by 33-35% by 2030. Energy eíciency is a crucial factor in this.
Aforementioned initiatives will help in a long way to achieve our promises under Intended nationally
determined contributions (INDC: /.vò15 ÿ/ G/ l+K.qÉ/* 56w9.+) under UNFCCC(s Paris agreement. (GZU
ôB]UpblPH Zâ bö_^E QdõQP ZR ZBE]0> k./* +,G,É/- -2àK Axìl*ª. C1 :IM-AxMá 567+.¥2-,0.Ü> A99 ïAC,w1.)

51.12 INFRA → ENERGY → RENEWABLE (ECdZBqdV }_P^)

 United Nations Framework Convention on Climate Change (UNFCCC)(s Paris Accord (2015)
requires nations to submit their Intended Nationally Determined Contribution (INDC or NDC:
/.v1ò5 ÿ/ G/ l+K.qÉ/* 56w9.+) about their global warming mitigation commitments. India(s NDCs are
as following (list not exhaustive):
 by 2030, we(ll emission intensity of GDP by 33-35 % from 2005 level.
 by 2030, 40% of our installed power generation capacity shall be from non-fossil fuel sources (wI/-
71<.⇣ / +<10/p15 ˛K+ स्र6*)
In this regard, Modi Govt had set a target of installing:
Type Solar Wind Biomass Small Hydro By 2022
Gigawatts (GW) 100 60 10 5 =Total 175 GW

51.12.1 PM Modi:s Panchamrit @COP-26 Glasgow, UK

 2021-Nov: PM Modi(s Panchamrit rve big announcements at UNFCCC-COP26 Summit in
Glasgow, UK (ग्ल.-w6 7C<.5~GÉ/<*q+ GÉ/ß9 AxìK.+A2^1 A691 0> A:oGRpq6ßp.8£) and also proposed LIFE…
L, I, F, E, i.e. Lifestyle For Environment.
 2022: India(s NDC (nationally determined commitments) updated. (/.vò15 ÿ/ G/ l+K.qÉ/* ìl*D†*.82)
Area Target Modi included in
originally @Glasgow NDC (2022)
Summit (2021)
1) By 2030: renewable energy capacity to _ 450GW 500 GW NOT included
_ _ . (G~++q<1+10/p |7.q0. Mm.9+ D .5. 7.8w.)
2) By 2030: _ _ _% non-fossil fuel energy in 40% 50% Included
India(s total energy production (0~C |7.qAxÙI/-
71<.⇣ )2K+ 0. H:™.)
3) Emissions intensity= emissions per unit 33-35% 45% Included
GDP.
It will be reduced by at least _ _ _ % by the
year 2030 from 2005 levels. (GDP 0> M⇠7q+
*1⇡*. 06 0A H05. 7.8w.)
4) a net-zero emissions target by 2070. means N/A 2070 Not included
all man-made GHG emissions must be
removed from atmosphere through

(Batch: PCB10-RAFTAAR-ONLY-PRELIMS) Mrunal s Economy Pillar#5A: Infra: Bijali & Paani (Energy, Water) → Page 884
 Area Target Modi included in
originally @Glasgow NDC (2022)
Summit (2021)
absorption in processes like photosynthesis or
physical removal (M⇠7q+ 06 ¶~† ?G -,0/¶R¢ H05.
7.8w.)
5) REDUCE TOTAL projected carbon N/A 2030 Not included
emissions by 1 bn tonnes from now to 2030.
(0.Dq+ M⇠7q+ Ax1 E+ 0> 0Eü*1)
6) Carbon sink of 2.5-3 billion tonnes via Yes N/A Yes
aâorestation
 Budget-2022:- Solar Power: Target of 280 GW of installed solar capacity by 2030. We(ll give
Production Linked Incentive (PLI) for manufacture of solar cells (Ref:Pillar4B).

MCQ. Which are elements of India's =Panchamrit: view on climate change (UPSC-EPFO-2023)
1. India will reach its non-fossil energy capacity of 500 GW by 2030.
2. India will meet 50% of its energy requirements from renewable energy by 2030.
Codes: (a) 1 only (b) 2 only (c) Both 1 and 2(d) Neither 1 nor 2

51.12.2 Mission éLiFEè / Lifestyle for Environment

 (Origin) 2021: PM Modi rrst spoke about it at UN Climate Change Conference (UNFCCC
COP26) in Glasgow, United Kingdom.
 2022: PM Modi launched it at the Statue of Unity in Gujarat.
 To change our everyday lifestyle to protect the environment. e.g. not using plastic bag, plastic
straws, turnoâ idle watertap/AC, turnoâ idle car engine at red signal etc.
 Concept of åReduce, Reuse and Recycle(

51.12.3 ♂ Energy → Renewable → [Yearbook] MNRE

Ministry of New and Renewable Energy +<1+ 8<2 +<10/p15 |7.qA2^.C5 consists of:
Dept/Attached/Statutory N/A or nothing MCQ worthy.
Autonomous  National Institute of Solar Energy (NISE)- Gurugram
Bodies  National Institute of Wind Energy (NIWE)-Chennai → they(ve
ùPVû GSüPÇS developed the Wind Atlas of India and Solar Atlas of India.
 Sardar Swaran Singh National Institute of Renewable Energy
(SSS NIRE) – Kapurthala, Punjab.
 National Institute of Bio Energy (NIBE), Kapurthala, Punjab.
CPSE 1. Indian Renewable Energy Development Agency (IREDA)- Delhi
GBZPBd ZS@`EVPS 2. Solar Energy Corporation of India (SECI)- Delhi
Portals 1) India Renewable Idea Exchange (IRIX) Portal
C]áGPNì 2) Akshay Urja Portal (& magazine)

(Batch: PCB10-RAFTAAR-ONLY-PRELIMS) Mrunal s Economy Pillar#5A: Infra: Bijali & Paani (Energy, Water) → Page 885
51.12.4 Renewable → KUSUM (Solar for farmer) 2019

Boss Ministry of New and Renewable Energy. Kisan Urja Suraksha evam Utthaan Mahabhiyan
(KUSUM) has components A, B, C but the gist of the matter is:
 Farmers are encouraged to install Solar pump tube wells for irrigation → less diesel
consumption in pumpsets.
 Farmers, panchayats, cooperatives can install upto 2 MW renewable power plants in their barren
/ cultivable lands.
 Above people can sell the excess electricity to the DISCOMS. Its price will be decided by the
respective State Electricity Regulatory Commissions (SERC). → more income for the farmer.
 fi fi Fundings Union 30%+ State 30%+ Bank Loan 30% +10% by the farmer himself= 100%
 Bene0t Diesel & ∂ermal electricity will → 27 million CO2 emission reduced / per year.

51.12.5 Renewable → Jawaharlal Nehru National Solar Mission

2008: Manmohan → National Action Plan on Climate Change (NAPCC) with 8 missions → 2009-
10: J.N. National Solar Mission (/.vò15 -ü/ ïA¶+).
Original target by PM ManMohan Singh 20,000 Megawatts by 2022
PM Modi increased to 100 GW by 2022 (=1 lakh Megawatts)
Budget-2022 increased to 280 GW by 2030
 Boss Ministry of New and Renewable Energy (MNRE)
Just like the åMake in India( project, this is not a åscheme( but rather a collection of initiatives in
various sectors such as….5: 06ô 80 567+. +:12DæÊ n+,0 ì0./ 0> nCw-nCw G:C 0. -AR: :I
1. MNRE → SRISTI (Sustainable Roo´op Implementation for Solar Transrguration of India) →
subsidy for purchase of the solar panel and other equipment.
2. Issuing tax-free solar bonds to rnance such initiatives.
3. Install roo´op solar panels in large Govt complexes/ buildings;
4. 'Building bye laws' are the construction norms set by the State Govt to ensure uniform & safe
development of buildings. ∂ey'll require compulsory roof top solar in big private buildings.
5. Use wastelands to setup solar parks (D27/ kRïA G/ -ü/ G.0q 0. l+A.qp)
6. Net-metering i.e. residential and commercial customers generate their own electricity from
roo´op solar power and sell excess of this solar electricity to DISCOM.
7. MNRE → NISE (National Institute of Solar Energy) → 90 days coaching skill development
programme éSurya Mitraè to train youth for solar equipment installation / repair / maintenance.

(Batch: PCB10-RAFTAAR-ONLY-PRELIMS) Mrunal s Economy Pillar#5A: Infra: Bijali & Paani (Energy, Water) → Page 886
8. éARUNè Mobile app to help people install roo´op solar panels by themselves.
9. Solar City initiative (2012-17): 60 cities got fi 50 lakhs each, to replace minimum 10%
conventional energy (thermal /coal) with solar in rve years.
10. Amending Electricity Act for Renewable Purchase Obligation (RPO: +<10/p15 =/19 0, 9.⇢5o) &
Renewable Generation Obligation (RGO);

What is the minimum reduction in projected demand of conventional energy at the end of
0ve years as per the 'development of solar cities' programme (UPSC-CAPF-2020)
(a) 2 per cent (b) 5 per cent (c) 10 per cent (d) 15 per cent

51.12.6 Renewable → Renewable Purchase Obligation (RPO)

nl+<.5q?G -,0~Å ìl*¶* +<10/p15 |7.q©/19+,0. 06E.

Applicable to Power distribution companies, large electricity consumers and captive power plants.
 ∂ey are obliged to buy min. èXê % of the electricity from renewable energy sources.
 ∂is ensures solar, wind and other renewable power producers receive suícient of consumers /
market demand. ∂is èX%ê quota is decided by the MNRE.
 First time setup in 2014 (11.50%, With internal quotas for solar and non solar),
 Quota raised over years. 2018: 17%, 2019: 17.5%.....2022: 21%.
 ∂is mechanism is called Renewable Purchase Obligations (RPOs: +<10/p15 =/19 0, 9.⇢5o). Its
prices are decided by CERC/SERC depending on whether its Interstate or intrastate sale.
 Within this RPO, is also internal quota for Hydropower Purchase Obligation (HPO).
Related Renewable Generation Obligation (RGO: +<10/p15 -î7+ 9.⇢5o): It requires coal based
thermal plants to generate/procure èx%ê of renewable energy.

51.12.7 Renewable →World's largest Hybrid renewable energy park- Khavda

Near the Indo- Pakistan border near Khavda, in Kutch, Gujarat. 30,000-MW capacity (solar+Wind)
over 72,600 hectares of land give to Adani Green, Gujarat State Electricity company etc.
51.12.8 Renewable /energy E<ciency → Ranking / Portals
Table 1: Ranking is not written because either govt not updated aCer 2019/ or poor cost:beneDt in exam

SARAL INDEX  Who Jointly developed by Ministry of New & Renewable Energy
for Solar roo;op (MNRE), Shakti Sustainable Energy Foundation (SSEF), Associated
Chambers of Commerce and Industry of India (ASSOCHAM) and Ernst
& Young (EY).
 What State Roo´op Solar Attractiveness Index (SARAL) ranks the
States for their attractiveness for roo´op development.
SAATHEE Portal Power ministry(s portal to monitor energy eíciency in various states

(Batch: PCB10-RAFTAAR-ONLY-PRELIMS) Mrunal s Economy Pillar#5A: Infra: Bijali & Paani (Energy, Water) → Page 887
51.13 "#: ENERGY→ FOSSIL FUEL USE→ E20 BLENDING
On 5th June, 2021 = World Environment day, Modi released the report of Dr Rakesh Sarwal expert
committee on Road Map for ethanol blending in India 2020-2025 with following recommendations:
Mixing ES22 remarked
E10 mixing/blending 10% Ethanol in Petrol. To be rnished in 2022.
 mixing/blending 20% Ethanol in Petrol. It reduces carbon monoxide emission
E20 by 30-50% and hydrocarbon by 20%.
 To be rnished by 2025.
 Govt is providing funds for R&D for E20 compliant vehicle engines [À-,<.:+ )27+620, -2¶6K+ +<.J./
0, ÑC8 -/0./ GI-. 9,w1]
 Tax / Subsidies for purchase of E20 compliant vehicles. [À-,<.:+ ©/19+,G/ 0/-É/5.5*x/-æøó1 91 7.82w1]
 Presently India is suâering from excess supply of sugarcane and rice -so they may be diverted for
Ethanol making. However rice & sugarcane are water intensive crops so in future, we should
encourage Maize cultivation & non-food crop cultivation to produce ethanol. [nk1 *6 J.<C 4/ wन्न,
0> D6:6* Û.9. FGRÆ*/-˙.ô/ GI9.<./ Ïô :I*6 M-1 -,ô§6+6C D+. Cxw@, H0ˇ~5,96+62Í-C,Dहू* G.+1 A.£w*1 :I, )-ÑC8
kl<⌧ AxA0ô *§. ÙI/ =.} Ü-C62˝./. 8§+ŸC D+.82w,]
 Ethanol manufacturers maybe given loan interest subsidy for setting up distilleries. [ô§,+6C Ü,®/1
Cw.+,0, ÑC8 EIΩ -æøó1 AxA99]
 Ultimate goal is E100 (i.e. running vehicle completely on ethanol, without petrol) at some future.

Conclusion Appreciative step that will help saving Rs 30,000 crore of fuel import bill per year,
energy security/self reliance, lower carbon emissions, better air quality, use of damaged/rotten
foodgrains productively, increasing farmers' incomes, employment generation. [-/0./ 0. ì¶2-+15 „9A
Ø7--,˛K+ F5.* lDC/ J.CR=.*. .E./<.5~ì9õßp 0A :6w.@ |7.q-~/y./ |7.qF¨l+kq/*. / H0-.+620> FA9+1 / /6‰w./
D ,@ lDwS. ÏF -S. ÏF n+.7 k1 ˛K+ D+.+,Ax0.A F8w.@]

51.14 BIOGAS BLENDING IN NATURAL GAS (†PZ°`QZ uÉG R[áPVw uÉG ZP ¢R£q§)

➢ Boss Ministry of Petroleum & Natural Gas

(Batch: PCB10-RAFTAAR-ONLY-PRELIMS) Mrunal s Economy Pillar#5A: Infra: Bijali & Paani (Energy, Water) → Page 888
 ➢ Biogas is an energy-rich gas produced by anaerobic decomposition of biomass.
➢ It is produced from sources like agriculture residue, cattle dung, sugarcane press mud,
municipal solid waste, and sewage treatment plant waste,
➢ Biogas can purired by removing carbon dioxide and hydrogen sulrde → then compressed to
make compressed biogas (CBG).
➢ Compressed biogas (CBG) need to be mixed/blended with natural gas (CNG/PNG) in
following ratio:
Year Biogas Blending Obligation (%) for CNG & PNG
voluntary for gas companies. ∂en, in subsequent years, it will become compulsory
2024–25
as given below:
2025–26 1%
2026–27 3%
2027–28 4%
2028–29 5%
➢ CBG need to be mixed with
➢ with compressed natural gas (CNG) for vehicles
➢ with piped natural gas (PNG) for cooking.
➢ Such blended natural gas can be delivered via pipelines from city gas distribution (CGD)

51.14.1 Bene0t of Biogas blending

➢ Greater use of biogas in cooking and transportation (e.g. CNG rickshaw).
➢ Reducing import for liquered natural gas (LNG), saving in forex, promoting circular
economy, achieving the target of net-zero emission.
➢ As more people shi´ from LPG cylinder to pipeline based gas, it will improve the logistic
eíciency / reduce air-pollution (in not having to transport LPG cylinders in trucks.)

51.15 SUSTAINABLE AVIATION FUEL / BLENDING TARGET

➢ SAF is a liquid fuel currently used in commercial aviation.
➢ It can be produced by mixing food waste, fats, green and municipal waste and non-food
crops → convert to oil/fuel → mix with jet fuel.
➢ It reduces CO2 emissions by up to 80%.
Petroleum & Natural Gas Ministry has set up following targets
➢ 1% SAF blending target in 2027 ( Initially for International œights)
➢ 2% SAF blending target in 2028 (Initially for International œights )

51.15.1 Energy → Fossil Fuel Use→ Green Grey & Blue Hydrogen
 Steam methane reforming (SMR) is a process used to produce hydrogen gas from methane.
 It involves heating methane (CH4) with steam (H2O) in the presence of a catalyst to produce a
mixture of carbon monoxide (CO) and hydrogen (H2).

(Batch: PCB10-RAFTAAR-ONLY-PRELIMS) Mrunal s Economy Pillar#5A: Infra: Bijali & Paani (Energy, Water) → Page 889
 ∂is mixture of [CO+H2] also known as synthesis gas or syngas.

CH4 + H2O → CO + 3H2

Green Hydrogen Blue Hydrogen Grey Hydrogen

Production Electrolysis of water using SMR with Carbon SMR without CCS /
Method renewable energy sources e.g. capture and storage producing hydrogen
solar/wind etc. (CCS) from fossil fuel.
Carbon Zero Low High
emissions
Cost Currently high, expected to Moderate Low
decrease in the future

51.15.2 : Energy → Fossil Fuel Use→ National Hydrogen Mission

- Announced by Budget-2021 and then by PM Modi on 15th August 2021 speech
- Boss Ministry of New and Renewable Energy
- Green hydrogen=Produced from renewable energy. Grey hydrogen =Produced from fossil fuel.
Blue hydrogen=Produced from fossil fuel with carbon capture and storage option.
- Goals Green Hydrogen(s production, use and export .
Target Description
Production 5 MMT (Million Metric Tonne) from Green H2 by
2030.
Energy 125 GW from Green H2
Investment fi8 lakh crore
Jobs 6 lakh jobs
GHG 50 MMT (Million Metric Tonne) reduction in
greenhouse gas emissions per year
Crude oil import by fi1 lakh crore

51.15.3 Green H2: éSIGHTè Subsidy Program

 SIGHT = Strategic Interventions for Green Hydrogen Transition Programme.
 èSIGHTê is subcomponent of the National Green Hydrogen Mission
 it provides subsidy for two activities:
o domestic manufacturing of electrolysers
o production of Green Hydrogen.

51.15.4 Green H2: éSHIPè Partnership (DABQ DPN¶ßw_E `ERP^q Z] ÑUÇ GPC^_`EZ `E_d kPudHPBd)
 SHIP = Strategic Hydrogen Innovation Partnership.
 It is a subcomponent of the National Green Hydrogen Mission
 Goals public-private partnership for R&D in Green H2.

(Batch: PCB10-RAFTAAR-ONLY-PRELIMS) Mrunal s Economy Pillar#5A: Infra: Bijali & Paani (Energy, Water) → Page 890
51.16 MAHIR RESEARCH FOR ENERGY (2023)
Mission on Advanced and High-Impact Research (MAHIR)
✔ Boss Ministry of Power and the Ministry of New and Renewable Energy have jointly
launched.
For research and development (R&D) on:
✔ Alternatives to Lithium-Ion storage batteries, Nano technology for EV battery
✔ Modifying electric cookers & pans to suit Indian cooking methods
✔ Solid state refrigeration.
✔ Green hydrogen for mobility (High Eíciency Fuel Cell)
✔ Carbon capture
✔ Geo-thermal energy etc.
FAQ: What do these terms means Ans. Refer to the science and environment related
courses/articles.

