Artha Pedia

Agricultural Marketing Information Network (AGMARKNET)

Agricultural Marketing Information Network (AGMARKNET) was launched in March 2000 by the Union

Ministry of Agriculture. The Directorate of Marketing and Inspection (DMI), under the Ministry, links around

7,000 agricultural wholesale markets in India with the State Agricultural Marketing Boards and Directorates

for effective information exchange. This e-governance portal AGMARKNET, implemented by National

Informatics Centre (NIC), facilitates generation and transmission of prices, commodity arrival information

from agricultural produce markets, and web-based dissemination to producers, consumers, traders, and

policy makers transparently and quickly.

The AGMARKNET website (http://www.agmarknet.nic.in) is a G2C e-governance portal that caters to the

needs of various stakeholders such as farmers, industry, policy makers and academic institutions by

providing agricultural marketing related information from a single window. The portal has helped to reach

farmers who do not have sufficient resources to get adequate market information. It facilitates web- based

information flow, of the daily arrivals and prices of commodities in the agricultural produce markets spread

across the country. The data transmitted from all the markets is available on the AGMARKNET portal in 8

regional languages and English. It displays Commodity-wise, Variety-wise daily prices and arrivals

information from all wholesale markets. Various types of reports can be viewed including trend reports for

prices and arrivals for important commodities. Currently, about 1,800 markets are connected and work is in

progress for another 700 markets. The AGMARKNET portal now has a database of about 300 commodities

and 2,000 varieties.

Directorate of Marketing and Inspection (DMI) has liaison with the State Agricultural Marketing Boards and

Directorates for Agricultural Marketing Development in the country. Agricultural Produce Market Committee

(APMC) displays the prices prevailing in the market on the notice boards and broadcasts this information

through All India Radio etc. This information is also supplied to State & Central Government from important

markets. The statistics of arrival, sales, prices etc. are generally maintained by APMCs.

Future development involves linking all the agricultural wholesale markets in the country and establishing

strategic alliances with government and non-government organisations to disseminate information to the

farmers who operate in these markets. The database developed under AGMARKNET would also be linked

to other agricultural databases, for instance, on area, production, yield of crops, land use, cost of

cultivation, agriculture exports and imports, and so on, to evolve a data warehouse. This would provide a

sound base for planning demand-driven agriculture production. AGMARKNET is also expected to play a

crucial role in enabling e-commerce in agricultural marketing.

The information being disseminated through the AGMARKNET portal includes:

Prices and Arrivals (Daily Max, Min, Modal, MSP; Weekly/ monthly prices/arrivals trends; Future prices

from 3 National commodity exchanges)

Grades and Standards

Commodity Profiles (Paddy/Rice, Bengal Gram, Mustard-Rapeseed, Red Gram, Soybean, Wheat,

Groundnut, Sunflower, Black Gram, Sesame, Green Gram, Potato, Maize, Jowar, Cotton, Grapes,

Chilies, Mandarin Orange etc)

Market Profiles (Contact details, rail/road connectivity, market charges, infrastructure facilities, revenue

etc.)

Other Reports (Best Marketing Practices, Market Directory, Scheme Guidelines, DPRs of Terminal

Markets etc.)

Research Studies

Companies involved in Contract Farming

Schemes of DMI for strengthening Agricultural Marketing Infrastructure

AYUSHAYUSH signifies a combination of alternative system of Medicine, which was earlier known as Indian

System of Medicine. AYUSH includes Ayurveda, Yoga and Naturopathy, Unani, Siddha and

Homeopathy. The objective of AYUSH is to promote medical pluralism and to introduce strategies for

mainstreaming the indigenous systems of medicine. In India, at the Union Government level, AYUSH

activities are coordinated by Department of AYUSH under Ministry of Health & Family Welfare. Most

of these medical practices originated in India and outside, but got adopted in India in the course of

time.

Agricultural CensusAgricultural Census, which is conducted every five years in India. It is the largest countrywide statistical

operation undertaken by Ministry of Agriculture, for collection of data on structure of operational holdings by

different size classes and social groups. Primary ( fresh data) and secondary (already published) data on

structure of Indian agriculture are collected under this operation with the help of State Governments. The

first Agricultural Census in the country was conducted with reference year 1970-71.

Agricultural Census is carried out as a Central Sector Scheme under which 100% financial assistance is

provided to States/Union Territoriess. Agricultural Census operation is carried out in three phases.

During Phase-I, a list of all holdings with data on area, gender and social group of the holder is prepared

with the help of listing schedule. During Phase-II detailed data on tenancy, land use, irrigation status, area

under different crops (irrigated and un-irrigated) are collected in holding schedule. Phase-III, which is called

as Input Survey, relates to collection of data of input use across various crops, States and size groups of

holdings, in addition to data on agriculture credit, implements and machinery, livestock and seeds.

Eighth Agricultural Census with reference year 2005-06 and seventh Input Survey 2006-07 have been

undertaken in the country.

AppropriationAccording to Article 114 of the Indian constitution, no money can be withdrawn from the Consolidated Fund

of India to meet specified expenditure except under an appropriation made by Law. Similarly, State (sub-

national) Governments can also draw from their Consolidated Funds only after an appropriation act is

passed. Every year, after budgetary estimates are approved, an Appropriation Bill is passed by the

Parliament/state legislature and then it is presented to the President/Governor. After the assent by the

President/governor to the bill, it becomes an Act. However, if during the course of the financial year, the

funds so appropriated are found to be insufficient, the Constitution provides for seeking approval from the

Parliament or State Legislature for supplementary grants.

Appropriation Accounts present the total amount of funds (original and supplementary) authorised by the

Parliament/State legislature in the budget vis-a-vis the actual expenditure incurred against each head of

expenditure. The Office of the Comptroller and Auditor General of India reports to the Union and State

Legislatures any discrepancies that occur between the amounts appropriated for a particular head of

expenditure and what was actually spent at the end of the financial year. These reports provide an

indication of unrealistic budget estimates made by various departments. Any expenditure in excess of what

was approved requires regularization by the Parliament/State Legislature.

Some expenditure of Government (e.g. public debt repayments, expenditure incurred on the Judiciary etc.)

is not voted by the Legislature and such expenditure is ‘Charged’ on Consolidated Fund under Article 112

(3) of the Constitution and is called Charged Appropriation.

All other expenditure is required under Article 113 (2) of the Constitution to be voted by the Legislature and

is called voted grant.

‘Back-to-Back’ LoansState Governments in India cannot access external sources of finance directly. The 12th Finance

Commission recommended the transfer of external assistance to State Governments in India by the Union

Government on a ‘Back-to-Back’ basis. This recommendation was accepted by the Government of India for

general category states and the arrangement came into effect from April 1, 2005. For special category

states ( Northeastern states, Uttarakhand, Himachal and J&K), external borrowings are in the form of 90

per cent grant and 10 per cent loan from the Union Government.

Passing loans on ‘Back-to-Back’ basis to State Governments implies that States would face identical terms

and conditions (including concessional interest rates, grace period and maturity profile, commitment

charges and amortization schedules) on account of their access to finance from bilateral and multilateral

sources, as is faced by the Union Government.

This arrangement entails exposure of States to uncertain movements in international rates of interest (as

multilateral agencies viz. IBRD benchmark their interest rates to a reference rate viz. the LIBOR) and

currency exchange rates. As per the ‘Back-to-Back’ loan transfer arrangement, states would have to face

currency risk since principal repayments and interest payments on such loans to external agencies are

designated in foreign currencies. In case of adverse exchange rate movement(s) larger rupee provisions

may be required to meet debt service obligations that may negatively impact the fiscal health of the state

concerned.

Base EffectThe base effect refers to the impact of the rise in price level (i.e. last year’s inflation) in the previous

year over the corresponding rise in price levels in the current year (i.e., current inflation): if the price

index had risen at a high rate in the corresponding period of the previous year leading to a high

inflation rate, some of the potential rise is already factored in, therefore a similar absolute increase in

the Price index in the current year will lead to a relatively lower inflation rates. On the other hand, if

the inflation rate was too low in the corresponding period of the previous year, even a relatively

smaller rise in the Price Index will arithmetically give a high rate of current inflation. For example:

year-on-year inflation is calculated as:

  (Current Price Index – Last year’s Price Index)  

Current Inflation

Rate =

--------------------------------------------------------------------

-    * 100

  Last year’s Price Index  

Base RateThe base rate, introduced with effect from 1st July 2011 by the Reserve Bank of India, is the new

benchmark rate for lending operations of banks. It is a tool which will help in bringing more transparency in

lending operations of banks.

Base rate is defined as the minimum interest rate of a bank below which it is not viable to lend.It replaces

the benchmark prime lending rate (BPLR) ,the interest rate which commercial banks charged their most

credit worthy customer. A working group was constituted under the chairmanship of Shri Deepak Mohanty

to review the benchmark prime lending rate. It was observed that the benchmark prime lending rate, which

was introduced in 2003, had failed in its objective. The banks were lending below BPLR rates due to

competitive pressures. Hence a need was felt for transition to a more transparent and effective interest rate

mechanism.

Base rate includes all those elements of the lending rates that are common across all categories of

borrowers. An illustrative methodology of calculation of base rate has been provided in the RBI guidelines.