51.17 "#: TRANSPORT→ FOSSIL FUEL USE→ MISC. SCHEMES

Table 2: Misc. Schemes / Initiatives related to Fossil Fuel

To use åless( petrol & diesel in transport & electricity generators:

Methanol - Methanol can be generated from bio waste. It is the simplest alcohol (CH 3OH)
Economy and does not emit particulate matter (PM) / Sulphur or nitrogen pollution.
Fund - 2017: Niti Aayog proposed to setup a Methanol Economy Fund to rnance
R&D in this area.
- 2003: Oil Companies to blend upto 10% of ethanol in Petrol, by 2022.
- 2019: "Pradhan Mantri JI-VAN (Jaiv Indhan- Vatavaran Anukool fasal
PM Ji-VAN awashesh Nivaran) Yojana"
- for providing fi fi to second generation (2G) bioethanol projects
- Boss Petroleum Ministry. 100% Union funded.

(Batch: PCB10-RAFTAAR-ONLY-PRELIMS) Mrunal s Economy Pillar#5A: Infra: Bijali & Paani (Energy, Water) → Page 891
51.18 INFRA → ENERGY → COOKING (BGw® Z] ÑUÇ)

51.18.1 : Cooking → Pratyaksh Hanstantrit Labh (PAHAL-2015)

Manmohan started pilot project in selected districts → 2015: Modi launched@ all India
- Boss Ministry of Petroleum and Natural Gas. Central sector scheme = 100% funded by Union.
- Previously, LPG dealers would divert the subsidized LPG cylinders to restaurants → households
would be deprived & forced to purchase LPG cylinder at a higher price in the black market.
- Direct Benerts Transfer For LPG (DBTL): Benerciary buys 14.2 KG LPG cylinder at market
price (e.g. ~fi850), Petroleum min transfers subsidy amount (~fi 290) in his bank account linked
with his customer ID. Similarly, 5kg LPG cylinder- then lower price, so less amount of subsidy.
- A benerciary gets subsidy on upto 12 cylinders per year. (Although economic survey suggested
it should be because most household don(t need more than 10 cylinders in real life.)
Who is not eligible (1) Restaurants / commercial enterprises; (2) A person with taxable income
more than fi 10 lakh (and husband/wife of such person.)
Year 2014 2018 2020-21 2023-Oct^^
Market Price of fi1241 fi941 fi885 fi703
Cylinder
MINUS Subsidy -fi800** -434 0 (PAUSED fi300
since 2020-May)
E>ective Price for fi441 fi507 fi885 fi603
Customer
™™Note: 2014 =UPA/Congress Govt paid subsidy to Cylinder company (not to customer)
^^2022-23: ∂is subsidy resumed for poor families under Pradhan Mantri Ujjwala Yojana' (PMUY).

(Batch: PCB10-RAFTAAR-ONLY-PRELIMS) Mrunal s Economy Pillar#5A: Infra: Bijali & Paani (Energy, Water) → Page 892
51.18.2 : : LPG PAHAL-subsidy paused in Corona (2020-21)
 Since May 2020, Union government paused paying PAHAL-LPG subsidy to customers.
[although Govt not oícially admitted that they have stopped the scheme. [-/0./ +,à-Cxó/ -æøó1
9,+. 3ïw* 0/ H95. :I:.C.£H0 FàK0.É/0 ?G -,5: +:12„~DRC H05. :IH0 :A+,567+. (:A,¶. 0, ÑC8) D29 0/ 91 :I]
 ∂is has saved >fi25,000 crore subsidy bill for the government but caused hardship for the
middle class families.
 ^^2022-23: ∂is subsidy resumed for poor families under Pradhan Mantri Ujjwala Yojana'
PAHAL, an initiative for subsidy to bank account, is related to _ _ _ (UPSC-CAPF-2020)
(a) LPG consumers (b) internet consumers
(c) farmers for fertilisers (d) Central Government Employees for medical treatment
51.18.3 : Cooking → Pradhan Mantri Ujjwala Yojana 1.0 (PMUY)

Ordinarily, a customer has to pay ~fi 1000+ as refundable security deposit to get the LPG connection
from Oil Marketing Company (OMC: Bharat Gas HP Gas etc.).
 Scheme gives Deposit-free LPG connections + rubber tube + pressure regulator to the women of
Below Poverty Line (BPL: w/1D1 /,=. 0, +1J,) families. (Although they have to pay money for the
stove and cylinders to actually start cooking.)
 ∂e BPL families identired using SECC-2011 data. Later, benerciary list was expanded to cover
the forest dwellers, people residing in Islands etc. whose name may not be in SECC-2011 data.
 Boss Petroleum Ministry pays fi fi OMC. Central Sector scheme = 100% funded by Union.
 Bene0t rrewood/kerosene consumption ↓= indoor pollution ↓= health + environment :-)
 2019: Himachal =rrst state in the country to have è100% LPG gas coverageê.
 2020: Corona Lockdown = poor families( income , so can(t aâord to pay for cylinders so,
PMUY benerciaries eligible for 3 FREE LPG cylinders upto 30/June/2020.

51.18.4 : Pradhan Mantri Ujjwala Yojana 2.0 [†ãPERSTd b¨UP Vw_EP ZP H≠GBP óBq]
What will Bene0ciary get = 1) Deposit-free LPG connection. 2) First cylinder free 3)
Hotplate/Stove free.
 Bosss Ministry of Petroleum and Natural Gas (MoPNG).
 Phase1 / 1.0 = 2016. Phase-2/2.0 = 2021 onwards. [G:C. J/p -A.प्त @ 9õ-/. J/p ¶~? H05. w5.]
 2.0 = aims to cover A) poor who were not subscribed in 1.0 AND B) poor migrant workers, due
to lack of address proof/documents.

(Batch: PCB10-RAFTAAR-ONLY-PRELIMS) Mrunal s Economy Pillar#5A: Infra: Bijali & Paani (Energy, Water) → Page 893
 Eligibilitys Adult woman from – poor household, Socio-Economic Caste Census (SECC)-walle
eligible households, SC, ST, Pradhan Mantri Awas Yojana (Gramin), Antyodaya Anna Yojana
(AAY), Tea Garden workers, Forest Dwellers, families residing in Islands
 Bene0t (Poor) Migrants will not be required to submit ration cards or address proof. ∂ey(ll get
connection based on self-declaration (w/1D ì<.-1 A‰9õ/62l+<.- 3.+ 0. -~D*R +:129,+. :6w.@ à-Íq ù52 06 ù
ìA.•p* 0/+. :6w. H0 AB1 ì<.-1 A‰9õ/ हू£@)

51.18.5 Cooking → Kerosene subsidy stopped (2020)

 kerosene is traditionally used in cooking and light. (/-6ô ˛K+ *§. ì0.¶ 0, ÑC8 0,/6-1+ 0. MG56w)
 Boss & principle is same as PAHAL-LPG. Kerosene is sold at market price → subsidy fi fi
transferred to poor family(s bank account. ∂is discourages PDS shopkeeper from diverting
subsidized kerosene to the rickshaw-wallas.
 but govt schemes to provide electricity (SAUBHAGYA) & LPG cylinders (PM Ujjwala) to poor
→ so kerosene requirement (C,H0+ lD7C1 4/ LPG 0> 567+.¥20, JC*,0,/6-1+ 0> ‰?/* Ïô 0A)
 So, from 1/3/2020: Govt stopped giving kerosene subsidy. (n* -/0./ +,0,/6à-+ -æøó1 06 H05. D29)
 Now, kerosene is being sold @public distribution system (PDS) stores BUT with zero subsidy.
(/.¶+ 0> 90.+62G/ 0,/6à-+ 0> lD¡> 7./1 :IH02*~D.‰./ ARı G/ D,J. 7.*. :I@ -ÿ,9.A G//-æøó1 0, -.§ +:12D,J. 7.*.@)

51.18.6 Energy → Gas → GOBARdhan (2018)

 It(s a sub-component of Swachh Bharat mission (Gramin).
 Core Scheme = not 100% funded by Union. States also need to contribute money.
 Boss Dept of Drinking Water and Sanitation.
 GOBARdhan scheme helps farmers & rural entrepreneurs to convert cattle dung & other
biowaste to biogas and organic manure. Depending on the population of the gram panchayat,
they will be given up to fi 20 Lakh to setup such project.
 Uni0ed Gobardhan = It is a web portal developed jointly by ministries of Agriculture, Animal
husbandry, petroleum, Jal Shakti for above gobar / cattle dung related activities
 Budget-2023 on Gobargas
o - 500 new åwaste to wealth( plants to be setup under GOBARdhan scheme.
o - if a company is selling natural gas / bio gas → compulsorily mix 5% compressed
biogas (CBG) in it.

51.18.7 Natural Gas Price: Kirit Parikh panel (2022–23)

Gas production in India by ownership

(Batch: PCB10-RAFTAAR-ONLY-PRELIMS) Mrunal s Economy Pillar#5A: Infra: Bijali & Paani (Energy, Water) → Page 894
 Owned by govt Owned by Pvt Sector Total gas production
83% 17% 100%
 2014: Petroleum and Natural Gas Ministry designed new formula for domestically produced
natural gas.
 2022: Kirit Parikh committee to review above formula → 2023: he submitted the report with
following recommendations:

BEFORE AFTER
Govt decided the gas price for public Prices of domestic natural gas to be linked with
sector companies like Oil India and international market prices
ONGC. For private sector companies,
there was separate formula.
N/A maximum price (ceiling) $6.5 MMBtu
minimum price (œoor) price at $4 per MMBtu
(metric million British thermal unit)
 Plus many technical reforms in the formula.
 Suícient to know that new formula likely to reduce the prices by 10% for the Indian customers
for piped natural gas (PNG) and compressed natural gas (CNG)
 k./* 0, k1*/ GI9. H08 ì.0îl*0 wI- 0> 0>A* *5 0/+,0, ÑC8 -/0./ +,H0/1E G./,= -ïAl* D+.ô §1@ nD -,n2*/.qv1ò5
D.7./ 0> 0>A*620, H:-.D -,k./* Axì.0îl*0 wI- 0> lD¡> 0>A* *5 :6w1@ M-Axk1 ¢R+*A 4/ A:√A 0>A*620> -1A.82
D+.ô wô :I@ )--,k./*15 ÷.:0620, ÑC8 wI- 10% *0 -ÿ. :6 -0*. :IÀ-. n+~A.+@

51.18.8 Energy → Gas →Misc. (`C`Cã Vw_EPÇS)

FAQ: Do I(ve to remember all thiss Ans. No. I(ve given to prevent your FOMO feeling from
CA-PDFs/365s. (FG06 5,ó/ +:12/:,H0 FG0, G.- :1 A.C +:12:I)-ÑC8 FG06 5: A.C H95. :I. +129 =6+,0> ‰?/* +:12.)
It(s just a gathering of 100 LPG customers in an area, they(ll discuss LPG
PM LPG
benerts, women empowerment. Petroleum Ministry aimed to organize 1
Panchayat Scheme
lakh such Panchayats across India by 31/3/2019.
➢ To lay down Natural Gas Grid Pipeline across 5 states, viz. UP,
Bihar, Jharkhand, Odisha & W.Bengal.
➢ project is also called Jagdishpur-Haldia/Bokaro-Dhamra Gas
PM Urja Ganga
Pipeline (JHBDPL) project
2016
➢ ∂e supply of such Piped Natural Gas (PNG) can help homes,
hotels, fertilizer companies & electricity companies → helps
creating a gas based economy.
connect all major demand and supply centres in India. → easy availability
National Gas Grid of natural gas across all regions → to achieve uniform economic and social
progress.
Ministry of Chemicals and Fertilizers pays fi fi subsidy to entrepreneurs to
City Compost
create compost (0RS. =.9) from city (municipal) waste → supply it to farmers
Scheme (2016)
at subsidized rate.

(Batch: PCB10-RAFTAAR-ONLY-PRELIMS) Mrunal s Economy Pillar#5A: Infra: Bijali & Paani (Energy, Water) → Page 895
 - Bio-gas is produced naturally through anaerobic decomposition of
agriculture residue, cattle dung etc. → purircation and Compression,
CBG: SATAT
→ Compressed Bio-Gas (CBG) with >95% pure methane.
(2018):
- 2018-SATAT Initiative by the Ministry of Petroleum and Natural Gas to
promote CBG as an automotive fuel.
- Also known as œexible-fuel vehicle / dual-fuel / Alternative fuel engine:
De0nition: Flex
Capable of using traditional Petrol/diesel, as well as alternative fuels
Engine
such as ethanol and methanol.
- 2020-Petroleum and Natural Gas Regulatory Board (PNGRB) notired

Uni0ed Gas Price new tariâ rules for natural gas pipelines. Basically new rules will cost
System (2020) of natural gas for users who are further away from sources of natural
gas. Further technical details NOTIMP.# §6S.-G 6-Fw,-D 6
51.18.9 ☢Energy infra→ Atomic energy → Atma-Nirbhar (@BRPq|}_P^)
 PPP mode: Research reactor → produces medical isotopes → use in cancer treatment.
(n+~-2K.+ É/8®/ -,0, / ‹JH0⇠. 0, ÑC8 -A!§.l+0 *o/F)-6E6G 0. l+A.qp)
 PPP mode: Irradiation facilities for Food preservation. (=.} -2/yp 0, ÑC8 l<H0/p)

52 INFRA → WATER & SANITATION (_U CÆùØQP)

Ref: pillar4A: Agri for irrigation and drinking water schemes

52.1 INFRA → SANITATION→ SWACHH BHARAT MISSION (SBM: 2014)

 (Introduction) While ancient Indus valley civilization accorded prime importance to sanitation
by integrating sanitation systems into town planning. But over the ages this domain received less
attention of the policy makers. As a result, even in 2012, more than 50% Indian, still practiced
open defecation.
 2012: PM Manmohan launched Nirmal Bharat Abhiyan → 2/10/2014 Modi restructured as SBM
 Boss Originally, Ministry of Drinking Water & Sanitation (So Now Jal Shakti Ministry).
 Core Scheme = Not 100% funded by Union (60:40| 90:10) + Corporates( CSR funding.
 2019: Modi given Global gatekeeper award by the Bill and Melinda Gates foundation for SBM

∞e Global Goalkeeper Award is given by (UPSC-CDS-i-2020)

a) Bill and Melinda Gates Foundation b) the United Nations Environment Programme
c) Kellogg School of Management d) World Meteorological Organization

52.1.1 Target of Swatchhta Diwas 2/10/2019 → Gandhi:s 150th Birth Anniversary

 Open Defecation Free (ODF: =~C,Ax¶üJ A~á) India.

(Batch: PCB10-RAFTAAR-ONLY-PRELIMS) Mrunal s Economy Pillar#5A: Infra: Bijali & Paani (Energy, Water) → Page 896
 Eradicating manual scavenging (A.+< AC-AR^ 06 :E.+,0, ÑC5,-Ü.ô 0AqJ.É/5620, l+567+ 06 =¨ 0/+.)
 Improving Municipal Solid Waste Management (MSWM: +w/G.ÑC0. ;6- nG•¶v ìD2K+)

52.1.2 SBM → How to achieve targets

1. fi fi given for building toilets in individual homes, community toilets and bathing house, Public
toilets at bus station, schools, temporary construction sites [¶üJ.C5620. l+A.qp]
2. Additional fi fi for solid waste management projects- trucks, garbage disposal units etc;
3. Information Education Communication (IEC), Awareness & behavioural changes through
Swachhta Doots, Social Media, posters, advertisements. [7.wîl* n•k5.+]
4. Darwaza Band: awareness campaign to ensure villagers don(t defecate in the open.
5. Research Development in sanitation. [-2¶6K+]
6. SBM assets have been geo-tagged. Many mobile applications have been launched to complaint
about unclean areas to municipal corporations. [+w/G.ÑC0. 06 •¶0.5* 0/+,0, ÑC8 A6D.)C ÀG]
52.1.3 ♂ SBM → Who implements this scheme (Z±EGP RSTPUV ZBQP DÉ)

52.2 SBM GRAMIN PHASE 2 (ùØ kPBQ ZP H≠GBP óBq)

 It(ll be implemented from 2020-2021 to 2024-2025 To ensure villagers continue to use toilets
 + focus on plastic waste management, Animal waste and other bio-degradable solid waste
management (7I< nGHE* ;6- nG•¶v ìD2K+)
 Greywater management (It is the used water from domestic sources excluding toilet wastewater)
Fecal-sludge management (AC-0>J ìD2K+@)

52.2.1 Urban Swachh Bharat Mission 2.0 announced in Budget-2021

Timelines 5 years from 2021-2026. Fundings >1 lakh cr. With following features
 Management of faecal sludge & waste water [AC 0>JS 4/ nG•¶v 7C 0. ìD2K+]
 Segregation of garbage. [0J/, 0. G/p]
 Reduction in single-use plastic [80C MG56w ˙.#π0 Ax0A1]
 air pollution from construction -demolition activities [l+A.qp 4/ l<$2- wl*l<àK562-,<.5~ì9õßp]
 Bio-remediation of all dump sites [ó2G -.)E62Ax7I< MGJ./p]

(Batch: PCB10-RAFTAAR-ONLY-PRELIMS) Mrunal s Economy Pillar#5A: Infra: Bijali & Paani (Energy, Water) → Page 897
52.2.2 SBM Protocols (ZPV^@≤`Q)
 Open Defection Free status (+) [=~C,Ax¶üJ A~á %3l* Q≥P]
ODF+ protocol  Operations and maintenance of community toilets and public toilets@
(-.<q7l+0 ¶üJ.C5620. 56& */10, -,-2J.C+ 4/ /=/=.<)
 Above things from ODF+ and additionally, focuses on safe management
of faecal sludge from toilets (AC 0. -~/•y* ìD2K+)
ODF++ protocol
 Untreated sludge should NOT be discharged into water bodies etc
(n+~GJ.É/* 0~ó.-0>JS 06 G.+1 A,+:1 Å6S+.)
Water + protocol untreated wastewater should NOT be discharged in water bodies etc.

52.2.3 Sanitation → Index: Swachh Sarvekshan 2022 by Urban Ministry

 Cleanest Cities with 10 lakh+ pop: #1-INDORE (6th consecutive year)
 Cleanest State: Madhya Pradesh
 Furthermore they also have many sub categories of awards e.g. population less than 1 lakh, State
with less than 100 local bodies, etc. you may prepare your State(s ranking for interviews but for
MCQ, I rnd poor cost:benert in memorizing.

52.2.4 Sanitation → Index: Prerak Dauur Samman

 2021: Urban Ministry introduced a new category of awards under the Swachh Bharat Mission,
known as åPrerak Dauur Samman(. It is based waste segregation, construction sector waste,
landrll, sanitation etc.
 åPrerak Dauur Samman( has 5 subcategories of awards: Divya (Platinum), Anupam (Gold),
Ujjwal (Silver), Udit (Bronze), Aarohi (Aspiring).
 Latest Rankings Poor Cost:benert in memorizing.

52.2.5 Swachh Vayu Sarvekshan 2023 (Clean Air ranking)

➢ by Ministry of Environment, Forest and Climate Change
➢ Rank-2023: 1) Indore, 2) Agra, 3) ∂ane. (among the million plus population cities.)

52.2.6 Infra → Sanitation → Swachhta Udyami Yojana (2014)

Ministry of Social Justice → fi to National Safai Karamcharis Finance and Development
Corporation → Concessional loans to Safai Karamcharis/ Manual Scavengers for →
1. Building community toilets → they can charge user fees.
2. Buying Sanitation related Vehicles → Benerciaries can take contracts from the
Municipalities for garbage collection etc. to earn livelihood.
Related Misc. schemes by above ministry: Self Employment Scheme for Rehabilitation of Manual
Scavengers (SRMS) which give skill and rnancial assistance to them.

NEXT Handout 5B: Transport Infrastructure (Rail, Road, EV, Shipping, Aviation, Tourism)

(Batch: PCB10-RAFTAAR-ONLY-PRELIMS) Mrunal s Economy Pillar#5A: Infra: Bijali & Paani (Energy, Water) → Page 898
 Pillar#5B: Infrastructure- Sadak (Transport), My City, Village & Home
Table of Contents
53 Infra → Transport → H20 → Inland Waterways....................................................................902
53.1.1 Inland Waterways → IWAI.........................................................................................902
53.1.2 Inland Waterways → National Waterways ( "!# $%& '()..............................................902
53.1.3 Inland Waterways → Jal Marg Vikas Project (2014)............................................903
53.1.4 Arth-Ganga (2022-Aug)................................................................................................903
53.1.5 MV Ganga Vilas Longest River Luxury cruise.................................................................904
53.1.6 : =e Inland Vessels Bill/Act, 2021 (ABCD E $%& '($F G HIJK#E)............................904
53.2 " Infra → Transport →20H→ Shipping & Ports........................................................................905
53.2.1 [Yearbook] Ministry of Ports, Shipping and Waterways QRIFQ &BS %# consists of.......905
53.2.2 Types of Ports- ClassiTcation Method#1: Major and Minor Ports...............................906
53.2.3 List of Major Ports in India: (A: ArtiTcial, N: Natural harbor).....................................907
53.2.4 (under-construction) Vizhinjam international seaport (KERALA)............................908
53.2.5 Minor Port: Mundra, Gujarat...........................................................................................908
53.2.6 Types of Ports- ClassiTcation Method#2.........................................................................908
53.2.7 Major Port Authorities Bill, 2020.................................................................................909
53.2.8 Ports Challenges in India ]B^ ' F &_`aQRHC# ..............................................................909
53.2.9 National Logistics Policy 2022 by Commerce Ministrybs DPIIT........................................910
53.2.10 multimodal parks by Ministry of Road transport and highways............................910
53.2.11 Logistics Ranking (donbt loose sleep)...................................................................910
53.2.12 Infra → Transport → H20 → Ports → Sagarmala Project................................911
53.2.13 Infra → Transport → H20 → Blue economy Policy 2021................................911
53.2.14 Infra → Transport → H20 → Maritime Vision 2030.......................................912
53.2.15 Infra → Transport → Multi-Modal Transportation of Goods Bill, 2019 .......912
54 → Infra → Transport RoadefE)...............................................................................................
( 912
54.1.1 [Yearbook] Min. of Road Transport & Highways ehE iD IFQ jIB $& '(&BS %# →............912
54.2 Infra → Transport → Road → Types...................................................................................913
54.3 TRANSPORT→ NHAI (1988, k C"# lm!"# $& '(n oJE p)..............................................913
54.3.1 NHAI functions.......................................................................................................................913
54.4 TRANSPORT NHDP (1998).....................................................................................914
54.5 TRANSPORT→ Pradhan Mantri Gram Sadak Yojana (2000)..................................914
54.5.1 TRANSPORT→ Bharatmala Pariyojana (2017)...................................................915
54.5.2 TRANSPORT→ Green National Highways Corridor Project (2016)................915
54.5.3 TRANSPORT→ E-toll collection via FASTag (2017)..............................................915

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#5B: Infrastructure: Sadak, Shipping, Airport → Page 899
 54.5.4 TRANSPORT NoWAIT@Railway Crossing: Setu Bharatam..............................915
54.5.5 TRANSPORT→ Char Dham Mahamarg Vikas Pariyojana.....................................915
54.6 "#" : → TRANSPORT → Fossil Fuel USE Electric Vehicle.........................................916
54.6.1 EVs in India: steps taken to promote them.......................................................916
54.6.2 Phased manufacturing program (PMP)..................................................................917
54.6.3 100% EV Adoptionu NITI vs Highway Ministry diver........................................917
54.6.4 ES19: EVs in India: Charging is the biggest challenge ...............................917
54.6.5 E-Vehicle: Lithium → Khanij Bidesh India Ltd (2019).............................................918
54.6.6 EV-Conclusion:........................................................................................................918
54.6.7 TRANSPORT→ Fossil Fuel Emission → Bharat Stage Norms...............918
54.6.8 Decarbonizing Transport in India (2020-June)...................................................918
54.6.9 Vehicle Scrappage Policy [I FQ iD & $(Q Q"HC]..........................................................919
54.6.10 Budget-2022 on Road Transport / EV.......................................................................919
54.6.11 NCAP program for Car Safety 2022...............................................................................920
54.7 Motor Vehicle Amendment Act 2019........................................................................920
54.7.1 " MOTOR VEHICLE AMENDMENT ACT 2019 → Gig Drivers....................921
54.8 TRANSPORT→ Bridges & Tunnel & Misc. (eKCaw ea B')..................................................921
54.9 Transport Transborder Connectivity (e"& i exyQ)....................................................922
55 → Transport Railwayz{"( |).......................................................................................................924
55.1.1 Railways Zonal HQ/Headquarters...................................................................................925
55.1.2 Railways → Concepts........................................................................................................925
55.1.3 ModiTed Economic Internal Rate of Return (MEIRR).............................................925
55.2 Railways → Problems............................................................................................................926
55.3 Railways → Modernization → Personnel & Organizational Reforms ( E Ä&E w eB'ÅQ ÇE
eaJ )..................................................................................................................................................... 926
55.3.1 Railways Personnel Reforms → UniTcation of Services ( eKI ÑBE jEÖE p)............926
55.3.2 Railways Organizational Reforms → Restructuring of Railway Board ...................927
55.4 : Railways Modernization Private Train Operators................................................927
55.5 Railways → Modernization attempts before 2019................................................................928
55.5.1 Railways Fares (ÜE # )→ Rail Development Authority...........................................928
55.5.2 Railways Fares→ Concepts.........................................................................................928
55.5.3 Transport → Rail-Modernization → Green Initiatives by Railways ...........................929
55.5.4 Transport → Rail-Modernization → Electric Traction................................................929
55.5.5 National Rail Plan for India – 2030 [k C EK à%j !"# K% #â$Q - 2030]..........................929
55.5.6 Transport → Rail-Modernization → Safety [ K% ea ä ]...................................................930

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#5B: Infrastructure: Sadak, Shipping, Airport → Page 900
 55.5.7 Transport → Rail Safety → Railways Protection Force (RPF) initiatives-2019 .........930
55.5.8 Transport → Rail-Types (zã{ |â EK nE ).........................................................................930
55.5.9 Transport → Dedicated Freight Corridor (DFC)..........................................................931
55.5.10 RAILWAY → RRTS (NAMO BHARAT).....................................................................932
55.5.11 Transport → Metro Rail.................................................................................................932
55.5.12 Transport → Metro Rail → Metro Rail Policy 2017...................................................932
55.5.13 Transport → Metrolite, MetroNEO = Cheaper Metros for smaller cities (2021) ....933
55.5.14 Transport → Kolkata underwater metro-tunnel.........................................................933
55.5.15 Transport → Kochi Water Metro (Kerala, 2023).........................................................933
55.5.16 Indo-Bangla: Akhaura-Agartala rail link.......................................................................934
55.5.17 Indo-Bangla Rail connection → others.........................................................................934
55.5.18 Transport → Budget-2022 on Railways & goods/cargo transport ....................934
55.5.19 Transport → Budget-2023 on Railways & goods/cargo transport ....................935
55.5.20 Transport → Hyperloop using vacuum tube...............................................................935
55.6 Transport → Aviation (çé#Q / FI è # S )...............................................................................935
55.6.1 [Yearbook] Ministry of Civil Aviation Q ' HI& QQ / Q 'D E çé#Q &BS %#..............................936
55.6.2 Civil Aviation Policy 2016: Highlights →.......................................................................936
55.6.3 Transport → Cheap êights to Small Towns → UDAN................................................937
55.6.4 Transport → Udan 3.0 (2018)..........................................................................................937
55.6.5 Transport → Build More Airports → NABH Nirman..................................................937
55.6.6 No Frills airports (H]Q C &ë & I %KeíKFI è-zéK)...............................................................938
55.6.7 Airways → Flexible airspace / Flexible Use of Airspace (FUA)u ..................................938
55.6.8 Transport → Challenges to aviation sector (`aQRHC# )B .................................................938
55.6.9 Airfare price ceiling (FI è # S ^ âB&_HQ#BSp).......................................................................938
55.6.10 DIGIYATRA Facial recognition Tech for paperless airport passage................938
55.6.11 GAGAN GPS (2015)........................................................................................................939
55.6.12 Transport → Drone Regulation (h!âQ HIHQ#&Q) & GARUD Portal................................939
55.6.13 Transport → Drones in Budget-2022..................................................................939
55.6.14 Transport → Drone Challenges.....................................................................................940
55.7 Vande Bharat Mission 2020- Indians ki watan-waapsi..............................................940
55.7.1 Lifeline UDAN for drug/mask/PPE delivery in Corona-2020............................940
55.7.2 Airbubble Agreement...............................................................................................940
55.7.3 Operation Ganga 2022: Ukraine se Ghar Wapasi................................................940

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#5B: Infrastructure: Sadak, Shipping, Airport → Page 901
55.8 Tourism & Museum Infrastructure (nI eQ I eBìF %#).............................................................940
55.8.1 [Yearbook] Ministry of Tourism.................................................................................941
55.8.2 → Tourism PRASAD & HRIDAY Mission.....................................................................941
55.8.3 Tourism Ministry→ Atma-Nirbhar initiatives & Budget-2022.....................942
55.8.4 Dharamshala Declaration 2022..........................................................................................942
55.8.5 [Yearbook] Ministry of Culture (eBîïHC &BS %#) .....................................................942
55.8.6 Tourism → Museum Infra in Budget-2020 (eBìF %#)..........................................942
55.8.7 BHARAT Shri digital museum for inscriptions in Budget-2023........................942

53 INFRA → TRANSPORT → H20 → INLAND WATERWAYS

Inland Waterways Transport (IWT: zBC^ñó"# $%& '(iD IFQ) has following beneTts →
 Lower CO2 emissions & fuel in transporting per tonne of cargo than Rail / Road.
 IWT requires very little land acquisition (kòã& zoJìFp) than Rail / Road.
 IWT eases traôc congestion (# C # C $& I/EÖ k"f) on Road/Rail networks.
53.1.1 !"Inland Waterways → IWAI
Inland Waterway Authority of India (IWAI: k C"# zBC^ñó"# $%& '(n oJE p) is a Statutory Body under
Ministry of Shipping, responsible for the development, management, safety, survey of inland
waterways.

53.1.2 Inland Waterways → National Waterways (56789: ;<=6>?)

- 7th Sch → Union List → Parliament can make laws on inland waterways.
- National Waterways Act, 2016: 5 existing waterways and 100+ additional waterways declared as
National Waterways. 5 existing waterways are:
National Waterway No. Length (km) State(s)
1: Ganga-Bhagirathi-Hooghly River System (Haldia - 1620 Uttar Pradesh, Bihar,
Allahabad) Jharkhand, West
Bengal
2: Brahmaputra River (Dhubri - Sadiya) 891 Assam
3: West Coast, Champakara and Udyogmandal Canals 205 Kerala
4: Krishna, Godavari and a few Canals 2890 (when Tamil Nadu, Andhra,
Tnished) Telanagana
5: Mahanadi delta rivers & canals 588 Odisha, West Bengal

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#5B: Infrastructure: Sadak, Shipping, Airport → Page 902
 National Waterway No. Length (km) State(s)
40: Ghagra/Saryu River. In news for Government 354 Uttar Pradesh
planning Ramayan Cruise tour, Ayodhya
Apart from above, NW68: Mandovi (Goa), NW111 Zuari (Goa), NW97: Sundarbans and a few
others are presently operational.

53.1.3 Inland Waterways → Jal Marg Vikas Project (2014)

NW-1 has low depth upstream of Farakka → diôcult to take big vessels.
- =is project aims to develop infrastructure, navigational locks to make NW1 enable commercial
navigation on Varanasi-Haldia stretch of river Ganga.
- Plus, provisions for Roll on-Roll ov (Ro-Ro) ferries, Digital dashboard / portals for River
Information System (RIS) and Vessel Traôc Management System (VTMS) etc.
- Central Sector Scheme (0% from States) + loans from World Bank (IBRD) + PPP.
- 2018-Nov: Modi inaugurated India's Trst multi-modal terminal (jE oJE &úh% mÄ&Q%) @Varanasi
& welcomed the cargo ship ùMV Rabindranath Tagoreb coming from Kolkata.
- Entire project will by Tnished by March 2023 & will help to convert Ganga into 1Arth Ganga
(River of wealth)
Side Note: Same Varanasi also designated as Indiabs Trst Dfreight village (& % ' IB )F i.e. an area where
national and international cargo operators carry out their activities.

53.1.4 Arth-Ganga (2022-Aug)

PM Modi suggested that we should think beyond just cleaning Ganga.
We should focus on sustainable economic development around Ganga
We will covert ûGangaü into ûArth-Gangaü with 6 pillars:
1) Zero Budget Natural Farming / chemical-free farming within 10 km of the river, and
promoting cow dung as fertiliser through the GOBARdhan scheme.
2) Sludge & Wastewater: recycle and sell it for irrigation and industries
3) Cultural heritage, boat tourism, adventure sports, and yoga activities.
4) Livelihood Opportunities: setup local markets for products, medicinal plants, and Ayurveda.
5) local administration improvement

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#5B: Infrastructure: Sadak, Shipping, Airport → Page 903
6) public participation improvement.

53.1.5 MV Ganga Vilas Longest River Luxury cruise

 Worldbs longest river cruise around 3,200 km in 51 days, covering 27 rivers.
 From Varanasi (UP) to Dibrugarh (Assam) via Bangladesh.
 50 tourist spots covered including world heritage sites, national parks, river ghats, and major
cities such as Patna in Bihar, Sahibganj in Jharkhand, Kolkata in West Bengal, Dhaka in
Bangladesh and Guwahati in Assam.
 Ticket price: †25,000/- onwards PER DAY.
 Operated by Kolkata-based private company Antara Luxury River Cruises.

53.1.6 !": Je Inland Vessels Bill/Act, 2021 (LMNO5P ;<=6>?;Q6R STUV:P)

 To replace the Inland Vessels Act, 1917.
 bring all inland vessels & waterways in India under union government regulation.
 Union govt to decide maximum weight/passenger capacity, max pollutant discharge of vessel,
Minimum educational qualiTcation of the shipping crew etc. [ABCD E $%& '(ÜECQKe & Q/A^ã&#âBE
IGQ °â eECKF¢? $F G ÜECQ n^§•p ¶ß% eECKF¢? $F G EÄ&#âBEÖ ®òQC& óßä©pE #â™C ´ FâQ" ` ÜFj? ¨≠ Ü^
HQ#& E_Æ e E C# E K'". Ø e E C# QF"BE K'".]
 if vessel sends SOS help emergency distress signal and yet nearby vessels do not respond then
they will be punished. [#Ü^ i Q" &_¶∞e" CQ Iìí $F G &^^ EK à%j eB^Kó kK$_Câ Ae i e &_$ FK$F GâBQK
zHQI #(±i eKçeEÖ &^^ E Q" Fâ'" z®| çQ i $a& (Q %'K' ≤]
 Controversyu Non-BJP State Govts unhappy because inland shipping is Concurrent List Item
but most of the powers vested to Union as per this bill/law. State govts given no role in it, this is
against the spirit of cooperative federalism. [F % Ü∞E ABCD E $%& '(e&IC≥ eò`" &_FßÜEBCaek" e¥ j∞ E_Æ QK
ziQKi e µ %" Fß. ¨eà%j ∂ß BJP Ø e E _ Q G FßEÖ #K∑ QòQ ‘eFE " eBπI ^’ EÖ k IQ EK ªº% Ω Fß]

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#5B: Infrastructure: Sadak, Shipping, Airport → Page 904
53.2 INFRA → TRANSPORT → H20 → SHIPPING & PORTS
- India has a long coastline of about 7,517 km
- Approx. 95% of Indiabs trade by volume and 68% in terms of value is transported by sea
- Alang-Sosiya (Guj) is the largest ship recycling yard in the world.
53.2.1 [Yearbook] Ministry of Ports, Shipping and Waterways Z[TQZ =M\6<: consists of
Old name: "Ministry of Shipping". New Name: "Ministry of Ports, Shipping and Waterways. (2020)"
Dept. N/A
Statutory  Inland Waterway Authority of India (IWAI: k C"# zBC^ñó"# $%& '(n oJE p)
IßJ HQE eBø jB  Tariv Authority for Major Ports (TAMP) to decide fees of Major ports.
 Indian Maritime University (IMU) was set up by an Act of Parliament in 2008
in Chennai as a central university.- to provide quality maritime education,
training and research
Attached /  Directorate General of Shipping, Mumbai QRIFQ &F HQ^Kó %#- he is also the
Subordinate National Authority for Ships Recycling, under Recycling of Ships Act, 2019
(oôce of Ship Recycling @Gandhinagar, Gujarat)
 DG Lighthouses and Lightships| Minor Ports Survey Org, %πai¥Q eIñäp,
CPSE  (¡) Shipping Corporation of India, Mumbai | (¡) Dredging Corporation of
e E " EBiQ" India Limited | (¡) Kamarajar (Ennore, Tamilandu) Port Limited,
 Cochin Shipyard Limited, Cochin
 Central Inland Water Transport Corporation Ltd | Hooghly Dock & Port
Engineers Ltd | Sethusamundaram Corporation Ltd
(A) means approved for strategic disinvestment (=privatization) in 2019.
Global  IMO: International Maritime Organization (HQ: London, UK) – is a United
Cooperation Nations specialized agency for regulating shipping.
zBC "!#  Its Hong Kong International Convention (2009) deals with the safe and
eF#â' environmentally sound recycling of ships. 2019: India ratiTed it.
 United Nations Convention On the Law Of the Sea (e&aÆ E QòQâBEK ] K &_eB#a¬ !
E zBC "!# e√K%Q) Signed in 1982, Jamaica. Sometimes appears in news due to
2012 case where Italian marine soldiers on the Enrica Lexie ship killed 2
Tshermen of Kerala, suspecting them to be pirates.
 Polar Code: for ship-safety when traveling through polar waters. e.g. ship
must contain ice removal equipment, thermal-protection clothes for
passenger etc. Guidelines were designed by IMO.
 Ropax= roll on-roll ov-cum-passenger ferry service. Such shipping vessel can transport persons
and vehicles over water. 2020-March: Shipping ministry launched ropax service between
Mumbai and Mandwa (Maharashtra).
 Alang-Sosiya in Gujarat: Largest ship recycling yard in the world. Started in 1983.