As per the methodology, base rate is arrived at by adding the following

1. The cost of deposits ,which is the interest rate on total deposits

2. Adjustment for the negative carry in respect of Cash Reserve Ratio(CRR) and Statutory Liquidity

Ratio (SLR); The negative carry on CRR and SLR arises because the return on CRR balances is

nil and the return on SLR balances is lower than the cost of deposits. Negative carry cost on CRR

and SLR is calculated as difference between effective cost and cost of deposits, where

1. the effective cost is the ratio of cost of deposits( adjusted for return on SLR investments)

and deployable deposits(total deposits less the deposits locked as CRR and SLR

balances)

2. cost of deposits is the interest rate on total deposits

3. Unallocatable overhead cost for banks which would comprise a minimum set of overhead cost

elements, which includes components like legal and premises expenses, depreciation, cost of

printing and stationery, expenses incurred on communication and advertising etc.

4. Average return on net worth, which is the amount of net income returned as a percentage of

shareholder’s equity. It is an indicator on profitability and return on shareholder’s funds.

Banks are free to choose any benchmark to arrive at the base rate. The interest on all categories of loans

is determined with respect to the base rate except the following loans; (a) DRI advances ( that is

Differential rate of interest scheme whereby banks offer financial assistance at concessional rates) (b)

loans to banks’ own employees (c) loans to banks’ depositors against their own deposits. Base rate is to be

reviewed at least once in a quarter and has to be disclosed to the public. Each bank arrives at its base rate

separately. Banks are free to choose any methodology to arrive at the base rate which is consistent ,

appropriate and transparent

Broad Based FundBroad based fund means a fund established or incorporated outside India, which has at least 20 investors

with no single individual investor holding more than 49 percent of the shares or units of the fund. If the

broad based fund has institutional investor(s), then it is not necessary for the fund to have 20 investors.

Further, if the broad based fund has an institutional investor who holds more than 49 percent of the shares

or units in the fund, then the institutional investor must itself be a broad based fund.

In India, the following entities proposing to invest on behalf of broad based funds, are eligible to be

registered as FIIs:

(1).Asset Management Companies (2).Investment Manager/Advisor (3).Institutional Portfolio Managers

(4).Trustee of a Trust and (5).Bank

Cash Reserve Ratio (CRR)Cash Reserve Ratio refers to the fraction of the total Net Demand and Time Liabilities (NDTL) of a

Scheduled Commercial Bank held in India, that it has to maintain as cash deposit with the Reserve Bank of

India (RBI). The requirement applies uniformly to all banks in the country irrespective of an individual

bank’s financial situation or size. In contrast, certain countries e.g. China stipulates separate reserve

requirements for ‘large’ and ‘small’ banks.

As per the RBI Act 1934, all Scheduled Commercial Banks (that includes public and private sector banks,

foreign banks, regional rural banks and co-operative banks) are required to maintain a cash balance on

average with the RBI on a fortnightly basis to cater to the CRR requirement. With effect from December 28,

2002 all banks are required to maintain a minimum of 70 per cent of the required average daily CRR

on all days of the fortnight. Non Bank Financial Corporations (NBFCs) are outside the purview of this

reserve requirement.

Traditionally, the amount held to cater to the CRR requirement was stipulated to be no lower than 3 percent

and no higher than 20 percent of the total NDTL held in India. However, the RBI (amendment) Act, 2006

provides for removal of the floor and ceiling with respect to setting the CRR and authorizes the RBI to set

the ratio in keeping with the broad objective of maintaining monetary stability in the economy.

Presently, banks are not paid any interest on behalf of the RBI for parking the required cash. If a bank fails

to meet its required reserve requirements, the RBI is empowered to impose a penalty by charging a penal

interest rate.

A country that uses the CRR aggressively to control domestic liquidity and target the monetary roots of

inflation is China. In the recent past the People’s Bank of China has frequently raised the reserve

requirement for its banks primarily to rein in rising inflation. In the latest policy move, the Bank raised the

required reserve ratio by 50 basis points, to 21.5 percent for large banks and19.5 percent for smaller ones,

effective from June 20, 2011.

Competition Commission of IndiaA competition regulator is generally a statutory authority with the mandate to enforce competition law (also

called antitrust law in some countries such as USA) and may sometimes also enforce consumer protection

laws. Competition regulators may regulate anti-competitive agreements including cartels as well as abuse

of dominant position in the markets. They also regulate certain aspects of mergers and acquisitions of

business and often undertake advocacy also to promote competition culture. There are more than hundred

such regulators in the world with USA and European Commission being two major jurisdictions, among

others.

Competition Act, 2002 was passed in January 2003. Competition Commission of India (CCI) was set up in

October 2003 to implement this law. However, legal challenge prevented full constitution and enforcement

and only advocacy function was notified. CCI was duly established on 1.3.2009 as an autonomous

independent body comprising Chairperson and six members. An appellate body called Competition

Appellate Tribunal was also set up on 20.5.2009 with final appeal to Supreme Court of India. CCI is thus, a

fully empowered body today and Indian Competition Law has fully come into force.

It is the duty of the Commission to eliminate practices having adverse effect on competition, promote and

sustain competition, protect the interests of consumers and ensure freedom of trade in the markets of India.

The Commission is also required to give opinion on competition issues on a reference received from a

statutory authority established under any law and to undertake competition advocacy, create public

awareness and impart training on competition issues.

Consolidated Fund of IndiaThis term derives its origin from the Constitution of India.

Under Article 266 (1) of the Constitution of India, all revenues ( example tax revenue from personal

income tax, corporate income tax, customs and excise duties as well as non-tax revenue such as

licence fees, dividends and profits from public sector undertakings etc. ) received by the Union

government as well as all loans raised by issue of treasury bills, internal and external loans and all

moneys received by the Union Government in repayment of loans shall form a consolidated fund

entitled the 'Consolidated Fund of India' for the Union Government.

Similarly, under Article 266 (1) of the Constitution of India, a Consolidated Fund Of State ( a separate

fund for each state) has been established where all revenues ( both tax revenues such as Sales

tax/VAT, stamp duty etc..and non-tax revenues such as user charges levied by State governments )

received by the State government as well as all loans raised by issue of treasury bills, internal and

external loans and all moneys received by the State Government in repayment of loans shall form part

of the fund.

The Comptroller and Auditor General of India audits these Funds and reports to the Union/State

legislatures when proper accounting procedures have not been followed.

Consumer Price IndexConsumer Price Index is a measure of change in retail prices of goods and services consumed by defined

population group in a given area with reference to a base year. This basket of goods and services

represents the level of living or the utility derived by the consumers at given levels of their income, prices

and tastes. The consumer price index number measures changes only in one of the factors; prices. This

index is an important economic indicator and is widely considered as a barometer of inflation, a tool for

monitoring price stability and as a deflator in national accounts. Consumer price index is used as a

measure of inflation in around 157 countries. The dearness allowance of Government employees and wage

contracts between labour and employer is based on this index. 

Consumer Price Index(Urban) and Consumer Price Index(Rural)The CPI(IW) and CPI(Al & RL) pertain to specific segment of population. Since these indices do not cover

all segments of population, it is difficult to ascertain the true variations in the price level . To overcome this

problem, a new index with a wider coverage is now being computed, CPI(Urban) and CPI(Rural) by Central

Statistics Office under Ministry of Statistics and Programme Implementation.

This series of CPI has two components, one a representative of the entire urban population, viz. CPI

(Urban), and another for the entire rural population, viz. CPI (Rural) These indices reflect the changes in

the price levels of various goods and services consumed by the urban and rural population respectively.

The indices are compiled at State/UT and all-India levels and are based on 2010 as base year. CPI (urban)

covers 310 towns while the span of CPI(rural) is 1181 villages. Index Numbers for both rural and urban

areas and also combined have been started from January 2011 index onwards. Provisional indices based

on the data available are first released with the time lag of 30 days. Revised and final numbers with

complete data for all India and also for all the States/UTs will be released with a time lag of two months.

Consumer Price Index for Agricultural Labourers and Rural Labourers (CPI(AL) & CPI(RL))Labour Bureau has been compiling CPI Numbers for Agricultural Labourers since September, 1964.The

base of CPI(AL) was 1960-61=100. This series of CPI Numbers was then replaced by CPI for (i)

Agricultural and (ii) Rural Labourers with base 1986-87=100 from November, 1995 onwards . CPI for

Agricultural and Rural labourers on base 1986-87=100 is a weighted average of 20 constituent state

indices and it measures the extent of change in the retail prices of goods and services consumed by the

agricultural and rural labourers as compared with the base period viz 86-87. This index is released on the

20th of the succeeding month. CPI-AL is basically used for revising minimum wages for agricultural labour

in different States.

Consumer Price Index for Industrial Workers CPI(IW)This index is the oldest among the CPI indices as its dissemination started as early as in 1946. The history

of compilation and maintenance of Consumer Price Index for Industrial workers owes its origin to the

deteriorating economic condition of the workers post first world war which resulted in sharp increase in

prices. As a consequence of rise in prices and cost of living, the provincial governments started compiling

Consumer Price Index. The estimates were however not satisfactory. In pursuance of the recommendation

of Rau Court of enquiry, the work of compilation and maintenance was taken over by government in 1943.