MCQ. Find wrong about Indian Maritime University (IMU)` (CDS-2023-II)

(a) It was established through an Act of Parliament as a Central University.
(b) It was established primarily to support the Indian Navy.

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#5B: Infrastructure: Sadak, Shipping, Airport → Page 905
(c) It is located in Chennai.
(d) It was established to extend the beneTts of knowledge and skill for development of individuals
and society by associating closely with local, regional and national issues of development.

MCQ. Which one of the following statements best describes the DPolar CodeF ` (Prelims-2022)
A. It is the international code of safety for ships operating in polar waters.
B. It is the agreement of the countries around the North Pole regarding the demarcation of their
territories in the polar region.
C. It is a set of norms to be followed by the countries whose scientists undertake research studies in
the North Pole and South Pole.
D. It is a trade and security agreement of the member countries of the Arctic Council.

53.2.2 Types of Ports- Classiacation Method#1: Major and Minor Ports

- Indian Ports Act, 1908: State Governments responsible for 200+ minor ports (%πa]B^ ' F), Union
Govt is responsible for 12 Major Ports (n&aµ ]B^ ' F). Next map source: NCERT.

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#5B: Infrastructure: Sadak, Shipping, Airport → Page 906
53.2.3 "List of Major Ports in India: (A: Artiacial, N: Natural harbor)
A/N` NAME of the Major Port STATE
N ➢ Jawaharlal Nehru, Nhava Shewa (1989). developed as a satellite MH (2)
port to relieve the pressure at the Mumbai port.
➢ It's the largest container port in India - says NCERT. (other
websites tell diverent story, but I go with NCERT.)
N Mumbai. It has countrybs largest oil terminal
N Deendayal Port Kandala, Gulf of Kutch. Tidal port (ƒ "# ]B^ ' F). Guj (1)
Developed in the 1950s because Karachi port lost in Partition.
Kandla is also the Trst Exclusive Economic Zone (EEZ) in India and Asia
(concept nowadays called ùSEZ)
N Mormugao. Tidal Port, @Zuvari estuary. It exports iron-ore to Japan. Goa (1)
A New Mangalore (Mangaluru). Deep water, all weather port. (1974-75) Karnataka(1)
N Cochin/Kochi. Willingdon island. Developed by Sir Robert Bristow Kerala(1)
during British-raj. Also called Queen of the Arabian sea.
Total Major Ports (West Coast) 6
N Kolkata. Oldest major port of India. WB(1)
It has 2 dock systems (1) Kolkata on Eastern Bank (2) Haldia on Western
bank of Hooghly River.
Problems`
1. Itbs a Riverine Port on Hooghly River (Q^" Cm"# ]B^ ' F) so Need
constant dredging (HQE•(p) to remove silt & keep depth.
2. =e port has lost its signiTcance considerably on account of the
diversion of exports to the other ports such as Vishakhapatnam,
Paradwip and its satellite port, Haldia.
N Vishakhapatnam & Eastern Naval command. AP(1)
Is a land-locked harbour, connected to the sea by a channel cut through
solid rock and sand.
A Paradeep (Manmade lagoon in Mahanadi Delta). Odisha(1)
Originally it was a port owned by the Orissa State government, but later
union government took ownership (1965).
N V.O. Chidambarnar Port, Tuticorin. It is located in the Gulf of Mannar. TN (3)
A Chennai (all weather Port) (1875). But it is not much suitable for large
ships because of the shallow waters near the coast.
A • Kamarajar Port, Ennore (private limited company, under
companies Act). Primarily as a coal port dedicated to handling
thermal coal requirements of Tamil Nadu Electricity Board
• normally the major ports are founded using the legal provisions
of 8e Major Port Trusts Act, 1963. However this Kamarajar /
Ennore port is the only corporate port (Because it is registered as
a private limited company under the companies act.)
Total Ports East Coast 6

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#5B: Infrastructure: Sadak, Shipping, Airport → Page 907
Additionally,
 2010: Manmohan announced to setup Port Blair (Andaman Nicobar) as Major port.
 2016: Modi announced to setup Sagar in west Bengal, Duggirajupatnam in Andhra Pradesh,
Vadhavan in Maharashtra, Enayam in Tamil Nadu as major ports.
 2020-Feb: Govt announced setting up a new major port at Vadhavan in Maharashtra. Itbll be
developed by a Special Purpose Vehicle (SPV) company wherein Jawaharlal Nehru Port Trust
(JNPT) will have 50%/> or higher shareholding.
 But, Govt Annual reports & IYB still continue to list only 12 major ports, given in above table so
we need not lose sleep.
 Budget-2020: webll consider corporatizing at least one major port (= converting it into a
Public limited company) and subsequently listing its shares on the stock exchanges.

53.2.4 "(under-construction) Vizhinjam international seaport (KERALA)

• Indiabs Trst deep-water transshipment port @Kerala, being developed by Adani.
• India has many major ports. But it lacks is a land-side mega-port to deal with ultra- large
container ships. Hence, nearly 75% of India's transshipment cargo is handled at ports like
Colombo, Singapore, and Klang (Malaysia)

53.2.5 "Minor Port: Mundra, Gujarat

• Gujarat has country's Trst GreenTeld public-private partnership (PPP) port at Mundra.
• with help of Adani Ports and Special Economic Zone Ltd (APSEZL).
• BOOT-build, own, operate and transfer model. So, basically, Adani given land by Gujarat
government, to build-own-operate this port for 30 years. =en Adani will have to transfer its
ownership to Gujarat state government.
• Presently, it is largest privately owned port in India.
Port 7th Schedule Who regulates`
Major Union List Union
Not-Major (=minor) Concurrent List delegated to States.

MCQ. and correct pairs (Pre'23)

1. Kamarajar Port : First major port in India registered as a company
2. Mundra Port : Largest privately owned port in India
3. Visakhapatnam Port : Largest container port in India
Codes: (a) Only one pair (b) Only two pairs (c) All three pairs (d) None

53.2.6 Types of Ports- Classiacation Method#2

Type of Port Notes
Dry Ports =ey are inland terminal, directly connected to a seaport by rail or road e.g.
(fghViMj5>6Q) Patna@Bihar, Hazira@Guj. 20+ such dry ports under development (2018).
Industrial Port deal with bulk cargo like grain, sugar, ore, oil,chemicals and similar materials
Commercial deal with general cargo & passengers

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#5B: Infrastructure: Sadak, Shipping, Airport → Page 908
 Type of Port Notes
Port
Comprehensive both industrial + commercial port facility
Packet Station Ferry Ports for transporting passengers and mail on water for short distances.
Inland Ports away from sea coast via river/canal. e.g. Kolkata,Memphis, Rhine,Manchester
Out Ports deep water ports built away from the actual port to recieve very large ships e.g.
Piraeus is outport of Athens (Greece)
Ports of Call where ships used to anchor for refuelling, watering and taking food supplies
e.g. Aden, Honolulu, Singapore
Entrepot collection centres where the goods brought from diverent countries for export.
Ports e.g. Singapore,Asia. Rotterdam (Europe), Copenhagen (Baltic region)
Naval Ports for war ship repair/construction e.g. Kochi, Karwar
Singapore is known as Port of Call because (UPSC-CAPF-2020)
(a) it deals in the processing and shipping of oil
(b) it is a deep water port built away from the actual port
(c) it is on main sea route where ships use to anchor for refueling, watering and taking food items
(d) it serves the parent ports by receiving ships which are unable to approach due to their large size

53.2.7 Major Port Authorities Bill, 2020

Mostly Technical. Ibm deleting this topic. donot lose sleep [Q"B^ µâQKEÖ G± C QF"B]

53.2.8 !"Ports → Challenges in India iMj5>6Q =lmnZ[SN:6

1. While India made great success in metro rails and airport infra, But shipping infrastructure has
neglected. We suver from ageing êeet, manpower shortage, we do not have world class ports.
Large sized ships are unable to enter our ports so their goods are Trst o∆oaded in Sri-Lanka,
then sent to India in smaller ships. [$F G ia QK/ $$(D C F¢, Eaó% & QI ]% EÖ E&", HI« í EÖ ]B^ ' F_QF"B≤
]fK$F G EÖ i »E' &a… %]
2. Port congestion, delay in turnaround, takes lot of paperwork to load/unload cargo, customs
clearance / inspection is slow,
3. inadequate roadrail connectivity with the hinterland (ABCD E ¨% EK).
4. Privately owned minor ports are more eôcient, whereas major ports suver from labour unions
and politicization of the Board of Directors. [&$^§ eBπ IÀ $Q"HCE p EK `%CKnk IF"Q ÃIø iQ]
5. Problems of land acquisition and environmental clearances while setting up new ports.
6. Desi Shipping companies buy / hire foreign ships at higher cost bcoz domestic shipbuilding
industry is underdeveloped. (k C EÖ ø HQE EBiHQ# BzÕK $F $ ]Q QF"Bi C".F&QKHI^KóâBeKµ "^QKifCKF¢)

53.2.9 National Logistics Policy 2022 by Commerce MinistryFs DPIIT

cost to transport Indiabs target in few
Global Standard India Present
goods yrs
as % of GDP 8-9% of GDP 13-14% of GDP single digit of GDP%

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#5B: Infrastructure: Sadak, Shipping, Airport → Page 909
 seamless movement of goods and services across the country with the help of Gati Shakti project.
(Refer to Pillar5C: PPP Project for more on this.)
 new logistics policy has four critical features: 1) Integration of Digital System (IDS); 2) UniTed
Logistics Interface Platform (ULIP); 3) Ease of Logistics (ELOG); 4) System Improvement Group
(SIG). How do they work in realityu NotIMP.
 greater cooperation among ministries of road transport, railways, customs, aviation and
commerce departments.
( e^ AiòœC/ & % iD IFQ EK à%j e E EÖ Qè Q"HC. $F ∞HI©k– nE EK —Q% ¨Q iâm(% “ HI©k– &BS %#âBEK ]"` e&”#
E EK & % iD IFQ EK µ`‘ Eâ E& ÜE# $ j w 'HC Eâ CK$ ÜE# $ j. Iß’«E A^ó(/& QE #F FßÜE & % iD IFQ E º`(
GDP EK 8-9% eK÷ ^ QF"BFâQ ` ÜFj. ÜE◊aIC(& Q e&# &_k C &_#F % 'C µ`(GDP EK 13-14% Fß.)

53.2.10 multimodal parks by Ministry of Road transport and highways

- For developing logistics parks for cargo aggregation and distribution. Storage/ warehousing. (]ÿHIJ
# C # C EK i E(- $F ∞ŸâmKm!EâB&_k EK & % % jB'Kܶ IF ∞eK]f" m!ßE w K%IK“ EF" w & % Eâ iÿB` jB'K≤)
- Budget-2023: 100 critical transport infrastructure projects for last connectivity for ports, coal,
steel, fertilizer, and food grains sectors. (zHC &F⁄iòp(iD IFQ zIeB `Q EK nâ$K€ E _')K
- 1st such park being developed near Chennai with help of Reliance.

53.2.11 Logistics Ranking (donFt loose sleep)

LPI Index  World Bankbs Logistics Performance Index, released every 2Years.
 2023: Indiabs Rank 38 out of 139 countries.
 National Logistics Policy 2022 targets that India should get into top-25
rank by 2023.
LEADS Index Commerce Ministrybs Logistics Ease Across Diverent States (LEADS) index.
2021: Guj#1, Haryana#2,Punjab#3.
2022: onwards, it stopped giving RANKS. But just mentioned the states/UT in
3 ùcategoriesb- see the chart given below:

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#5B: Infrastructure: Sadak, Shipping, Airport → Page 910
 Figure 1: this is given in latest Economic Survey 2023 so pasting. else I would not have bothered.

53.2.12 Infra → Transport → H20 → Ports → Sagarmala Project

2003: PM Vajpayee proposed Project Sagarmala → Manmohan ignored → Modi revived (2015).
- Bossu Shipping ministry. Central Sector Scheme = 0% funded by States. Although in practice itbs
Shipping Ministry → Sagarmala Development Company Limited (2016) → invest in Special
Purpose Vehicles (SPVs) companies (in which State & private players may also have
shareholding) → SPVs implement various projects under Sagarmala.
- To develop/improve ports, encourage coastal shipping. ]B^ ' FâBEâ ]Q Q /B ]KFC E Q
- Costal Economic Zones (CEZs: CmIC≥ A‹|E äKS) to create manufacturing & employment
opportunities. Give them Hinterland connectivity through rail, road, inland water transport.
- Skill development, training for coastal community. []B^ ' Fâ Eâ ABCD E ¨% ∑âBeK$âfQ ]

53.2.13 Infra → Transport → H20 → Blue economy Policy 2021

 Blue Economy deals with sustainable use of ocean resources for Job creation and GDP. [Q"%
z|(CBS= e &aÜÆE eBe JQâBE eCCÀHIIKEiòp(çi#â' âG' eï$Q C| eE% π K%òç› ^ &_]fiâC " EK à%j ÜE# $ j]
 India has a coastline of nearly 7500 kms. 12 Major ports, 9 Coastal States, 1300+ islands, 2
million Square kilometre + Exclusive economic zone
 India has both type of ocean resources a) living (Algae, Tsh, prawns etc) and b) non-living (Oil,
gas, polymetallic nodules). e$"I w HQ$≥I ^âQâBÜ∑fl EK e &aÜÆE eBe JQ F¢k C EK i e
 Ministry of Earth Sciences (MoES) has launched the Dra‡ Blue Economy policy for India 2021.
Major features- [iï·" HI‚ Q &BS %# QKHQ%" z|(CBS Q"HC ]Q #"]
 Fisheries, Marine food processing, deep sea mining, Ovshore energy, Research, skill
development etc to achieve United Nation sustainable development goal number #14 i.e.
Sustainable use of ocean resources for sustainable development. [&„ µ ‰ neBî p, 'F K e&B^ &_
µQQ, ziCm"# Â$ ,( eBóâJQ QI ` HIE e, ERó% C %"&]
Misc. Topic: Sethusamudram project (1997) to create a shipping canal between Palk bay & Gulf of
Manner to reduce time & fuel consumption. But case pending in SC-PIL that itbll hurt marine
biodiversity & Ram Sethubs religious sentiments.

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#5B: Infrastructure: Sadak, Shipping, Airport → Page 911
53.2.14 Infra → Transport → H20 → Maritime Vision 2030
 Fancy talk similar to above Blue economy policy. (Âi EK mâHiE &_AiQK^Kµ"- IF" e] Ê`EQ" `aif" ] C_≤)
 Webll improve our ships, ports, export, create 7-10 lakh jobs etc.

53.2.15 !"Infra → Transport → Multi-Modal Transportation of Goods Bill, 2019

 Multimodal transportation (&Á"-&úh% iD IFQ) means using a combination of more than one
mode of movement, such as rail/road/sea for transportation of goods.
 Original act of 1993 contained provisions for 1) Registration of such cargo company 2) their
liability in case of cargo delay / damage.
 2019: Govt planning to replace this old act, with a new act. but mostly technical features. We
need not lose sleep.# |âf -ifiâ-A'K-]fiâ

54 INFRA → TRANSPORT → ROAD (fpP)

(Intro) A good road network is an essential requirement for the rapid growth of the economy. Roads
provide connectivity to remote areas, open up backward regions and facilitate access to markets,
trade and investment. efE iD IFQ E ^Kó EÖ A‹|E Iïãy &_&F⁄. HiŸfK¨% EâB&_à i /HQIKó Eâ nâË FQ
(Data) Largest road network in world #1 USA (66 lakh kms) #2 India (64 lakh kms)

54.1.1 [Yearbook] Min. of Road Transport & Highways fqP rO5TQZ sTM 56;=6>?=M\6<: →
Dept /Attached N/A
Statutory Bodies National Highways Authority of India (NHAI) k C"# "!# $& '(n oJE p
CPSE National Highways and Infrastructure Development Corporation
Autonomous ➢ Indian Academy of Highway Engineers (IAHE)
➢ Indian Road Congress (IRC) for conferences to discuss issues
related to road construction, maintenance, development.
Number plate - 2019: Govt allowed tLA-u number plate mark for vehicles registered
in UT of Ladakh. (Lakshadweep: ûLDu plates)
- 2021: BH-series of number plates for Defense personnel, Govt
employees and private sector companies, which have their oôces in
four or more States/UTs Ministry.
E-Governance - Vahan Portal: vehicle registration, taxation, permit, Ttness and
modules associated services across the country [I FQâ E iB$"E p]
- Sarathi Portal: driving license, learner licence, driving schools and
related activities. [I FQ` %Eâ E iB$"E p]
- mParivahan App: has features similar to above two portals
- Integrated Road Accident Database Project (iRAD) with help of lIT

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#5B: Infrastructure: Sadak, Shipping, Airport → Page 912
 Madras and National Informatics Centre (NIC)
- Data Lake and Project Management Sovware → NHAI's digital
platform for paper-less decision making & dispute resolutions related
to highway construction.
- Bhoomi-Rashi portal: for land acquisition for highways. (kòã& zoJìFp)
54.2 INFRA → TRANSPORT → ROAD → TYPES
Name → Responsibility of Connects [#K& '(ÜEeK$âfC Fß?]
National Highways Union Government State capitals, major cities, ports
State Highways State Government State Capital to District HQ
District Roads Zila Parishad District HQ to tehsil and Blocks
Village Roads Gram Panchayat Villages to neighboring towns
Expressway PPP / SPV Six to eight lane high class highways e.g. Abbad
(usually under aegis Vadodara Expressway made by SPV owned by
for NHAI) NHAI+ IRB Infrastructure Developers.
 3 organizations associated with highway construction: 1) National highways authority of India
(NHAI), 2) State Public Works Department (PWD: %âE HQ& (p HIk '), 3) Border roads
Organization (BRO:e"& efE eB'ÅQ under Defense Ministry)
 In terms of total road length (bigger to smaller): Other roads >> State highways >> National
highways >> expressways [efEâBEÖ %x è EK ÜFe ] eK]fKeKŸâm ]

54.3 TRANSPORT→ NHAI (1988, x65N9: 56yz89: 56;=6>?{6|UP5})

National Highways Authority of India is a statutory body under Road Ministry. It gets † † from →
- Road and Infrastructure cess on Petrol & Diesel → Central Road and Infrastructure Fund (setup
in 2000, Non-Lapsable) (More in Pillar#2- Taxation)
- External Assistance from World Bank, ADB, Japan Bank for International Cooperation etc.;
- Market Borrowings by NHAI, Public Private Partnership(PPP).
- 2019: NHAI to setup Infrastructure Investment Trust (InVITs) ( Ref: Pillar-1C)
2020: GATI Portal by NHAI to monitor the progress of Highway construction in India. Contractors
can Tle complaints (e.g. Govt engineer demanding bribes, not clearing Tles on time etc)

54.3.1 NHAI functions

➢ develop, maintain and manage national highways vested in it;
➢ collect fees on national highways;
➢ regulate plying of vehicles (meaning vehicles of which size/weight can be allowed on a given
highwayu)
➢ develop and provide consultancy and construction services in India and abroad;
➢ carry on research activities in relation to highways
MCQ. Find wrong statement about NHAI ` (CDS-2023-II)
(a) NHAI collects fees on the National Highway.