Since 1958-59, the compilation of CPI(IW) has been started by Labour Bureau ,an attached office under

Ministry of Labour & Employment.

Consumer Price Index Numbers for Industrial workers measure a change over time in prices of a fixed

basket of goods and services consumed by Industrial Workers. The target group is an average working

class family belonging to any of the seven sectors of the economy- factories, mines, plantation, motor

transport, port, railways and electricity generation and distribution . CPI (IW) is currently calculated at base

2001=100 for 78 centres and prices are collected from 289 markets across these 78 centres. The previous

base periods of the index have been 1944,1949,1960 and 1982=100. The 2001 index is a more

representative index than 1982 series CPI(IW) as its coverage of centres, markets and sample size for

coverage of working class family income & expenditure survey is much more wider.. The index has a time

lag of one month and is released on the last working day of the month. It is used for wage indexation and

fixation of dearness allowance for government employees

Consumer Price Index for Urban Non Manual Employees (CPI(UNME))The need for an all Indian middle class cost of living index was felt on several occasions in connection with

the fixation and adjustments of emoluments of Central Government employees. The Central Statistical

Organisation carried out a family living survey of urban middle class population during 1958-59 to facilitate

construction of middle class cost of living indices. On the basis of this survey data, a cost of living index

number named as CPI(UNME) on base1960=100 was compiled and published since 1961.

This index depicts the changes in the level of average retail prices of goods and services consumed by the

urban segment of the population. The target group of this index was urban families who derived major

portion of their income from non manual occupations in the non-agricultural sector.This index had a limited

use as it was used for determining dearness allowances of employees of some foreign companies working

in India in service sectors such as airlines, communications, banking, insurance and other financial

services. Release of Centre-wise monthly CPI (UNME) on the basis of 1984-85 =100 has been

discontinued since April 2008 as per the recommendation of National Statistical Commission because of

outdated base year and also deployment of field investigators for collection of price data for a broad based

CPI (Urban) index. The Commission also decided that release of all-India linked CPI (UNME) would

continue till CPI (Urban) is brought out. The monthly linked all India CPI (UNME) was being compiled by

linking to CPI (IW) with base 2001=100 and taking CPI (UNME) as weights. This index was released with a

time lag of two moths, usually during the third week of the month. The release of all-India linked

CPI(UNME) has been discontinued with effect from January 2011.

Contingency Fund of IndiaThis term derives its origin from the Constitution of India.

The Contingency Fund of India established under Article 267 (1) of the Constitution is in the nature of an

imprest (money maintained for a specific purpose) which is placed at the disposal of the President to

enable him/her to make advances to meet urgent unforeseen expenditure, pending authorization by the

Parliament. Approval of the legislature for such expenditure and for withdrawal of an equivalent amount

from the Consolidated Fund is subsequently obtained to ensure that the corpus of the Contingency Fund

remains intact. The corpus for Union Government at present is Rs 500 crore (Rs 5 billion) and is enhanced

from time to time by the Union Legislature. The Ministry of Finance operates this Fund on behalf of the

President of India.

Similarly, Contingency Fund of each State Government is established under Article 267(2) of the

Constitution – this is in the nature of an imprest placed at the disposal of the Governor to enable him/her to

make advances to meet urgent unforeseen expenditure, pending authorization by the State Legislature.

Approval of the Legislature for such expenditure and for withdrawal of an equivalent amount from the

Consolidated Fund is subsequently obtained, whereupon the advances from the Contingency Fund are

recouped to the Fund. The corpus varies across states and the quantum is decided by the State

legislatures.

Core inflationCore Inflation is also known as underlying inflation is a measure of inflation which excludes items that face

volatile price movement, notably food and energy. In other words, Core Inflation is nothing but Headline

Inflation minus inflation that is contributed by food and energy commodities. To understand the concept in a

better way we can say that food and fuel prices may go up in the short run due to some disturbance in the

agriculture sector or oil economy. However, over the long term they tend to revert back to their normal

trend growth. On the other hand, prices of other commodities do not fluctuate as regularly as food and fuel

– as such increase in their prices could be taken relatively to be much more of a permanent nature. If this is

so, then it follows logically for Central Banks to target only core inflation, as it reflects the demand side

pressure in the economy. In practice too, the Reserve Bank of India (RBI) and Central Banks around the

World always keep an eye on the core inflation. Whenever core inflation rises, Central Banks increase their

key policy rates to suck excess liquidity from the market and vice versa. It is, therefore, a preferred tool for

framing long-term policy.

Here it needs to be mentioned that, unlike core inflation, headline inflation also takes into account changes

in the price of food and energy. Since food and energy prices are highly volatile, headline inflation may not

give an accurate picture of how an economy is behaving. Responding to headline inflation might therefore

sometimes be inappropriate as it generates excessive variability in the unemployment rate – variability that

would be much more subdued when policy responds to core inflation.

This is because, it is important to distinguish between temporary (like seasonal variation in fruits and

vegetable prices) and permanent changes in prices. While temporary changes would reverse and might not

warrant attention, permanent changes would require standard remedies involving monetary and fiscal

policies. Research has shown that headline inflation tends to revert strongly towards core inflation once the

temporary fluctuation in food and energy sector stabilizes.

Demand for GrantsAccording to Article 113 of the Indian Constitution, estimates of expenditure from the Consolidated Fund of

India in the Annual financial Statement are to be voted in the Lok Sabha. These expenditures are submitted

in the lower house of Parliament in the form of Demand for Grants. Conventionally, one Demand for Grant

is presented in respect of one Ministry or Department, though more than one Demand may also be

presented according to the nature of expenditure.

For Union Territories without Legislature a separate Demand is presented for each Union territory.

Each Demand gives the totals of “voted” and “charged” expenditure and also the grand total of the amount

of expenditure for which the demand is presented. This expenditure is then given under different Major and

Minor heads of account. The break-up of expenditure is also provided in Plan and Non-Plan basis.

The demands include the total provisions required for a service, i.e. Provisions on account of revenue

expenditure capital expenditure, grants to States and UTs and also loans and advances related to that

service.

Deemed Export Benefit SchemeDeemed Export Scheme, which has been in operation for more than two decades, is largely an Indian

concept. Deemed Exports refers to those transactions in which goods supplied do not leave country, and

payment for such supplies is received either in Indian rupees or in foreign exchange. The Deemed export

benefit include rebate on duty chargeable on imports or excisable material used in the manufacture of

goods which are supplied to the eligible projects.

‘Deemed Export Benefit’ Scheme benefits are availed of by units in Power, Petroleum refinery, fertilizer and

Nuclear Power Projects. They are also availed by supply of goods to projects financed by multi-lateral or

bilateral agencies.

The policy aims to create a level playing field for the domestic industry vis-à-vis direct import by providing

duty free inputs or exemption/refund of duty paid on goods manufactured in India. Deemed Export Scheme

is primarily an instrument for import substitution. It helps in creating manufacturing capability, value addition

and employment opportunities in country

Demographic Dividend (India)One of India’s competitive advantages is its demographic dividend. Demographic dividend occurs when the

proportion of working people in the total population is high because this indicates that more people have

the potential to be productive and contribute to growth of the economy. According to the United National

population research, during the last four decades the countries of Asia and Latin America have been the

main beneficiaries of the demographic dividend. Advanced countries of Europe, Japan and USA have an

ageing population because of low birth rates and low mortality rates. Neither the least developed countries

nor the countries of Africa have as yet experienced favourable demographic conditions according to the

research by UN population division. China’s one child policy has reversed the demographic dividend it

enjoyed since the mid 1960s according to a World Bank global development report.

Falling birth rates reduce the overall expenditure required to provide basic necessities for the under 14 age

group (which is yet to be productive) and increased longevity ensures that a large proportion of the

population are within the 15-59 age group (working population). Dependency ratio refers to the proportion

of non -working poplation on the working population. In India this ratio is around 0.6 according to the World

Bank.

However, reaping the demographic dividend requires focused policy action. A recent UNESCAP survey

warns there are no guarantees the "dividend" will automatically translate to economic growth. Countries

need to put in place the appropriate "social and economic policies and institutions" to absorb the rapidly

growing labour force. Reforms in the health and education sector, financial inclusion and adequate

employment opportunities are essential pre-requisites to ensure that India’s young population is truly an

asset.

The Planning Commission of India, in its 12th Plan discussions, indicates that while the “demographic

dividend” accounts for India having world’s youngest work force with a median age way below that of China

and OECD Countries, the global economy is expected to witness a skilled man power shortage to the

extent of around 56 million by 2020. Thus, the “demographic dividend” in India needs to be exploited not

only to expand the production possibility frontier but also to meet the skilled manpower requirements of in

India and abroad. To reap the benefits of “demographic dividend”, the Eleventh Five Year Plan had favored

the creation of a comprehensive National Skill Development Mission. Various strategies for the 12th Plan –

improved access to quality education, better preventive and curative health care, enhancing skills and

faster generation of employment are being finalized to ensure greater productivity of Indian workers.

DumpingWhen goods are exported to another country at a price which is less than what it is sold for in the

home country or when the export price is less than the cost of production in the home country, then

those goods have been dumped.