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#5B: Infrastructure: Sadak, Shipping, Airport → Page 913
(b) NHAI conducts training of Highway Engineers at entry level and in-service.
(c) NHAI provides consultancy and construction services in India and abroad.
(d) NHAI regulates and controls the plying of vehicles for its proper management.

54.4 TRANSPORT→ NHDP (1998)

PM Vajpayee started National Highways Development Programme (NHDP) to build:
- Golden Quadrilateral (GQ: ÈÍp& `Caka($)- 4 metro cities of Delhi, Mumbai, Chennai, Kolkata
- North-South corridor to connect Srinagar to Kanyakumari. [ç¥ ^©äp]
- East-West corridors to connect Silchar to Porbandar.[iòI(i’Î&]
- Related terms: Diamond quadrilateral → to connect major metros via High Speed Railways.

54.5 TRANSPORT→ PRADHAN MANTRI GRAM SADAK YOJANA (2000)

- Boss` Rural Development Ministry. Centrally Sponsored Scheme → Core Scheme = NOT 100%
funded by Union. (General-60:40, Sp. Cat States-90:10)
- 2000: PM Vajpayee launched to construct all-weather single (lane) roads for all unconnected
rural habitations ’$Q ì &"p ¨% EâB&_iF%KeKefE EÖ eaHIJ QF"BIF BC& & &Re&âB&_E #( C FKÏe" efEâBE HQ& (p
- upto min. 500 population (plains) by 2019
- 250/> (Sp.Cat States, tribal districts and desert areas) by 2019
- 100-249 population (if Naxal/LWE: Le‡ Wing Extremism avected areas) by 2020
- PMGSY – II (2013 onwards): To repair previous rural roads and to construct new roads.
- PMGSY Phase-III (2019-20 to 2024-25): To upgrade 1,25,000 kms of road in the next Tve years.
In this phase, webll also construct road bridges. Webll connect with roads with Agricultural
Markets, Schools and Hospitals. [C"e K ` p &_efEâBEâ HQ& (p, ia% k" ]Q j∞'≤K ]
- To carbon footprint, PMGSY roads are built using Green Technology, Waste Plastic and Cold
Mix Technology. ( Read more in environment books/courses)
- Beneat of Rural Roadsu World Bank study (2019) found that PMGSY roads had a positive
impact on human capital formation in rural India by increasing 1) school enrolment 2)

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#5B: Infrastructure: Sadak, Shipping, Airport → Page 914
 institutional delivery 3) vaccination. (HI« ]¢E QKi # ÜE ' I∞ &_efE HQ& (p eK& QI iòB$" HIE e FâC Fß→
´âBÜE efEâ EÖ eaHIJ Fâ'" Câ ]ÌâBEK îò%-nIKó, π EÖ $'F zÓC %âB&_] %-neI,w m"E E p &_Iïãy FâC" Fß.)

54.5.1 " TRANSPORT→ Bharatmala Pariyojana (2017)

Boss` Ministry of Road Transport & Highways → NHAI. † † mobilized via Cess/PPP/SPV.
- It aims to upgrade & expand the highways that were built under the previous NHDP.
- It has 7 phases. Phase-1 aims to upgrade 24,800 kms of national highways by 2022.
- Special focus on connecting the coastal areas, economic corridors, and border regions (for easier
troop movement against China-Pak & increase land based export-import with Nepal, Bhutan,
Bangladesh and Myanmar). ifâe" ^KóâBEK e | $&"Q" A# C HQ# (C C| eKQ Eâ e^ iÿB` QKEK à%j

54.5.2 " TRANSPORT→ Green National Highways Corridor Project (2016)

➢ for developing eco-friendly and green national highways.
➢ passing through Rajasthan, Himachal Pradesh, Uttar Pradesh and Andhra Pradesh.

54.5.3 TRANSPORT→ E-toll collection via FASTag (2017)

Ref: pillar1A-1: Digital payments

54.5.4 TRANSPORT→ NoWAIT@Railway Crossing: Setu Bharatam

Boss` Road Ministry. Central Sector Scheme = 100% funded by Union.
- Setu Bharatam aims to make all National Highways free of railway level crossings by by
constructing Railway Over Bridges (ROB)/Railway Under Bridges (RUB).
- Deadline: 2019. "Beneats` 1) Less traôc condition & accidents in highways 2) Less employees
required for manning the railway crossing signals.
54.5.5 TRANSPORT→ Char Dham Mahamarg Vikas Pariyojana
 Boss` Road Ministry to build/renovate roads to connect four prominent Dhams in Uttarakhand
viz. Gangotri, Yamunotri, Kedarnath and Badrinath.

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#5B: Infrastructure: Sadak, Shipping, Airport → Page 915
54.6 : TRANSPORT→ FOSSIL FUEL USE→ ELECTRIC VEHICLE

- (Deanition) Electric vehicle (¨%KÔ€!E I FQ) is an automobile that is propelled by the energy stored
in rechargeable batteries. Such vehicles are further classiTed into
○ 1) Battery Electric Vehicles (BEVs) and
○ 2) Hybrid Electric Vehicles (HEVs) which can run on both battery (using electric motor)
and petrol/diesel (using internal combustion engine).
- (Origin of the problem) In India, transport sector is the second largest contributor to CO 2
emissions a‡er the industrial sector. Electric vehicle can help reducing it.
- (Data) Currently, the market share of electric cars is less than 1% in India, compared to
compared to 2% in China and nearly 40% in Norway.
- Why encourage` 1) less import of crude oil import = less CAD 2) India can emerge as a hub for
manufacturing for EVs. =is can provide employment opportunities and earning of foreign
exchange through exports. â$' I HI^Kó" &aÆ E& QKE e JQ ]Q eEC Fß

54.6.1 EVs in India: steps taken to promote them

- 100 % FDI through automatic route is permitted in the automobile sector.
- 2013: National Electric Mobility Mission Plan 2020 (NEMMP) for promoting electric and
hybrid vehicles.
- 2015: Ministry of Heavy Industries & Public Enterprises launched Faster Adoption and
Manufacturing of Electric vehicles (FAME) scheme to fast-track the goals of NEMMP.
- 2019: FAME India Phase II has been launched for period upto 31/3/2024.
o Itbll setup 2700 charging stations in major cities in such manner that
 at least one charging station is available in a grid of 3 km x 3 km in cities,
 At least one charging station is available every 25km on highways.
o Itbll also focus on electriTcation of public transportation. (e I($HQE iD IFQ E HI‰aC"E p)

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#5B: Infrastructure: Sadak, Shipping, Airport → Page 916
 GST on EVs is reduced to 5% from the current rate of 12%.
- Budget-2019: Additional income tax deduction on loans taken to buy EV.
- Ministry of Road Transport Highways (MoRTH) notiTed Green Number plate for the use of
Electric Vehicles.
- E-AMRIT PORTAL: web portal on electric vehicles (EVs) was launched by India at the
COP26 Summit in Glasgow, UK- a joint initiative between NITI Aayog and the UK Government.

54.6.2 Phased manufacturing program (PMP)

 diverent ministries are running parallel schemes with this name: e.g.
 heavy industry ministry for electric vehicle and its components/spareparts.
 electronics ministry for smart watches, microphone, touchscreen panels, etc.
 basically involves providing certain tax beneTts to the industry. Further technical guidelines or
how this is similar diverent than RODTEP/PLI/FAME etc.= NOTIMP4EXAM, bcoz itbs a low-
proTle scheme. Not a famous scheme.

H]$%" eK`%QKI %KI FQâBEK HIHQ& (p EK ` p]y HIHQ& (p EK à%j #â$Q ’$e&_E â &_EaŸ Ÿòm ^" $ C" Fß≤

54.6.3 100% EV Adoption` NITI vs Highway Ministry diÇer

Q"HC A#â' QKEF 2030 eKk C &_oeΩ( ¨%KÔ€!E I FQ H]E_'K, ÜEBCaiD IFQ &BS %# QKEF F&QKje zk" C# QÜF ÜE#
- 2017: NITI proposes at least 40% private transportation should be electric by 2030.
- 2019-Jun: NITI proposed only electric vehicles should be sold a‡er 2030. However, automobile
makers have heavily criticized this move. So, ultimately
- 2019-Aug: Union Minister of Road Transport and Highway, Nitin Gadkari cleared the air that 1)
=ere will be no ban on petrol and diesel vehicles in the country. 2) Govt has not set any deadline
for automakers to switch to electric vehicles. 3) I am the minister, NITI Aayog does not have the
authority to set Electric Vehicle deadline.

54.6.4 ES19: EVs in India: Charging is the biggest challenge

Norway has the highest share of electric cars in its private transport. Because they provide tax
incentives to EV buyers, waiver of toll fees, free parking, etc. However, the Latest Economic Survey
observed that more than such tax incentives, need of the hour is to develop charging station
infrastructure in India because:
 EV batteries limited driving range. So, charging stations must be available throughout the roads.
Else, people will prefer Internal Combustion Engines (ICE) vehicles like petrol-diesel cars.
 Depending on the technology of charging stations, it can take from 30 minutes to 8 hours to
recharge the battery. So, universal charging standards are required in India.
 Govt should also inform users about the availability of charging stations in their vicinity with the
help of physical science, GPS maps / Apps. (e I(ãSE ` Ò$' & QE)

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#5B: Infrastructure: Sadak, Shipping, Airport → Page 917
 India's climate is much hotter than Norway. High temperature = battery life cycle. Webve to
encourage R&D accordingly. Otherwise, frequent battery replacement costs will discourage
potential buyers. (] -] ]ßm " ]^%I QKE µ` (ì FE Eâ FCâË ÜFC E eEC Fß.)
 EV batteriesb primary components is Lithium. China has secured a supply of this metals from
Congo, Bolivia, Chile, Australia. India shd also expand to such upstream areas to secure Lithium

54.6.5 E-Vehicle: Lithium → Khanij Bidesh India Ltd (2019)

 2019: =is company setup by NALCO, Hindustan Copper and Mineral Exploration Ltd- to
acquire strategic minerals like Cobalt & Lithium. (HI^KóâBeKe &D E µHQ$âBEÖ µ "^ EK à%j)
 2020: It bought a Lithium mine in Argentina.

54.6.6 EV-Conclusion:
Electric vehicles represent the next generation in sustainable mobility. India must emphasize on
them to reduce its GHG emissions, and to provide new avenues for employment and export
earnings. Aforementioned initiatives / reforms are important in this regard/need to be addressed on
priority basis. (n^§•p &_E&", â$' eï$Q, HQ# (C &_]fiâC ")

54.6.7 TRANSPORT→ Fossil Fuel Emission → Bharat Stage Norms

 Environment Ministry → Statutory Body: Central Pollution Control Board (CPCB) has
instituted Bharat Stage emission norms (BS) norms . $"I Ú ÛJQ çË$(Q & QE
 Higher number = stricter norms = more expensive for automakers to design such engines.
BS- - 1/4/2017: BS-IV compliant vehicles made compulsory.
IV(4) -
1/4/2020: SC banned their sale from this date
BS-V(5) Modi decided webll directly jump to Stage 6.
BS- Only this type of vehicles can be sold from 1/4/2020 onwards
VI(6) Stage-VI vehicles will emit less Sulphur and Nitrogen Oxides than their predecessors.
 1) Many buyers awaiting new BS6 carsb prices to fall instead of buying BS4 models.
 2) Even though the BS4 car may be cheaper, itbll not have good re-sale value in the 2nd-hand
used market a‡er 5-6 years. So buyers are hesitant.
 1+2 = among reasons for in automobile sales in 2019 (I FQâBEÖ H]ÙÖ &_E&")
 Separately, Dept of Heavy Industry notiaed Corporate Average Fuel EÉciency (CAFE) norms
for passenger cars (E.g. taxis, buses), requiring them to CO2 emission from 2017 onwards.

54.6.8 "Decarbonizing Transport in India (2020-June)

 5 year Project by NITI + OECD's International Transport Forum (ITF)
 13% of India's Co2 emissions come from the transport sector. =is project aims to reduce it.
iD IFQ &_E ](Q EÖ çË$(Q Eâ E& E Q
 More details prepare from Environment lecture/Current PDFs.

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#5B: Infrastructure: Sadak, Shipping, Airport → Page 918
54.6.9 Vehicle Scrappage Policy [T6QZ rO5=6;?Z Z9SN]

Budget-2021: Automakers to give 5% rebate (discount) on purchase of new car, If the customer
gives his old vehicle for scrapping. Later Road Transport Ministry gave more clariTcation→
 Oôcial nameu ûVoluntary Vehicle-Fleet Modernisation Programmeü
 Whou Road Transport Ministry by amending the Motor Vehicles act. [efE iD IFQ &BS %# E
"Èß…ÕE I FQ-]KfKAJaHQEÖE p E #(Ù&"]
 Commercial vehicle e.g. Taxi, Truck older than 15 years and personal vehicles e.g bike, moped,
car older than 20 years. [15 e % eKia Q" I ©pÔØE I FQ C| 20 e % eKia Q" HQ$" I FQâBi % 'ò]
 Vintage/Museum Vehicles which older than 50 years = given exemption from such rule.
However, they cannot be used for day-to-day travel. [ıò’$#&/&F $ Ñ EK $& QKEÖ ia Q" ' h"Ñ Eâ Ÿòm]
 If non-govt Vehicle fails the Ttness test a‡er above age → It'll be seized and destroyed. (I Q $ˆ)
 If the owner voluntarily submits the vehicle to the authorised scrapping centre → gets the old
Vehicle scrapped ka certiTcate → 4-6% Discount on buying a new vehicle. If he does not want
to buy the new vehicle he may even sale/exchange the discount certiTcate to another party. [I FQ
& à%E ÈKÕ eKE] f" &_^K' , Câ e˜mÜΩEKm ã&%K' ’$eeKQj I FQ EÖ º "^ " &_D # #C/ Ÿòm/ Ühî çBm.]
 He may also get exemption/relaxation in registration fees & State Road Tax. [E &_k" D # #C]
 Registered vehicle scrapping centres will be linked to the National Police database to track
vehicle stolen / involved in crime. [E] f" E_ÆâBEâ "!# iaà%e hKm ]Ke EK e | $âf $ j' C ÜE `â " ÿj, zi J
&_¨íK& % ÿj I FQâBi QG .]
 Budget-2023: Old Vehicle Replacement: Loans to States for replacing old vehicles and
ambulances. (ia Q" e E " ' Üf#âBEâ E] f" &_]K` EK Qè ' Üf# Bº "^QKEK à%j ØâBEâ EG (^_'.K)
BeneTtsu cleaner emissions, fuel eôciency, better road safety (e.g. seat belt airbags), automobile
jobs (35k ), GDP (†10kcr ). [n^§•p &_E&". efE ea ä - âG' eï$Q-eE% π K%òç› ^ &_]fiâC "]
 Note: Some of these rules/%/deadlines may get changed in future.

54.6.10 Budget-2022 on Road Transport / EV

 Budget-2022:- =e National Highways network will be expanded by 25,000 km in 2022-23
 Budget-2022:- Electric vehicle battery swapping policy to solve the space shortage. (óF âB&_
$'F EÖ Ü∑¯C Eâ ^KµCKÿj ' f" Eâ ` $(E QKEÖ $'F ¨eEÖ ]ßm " F" ]^% ^" $ j Ïe" Q"HC)
 shi‡ to use of public transport in urban areas. (óF âB&_HQ$" I FQâ eK÷ ^ e I($HQE iD IFQ & ˘& $ßeK]e
K% ¨≠ Ü^ Eâ ]fiâC " ^_'K)
 special mobility zones with zero fossil-fuel policy,and EV vehicles. (EaŸ ¨% EâBEâ $"I Ú ÛJQ &a¬
πâH•C ÜE# $ j, # Q" IF ∞i iKm!â% h"G% QF"BEKI% ¨%KÔ€!E I FQ `%_'K≤)

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#5B: Infrastructure: Sadak, Shipping, Airport → Page 919
54.6.11 NCAP program for Car Safety 2022
 Transport Ministrybs Bharat New Car Assessment Program (NCAP) for awarding ùStar Ratingsb
to automobiles based upon their performance in crash tests, will be introduced on April 1, 2023.
 Bharat NCAP is applicable on type approved motor vehicles of category M1 (i.e. having 8 seats +
driver seat). =is will help customers to opt for safer cars based upon their star-ratings. (I FQ
ÜECQ ea ©äC FßçeEK ] K &_Qj “jQje"i"” & Q^Bh)

54.7 MOTOR VEHICLE AMENDMENT ACT 2019

- Road accidents claim ~1.5 lakh lives every year. So, Unionbs Motor Vehicles Act, 1988 was
amended in 2019 with steep penalties such as Drunk-driving Tne increased from † 2,000 to †
10,000 etc. (m!ßܶE HQ#&âBE ç¯BπQ E Q , &Ü^ /ó ] i"E ' f" `% Q ¨Q e] i k " $a& (Q )
- Even road contractors & Enginers can be punished if faulty infrastructure results in accidents.
- Concurrent List Entry 35: Mechanically propelled vehicles. So, both union and states can enact
laws but Unionbs law will prevail. [e&IC≥ eò`"]
- But, some State Govts have notiTed reduced penalties. Union Highway Minister said, ûStates can
revise =nes if they want. However, peoples lives should be saved."

Further, this Motor Vehicle (Amendment) Act 2019 mandates:

1. Aadhar card compulsory for getting a driving licence and vehicle registration.
2. Good Samaritan (QKE A^&": who helps the injured victim in good faith) will not be harassed in
civil /criminal cases. Itbll not be mandatory for them to disclose identity to police / doctors.
3. Road builder can be penalized if poor quality of road leads to accident.[efE ÅKEK^ Eâ k" e$ ]
4. Vehicle company can be penalized for sub-standard components. Govt can order recall of such
faulty vehicles. (πÜm# 'apI¥ EK I FQâBEK HQ& (p i EBiQ" Eâ $a & Q )
5. Easier registration process of vehicles modiTed for Divyang(PH)
6. A Motor Vehicle Accident Fund will provide compulsory insurance cover to all road users in
India for certain types of accidents. (=Ñz5 T6QZ jÜÖ z? Z6 SZ|U)
7. Technical reforms in third party motor-vehicle insurance & claims.