Home Market Price – Export Sales Price = Margin of dumping

The Department of Commerce in the Union Ministry of Commerce and Industry has an Anti-dumping

Unit which investigates cases where the domestic industry (domestic producers) provide evidence

that dumping has taken place by producers abroad. They also defend cases where allegations of

dumping are brought against Indian exporters by foreign governments.

There is a well established process which is followed where questionnaires are sent to all

stakeholders and evidence is collected in a time-bound fashion to either prove or disprove that

dumping has taken place.

If the good is alleged to be dumped from a non-market country ( a country where there are

considerable distortions to the market through government subsidies ) then the Anti –dumping cell will

calculate what the “normal” price of the product should be in the home market. The normal price will

reflect the market price of the product had it been produced in the exporting country without these

subsidies. If necessary, the price of such a commodity in a similar market ( say a neighbouring

country at the same level of development as the exporting country) will be considered as the normal

price.

If there is evidence of dumping then the Government of India will levy an anti-dumping duty on that

commodity for a period of five years and will review the need for continuation of duty thereafter.

External DebtAt a point in time, Gross External Debt, is defined as the outstanding amount of those actual current

liabilities, that require payment(s) of principal and/or interest by the debtor, in the future as per the

terms laid out in the contract between the debtor and the creditor and that are owed to non-

residents by the residents of the economy.

The definition of gross external debt includes debt incurred by both the Government and the private

sector(s) of the economy but does not take into account contingent liabilities that are liabilities arising

in the event of specific occurrences covered by the debt contract viz. default by a debtor on the

principal and/or interest of a credit.

In India, (Gross) External Debt is classified primarily into the following heads:

(i) Original and Residual (Remaining) Maturity; Original Maturity is defined as the period

encompassing the precise time of creation of the financial liability to its date of final maturity while

Residual (or Remaining) Maturity includes short term debt by ‘Original Maturity’ of up to one year and

long-term debt repayment by ‘Original Maturity’ falling due within the twelve month period following a

reference date.

(ii) Long and Short Term Debt; Long Term Debt is defined as debt with an ‘Original Maturity’ of more

than one year while Short Term Debt is defined as debt repayments on demand or with an ‘Original

Maturity’ of one year or less.

Long-Term debt is further classified into (a) Multilateral Debt (b) Bilateral Debt (c) ‘IMF’ signifying SDR

allocations to India by the IMF (c) Export Credit (d) (External) Commercial Borrowings (e) NRI

Deposits and (d) Rupee Debt. Short Term Debt is classified into (a) Trade Credits (of up to 6 months

and above 6 months and up to 1 year) (b) Foreign Institutional Investors’ (FII) Investment in

Government Treasury-Bills and Corporate Securities (c) Investment in Treasury-bills by foreign

Central Banks and International Institutions etc. and (iv) External Debt liabilities of the Central Bank

and Commercial Banks.

(iii) Sovereign (Government) and Non-Sovereign Debt; Sovereign Debt includes (a) External Debt

outstanding on account of loans received by the Government of India (GoI) under the ‘External

Assistance’ programme and the civilian component of Rupee Debt (b) Other Government debt

comprising borrowings from the IMF, defence debt component of Rupee Debt and foreign currency

defence debt and (c) FII investment in Government Securities. All remaining components of External

Debt get categorized as Non-Sovereign External Debt.

Multilateral Debt includes debt from Multilateral Creditors that primarily are Multilateral Institutions

such as the International Development Association (IDA), International Bank for Reconstruction and

Development (IBRD), Asian Development Bank (ADB) etc. Bilateral Debt includes debt from

sovereign countries with whom sovereign and non-sovereign entities enter into one-to-one loan

arrangements. Japan and Germany are the two major bilateral creditors in the case of India.

Apart from the above classifications, publications disseminating data on External Debt also provide

information on the borrower-wise, instrument-wise and currency composition of such Debt.

Escrow AccountAn escrow account in simple terms is a third party account. It is a separate bank account to hold

money which belongs to others and where the money parked will be released only under fulfilment of

certain conditions of a contract. The term escrow is derived from the French term “escroue” meaning

a scrap of paper or roll of parchment, an indicator of the deed that was held by a third party till a

transaction is completed. An escrow account is an arrangement for safeguarding the seller against its

buyer from the payment risk for the goods or services sold by the former to the latter. This is done by

removing the control over cash flows from the hands of the buyer to an independent agent. The

independent agent, i.e, the holder of the escrow account would ensure that the appropriation of cash

flows is as per the agreed terms and conditions between the transacting parties.

Escrow account has become the standard in various transactions and business deals. In India escrow

account is widely used in public private partnership projects in infrastructure. RBI has also permitted

Banks (Authorised Dealer Category I) to open escrow accounts on behalf of Non Resident corporates

for acquisition / transfer of shares/ convertible shares of an Indian company.

Finance commissionThe Finance Commission in India is constituted, usually, once in five years. It is a constitutional body

created to address issues of vertical and horizontal imbalances of federal finances in India. The

constitutional mandate of the Finance Commission is (a) to decide on the proportion of tax revenue to be

shared with the States and (b) the principles which should govern the grants-in-aid to States. In addition to

the core mandate, the Finance Commission is also entrusted with the responsibility to make

recommendations on various policy issues, as and when they arise. The Finance Commission also tender

advice to the President on any other matter referred to it in the interest of sound public finance. The

recommendations made by the Finance Commission are advisory in nature and, hence, not binding on the

Government. So far, 13 Finance Commissions have been constituted and the last one was constituted in

November 2007, which submitted its report to the Government in December 2009. Their recommendations

are presently being implemented and cover a period from 2010-15.

The scope of the Finance Commission broadened over time as they were assigned several other issues on

government finances, particularly those relating to augmentation of State Consolidation Funds to

supplementing the resources of local bodies

Vertical imbalances refer to the mismatch between the revenue raising capacity and expenditure needs of

the centre and the states. Horizontal imbalances exist because of the inability of some States to provide

comparable services due to inadequate capacity to raise funds.

Individual States in India also set up State Finance Commissions.

Financial Stability and Development CouncilIn pursuance of the announcement made in the Union Budget 2010–11 and with a view to strengthen and

institutionalize the mechanism for maintaining financial stability and enhancing inter-regulatory

coordination, Indian Government has setup an apex-level Financial Stability and Development Council

(FSDC), vide its notification dated 30th December, 2010. The first meeting of the Council was held on 31st

December, 2010.

FSDC has replaced the High Level Coordination Committee on Financial Markets (HLCCFM), which

was facilitating regulatory coordination, though informally, prior to the setting up of FSDC. The technical

committee under HLCCFM for RBI regulated entities, though at a modest level, had set up a Financial

Conglomerate Monitoring Mechanism since 2004. The secretariat of HLCCFM was in Ministry of

Finance (Capital Market Division, Department of Economic Affairs).

Composition

The Chairman of the FSDC is the Finance Minister of India and its members include the heads of the

financial sector regulatory authorities (i.e, SEBI, IRDA, RBI, PFRDA) , Finance Secretary and/or Secretary,

Department of Economic Affairs (Ministry of Finance), Secretary, (Department of Financial Services,

Ministry of Finance) and the Chief Economic Adviser. The Joint Secretary (Capital Markets Division,

Department of Economic Affairs, Ministry of Finance) is the Secretary of the Council.

A sub-committee of FSDC has also been set up under the chairmanship of Governor RBI. The Sub-

Committee discusses and decides on a range of issues relating to financial sector development and

stability including substantive issues relating to inter-regulatory coordination.

As a result of the deliberations of the Sub-Committee of the FSDC held on August 16, 2011, two Technical

Groups were set up – a Technical Group on Financial Inclusion and Financial Literacy and an Inter

Regulatory Technical Group.

The Inter Regulatory Technical Group is chaired by an Executive Director of RBI and comprises of ED level

representatives from the SEBI, IRDA and PFRDA. The Group will meet once every two months. It will

discuss issues related to risks to systemic financial stability and inter regulatory coordination and will

provide essential inputs for the meetings of the Sub-Committee.

The Technical Group on Financial Inclusion and Financial Literacy is headed by the Deputy Governor of

RBI and comprises of representatives of all Regulators and Ministry of Finance.

In addition, an Inter-Regulatory Forum for Monitoring of Financial Conglomerates has also been set up

under the aegies of FSDC

Financial StabilityThe notion of financial stability leads to issues of measurement, issues of choice of instruments to achieve

the objective of financial stability and issues on the degree of activism that central banks should adopt in

pursuing this objective.

Monetary stability (say maintaining low and stable inflation) leads to financial stability, although, such

complementarity hold in the long run, need not hold in the short-run. Monetary stability is an important

precondition for financial stability. Reduction in inflation enables inflation expectations to stabilize. Low and

stable inflation expectations increase confidence in the domestic financial system. Globally, central banks

are concerned with both price stability and financial stability.

A stable macroeconomic environment - with low and stable inflation, sustained growth and low interest

rates - can generate excessive optimism about the future economic prospects and often the risks are

downplayed. However, macroeconomic stability need not necessarily always place an economy in financial

stability, therefore, focused attention is required to achieve financial stability.

Contextually, financial stability in India means

(a) ensuring uninterrupted settlements of financial transactions (both internal and external),

(b) maintenance of a level of confidence in the financial system amongst all the participants and

stakeholders and

(c) absence of excess volatility that unduly and adversely affects real economic activity.