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#5B: Infrastructure: Sadak, Shipping, Airport → Page 920
54.7.1 MOTOR VEHICLE AMENDMENT ACT 2019 → Gig Drivers
 Motor Vehicle (amendment) Act 2019 → guidelines requiring Ola/Uber cab aggregators/gig
platforms required to provide drivers Health insurance, Term Life Insurance( Pillar#1D)
 Norms on surge pricing. Fare linked with WPI (More in Pillar#4C- Inêation)
 Cab Data must be stored in Indian server. Training, Gender sensitization.

54.8 TRANSPORT→ BRIDGES & TUNNEL & MISC. (fVNná5 fn5M>)

Table 1: if u can remember good, else don't loose sleep.

IRAD Integrated Road Accident Database Project (iRAD) by IIT-Madras and NIC.
IBMS Road Ministry developed an Indian Bridge Management System (IBMS)
webportal to monitor 50,000+ bridges on National Highways of India. Such
database can help 1) repair works 2) mega-sized trucks could be diverted to other
routes to avoid structural damage to small bridges.
Maitri Setu connecting Sabroom (Tripura) with Ramgarh (Bangladesh) over Feni River →
From Ramgarh (Bangladesh) → Chattogram port is hardly 80 kilometres from
Ramgarh = so, will help Northeastern Indian States to export through sea port.
Constructed by India's National Highways & Infra Development Corporation
Limited (NHIDCL). =is is also part of HIRA-wala Development= Highways, I-
ways (information highway/communication infra), Railways and Airways.
Bogibeel =e longest Rail-cum-Road Bridge of the India (4.94 km).
Bridge Connects Assambs two districts over Brahmaputra river. 2018: Modi inaugurated.
Dhola- Longest road bridge of India (9.15kms) to connect Dhola in Assam to Sadiya in
Sadiya Arunachal over river Lohit, a tributary of River Brahmaputra. 2017: Modi
Bridge inaugurated.
Dhubri- 19.3 kms road bridge to connect Dhubri (Assam) and Phulbari (Meghalaya) over
Phulbari river Brahmaputra. 2019: Modi approved, will Tnish by 2026-27, then itbll become
Bridge longest bridge.
DiÇo Bridge built over Divo River in Arunachal Pradesh.
River Indiabs longest river ropeway (2kms) to connects north & south banks of the
Ropeway Brahmaputra river in Kachari Ghat, Guwahati, Assam.
SARDP-NE Road Ministry → extra funds for roads in North East. Special Accelerated Road
Development Programme (SARDP-NE)
Atal Tunnel World's longest highway tunnel (9.02 km) from Manali to Lahaul-Spiti valley in
Himachal built by the Border Roads Organisation (BRO, under Defense Ministry).
Sela Tunnel Arunachal Pradesh passing thru Sela Pass. Itbll cut down the distance to China
border through Tawang by 10 km. At a height of over 13,000 feet.

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#5B: Infrastructure: Sadak, Shipping, Airport → Page 921
 Mavala Mavala = India's Biggest tunnel boring machine used for creating tunnels for
Machine India's Trst undersea tunnel Road -In Mumbai -To connect South Mumbai with
Worli. "Mavala" word associated with infantry Warriors in Shivaji Army.
MCQ. Which is NOT correct about the Atal Tunnel` (IES-2021)
a) It is the highest altitude tunnel in the world≤ e] HI« &_e]eKØ ^ ç` è i ˝øC ea B' Fß
b) It was inaugurated on 03 October 2020 in Rohtang #KC "µ Eâ ç˛ mQ ÿA |
c) In connects Manali to Lahaul-Spiti valley≤ ¨Q ^â $'F Eâ $âfC" Fß
d) It is capable of handling 5000 cars and 2500 trucks per day with maximum speed of 80 kmph
MCQ. Which among the following is India's longest road tunnel` (CDS-2023-II)
(a) Atal Tunnel (b) Kuthiran Tunnel
(c) Dr. Syama Prasad Mookerjee Tunnel (d) Banihal Qazigund Road Tunnel

54.9 TRANSPORT → TRANSBORDER CONNECTIVITY (e"& i exyQ)

Kartarpur - Kartarpur Sahib is located on the Ravi river bank, Pakistan, about 4.5 km
Sahib from the international border.
Corridor - Here Guru Nanak Sahib spent his 18 years until his death in 1539.
(2019) - 2019: 550th birth anniversary of Guru Nanak Sahib.
- Govt launched Visa-free corridor - Indian citizens and OCI (Overseas
Citizens of India) can travel from India to Pak.
Kaladan - To connect Haldia/Kolkata Port → Sittwe Port (Myanmar) → Kaladan
Multi-Modal River → Road transport to Mizoram.
- in other words, this project aims to provide alternate connectivity between
eastern ports of India to Mizoram via Myanmar.
Sonamura- - Sonamura (Tripura) to Daudkandi (Bangladesh)
Daudkandi - =is is a riverine route connecting Tripurabs Gomati river with Indiabs
(2020-Sept) national waterways through Bangladeshbs Meghna river.
IMT India-Myanmar-=ailand Trilateral Highway.
=e highway will connect Moreh in Manipur, India with Mae Sot in =ailand via
Myanmar.
BBIN Bangladesh-Bhutan-India-Nepal (BBIN) Motor Vehicles Agreement (MVA) to
(2015) enable movement of passenger and cargo vehicles across borders. While
Bangladesh, India and Nepal have implemented it but Bhutanbs yet to do
INSTC International North–South Transport Corridor (zBC ( "!# ç¥ -^©äp iD IFQ 'à%# ):
(2000) - Members: India, Iran, Russia, Turkey, Azerbaijan, Kazakhstan, Armenia,
Belarus, Tajikistan, Kyrgyzstan, Oman, Ukraine, Syria. Observer member -
Bulgaria. (It helps connecting Afghanistan through Chabahar port although
directly it may not be passing through it.)
- With ship, rail, and road route for faster cargo transport.

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#5B: Infrastructure: Sadak, Shipping, Airport → Page 922
 Ashgabat - Ashgabat (@Turkmenistan) Agreement For multimodal goods transport
agreement between Central Asia and the Persian Gulf.
(2011) - Signatories: Kazakhstan, Uzbekistan, Turkmenistan, Iran, Oman, Pakistan
(2016), India (2018). =is also creates synergy for INTC.
Gwadar - Gwadar Port@Pakistan. So obviously China helped building it.
Chabahar - Chabahar Port@Iran. India helped building it.
- 2016: PM Modi signed agreement with Iran to construct a railway line from
Chabahar port to Zahedan (a region bordering Afghanistan)
- 2020-Jul: Iran dropped India from project citing Indiabs funding delays.
Separately, Iran is also seeking a 25 years economic and security partnership
pact with China to get billions of funding. So, critics term it as failure of
Indian diplomacy. è Q `"Q EÖ 'â^ &_]ßÅ '# IF k C"# EòmQ"HC EÖ HI¶%C
OBOR China One Belt One Road (OBOR) initiative to connect Asia, Africa and Europe
(2013) via 6 proposed corridors
1. New Eurasia Land Bridge Economic Corridor
2. China-Mongolia-Russia economic corridor
3. China-Central Asia-West Asia Economic Corridor
4. China-Indochina Peninsula Economic Corridor
5. Bangladesh, China, India, Myanmar Economic Corridor (BCIM): 2019-
April: China dropped this BCIM from the OBOR list.
6. China-Pakistan Economic Corridor: It passes through Gilgit-Baltistan - a
territory of India that is illegally occupied by Pakistan.
7. India has not oôcially joined, YET.
Corona = Partner nations unable to repay infrastructure loans taken from
China. Now China is thinking of shi‡ing its policy. e.g. loan restructuring
(Changing interest rate/tenure), fresh loans at 0% etc.
B3W US President Joe Bidenbs Build Back Better World (B3W) initiative announced in
G7 Summit 2020 for infrastructure development in the a‡ermath of Corona.
Blue Dot  Proposed by the USA, Japan and Australia. India is yet to join.
Network  If an infrastructure project gets ùBlue Dotb CertiTcation = Project has high
(2019) standards of quality, transparency, sustainability, and developmental impact.
 It will encourage pvt investors from 1st world nations in such projects.
Conclusion` Good connectivity is a fundamental requirement equitable industrial growth in all
regions. SDG Goal #9 requires India to build resilient infra including all weather roads connecting
all villages. Aforementioned scheme / policy / challenges….(ek" ¨% EâB&_eBCaà%C ÑJâã'E HIE e EK à%j
zÕ iD IFQ eaHIJ $± "≤ eCC HIE e %⇥ EK zQae ' IB ' IB CE ek" &Re&âB&_E #( C Fâ Ïe" efEâBE HQ& (p)

MCQ. How many statements are correct` (Pre'23)

1. East-West Corridor under Golden Quadrilateral Project connects Dibrugarh and Surat.
2. Trilateral Highway connects Moreh in Manipur and Chiang Mai in =ailand via Myanmar.
3. Bangladesh-China -India -Myanmar Economic Corridor connects Varanasi in Uttar Pradesh with
Kunming in China. Codes: (a) Only one (b) Only two (c) All three (d) None

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#5B: Infrastructure: Sadak, Shipping, Airport → Page 923
55 TRANSPORT → RAILWAY (àâ95ä)

 1853: First railway from Mumbai to =ane (34kms). Governor General Dalhousie
BEFORE : separate rail budget from 2017
1921: Acworth Committee recommends PM Modi merged Railway budget with general
separation of rail budget from General budget; budget. (More in Pillar#2D)
practice started from 1924-25,

Railway ministry had 16 demands for grants one demand for grant.
 Today, Indian railways 4th largest network (>68,000 route-km) a‡er US, China,Russia.
 2019-20: Railways carried >8 billion passengers = Largest in the world
Ministry of Railways 5V<TV=M\6<: consists of
Dept N/A
Subordinate - Railway Recruitment Boards.
OÉces - Railway Stav College, Vadodara, Guj
- Indian Railway Engineering Institute, Pune.
- Research Design and Standards Organisation (RDSO) at Lucknow
Statutory Railway Board, under the Indian Railway Board Act, 1905
CPSE - IRCON (Construction), IRFC (Finance), IRCTC (Catering Tourism),
- Konkan Railway Corporation, Mumbai Rail Vikas Corporation,
- RITES (Technical and Economic Services), Rail-Tel (communication), Rail
Vikas Nigam Ltd.
- Dedicated Freight Corridor Corp. of India Ltd.,
- Bharat Wagon and Engineering Co. Ltd., Burn Standard Coy. Ltd,
Braithwaite and Company Ltd.
- (¡)Container Corporation of India Ltd. (CONCOR)
(¡) means approved for strategic disinvestment (=privatization) in 2019

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#5B: Infrastructure: Sadak, Shipping, Airport → Page 924
55.1.1 Railways Zonal HQ/Headquarters
Sr Zone Headquarter Sr Zone Headquarter Sr Zone Headquarter
1 Central Mumbai 7 North Eastern Gorakhpur 13 S.E. Central Bilaspur
2 Eastern Kolkata 8 N.E. Frontier Guwahati 14 S. Western Hubli
3 East Central Hajipur 9 North Western Jaipur 15 Western Mumbai
4 East Coast Bhubaneswar 10 Southern Chennai 16 West Central Jabalpur
5 Northern New Delhi 11 South Central Secunderabad 17 Metro Kolkata
6 N. Central Allahabad 12 South Eastern Kolkata
- (proposed) 18th Zone is: South Coast Railway - Vishakhapatnam (Andhra)
55.1.2 Railways → Concepts

Cross - To keep rail travel cheap for the poor people, Railways keeps the
Subsidization passenger tickets lower than its input cost.
Ùúe eF ⇤#EÖE p - To compensate this loss, Railways keeps freight (goods transport) prices
higher. =is is called ûCross subsidizationü
Operating Ratio - It means Railways operating expenses divided by its operating revenues.
eB` %Q zQai C - 2017: 98.4% (means only † 1.6 rupees le‡ out of every † 100 revenue
earned.) → 2018: 96.2%
- Budget-2019: webll try to improve it to 95%

55.1.3 Modiaed Economic Internal Rate of Return (MEIRR)

BEFORE AFTER MEIRR (A‹|E &aQ ¶K EK ABCD E ^ E eBóâoJC &úh%)

Railways will approve a project if Railway to approve project even if 2 to 3% proTt is there
only minimum 12% proTt was but it is required for connecting remote area backward
involved. area reducing air pollution traôc congestion et cetera.

(iF%K#Ü^ ÜEe" K% nâ$K€ &_®òQC& (^§ ^ $ EK HiŸfK¨% EâB&_# ܶ # C # C &_m!ܶE E& E QK, I #a

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#5B: Infrastructure: Sadak, Shipping, Airport → Page 925
 12% &aQ ¶K EÖ eBk IQ Q FâC" Câ K%IK n^§•p E& E QKEK à%j Eâè nâ$K€ $± " Fâ Câ k%Kçe&_^â C"Q
&BS %# çeEÖ &B$ò " zQa&HC QF"B^KC | ) nHCóC &aQ ¶ ã&% F Fâ ܶ k" K% &BS %# çeEÖ &B$ò " ^K' )
NITI Aayog opinion will be asked, if project cost is †500cr/ or more.

55.2 RAILWAYS → PROBLEMS

- 1) Cross subsidization, poor operating ratio → sanitation, service quality & safety compromised.
Railways ill-equipped to combat robberies, vandalism, stone-pelting. (ÈÕC w ea ä )
- 2) While truck transport-more pollution, expensive and slow than trains, yet more than 2/3rd
cargo carried by trucks. (ç‰â'iHC m!E “ iD IFQ Ø ^ E CK)
- 3) Too many rail stoppages to appease the voters → speed slow. (J"&" 'HC)

55.3 RAILWAYS → MODERNIZATION → PERSONNEL & ORGANIZATIONAL REFORMS (E Ä&E

w eB'ÅQ ÇE eaJ )
 Earlier, Sam Pitroda Committee (2012) and Bibek Debroy Committee (2015) and many others
had suggested various organizational reforms for the Railways.
 Modi Cabinet had constituted Alternate Mechanism (AM / IßE…⌅E ÜÙ# HIoJ: a group of cabinet
ministers to decide on a particular subject).
 2019-Dec: following was approved (1) UniTcation of Services (2) Restructuring of Railway Board

55.3.1 Railways Personnel Reforms → Uniacation of Services (fVT6åMP6 sPçP5})

BEFORE AFTER
Technical services  =ese eight services will be
recruited through Indian Engineering Service (IES) exam merged into Indian Railways
of UPSC viz. Management Service (IRMS):
k C"# K%IKn]BJQ eKI ).
 1) Indian Railway Service of Engineers 2) Signal
Engineers 3) Mechanical Engineers 4) Electrical  Beneat` Improved
coordination and eôciency.
Engineers 5) Stores Services
(]KFC e&”# w ^äC )
Non-Technical services (>é5 NPZ9Pç fVT6sM)
recruited via Civil Services Exam (CSE) of UPSC viz.
6. Indian Railway Traôc Service (IRTS)
7. Indian Railway Accounts Service (IRAS)
8. Indian Railway Personnel Service (IRPS)
=is resulted in fragmented manpower planning, lack of
coordination with each other, departmental rivalries
Indian Railway Medical Service (IRMS), recruited Renamed as Indian Railway Health
through Combined Medical Services Exam of UPSC Service (IRHS: k C"# K%IKÈ ⇧ eKI ).
Uniacation of Services → Controversy` (fVT6åMPV sPçP5} fVSTT6j)

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#5B: Infrastructure: Sadak, Shipping, Airport → Page 926
 Oôcers fear their seniority / promotion may be avected with merger.
 Electrical / mechanical engineering works canbt be manned by non-Engineers because they donbt
have subject knowledge. =erefore merger into a single service is irrational (CE(F"Q).
 Bibek Debroy Committee (2015) suggested merger of these services into two services 1) technical
and 2) non-technical. =atbd have been more rational decision.
55.3.2 Railways Organizational Reforms → Restructuring of Railway Board
BEFORE AFTER (5V<TViÑq?P6 rnZ>?èZ)
Railway Board, the apex decision Similar to a Company board.
making body of Railways had  Chairman of the Railway board will be the Chief
 One Chairman [z˘ä] Executive Oôcer (CEO: &a⌥ E #(E " zoJE ")
 Members selected from various  4 functional Members (E #(i E e^⌃) i.e. oôcers from
Railway departments. [z%' z%' Railways selected on merit cum seniority basis.
K% HIk 'âBeKe^⌃âBEâ `aQ $ C | ]  Some independent members with knowledge &
experience in industry, Tnance, economics and
management Telds

55.4 : RAILWAYS MODERNIZATION → PRIVATE TRAIN OPERATORS

Table 2: bene=ts of allowing private trains in India@

BEFORE AFTER: allowing private train operators

 Indian Railways itself responsible for On selected routes (NOT all routes):
running the trains, collecting ticket-fees,  Private train operators (HQ$" m!KQ eB` %E) will
delivering passengers and goods. buy their design/buy their own private trains
 A∆uent passengers prefer Airlines over from anywhere in the world. =eybll run it on
Railways because theybre faster, cleaner & railtracks with their own stav, & charge
safer. JQ" / ißeâ eKeBi– # S" FI è # S ieB^ E CKF¢ market-linked fares. (] $ AJ D C ÜE j.)
´âBÜE IF Ø ^ CK$ e ¶-ea| " w ea ©äC FâC" Fß  Govt (Indian Railways) provide timetable,
track and signaling infrastructure to them.
 Private train operator will share % of its
revenue with Govt. (H]ÙÖ &_ÜFस्स )
 Lately, Govt itself started ùpremium trainsb Passengers beneTt from world-class services e.g.
such as Duronto, Tejas, Vande Bharat,  No nuisance of hawkers, beggars, unhygienic
Uday, Hum-Safar etc. toilets. ¶K "I %K, ©kµ " w 'B^KóR` %# QF"B
 But there is a long waitlist for tickets.  Lady train hostesses to deliver food &
Which proves people are willing to pay for amenities. (iD ` D E )
good service, but Govt alone doesnbt have  Such trains will stop at very few stations, will

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#5B: Infrastructure: Sadak, Shipping, Airport → Page 927
 BEFORE AFTER: allowing private train operators
enough funds to launch many such have min.60 kmph speed → faster & more
ùpremium trainsb. pleasant journey. (CK$ IÀeaµ^ # S E zQakI)
 2006: Ministry of Railways allowed private operators to run container trains on the Indian
Railways (IR) network. [Q"$" ªµ% Üf#âBEÖ & %I FE ' Üf#âBEâ Câ #KzQa&HC E ΩÖ e&# iF%KeK^" 'è |"]
 Railways constituted Amitabh Kant Panel for entry of private operators in passenger trains.
 2019-Oct: FIRST ùPrivateb train: Lucknow-Delhi Tejas Express launched. Itbs operated by IRCTC.
Although, IRCTC is a subsidiary co of Ministry of Railways. So, technically, itbs not ùfully private
trainb but if this experiment successful, then actual private operators may be allowed.
 2020-Jan: Indian Railways has invited private companies to apply for running 150 passenger
trains on 100 routes. Dra‡ proposal is as following:
Table 3: DraB Public Private Partnership (PPP) model for private railways
Private player will Design, Build, Finance and Operate (DBFO: Üh$ ¨Q,
Model HQ& (p, HI¥ w eB` %Q) his private trains on the routes given to him. Train
must have minimum 16 coaches.
Concession Period 35 Years. A‡er that, the govt may renew/ Govt itself may start operating it
(O5:6:N Pç àT|U): / select another party...depending on the mutually agreed conditions
private train operator will share a % of his revenue with the Government.
Fees
(HQ$" eB` %E QKziQ" A&^ &_eKEaŸ nHCóC e E Eâ ^KQ Fâ' )

55.5 RAILWAYS → MODERNIZATION ATTEMPTS BEFORE 2019

Project uni-gauge - Track gauge is the spacing of the rails on a railway track. Broad [1,676
Started in 90s mm] > Meter [1,000 mm] > Narrow [762 mm, 610mm].
- Project Unigauge to convert selected routes into broad gauge.
- Presently, in terms of track length: Broad > Meter > Narrow.
Project Saksham 2018: Skill / Training program for railway employees. Phase-II in 2019.
Mission Avataran (2016) To transform Indian Railwaysb speed, safety, proTtability
Yatri Mitra Sewa wheelchair cum porter services for PH passengers (2016)
Rail Drishti Portal Webportal for customer complaints & train information
55.5.1 Railways Fares (êP56:6)→ Rail Development Authority
 2017: Modi Govt setup ûRail Development Authority ( K% HIE e n oJE p)ü - non-Constitutional,
non-statutory body via cabinet resolution. Itbs headed by a chairman + 3 members; 5 years term.
 Suggest Tariv (fares) determination, eôciency and performance standards, customer
satisfaction, technological upgrades..
 Although it can only ùsuggestb (#F eBø EKI% eaë I ^KeEC" Fß) because under Railway Act, only the
Railway Board can decide on the fares of rail services.