Three highlighted structural aspects of financial stability are:

(a). Vulnerabilities to real sector shocks

(b). Political system stability

(c). The size, nature and structure of the economy, level of development and socio political conditions

The sources of financial disturbances are unpredictable due to increased integration of financial markets.

Contagions, progressive opening up of economies to external flows, sharp movements in exchange rates

for emerging economies need to resort to borrowing in foreign currencies, all contribute to financial

instability. Forces affecting financial stability, include:

(a). boom in credit to private sector, both investment and consumption, A particular form of boom and bust

cycle is generated by the end of hyperinflation episodes.

(b). highly regulated systems have also suffered crises.

(c). Direct effects of fiscal difficulties.

(d). crisis in one country has a direct effect on economic conditions.

(e). Terms of trade shocks and movements in real exchange rates.

(f). Political instability, unrest, civil conflict.

(g). Policy-induced distortions, government influence over public sector banks;

In financial markets, the herd mentality catches up fast, making markets volatile. There is need to pursue a

multifaceted approach towards ensuring financial stability through

(a) payments system oversight,

(b) contingency planning against market disruption,

(c) lender of last resort (LOLR),

(d) share in procedures for financial regulation and

(e) analysis and communication through reports. Overall, a continuous assessment of the health of the

financial sector is essential and its ability to withstand various shocks is important.

In the pursuit of financial stability, effective regulatory and supervisory initiatives along with a calibrated

approach to financial sector liberalization are critical. The pancha-sutra or five principles are

(a) cautious and appropriate sequencing of reform measures;

(b) introduction of norms that are mutually reinforcing;

(c) introduction of complementary reforms across sectors (most importantly, monetary, fiscal and external

sector);

(d) development of financial institutions; and,

(e) development of financial markets. The reforms have aimed at enhancing productivity and efficiency of

the financial sector, improving the transparency of operations and made the financial system capable of

withstanding idiosyncratic shocks.

Challenge to Indian regulators is to enhance efficiency while avoiding instability. This leads to a role for the

regulators to adopt / and develop market-oriented financial system while maintaining independence and

credibility and remain accountable to Government, which being the ultimate risk-bearer and sovereign in

law-making.

Therefore, the relationship between a regulator and Government must emphasise on:

(a). Operational Autonomy

(b). Harmony with the government policies, due to dense linkage between fiscal and financial sectors

(c). Coordination with government in bringing about structural changes in respect of public ownership and

legislative framework.

Financial InclusionAccess to safe, easy and affordable credit and other financial services by the poor and vulnerable

groups, disadvantaged areas and lagging sectors is recognized as a pre-condition for accelerating

growth and reducing income disparities and poverty. In view of this, Financial Inclusion has been

identified as a key dimension of the overall strategy of “Towards Faster and More Inclusive Growth”

envisaged in the eleventh Five Year Plan (2007-12).

Defining financial inclusion is considered crucial from the viewpoint of developing a conceptual

framework and identifying the underlying factors that lead to low level of access to the financial

system. Review of literature suggests that there is no universally accepted definition of financial

inclusion.

Sometimes, it is easier to define a phenomenon, by stating what it is not, i.e., define financial

exclusion (rather than inclusion). Financial inclusion is generally defined in terms of exclusion from the

financial system. A target group is considered as financially excluded if they do not have access to

mainstream formal financial services such as banking accounts, credit cards, insurance, payment

services, etc.

Government of India had constituted a committee in 2006 under the chairmanship of Dr. C.

Rangarajan to study the pattern of exclusion from access to financial services across region, gender

and occupational structure and to identify the barriers confronted by vulnerable groups in accessing

credit and financial services and recommend the steps needed for financial inclusion. The committee

submitted its report in January 2008. The committee has given a working definition of financial

inclusion as;

“Financial inclusion may be defined as the process of ensuring access to financial services

and timely and adequate credit where needed by vulnerable groups such as weaker sections

and low income groups at an affordable cost.”

Various facets of Financial Inclusion

The essence of financial inclusion is in trying to ensure that a range of appropriate financial services is

available to every individual and enabling them to understand and access those services.

In order to achieve a comprehensive financial inclusion, a slew of initiatives have been taken by

Government of India, RBI and NABARD. Some of the important initiatives include; SHG-Bank Linkage

programme, opening of No Frills Accounts, mobile banking, Kisan Credit Cards (KCC) etc.

Despite the marked progress made in the direction of financial inclusion, the problem of exclusion still

persist. For achieving the current policy stance of “inclusive growth” the focus on financial inclusion is

not only essential but a pre-requisite. And for achieving comprehensive financial inclusion, the first

step is to achieve credit inclusion for the disadvantaged and vulnerable sections of our society.

Financial Sector Legislative Reforms Commission (FSLRC)Financial Sector Legislative Reforms Commission (FSLRC) was set up by the Indian Government in

pursuance of the announcement made in Union Budget 2010-11, to help rewriting and harmonizing the

financial sector legislation, rules and regulations so as to address the contemporaneous requirements of

the sector. The resolution notifying the FSLRC was issued on March 24, 2011. FSLRC has a two year

term.

The Commission is chaired by Supreme Court Justice (Retired) B. N. Srikrishna, and has ten members

with expertise in the fields of finance, economics, law and other relevant fields. The secretariat is placed

at National Institute of Public Finance and Policy (NIPFP). Secretariat consists of a Secretary at the level of

Joint Secretary to the Government of India and other officials and support staff.

Context

The establishment of the FSLRC is the result of a realisation that the institutional foundation (laws and

organizations) of the financial sector in India needs to be looked afresh to assess its soundness for

addressing the emerging requirements in a rapidly changing world. Today, India has over 60 Acts and

multiple Rules/ Regulations that govern the financial sector. Many of them have been written several

decades back. For example, the RBI Act and the Insurance Act are of 1934 and 1938 vintage

respectively and the Securities Contract Regulation Act, which governs securities transactions, was

legislated in 1956 when derivatives and statutory regulators were unknown in the financial system. A

Large number of amendments were, therefore, made in these Acts and regulations at different points

of time to address various needs. But these have also resulted in their fragmentation, often adding to

the ambiguity and complexity of regulations in the financial sector.

The piecemeal amendments have resulted in unintended outcomes including regulatory gaps,

overlaps, inconsistencies and regulatory arbitrage. The fragmented regulatory architecture has also

led to loss of scale and scope that could be available from a seamless financial market with all its

attendant benefits of minimising the intermediation cost. For instance, complex financial

intermediation by financial conglomerates of today falls under purview of multiple regulators. Various

Expert Committees have also pointed out these discrepancies and recommended the need for

revisiting the financial sector legislations to rectify them.

It was therefore proposed to set up the Financial Sector Legislative Reforms Commission (FSLRC),

which would, inter-alia, evolve a common set of principles for governance of financial sector

regulatory institutions. The Commission would examine financial sector legislations, including

subordinate legislations. The Commission would also examine the case for greater convergence of

regulations and streamline regulatory architecture of financial markets.

Progress

The Commission meets regularly and has held wide-ranging consultations. The Commission has also

engaged two technical/research teams and five Working Groups (WG), each one chaired by a

Member of the Commission. These WGs will follow the broad principles and approaches as approved

by the Commission and examine the sector specific details and produce reports and draft laws

thereon and report to the Commission.It is expected to submit its report within its 24-month time-frame

which would fall in March, 2013. The approach paper has been published on 4 October 2012.

Fiscal ConsolidationFiscal Consolidation refers to the policies undertaken by Governments (national and sub-national levels) to

reduce their deficits and accumulation of debt stock.

Key deficits of government are the revenue deficit and the fiscal deficit. The gains from the economic

reforms introduced in India in early nineties could not be sustained for a much longer period. Deficits were

widening and by 1999-2000 the combined fiscal deficit (of centre and states) almost reached levels of the

crisis year ‘1990-91’. Sustainability of debt too was becoming a major issue. In December 2000,

Government of India introduced the Fiscal Responsibility and Budget Management (FRBM) Bill in the

Parliament as it was felt that institutional support in the form of fiscal rules would help in setting the agenda

for the future fiscal consolidation programme. The Twelfth Finance Commission recommended in

November 2004 that state governments too enact their fiscal responsibility legislations. However, states

like Karnataka, Kerala, Punjab, Tamil Nadu and Uttar Pradesh had already enacted their fiscal

responsibility legislation even before the Commission recommended so.

Implementation of Fiscal Responsibility and Budget Management (FRBM) legislation at national as well as

at sub-national levels in India during the period 2005-10 helped both the Union and the States to achieve

considerable correction in their respective fiscal position, which was weak prior to 2005. The global

slowdown in 2008-09 and 2009-10 however adversely affected the achievement of targets specified in the

legislation. The Thirteenth Finance Commission (FC-XIII) has proposed a roadmap of fiscal consolidation

for both centre and states. It has specified a combined debt target of 68 % for the Centre and States, to be

met by 2014-15. For the Centre, a target of elimination of revenue deficit has been set by 2013-14 and

fiscal deficit is to be brought down to 3 % by the same year. For States, the Commission has

recommended a fiscal road map for each state depending on its current deficit and debt levels.

Accordingly, States are required to eliminate revenue deficit and reduce fiscal deficit to 3 % of their GSDP,

in stages, and in a manner that all states would achieve these targets latest by 2014-15. [By the end of

2009-10, the estimated debt of Centre and States was around 79 % of GDP and consolidated fiscal deficit

of Centre and States at 9.5 %, during this year].The Medium Term Fiscal Policy Statement presented along

with the Union Budget 2011-12, takes forward the process of fiscal consolidation of the Centre further.

While the suggested roadmap of the 13th FC puts the fiscal deficit targets at 5.7 % and 4.8 % of GDP for

the years 2010-11 and 2011-12 respectively, it has now been estimated at 5.1 % and 4.6 % respectively.

The recommended debt target for 2014-15 of the 13th FC award period which is 44.8 % of GDP is

expected to be achieved in the year 2011-12 itself (estimated at 44.2%). However, there seems to be

problems in achieving the Revenue Deficit targets. Revenue expenditure of the Central Government also

includes releases made to States and other implementing agencies for implementation of Government

Schemes and programmes, amounting to about 1.6% of GDP. Leaving this out, the effective revenue

deficit is about 1.8%, which is being endeavoured to be eliminated in the medium-term.

Fiscal Responsibility and Budget Management (FRBM) ActFiscal Responsibility and Budget Management (FRBM) became an Act in 2003. The objective of the

Act is to ensure inter-generational equity in fiscal management, long run macroeconomic stability,

better coordination between fiscal and monetary policy, and transparency in fiscal operation of the

Government.

The Government notified FRBM rules in July 2004 to specify the annual reduction targets for fiscal

indicators. The FRBM rule specifies reduction of fiscal deficit to 3% of the GDP by 2008-09 with

annual reduction target of 0.3% of GDP per year by the Central government. Similarly, revenue deficit

has to be reduced by 0.5% of the GDP per year with complete elimination to be achieved by 2008-09.

It is the responsibility of the government to adhere to these targets. The Finance Minister has to

explain the reasons and suggest corrective actions to be taken, in case of breach.

FRBM Act provides a legal institutional framework for fiscal consolidation. It is now mandatory for the

Central government to take measures to reduce fiscal deficit, to eliminate revenue deficit and to

generate revenue surplus in the subsequent years. The Act binds not only the present government

but also the future Government to adhere to the path of fiscal consolidation. The Government can

move away from the path of fiscal consolidation only in case of natural calamity, national security and

other exceptional grounds which Central Government may specify.

Further, the Act prohibits borrowing by the government from the Reserve Bank of India, thereby,

making monetary policy independent of fiscal policy. The Act bans the purchase of primary issues of

the Central Government securities by the RBI after 2006, preventing monetization of government

deficit. The Act also requires the government to lay before the parliament three policy statements in

each financial year namely Medium Term Fiscal Policy Statement; Fiscal Policy Strategy Statement

and Macroeconomic Framework Policy Statement.

To impart fiscal discipline at the state level, the Twelfth Finance Commission gave incentives to states

through conditional debt restructuring and interest rate relief for introducing Fiscal Responsibility

Legislations (FRLs). All the states have implemented their own FRLs.

Indian economy faced with the problem of large fiscal deficit and its monetization spilled over to

external sector in the late 1980s and early 1990s. The large borrowings of the government led to such

a precarious situation that government was unable to pay even for two weeks of imports resulting in

economic crisis of 1991. Consequently, Economic reforms were introduced in 1991 and fiscal

consolidation emerged as one of the key areas of reforms. After a good start in the early nineties, the

fiscal consolidation faltered after 1997-98. The fiscal deficit started rising after 1997-98. The

Government introduced FRBM Act, 2003 to check the deteriorating fiscal situation.

The implementation of FRBM Act/FRLs improved the fiscal performance of both centre and states.

The States have achieved the targets much ahead the prescribed timeline. Government of India was

on the path of achieving this objective right in time. However, due to the global financial crisis, this

was suspended and the fiscal consolidation as mandated in the FRBM Act was put on hold in 2007-

08.The crisis period called for increase in expenditure by the government to boost demand in the

economy. As a result of fiscal stimulus, the government has moved away from the path of fiscal

consolidation. However, it should be noted that strict adherence to the path of fiscal consolidation

during pre crisis period created enough fiscal space for pursuing counter cyclical fiscal policy.

Five Year PlansIndia has adopted the five-year plan model which was practiced in the earlier communist Soviet Union. The

Five-Year Plan exercise is a detailed work plan. To begin with an Approach Paper is prepared to identify

the growth target and the sectors to be prioritised in the five year plan. After the Approach Paper is

discussed and finalised in the highest policy making body viz; the National Development Council, the

subject divisions in Planning Commission representing the different Central Ministries set up Working

Groups wherein subject experts, state government officials and central government officials are Members

and they discuss and chart out the course of action to be implemented in the next five years. The Working

Groups are mainly headed by the Head of Division of the concerned subject in the Central Ministry. After

the Working Groups submit their Reports, Steering Committees chaired by the Members of Planning

Commission examine these Reports and may support/reject/add to the recommendations made in the

Working Group Reports. After this exercise the officers of Planning Commission utilise these Reports and

the inputs received from the discussions held with State Government officials during plan discussions start

drafting the chapters that form part of the Five Year Plan document. Once all subject divisions prepare their

chapters, the Plan Coordination Division consolidates these chapters and the First draft the five year plan

document is circulated among Members, to the Deputy Chairman, discussed in the Full Planning

Commission meeting after which it is again placed before the National Development Council which

approves the plan document. This plan document is the referral guide for officers in the Planning

Commission as well as the Central Ministries in scheme formulation and implementation for the next five

years. India has so far completed XI Five Year Plans and the preparation of the XII Five Year Plan

document is presently underway.

Flagship ProgrammesFlagship programmes derive their origin from the term flagship which is the main or most important ship of

a country's navy and is symbolic of the main thrust of the nation's developmental policy. The Eleventh Plan

Document lists out the various flagship programmes.

In India's federal system of government, both the Union and State Governments have a defined role to play

in achieving developmental goals. The Govt. of India in recognition of the role played by infrastructure in

poverty removal has taken up massive all India programmes for development of physical infrastructure

(rural housing, rural roads, rural electrification, irrigation, drinking water, urban infrastructure etc. Human

capital formation, mainly to promote education and health care under different flagship programmes have

also been initiated.

The major Flagship programmes of the Government of India are:

Bharat Nirman: The objective of the Bharat Nirman Programme is to give top priority to rural infrastructure

by setting time-bound goals under various schemes to develop rural housing, rural roads, irrigation, rural

drinking water and rural electrification. The Programme imposes a responsibility on sub-national

governments to create these facilities in a transparent and accountable manner.

National Rural Health Mission: The main aim of NRHM is to provide accessible, affordable, accountable,

effective, and reliable primary health care, especially to poor and vulnerable sections of the population. The

programme sets standards for rural health care and provides financial resources from the Union

Government to meet these standards.

Mahatma Gandhi National Rural Employment Guarantee Programme: The Act was notified on 7

September 2005 and is aimed at providing livelihood security through employment for the rural poor.

Sarva Siksha Abhigyan: This programme was started with the objective of providing elementary

education for all children in the age group of 6–14 years by 2010.

Mid-day meal Scheme: The MDM Scheme launched in 1995 aims to give a boost to universalization of

primary education by increasing enrolment, retention, and attendance and

simultaneously impacting upon nutritional status of students in primary classes.

Food Safety and Standards Act, 2006Food Safety and Standards Act, 2006 is an integrated food law that lays down standards and guidelines for

consumer safety, protection of consumer health and regulation of the food sector .It seeks to harmonise

Indian standards with the international standards like CODEX [1] and facilitates international trade in food

articles. The Act lays down general provisions for food additives and processing of articles as well.

Food Safety and Standards Act received the assent of the President on 23rd August, 2006 and came into

effect on 5th August, 2011. It is a comprehensive legislation for the sector and subsumes the then existing

acts and standards like Prevention of Food Adulteration Act(PFA) of 1954 ,Fruit Products Order of 1955,

Meat Food Products Order of 1973, Vegetable Oil Products (Control) Order of 1947, Edible Oils Packaging

(Regulation)Order of 1988, Solvent Extracted Oil, De- Oiled Meal and Edible Flour (Control) Order of 1967,

Milk and Milk Products Order of 1992 and also any order issued under the Essential Commodities Act,

1955 relating to food . [2]

Food Safety and Standards Authority of India (FSSAI) has been created under the Act. FSSAI regulates

the food sector by laying down guidelines and standards to be followed by food businesses. It also

specifies procedures for accreditation of laboratories and provides advice to central and state government

in matters relating to food safety. Ministry of Health and Family Welfare is responsible for implementation of

the Act. The Act deals with administrative mechanism at the state level. It also provides for setting up of

Food Safety Appellate tribunal for adjudication and trails under food standard offence.

The law is significant in ensuring quality food to the consumer. It protects consumer interest by prohibiting

misleading advertisement and penalising adulteration. In other words, the Act seeks to enhance quality of

food related information to consumers and also by setting standards which, when effectively enforced by

Commissioners in the States would result in increased consumer welfare.

The law also addresses contemporary challenges facing the sector like provisions related to Genetically

Modified (GM) crops, functional food, international trade in food items etc. Besides, it is a single reference

point for food related matters.