55.5.2 Railways Fares→ Concepts

Tatkal Tickets for booking the tickets in hurry / emergency.

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#5B: Infrastructure: Sadak, Shipping, Airport → Page 928
 Flexi-Fare /  2016: Govt introduced this system on premium trains such as Rajdhani,
Dynamic pricing Shatabdi and Duronto trains.
 Here, base fare (&ò% ÜE # ) will keep increasing by x% with every 10% of
seats booked. (# HQ EÖ z' ^K " eKÜmEm ]aE ÜE# Câ Ø ^ ÜE # %'K' ).
 Consequently, sometimes train tickets became more expensive than
airplane tickets 2018: Govt gradually stopping this system
55.5.3 Transport → Rail-Modernization → Green Initiatives by Railways
 Windmill/ solar panels at each rail station.
 Green curtain: wall around railway station, chowkidar to combat defecation and littering.
 Biotoilets with help DRDO: =ey contain anaerobic microbial bacteria to decompose and
convert human excreta into water and gasses.
 ûGreen corridors in Railwaysü = on these routes all trains have bio-toilets to avoid direct
discharge of human excreta on Railway tracks/station premises.
 5% blending of biodiesel.

55.5.4 Transport → Rail-Modernization → Electric Traction

 It means replacing diesel / coal powered engines with electric engines because theybre more
environmental friendly and energy eôcient. (h"$% ¨B$QâBEâ H]$%" I %K¨B$QâBeK]^%Q )
 Earlier, Modi & NITI Member Bibek Debroy raised doubts from strategic & economic angles:
- itbll cost ~†1 lakh crores, while our existing investment in diesel engines will go to waste
- Diôcult to accomplish in J&K & NE due to topography.
- EU/China/Russia use electric trains for passengers and diesel for cargo transport.
 2018 Still, forgetting above ANTI-arguments, Committee on Economic Avairs (CCEA)
approved 100% Electric Traction by 31/3/2022.

55.5.5 National Rail Plan for India – 2030 [x65N PV ë<s 56789: 5V< :Ñ;Z6 - 2030]
 freight transport- Railways share by 45% and avg speed by 50kmph. (& % I FQ QK K%IKEÖ
ÜFस्सK^ " w K%IKEÖ 'HC Eâ ]fi Q )
 100% electriTcation of engines ( K% ¨B$QâBEâ h"G% EÖ $'F HI‰aC/ H]$%" eK`% Q )
 speed to 160 kmph on Delhi-Howrah and Delhi-Mumbai routes
 Identify new Dedicated Freight Corridors and High Speed Rail Corridors.
 Develop more railway stations, improve track safety etc ( K% zéKw ea ä )

55.5.6 Transport → Rail-Modernization → Safety [5V< fn5í6]

- 182 toll-free Helpline number
- Rashtriya Rail Sanraksha Kosh (2017) created to Tnance the projects related to railway safety
e.g.Train Collision Avoidance System.
- Int-Budget-2019: ûWebve removed all Unmanned railway crossing in January 2019.ü
- Budget-2020: Rate of occurrence of rail accidents has steadily from 2016 to 2019.

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#5B: Infrastructure: Sadak, Shipping, Airport → Page 929
- RPGRAMs (Railway Passenger Grievance Redressal and Management System) web-portal and
Rail Madad App have been launched
- Rail Drishti Web dashboard: provides statistical info related to railway operations.
- NINA-UAV [unmanned aerial vehicles] drones- for surveillance and safety of railway track
railway stations etc. [ K% ea ä EK à%j h!âQ “ eIñäp]

55.5.7 Transport → Rail Safety → Railways Protection Force (RPF) initiatives-2019

 Commando for Railway Security (CORAS) battalion created by Railway Protection Force (RPF),
theybll be responsible for Tghting terrorism and naxalism in Railways. (Sidenote: CRPFbs COBRA
battalion is a separate entity to Tght naxals)
 Operation Jirst: RPF to combat selling of unauthorised Packaged Drinking Water in railways.
 MeriSaheli: women security initiative in trains. [&ÜF% ea ä EK à%j çÅ # '# &K " eFK%" E #(Ù&]

55.5.8 Transport → Rail-Types (àìâ5äÑ PV {P65)

Table 4: Table has very little utility in the UPSC, self-study for other exams:
Red ribbon to spread AIDS awareness
Rajdhani Connects Delhi with state capitals. Started in 1969
Shatabdi Connects Metro cities with other cities. called ûShatabdiü because started in
1988 Nehrubs centenary.
Garib-rath AC trains for poor people- at cheaper cost. But seat space narrow, no
2006 (Lalu) food/bedding given. So it's called ùNo frillsb.
Duranto Express Duranto means ùrestlessb in Bengali. Long distance non-stop from source to
2009 (Mamta) destination. Speed as fast as Rajdhani and Shatabdi. Although now stops at
more stations for voters appeasement so original objective is defeated.
Mumbai Monorail Monorail runs on a single rail. rail may be located either above or beneath
2014 the railway cars. 2014: Started in Mumbai by Maharashtra State Govt.
Mumbai-AFbad - Length: ~520 km; proposed speed ~320 kmph.
bullet train 2014 - Duration: 3-4 hours (currently 8 hours)
- Project funded by JICA (Japanese International Cooperation Agency).
- Challenges` Farmers protest against the land acquisition, Ticket price
will have to be kept very high ELSE diôcult to recover the cost.
Beneat` Even if the cost is not recovered, experience gained → later
-
try ùMake in indiab & export bullet trains to third world.
- (Full) Budget-2019: Once above project is Tnished in 2023, webll launch
second bullet train from Delhi to Amritsar via Chandigarh. =e project
will be funded by the Govt and not by any public private partnership.
AntyodayaExpress =ese trains have only general coaches and theybre unreserved. (2016)

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#5B: Infrastructure: Sadak, Shipping, Airport → Page 930
 Humsafar Express Attempted to give a taste of 'luxury' to the common man. Fully AC coaches,
2016 more comfortable seats, LCD TV, laptop-mobile charging, covee/tea/soup
vending machine, toilet's êush button has automatic perfume releaser.
Tejas ExpressF16 Similar to above. =eir new version even has Small TV behind every chair.
Gatimaan D16 Semi-high speed train, maximum speed 160 kmph, runs on electricity.
UDAY Utkrisht Double-Decker Air-conditioned Yatri (UDAY Express) connects
2018 notable cities of Southern India. features similar to above
Vande Bharat  Same as above, made by Integral Coach Factory in Chennai. Technical
Express 2019 name DTrain 18F. First train on Delhi -Kanpur-Allahabad-Varanasi.
 Amrit Mahotsav of independence for 75 weeks started from 12th March
2021 and will continue till 15th August, 2023. So, During these 75 weeks
of the Amrit Mahotsav of Independence, 75 Vande Bharat trains will be
launched to connect every corner of the country.
 Sidenote: Amrit Kaal =for the NEXT 25 years until India celebrates 100
years of its independence.
Shramik 2020-May: During corona crisis to bring migrants within Indian states back
Special Trains to their home states in India. (k C &KF" ˝øC nI e" &$^§ )
Bharat Gaurav Pvt tour operators can lease Govtbs trains on tour circuit. (k C 'R I #â$Q EK
Scheme (2021) zBC'(C HQ$" äKS EK —i Km k" ÜE #Ki e E " m!KQ %KE i#(mQ ø%âBi çeK`% j)
Future of Rail 2019-January: =is report was launched International Energy Agency (IEA,
report an autonomous body based in Paris).

55.5.9 Transport → Dedicated Freight Corridor (DFC)

 2006: Started to construct 2800kms separate railway line exclusively for the cargo trains
 Eastern Arm:- Ludhiana (Punjab) to Haryana, UP, Bihar, Jharkhand to Dankuni (WB)
 Western Arm:- Dadri (UP) to Haryana, Rajasthan, Gujarat to Jawaharlal Nehru Port @Mumbai.
 BeneTtsu Faster cargo movement (60km/h instead of present 20km/h)

55.5.10 RAILWAY → RRTS (NAMO BHARAT)

img source: IndianExpress

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#5B: Infrastructure: Sadak, Shipping, Airport → Page 931
 ➢ Regional Rapid Transit System (RRTS) also called NAMO BHARAT.
➢ National Capital Region Planning Board (NCRPB) - statutory body under MINISTRY OF
HOUSING AND URBAN AFFAIRS (MoHUA). It has representatives from the union
government and the states of Haryana, Rajasthan and Uttar Pradesh.
➢ NCRPB → National Capital Region Transport Corporation Limited (NCRTC, 2013) is
responsible for this RRTS project.
➢ RRTS is a railway network to connect Capital with Panipat in Haryana, Meerut in Uttar
Pradesh and Alwar in Rajasthan.

55.5.11 Transport → Metro Rail

Metro Rail is a Mass Rapid Transport System (MRTS: e &òÜFE ÆC⌦ iD IFQ np %") for daily commuters.
It runs on electricity & usually conTned within a given city.
- At present, India has operational metro rails at Delhi, Mumbai, Kolkata, Chennai etc.
- City Roads = very congested, slow, accident prone, air pollution. While metro rails provide relief
in daily commuting. [&Km!â K% efEâBi I FQâ EÖ k"f Eâ E& E K'", I #a n^§•p E& E K'"]
- However, metro trains are not panacea for India because they need more capital and
technology than ordinary public bus/local railways. =ey require dedicated tracks, underground
tunnels and bridges → problems in land acquisition and remodelling of existing urban road
infrastructure. (Ø ^ iòB$" w CEQ"EÖ nR‰âã'EÖ, z%' eK$&"Q eBi ^Q, efEâBE iaQ'(ÅQ E Q ifC Fß)
- Since metro rails cater urban middle class commuters, so, fares canbt be raised beyond a point
for faster recovery. So it takes a very long time to recover investment. [HQIKó ÜE# iße &aQ ΩK EK e |
HQE %QK&_E ΩÖ I↵ %' $ C Fß, ´âBÜE &˘& I'≥# iD I i e E K% ÜE # ]ÿC ÷ ^ ]fi QF"BeEC"]
55.5.12 Transport → Metro Rail → Metro Rail Policy 2017
Boss` Ministry of Housing and Urban AÇairs (MoHUA).
- Considering aforementioned challenges, Metro train should be launched only a‡er cost: beneTt
compared to launching more buses and ordinary trains.
- State Govt will be responsible for Land acquisition(kòã& zoJìFp).
- Proposed Investment models for Metro rails: →
- 50:50 joint venture(eB#a¬ ç‰&/e Fe) between Union & State OR
- Public Private Partnership (%âE/e I($HQE HQ$" k '"^ ") between State & private company;
while Union gives them grants through Viability Gap Fund (ÃIF #(C zIE ó HQJ").
- Budget-2019 More metro railway initiatives via PPP. Because, modernizing Indian Railway
requires total † 50 lakh crore from 2019- 2030, but in annual budgets we can barely allot ~†1.6
lakh crore per year, so public partnership necessary. [e E EK i e iße E& Fߨeà%j PPP “ ]Q jB'K]

55.5.13 Transport → Metrolite, MetroNEO = Cheaper Metros for smaller cities (2021)
Budget-2021 announced Metro Lite and Metro Neo for smaller cities like Nashik, =ane,
Gorakhpur, Jammu, Srinagar and Coimbatore. =ey are cheaper than normal Metro rail.

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#5B: Infrastructure: Sadak, Shipping, Airport → Page 932
 Type of Metro Cost to build 1 kilometre of track & train
Normal / conventional metro rail 222 cr
Metro Lite = looks like a tramway 140 cr
Metro Neo= looks like an electric trolleybus 71 cr

55.5.14 Transport → Kolkata underwater metro-tunnel

by Kolkata Metro Rail. =is tunnel passes under river Hooghly. img source: TimesofIndia

MCQ. Under which one of the following rivers has India's arst underwater metro rail tunnel been
constructed` (CDS-2023-II) (a) Yamuna (b) Ganga (c) Hooghly (d) Gomti
55.5.15 "Transport → Kochi Water Metro (Kerala, 2023)

Connects 10 islands around Kochi through battery-operated electric hybrid boats.

55.5.16 Indo-Bangla: Akhaura-Agartala rail link

➢ a 12km railway lined to connect Agartala (Tripura, India) with Akhaura (in Bangladesh).
➢ Fundingu (1) Ministry for Development of North East Region (DoNER) funded the work on
the Indian side, (2) the Ministry of External Avairs (MEA) funded the expense for the
Bangladesh side as ùGrand/Aid to Bangladeshb.
➢ Itbll pass thru Nischintapur in Tripura
➢ Nischintapur will serve as the international immigration station for passengers.
➢ Nischintapur will serve as Land Customs Station (LCS). It refers to any notiTed place
meant for the clearance of goods imported or to be exported by land or inland water by
Central Board of Indirect Taxes and Customs (CBIC) .

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#5B: Infrastructure: Sadak, Shipping, Airport → Page 933
 ➢ this will also help faster connectivity between Tripura to West Bengal. (Refer to map)

55.5.17 Indo-Bangla Rail connection → others

Name Connect
Maitree Express Kolkata and Dhaka (2008)
Mitali Express Siliguri in W. Bengal and Dhaka (2021)

55.5.18 Transport → Budget-2022 on Railways & goods/cargo transport

 400 Vande Bharat Trains will be launched.
 Kavach-the indigenous safety technology to be launched ( K%IKea ä EK à%j EI` Q &EÖ È^Kó" mKक्नâ%â$")
 New services for small farmers, & small enterprises. (ŸâmKÜEe Q ŸâmKç‰â'âBEK à%j Qè Qè eKI j∞)
 ùOne Station-One Productb concept to help local businesses.
 integration of Postal and Rail networks ( K%IKw h E QKmIE( E jEÖE p- & %/ e^ iD IFQ EK %"j≤)
 100 PM GatiShakti Cargo Terminals for multimodal logistics (jE oJE iD IFQ & ˘& - K%IK$% efE
E jEÖEïC & % iD IFQ mÄ&Q%≤)
 Webll release ùOPEN SOURCEb transport related so‡wares and e-platforms
 (1) UniTed Logistics Interface Platform (ULIP)
 (2) Open-source mobility stack for travel of passengers
(Howu NOT important. Just visualise it can help developing apps like UBER, MakemyTrip etc. (¨Be QâB
w IíaÑ BEK iD IFQ EK à%j Qj Qj Ü∑fl EK IK]iâm(% w Ïi ]Q QKEÖ mKक्नâ%ú$" &aफ़्त ] m∞ " $ j)

55.5.19 Transport → Budget-2023 on Railways & goods/cargo transport

 Railways given † 2.40 lakh crore = highest ever capital Expenditure on railways. ( K%IKi ¨e ]
]âFâC ÷ ^ iòB$"'C º`(ÜE# Fß.)
 Railways to achieve net zero carbon emission by 2030. (2030 CE K%IK“ óay-±i eKóò® E ](Q çË$(Q.)
55.5.20 Transport → Hyperloop using vacuum tube
 Space-X & Tesla founder Elon Musk proposed this 5th mode of transport a‡er boat, rail, plane
and automobile. Basically a vacuum / pneumatic tube system to transport passengers using
aluminium pod cars.
 Maharashtra Govt was talking with international developers to build a Hyperloop between
Mumbai and Pune to cover 150 kms in 25 minutes.

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#5B: Infrastructure: Sadak, Shipping, Airport → Page 934
 Avishkar Hyperloop = IIT-Madras research team on Hyperloop

55.6 ✈ TRANSPORT → AVIATION (îï:Z / FI è # S )

55.6.1 [Yearbook] Ministry of Civil Aviation Z6>5 ST=6ZZ / Z6>O5P îï:Z =M\6<:
Dept N/A [&BS %# EK Q"`KEâè HIk ' QF"BFß]
Attached  Directorate General of Civil Aviation (DGCA: &F HQ^ñóE): registers civil
aircra‡s, gives license to pilots, supervises gliding clubs, implements
Chicago Convention on International Civil Aviation.
 e-GCA online platform of Directorate General of Civil Aviation (DGCA)
for pilot licensing etc.
Statutory  Airports Authority of India (AAI, Act 1994: k C"# HI& Qi¥Q n oJE p):
Bodies Statutory body responsible for creating, upgrading, maintaining airports &
IßJ HQE eBø jB runaways in India. It operates 130+ airports in India- some directly, some
via PPP basis e.g. GMR group → Delhi and Mumbai airports, Adani
group → Abbad, Lucknow etc.
 Airports Economic Regulatory Authority (Act 2008): Statutory regulator
setup with powers regulate fees/tarivs charged at airports. 2019: New bill to
increase its powers through some technical reforms. HQ. New Delhi.
 Commission of Railway Safety (CRS) is under Administrative control of
Aviation Ministry. (this is not printing mistake. this is the truth)
CPSE  (1) Air India (Govt sold to Tata Ref: Pillar2D).
e E " EBiHQ# B  (2) Pawan Hans (Helicopter- Govt wants to privatize it as well)
 (3) Hotel Corporation of India Ltd.