Food SecurityThe food security legislation is going to be one of the watershed legislation in the parliamentary democracy

of India as it would made availability/access to food a “Right” of the people. There are many compelling

factors - economic, social, political – as well as ethical reasons for having such a legal guarantee of

protection from hunger. The origin of this concept can be traced to Fundamental Right of Life with dignity

as enshrined in Article 21 of Indian constitution. The President of India addressing the Indian Parliament on

4 June 2009 affirmed that the Government of India proposes to enact a new law - the National Food

Security Act (NFSA) - that will provide a statutory basis for a framework which assures food security for all.

There has been a plethora of definition of food security that has been extended from time to time by

different international agencies. The anchoring definition, however, was arrived in the Rome Declaration

during the World Food Summit held in 1996 at Rome. It states:

“Food security exists when all people, at all times, have physical and economic access to sufficient, safe

and nutritious food to meet their dietary needs and food preferences for an active and healthy life.”

The concept of food and nutrition security/insecurity has been conceptualized in diverse and overarching

manner. However, the following three aspects (the 3 A’s) underlie most conceptualizations of food security.

1. Availability – it refers to the physical availability of foodstocks in desired quantities. This depends

on the domestic production, changes in stocks, and imports along with the distribution of food

across territories.

2. Access – this is determined by the bundle of entitlements. This aspect of the definition captures

Amartya Sen’s thinking on the issue. This refers people’s initial endowments, i.e. what they can

acquire (especially in terms of physical and economic access to food) and the opportunities open

to them to achieve entitlement sets. This can be achieved either through their own endeavors or

through intervention of the State or both.

3. Absorption – it is defined as the ability to biologically utilise the food consumed. This is related to

several factors such as nutritional knowledge, safe drinking water, and availability of stable and

sanitary physical and environmental conditions. All this allows effective biological absorption of

food in a human body.

Similar definition has been given by the World Bank also which identifies food availability, food access and

food use as the three pillars of food security.

The World Food Summit goal is to reduce the number of undernourished people by half, between 1990–92

and 2015. Similar target has been set by the Millennium Development Goal 1 (target 1C) to halve the

proportion of people who are suffering from hunger by 2015 as compared to 1990.

The Global Hunger Index (GHI) brought out by IFPRI in 2010 has shown improvement over the 1990 GHI

as it fell by almost one-quarter. But still, the index for hunger in the world remains at a level characterized

as “serious”. India ranks 67 out of 122 countries in GHI in the world. Earlier, it had a rank of 66 in the list of

88 countries (GHI, 2008). The total number of undernourished people in the world was estimated to have

surpassed 1 billion (1023 million in 2009) and expected to decline by to 925 million in 2010. Developing

countries account for 98 percent of the world’s undernourished people. Out of these, two-thirds live in just

seven countries (Bangladesh, China, the Democratic Republic of the Congo, Ethiopia, India, Indonesia and

Pakistan) and over 40 percent live in China and India alone. This is an alarming situation. Hunger deaths

amidst piles of rotting food grains in FCI’s storage are a matter of concern. However, to attain the goal of

food security multi-pronged strategies needs to be adopted. Food security is, thus, not only about having a

bumper crop production but also to make it available and affordable to the masses for fulfilling their

nutritional requirement and living a dignified and healthy life.

Keeping this in mind, the Finance Minister in budget speech 2009-10 has initiated the work on National

Food Security Act which seeks to ensure that every family living below the poverty line in rural or urban

areas will be entitled by law to 25 kilos of rice or wheat per month at Rs.3 a kilo. Carrying forward the

agenda the FM in his Budget speech 2011-12, informed that the government, after detailed consultations

with all stakeholders including State Governments, is close to finalisation of National Food Security Bill

(NFSB). However, the recommendations from National Advisory Council (NAC) and Prime Minister’s

Economic Advisory Council (PMEAC) differed on the coverage of beneficiaries. The NAC wants legal

entitlement extended to 90% (46% would come in Priority Category) of rural households and 50% (28%

would come in Priority Category) of urban households (available

at: http://nac.nic.in/foodsecurity/explanatory_note.pdf). On the other hand, the Rangarajan Committee had

raised concerns over the availability of grain for such a large cover. The Empowered Group of Ministers

(EGoM) on Food has approved the Food Security Bill. The bill is expected to be introduced in the

Parliament in 2011.

In addition to it the National Development Council (NDC) in its meeting on May, 2007 adopted a resolution

to launch Food Security Mission comprising rice, wheat and pulses to increase the production of rice by 10

million tons, wheat by 8 million tons and pulses by 2 million tons by the end of the Eleventh Plan (2011-12).

Accordingly, a Centrally Sponsored Scheme, 'National Food Security Mission', has been launched from

2007-08 to operationalize the above mentioned resolution.

Foreign Institutional Investor (FII)Foreign Institutional Investor (FII) means an institution established or incorporated outside India which

proposes to make investment in securities in India. They are registered as FIIs in accordance withSection 2

(f) of the SEBI (FII) Regulations 1995. FIIs are allowed to subscribe to new securities or trade in already

issued securities. This is just one form of foreign investments in India, as may be seen from the graph

below:

FII Vs FDI: International standards and Indian definition

According to IMF and OECD definitions, the acquisition of at least ten percent of the ordinary shares or

voting power in a public or private enterprise by non-resident investors makes it eligible to be categorized

as foreign direct investment (FDI). (see OECD benchmark definition) In India, a particular FII is allowed to

invest upto 10% of the paid up capital of a company, which implies that any investment above 10% will be

construed as FDI, though officially such a definition does not exist. However, it may be noted that there is

no minimum amount of capital to be brought in by the foreign direct investor to get the same categorised as

FDI.

In India, FDI and FII are defined in Schedule 1 and 2 respectively of the Foreign Exchange Management

(Transfer or Issue of Security by a Person Resident Outside India) Regulations 2000. (Original notification

is available at http://rbi.org.in/Scripts/BS_FemaNotifications.aspx?Id=174 Subsequent amendment

notifications are available at http://rbi.org.in/Scripts/BS_FemaNotifications.aspx)

Myths about FIIs

There are certain myths / beliefs about FIIs which are not necessarily true.

Myth -1:- FIIs do not invest in unlisted entities. They participate only through stock exchanges

Myth -2:- FIIs cannot invest at the time of initial allotment. Foreign investors investing in initial allotment of

shares (say IPOs or when a group of entities come together to float a company) are categorized as FDIs

Truth on 1 and 2:- As per Section 15 (1) (a) of the SEBI FII Regulations, 1995, a Foreign Institutional

Investor (FII) may invest in the securities in the primary and secondary markets including shares,

debentures and warrants of companies unlisted, listed or to be listed on a recognized stock exchange in

India. In fact FIIs are very active in the over the counter (OTC) markets and in the IPOmarket in India.

Myth 3:- FDI has more direct involvement in technology, management etc while FIIs are interested in

capital gain and momentary price differences. Generally direct investment involves a lasting interest in the

management of an enterprise and includes reinvestment of profits. In contrast, FIIs do not generally

influence the management of the enterprise.

Truth on 3:- To some extant this notion is true and is emphasized in policy documents. For instance,

consolidated FDI Policy of Department of Industrial Policy and Promotion (DIPP) states that “foreign Direct

Investment, as distinguished from portfolio investment (FII), has the connotation of establishing a ‘lasting

interest’ in an enterprise that is resident in an economy other than that of the investor”.

However, of late, there have been occasions where FIIs come together to influence decisions in companies

where they hold shares. The difference between FDI and FII, except for the fact that the latter necessarily

has to be an institution (FDI can come from an individual also), rather lies in the registration or approval

process and to some extent in the individual investment limits or lock-in conditions specified for each

category.

Globally also, the acquisition of at least ten percent of the ordinary shares or voting power in a public or

private enterprise by non-resident investors makes it eligible to be categorized as FDI, rather than the

purpose of the investments, as intimated or stated by the investing foreigner due to difficulty in assessing it

and also for statistical consistency.

Regulation of FIIs

The regulations for foreign investment in India have been framed by the Reserve Bank of India in terms of

Sections 6 and 47 of the Foreign Exchange Management Act, 1999 and notified vide Notification No. FEMA

20/ 2000-RB dated 3rd May 2000 viz. Foreign Exchange Management (Transfer or issue of Security by a

person Resident outside India) Regulations 2000, as amended from time to time. In line with the said

regulations, since 2003, the Securities and Exchange Board of India (SEBI) has been registering FIIs and

monitoring investments made by them through the portfolio investment route under the SEBI (FII)

regulations 1995. SEBI acts as the nodal point in the registration of FIIs.

Who can get registered as FII?

Following foreign entities / funds are eligible to get registered as FII:

1. Pension Funds

2. Mutual Funds

3. Investment Trusts

4. Banks

5. Insurance Companies / Reinsurance Company

6. Foreign Central Banks

7. Foreign Governmental Agencies

8. Sovereign Wealth Funds

9. International/ Multilateral organization/ agency

10. University Funds (Serving public interests)

11. Endowments (Serving public interests)

12. Foundations (Serving public interests)

13. Charitable Trusts / Charitable Societies (Serving public interests)

Thus it may be seen that sovereign wealth funds (SWFs) are also regulated under FII regulations only,

and no separate regulation exists for SWFs. Further, following entities proposing to invest on behalf

of broad based funds, are also eligible to be registered as FIIs:

1. Asset Management Companies

2. Investment Manager/Advisor

3. Institutional Portfolio Managers

4. Trustee of a Trust

5. Bank

Foreign individuals can register as sub-accounts of FII to make investments in Indian securities.