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#5B: Infrastructure: Sadak, Shipping, Airport → Page 935
 Autonomous (1) Bureau of Civil Aviation Security,
Training • Indira Gandhi Rashtriya Uran Akademi, Fursatganj, Amethi (UP),
• Rajiv Gandhi National Aviation University. =is central university has
been established by the Rajiv Gandhi National Aviation University Act,
2013. HQ. Fursatganj, Raebareli, (Uttar Pradesh).

55.6.2 ✈ Civil Aviation Policy 2016: Highlights →

1. More airports and êights for North East & small towns to improve regional connectivity.
2. Making the air travel more avordable for middle class [&˘& I'(EK à%j FI è # S eí" E I j∞']K
3. Improving Airplanesb Maintenance, Repair and Overhaul (MRO) operations.

55.6.3 ✈ Transport → Cheap ñights to Small Towns → UDAN

- Boss` Civil Aviation ministry (2017).

- Earlier, Airlines avoided small towns, fearing that not enough passengers will come.
- So, under Ude Desk ka Aam Naagrik- Regional Connectivity Scheme (RCS: äKS"#
eB#â$EC /EQKÔ€HIm" #â$Q ), Govt. Txed † 2,500 airfare per seat for one-hour travel on selected
regional / small town routes.
- Airlines êy @this rate, small town passengers will come because itbs avordable, and if airline
making any losses on such route → covered by Unionbs Viability Gap Funding (VGF)+ States
also contribute 10-20% money depending on whether NE or Non-NE.
- Govt arranges VGF money by charging ~† 5000 levy per êight on airlines operating at major
cities (E.g. Mumbai Bengaluru, Abbad-Delhi).
- 2018: tInternational UDANu launched to connect Indiabs smaller cities directly to some key
foreign destinations in the neighbourhood. (ifâe" ^KóâBEK e | k" eí" FI è # S )

55.6.4 ✈ Transport → Udan 3.0 (2018)

Civil Aviation Ministry invited the airline operators to bid for new regional routes connecting
- Additional tourist cities & North East cities.

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#5B: Infrastructure: Sadak, Shipping, Airport → Page 936
- Seaplanes using Water Aerodromes (e.g. Statue of Unity-Sardar Sarovar Dam @Gujarat,
Sabarmati RiverFront Abbad@Gujarat, Brahmaputra Riverfront Guawahati@Assam etc.)

55.6.5 ✈ Transport → Build More Airports → NABH Nirman

- Budget 2018 announced ùNextGen Airports for BHaratb (= NABH) Nirman
- It aims to build 100 new airports in 15 years at the cost of † 4 lakh crore (mostly via PPP)
- It also aims to expand / upgrade existing airports.
- Budget-2023: 50 additional airports, heliports, water aerodromes for improving regional air
connectivity. (Qj FI è zéKw FKà%Eúप्ट zéK- äKS"# FI è eBiE( ]fi QKEK à%j)

55.6.6 No Frills airports (SiZ6 N6=ó6= T6<VfòVQT6ô-àïV)

• AAI develops No Frills airports at small towns / North East with only basic safety and
security features.
• No fancy lounges with air-conditioners, no aerobridges, no escalators, no conveyor belts for
luggage. → low operational costs.
for more about the public private partnership (PPP) in Airport → Refer Pillar5C: PPP.

55.6.7 Airways → Flexible airspace / Flexible Use of Airspace (FUA)`

• It is an airspace management concept that Airspace should not be designated as either purely
civil or purely military airspace.
• Airspace should be allocated in a êexible way and always on a temporary basis- to civil
and/or military users according to their requirement. (%`"% FI è äKS EÖ ’$eKQ 'D E w eß® ^âQâB
çé#Q EK à%j G± C EK ÜFe ] eK¨íK& % ÜE# $ j≤)
• It can greatly help reduce fuel consumption, and traôc congestion.

55.6.8 ✈ Transport → Challenges to aviation sector (mnZ[SN:6M)

- ATF-Taxes: Airlines spend ~50% of the revenues on Aviation Turbine Fuel (ATF). Indiabs
ATF excise & VAT are among the highest in world = proTtability hurt :-( (ÛJQ i ]ÿC mKä %'C Fß)
- Predatory Pricing: deliberately selling product below the cost price, to eliminate rival
companies. AirDeccan, Spicejet etc. accused of this. Itbs bad for economy because in long term,
either the Trm will collapse or itbll establish monopoly by eliminating rivals. (nHCÓJ≥ EBiHQ#âBE JBJ
Å✏ E I QKI íKEaŸ HI& Q E⇣HQ# B$ Q]òëE ]⌘C eíK&_ÜmEm ]K`C" |", ’$eeKçeE ºa^ E JBJ `Rim Fâ '# ≤)
- Passenger Safety Compromised: Due to higher operating costs, Indian Airlines not doing the
regular service & maintenance of the aircra‡. [&aQ ΩK EÖ % %` &_# S" ea ä Eâ QG zB^ G ÜE# $ C Fß]
- Govt. owned Air India is making losses → 2021: Sold to Tata Sons ltd @approx †18,000 cr.
[π mK&_`% F" j# ¨BÜh# Eâ e E QKm m Eâ ]K` ]
- Jet-Airways, a pvt sector airline, was shut down (in 2019) due to heavy losses.

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#5B: Infrastructure: Sadak, Shipping, Airport → Page 937
55.6.9 Airfare price ceiling (QT6ô :6\6 j5ÑM=lSZ:M\})
 2020-May: Civil Aviation ministry announced technical reforms e.g. =e minimum airfare for
Delhi to Mumbai is †3,500 and the maximum is †10,000. etc. But poor cost beneTt for exam.
 =is may help in
o Consumer protection during Corona travel. ì FE ea ä .
o solving the 'predatory pricing' problem among aviation companies. ("$ Q]òëE È#B EÖ
QaEe Q" &_eíKÜmEm ]K`Q C ÜE ^Ú
⌦ Q EBiQ" E JBJ ]B^ Fâ $ j".- çe i âE.)

55.6.10 ✈ ♀ DIGIYATRA Facial recognition Tech for paperless airport passage

 New facial recognition so‡ware for paperless passage through airport checkpoints :
 2019: Digi Yatra Foundation (DYF) was set up as a not-for-proTt company by Airport Authority
of India (AAI), Cochin International Airport (CIAL), Bangalore International Airport (BIAL),
Delhi International Airport Ltd. (DIAL), Hyderabad International Airport Ltd (HIAL) &
Mumbai International Airport Ltd (MIAL).
 explained in YT Short: https://www.youtube.com/shorts/F3EJ4dvTQOc

55.6.11 ✈ GAGAN GPS (2015)

GPS Aided Geo Augmented Navigation (GAGAN) is an augmentation system to enhance the
accuracy and integrity of GPS signals for aviation. Jointly by AAI and ISRO.

55.6.12 ✈ Transport → Drone Regulation (q8ÑZ STSZ:=Z) & GARUD Portal

- Boss` Civil Aviation ministry designed the rules evective from 31/12/2018.
- Indiabs airspace classiTed into (k C"# I #aäKS Eâ C"Q ÜFस्सâB&_HIk ’$C ÜE# '# Fß)
- Red Zone (êying not permitted),
- Yellow Zone (controlled airspace),
- Green Zone (automatic permission).
- Drone-User will have to do one-time-registration with Digital Sky Platform app (iB$"E p)
- =en for every êight, Drone user must ask permission from mobile app. Based on the zone &
GPS location its system will automatically permit / deny.
- Any drone without a digital permit will not be able to takeov. =us, it has ûno permission, no
takeovü (NPNT) mechanism.
- 2020: Garud Portal: DGCA to give fastrack permission to Govt agencies for COVID-19
related drone operations.
- ES22: Ministry of Civil Aviation has the drone registration fees, the numbers
documents for registration, the penalties. So we should explore similar process simpliTcation
in other sectors as well. (A‹|E eIñäp &_i # ÜE e E QKh!âQ iB$"E p &_%'QKI %K^í IK$âBw ΩÖe EÖ & S &_
EmRC" EÖ Fß. ¨e" nE E nÜÙ# -e %"E p z® äKSâB&_k" E Q ` ÜFj.)

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#5B: Infrastructure: Sadak, Shipping, Airport → Page 938
55.6.13 ✈ Transport → Drones in Budget-2022
 ùKisan Dronesb for digitization of land records, crop assessment, spraying of insecticides, and
fertilizers. (kòã& eIñäp w µKC"] f" EK à%j ÜEe Q-h!âQ)
 ùDrone Shaktib: Drone-As-A-Service (DrAAS). HOWu Not disclosed, but probably related to
ùrentingb drones by paying daily/weekly/monthly fees. (h!âQ jE eKI EK ±i &_/ ÜE j iK%KQKEK à%j )
 Drone training in ITIs (industrial training institutes) (h!âQ-çf Q, h!âQ-& √C EK à%j Aèm"Aè &_
©óä /C %"&)
 Drone import banned except for R&D & defence. =is will help domestic / swadeshi drone
industry. ( h!âQ E A# C ÿA nHC]BoJC- oeI # EK eBóâJQ QI ` # ä EK à%j HI^Kó" h!âQ º "^Q Fâ≤ C ÜE È^Kó"
ç‰â' Eâ nâË FQ ã&%K)
 Drone sector identiTed as a sunrise sector will be given various beneTts in taxation subsidies.
(eò#✓^# äKS EK ±i &_E J Q w e…◆h" &_D # #C_/ % k/ Ÿòm ^" $ j'"≤)

55.6.14 ✈ Transport → Drone Challenges

- 2019: Iran-backed Yemenis Houthi rebels used drone to destroy oil reTneries in Abqaiq, Saudi.
2022: they drone-attacked oil company in UAEbs Abu Dhabi. (ACBEÖ 'HCHIoJ#âB&_ÿA ¨íK& %)
- 2019: USA used drone to kill Iranbs military General Qassem Soleimani.
- So, we need to have strict supervision to prevent misuse of drones. (∂ß ∑ QòQ" 'HCHIoJ#âB&¢h!âQ E
¨íK& % Q Fâ ¨e I íKe HQ' Q" G± ")

Figure 2: Akshay may need 1AirliB , but 1Bhai doesn t need Vande Bharat Mission. Capable of 1) becoming Captain of a ship 2)

⇥✈ VANDE BHARAT MISSION 2020- INDIANS KI WATAN-WAAPSI

Rescuing kidnapped nurses 3) surviving oil-mine blast- all in Middle East

55.7
 Boss` Ministry of Civil Aviation is coordinating with Ministry of External Avairs and state Govts
( Q 'D E çé#Q &BS %#, HI^Kó &BS %#)
 for bringing Indians back to India, who were stuck overseas during Corona.
 Over 30 lakh Indians returned by 2020-Dec= Indiabs largest repatriation (n≠ IC(Q/ ICQ I ie")
operation since the 1990bs Gulf/Kuwait war. [But UPSC doesnbt usually engage in superlatives-
KBC-GK: biggest/largest/longest...so not really imp whether itbs bigger than Gulf rescue.]
 Separately, to provide skill/employment for these returned-Indians, Govt also launched
SWADES (Skilled Workers Arrival Database for Employment Support) but all skill schemes
under Pillar6: HRD.

55.7.1 Lifeline UDAN for drug/mask/PPE delivery in Corona-2020

• Ministry of Civil Aviation launched ùLifeline UDANb in March 2020.
• To ensure a steady supply of essentials as well as medical supplies, Personal Protective
Equipment (PPEs), test kits, etc., to all parts of the country.

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#5B: Infrastructure: Sadak, Shipping, Airport → Page 939
55.7.2 ⇥✈Airbubble Agreement
ûAir bubble/Transport Bubbles" are temporary arrangements between two countries to restart
passenger airplanes when regular international êights are suspended by COVID-19 pandemic.
INDIA HAS more than 25 such pacts e.g. with SriLanka [Eâ âQ EK ^R Q FI è # S e&ëRC ]

55.7.3 Operation Ganga 2022: Ukraine se Ghar Wapasi

for rescuing Indians stuck in Ukraine and cities of neighbouring countries of Romania (Bucharest
and Suceava), Hungary (Budapest), Poland (Rzeszow) and Slovakia (Kosice).
55.8 TOURISM & MUSEUM INFRASTRUCTURE ({T6fZ T fMöQ6<:)
- World Economic Forumbs Travel & Tourism Competitive Index: Indiabs rank improved from
#64(2014) → #34(2019) → 2020 yet to be announced
- In India, tourism sector is a major contributor to GDP growth, foreign exchange earnings and
employment. However, Covid-19 pandemic had a debilitating impact on world tourism. (A&
Ü^QâB&_nI eQ ç‰â' eKA‹|E Iïãy, HI^Kó" &aÆ EÖ E& è, C| âG' &_]fiâC " ã&%C" Fß. ÜE◊aEâ âQ &F & " EK `%CK-
iò K HI« w k C &_nI eQ ç‰â' Eâ ka'CQ if k " Qa∑e Q≤)
- Medical Tourism: Ref Pillar4B – Make in India. [Ê`ÜEË nI eQ i ˘ Q Ü^# $ j]
- MICE Tourism: Meetings, incentives, conferences & exhibitionsb Tourism. BeneTtu (1) Biz
investment / Import export deals (2) So‡ Diplomacy & Development loans: e.g. African
Development Bank (AfDB)'s annual summit held in Mahatma Mandir, Guj (2017). (3)
People2People connect (4) Income from event management. [e& âF nI eQ]
55.8.1 [Yearbook] Ministry of Tourism
Dept  N/A
Attached,Subordinate,  N/A or not MCQ worthy (# Câ HI‰& Q F" QF"BFß# i "ä EK à%j E & EÖ QF"B)
Statutory
Autonomous Indian Institute of Tourism and Travel Management

National Institute of Watersports

National Council for Hotel Management & Catering Technology

Institutes of Hotel Management

CPSE (¡) India Tourism Development Corporation

E-governance National Integrated Database of Hospitality Industry (NIDHI) to give a

clear picture of the geographical spread of the Hospitality Sector
(F) means approved for strategic disinvestment (=privatization) in 2019.
55.8.2 Tourism→ PRASAD & HRIDAY Mission
Both are Central Sector Schemes: 100% funded by Union. Both aim to improve the city
infrastructure & amenities with special focus on improving the tourism.
PRASAD (2014-15) HRIDAY (2014-15)
Pilgrimage Rejuvenation & National Heritage City Development and Augmentation Yojana
Spiritual Augmentation Drive. [J âF I %KóFK â E HIE e]
Ministry of Tourism, initially Ministry of Urban Development, 12 cities: Ajmer (Rajasthan),
12 cities but then list keeps Amaravati (Andhra Pradesh), Amritsar (Punjab), Badami
getting expanded to 20+. [# S (Karnataka), Dwaraka (Gujarat), Gaya (Bihar), Kanchipuram

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#5B: Infrastructure: Sadak, Shipping, Airport → Page 940
 PRASAD (2014-15) HRIDAY (2014-15)
J & I %KóFK â E HIE e] (Tamil Nadu), Mathura (UP), Puri (Odisha), Varanasi (Uttar
Pradesh), Velankanni (Tamil Nadu), Warangal (Telangana),
 2015: Ministry of Tourism launched the Swadesh Darshan Scheme to develop circuits having
tourism potential e.g. Tourist reception Centres, Solid Waste Management, Streetlight,
Landscaping, parking etc. where the Private Sector is not willing to invest.
 To facilitate international tourism, India introduced the e-Tourist Visa online application
system. 2016: Government renamed e-Visa scheme with Tve sub-categories i.e. ùe-Tourist Visab,
ùe-Business Visab, ùe-Medical Visab, ùe-Conference Visab and ùe-Medical Attendant Visa
 Travel and Tourism Competitiveness Index by World Economic Forum (WEF)- India ranked
34 (2019).
th

55.8.3 Tourism Ministry→ Atma-Nirbhar initiatives & Budget-2022

"Stranded in India" portal for foreigners stuck in India in Corona [HI^Kó" i#(mEâBEÖ &^^]

"Dekho Apna Desh" virtual campaign / webinar to promote tourism. To encourage

Indian middle class to prefer domestic tourism over international.
Budget-2022 Parvatmala National Ropeways Development Programme via
Public Private Partnership (PPP)

55.8.4 Dharamshala Declaration 2022

 By tourism ministry, to make India global leader in tourism in 2047, when the country turns 100.
 Earn $1 trillion by 2047 from tourism.
 Develop medical tourism, Tlm-shooting tourism, Yuva Tourism club, etc.
55.8.5 [Yearbook] Ministry of Culture (fMúùSN =M\6<:)
Dept  N/A
Attached  Archaeological Survey of India, New Delhi (ia C⁄ HIk ')
fM<â  National Archives of India, New Delhi
Subordinate 1] Kolkata: = Anthropological Survey of India [& QI HI‚ Q eIñäp], National Library
àU9Zû [ !"# iaíE %#], 2] Delhi = National Museum [ !"# eBìF %#]
Autonomous  Lalit Kala Akademi, New Delhi| National School of Drama, New Delhi
Bodies  Sahitya Akademi, New Delhi| Sangeet Natak Akademi, New Delhi
ü6:† fMû6Z  Central Institute of Buddhist Studies, Leh
 Central Universities of Tibetan Studies, Sarnath, Varanasi
 =e Asiatic Society , Kolkata| Jallianwala Bagh National Memorial Trust
 Zonal Cultural centers
Budget-2020: an Indian Institute of Heritage and Conservation under Ministry of Culture with
the status of a deemed University. (Although location = yet to be announced)
55.8.6 "Tourism → Museum Infra in "Budget-2020 (fMöQ6<:)
5 Onsite Archaeological Rakhigarhi (Haryana), Hastinapur (Uttar Pradesh) Shivsagar
Museums at (Assam), Dholavira (Gujarat) and Adichanallur (Tamil Nadu).
Maritime Museum Lothal - the Harrapan age maritime site near Ahmedabad, Gujarat,

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#5B: Infrastructure: Sadak, Shipping, Airport → Page 941
 by Shipping Ministry
Oldest Museum Indian Museum in Kolkata is the oldest. Webll renovate it.
Museum on Numismatics To be setup at Old Mint building Kolkata (Ref: Pillar#1A)
and Trade
Tribal Museum Ranchi (Jharkhand)

55.8.7 "BHARAT Shri digital museum for inscriptions in "Budget-2023

 Bharat Shared Repository of Inscriptions (Bharat SHRI)
 this digital museum will store one lakh ancient inscriptions said Budget-2023
 ia QKz©k%KµâBEâ îßQ E EK Üh’$m% eBìF %# &_ µ_'K
Next Handout: Pillar5C: Urban, Rural, then 5D: Communication, PM-GATI-Shakti etc

(Batch: PCB10-RAFTAAR-ONLY-Prelims) Mrunal s Economy Pillar#5B: Infrastructure: Sadak, Shipping, Airport → Page 942
 IMPORTANT POINTS

Index of Industrial Production (MP)

• The Index of Industrial Production (IP) is an index which details out the
growth of various sectors in an economy such as mineral mining, electricity,
manufacturing, etc.
It is compiled and published monthly by the Central Statistical Organisation
(CSO), Ministry of Statistics and Programme Implementation six weeks after
the reference month ends, i.e., a lag of six weeks.