What FIIs can do?

A Foreign Institutional Investor may invest only in the following:-

i. securities in the primary and secondary markets including shares, debentures and warrants of

companies unlisted, listed or to be listed on a recognised stock exchange in India; and

ii. units of schemes floated by domestic mutual funds including Unit Trust of India, whether listed on

a recognised stock exchange or not

iii. units of scheme floated by a collective investment scheme

iv. dated Government Securities

v. derivatives traded on a recognised stock exchange

vi. commercial paper

vii. Security receipts

viii. Indian Depository Receipt

FIIs are allowed to trade in all exchange traded derivative contracts subject to the position limits as

prescribed by SEBI from time to time. Clearing Corporation monitors the open positions of the FII/ sub-

accounts of the FII for each underlying security and index, against the position limits, at the end of each

trading day.

How do they invest?

A SEBI registered FII (as per Schedules 2 of Foreign Exchange Management (Transfer or Issue of Security

by a Person Resident Outside India) Regulations 2000) can invest/trade through a registered broker in the

capital of Indian Companies on recognised Indian Stock Exchanges. FIIs can purchase shares / convertible

debentures either through private placement or through offer for sale.

An FII can also invest in India on behalf of a sub-account (means any person outside India on whose

behalf investments are proposed to be made in India by a FII) which is registered as a sub-account under

Section 2 (k) of the SEBI (FII) Regulations, 1995.

Also, an FII can issue off-shore derivative instruments (ODIs) to persons who are regulated by an

appropriate foreign regulatory authority and after compliance with Know Your Client (KYC) norms.

Every FII/sub-account is required to appoint a domestic Indian custodian to hold in custody its Indian

securities. Custodian of Securities is a registered and regulated entity by SEBI. The FII/sub-account is also

required to ensure that the domestic custodian it has appointed monitors the investments made by it in

India, reports its transactions in securities to SEBI on a daily basis and preserve records of transactions for

a specified period. The FII/sub-account is also required to suitably enable the custodian to furnish reports

pertaining to its activities, to SEBI, as and when required by SEBI.

Authorized dealer banks (i.e. the bank which is authorized by RBI to deal in foreign currency) can offer

forward cover (i.e, to minimize the impact of currency fluctuations, banks offer them the option to sell /

purchase foreign currency on a fixed future date at a rate specified today) to FIIs to the extent of total

inward remittances of liquidated investments.

FII investment limits

Investment by individual FIIs/ sub-accounts (excluding foreign corporates and individuals) cannot exceed

10 per cent of paid up capital of a company. Investment by foreign corporates or individuals registered as

sub accounts of FII cannot exceed 5 per cent of paid up capital. All FIIs and their sub-accounts taken

together cannot acquire more than 24 per cent of the paid up capital of an Indian Company. An Indian

Company can raise the 24 per cent ceiling to the Sectoral Cap / Statutory Ceiling, as applicable, by passing

a resolution by its Board of Directors followed by passing a Special Resolution to that effect by their

General Body

Forward Markets Commission (FMC)The Forward Markets Commission (FMC) is a statutory body set up under the Forward Contracts

(Regulation) Act, 1952. It functions under the administrative control of the Department of Consumer

Affairs, Ministry of Consumer Affairs, Food & Public Distribution, Govt. of India. It has its headquarters

at Mumbai and one regional office at Kolkata. The Commission comprises of a Chairman, and two

Members. It is organized into five administrative divisions to carry out various tasks.

Forward Markets Commission provides regulatory oversight in order to ensure financial integrity (i.e.

to prevent systematic risk of default by one major operator or group of operators), market integrity (i.e.

to ensure that futures prices are truly aligned with the prospective demand and supply conditions) and

to protect & promote interest of consumers /non-members. The Forward Markets Commission

performs the role of a market regulator. After assessing the market situation and taking into account

the recommendations made by the Board of Directors of the Commodity Exchange, the Commission

approves the rules and regulations of the Exchange in accordance with which trading is to be

conducted. It accords permission for commencement of trading in different contracts, monitors market

conditions continuously and takes remedial measures wherever necessary by imposing various

regulatory measures.

At present, there are 21 exchanges including three 'national level' exchanges which have been

recognized for conducting futures/forward trading in India. The three national exchanges are (i) Multi-

commodity Exchange of India Limited (MCX) Mumbai, (ii) National Commodity and Derivatives

Exchange Limited(NCDEX), Mumbai and (iii) National Multi-commodity Exchange of India

Limited(NMCE) Ahmedabad. These on-line national commodity exchanges have been organized for

conducting forward/futures trading activities in all commodities, to which section 15 of the Forward

Contracts (Regulation) Act, 1952 is applicable, and other commodities subject to the approval of the

Forward Markets Commission.

Functions of the Forward Markets Commission as defined in the FCRA, 1952 are as follows:

(a) To advise the Central Government in respect of the recognition or the withdrawal of

recognition from any association or in respect of any other matter arising out of the

administration of the Forward Contracts (Regulation) Act 1952.

(b) To keep forward markets under observation and to take such action in relation to them, as

it may consider necessary, in exercise of the powers assigned to it by or under the Act.

(c) To collect and whenever the Commission thinks it necessary, to publish information

regarding the trading conditions in respect of goods to which any of the provisions of the act is

made applicable, including information regarding supply, demand and prices, and to submit to

the Central Government, periodical reports on the working of forward markets relating to such

goods;

(d) To make recommendations generally with a view to improving the organization and

working of forward markets;

(e) To undertake the inspection of the accounts and other documents of any recognized

association or registered association or any member of such association whenever it

considerers it necessary.

(f) To perform such other duties and exercise such other powers as may be assigned to the

Commission by or under this Act, or as may be prescribed.

Powers of the Commission as indicated in Section 4 A of the

F.C.(R) Act, 1952:-

The Commission shall, in the performance of its functions, have all the powers of a civil

court under the Code of Civil Procedure, 1908 (5 of 1908), while trying a suit in respect of

the following matters, namely:

(a) Summoning and enforcing the attendance of any person and examining him on oath;

(b) requiring the discovery and production of any document;

(c) receiving evidence on affidavits;

(d) requisitioning any public record or copy thereof from any office;

(e) any other matters which may be prescribed.

The powers of approving memorandum and articles of association and Bye-laws; powers

to direct to make or to make articles (Rules) or Byelaws; powers to suspend governing

body of recognized association, and, powers to suspend business of recognized

association.

Functions of Planning CommissionThe functions of Planning Commission includes formulation of five-year plans, finalisation of plan

discussions of the Central Ministries and States/UTs annually and conveying the plan requirement to

the Ministry of Finance, clearance/grant of In-Principle approval for starting Central Sector/Centrally

Sponsored Schemes, appraisal of the Central Sector/Centrally Sponsored Scheme before the

scheme is cleared by the Expenditure Finance Committee under the Ministry of Finance.

Functions of Project Appraisal and Management Division in Planning Commission.

The Project Appraisal and Management Division (PAMD) in Planning Commission is the division that

examines and appraises all new Central Sector/Centrally Sponsored Schemes/projects before they

are cleared by the FPC or Ministry of Finance or the subject Ministry which is dependent on the

financial upper limit of the proposal. When an existing scheme is proposed to be revised even then

the comments of PAMD is ascertained. PAMD prepares the Appraisal Report after seeking the

comments of the Subject Division on the proposal.

Infrastructure Division in Planning Commission

The Government of India in 2004 approved a new funding pattern in plan implementation viz; Public

Private Partnership. The Public Private Partnership in Infrastructure Projects was managed by the

PM’s Secretariat on Infrastructure set up in 2004 in Planning Commission. In July 2009 the Cabinet

Committee on Infrastructure (CCI) under the chairmanship of Prime Minister was set up to fast track

implementation of infrastructure projects. This Committee clears infrastructure projects costing more

than Rs.150 crores. The Infrastructure Division examines and appraises Infrastructure Projects

proposed to be implemented through Public Private Partnership. The Infrastructure Division has

framed the guidelines for examining these projects.

Gross Budgetary Support (GBS)The Gross Budgetary Support (GBS) is an important component of the Central Plan of the Government of

India.

The Government's support to the Central plan is called the Gross Budgetary Support. The GBS includes

the tax receipts and other sources of revenue raised by the Government. In the recent years the GBS has

been slightly more than 50% of the total Central Plan. The Planning Commission aggregates and puts

forward the demand by various administrative Ministries in a consolidated form to the Finance Ministry for

the budgetary support required from the Government. This demand is vetted and then approved by the

Finance Ministry. The share of the GBS in Central Plan has been rising since 2008-09.

Guarantee Redemption Fund“Guarantees” are contingent liabilities that may have to be invoked if an event covered by the

guarantee occurs. Since guarantees result in increase in contingent liability, they should be examined

with as much due diligence as a proposal for a loan, taking into account, the credit-worthiness of the

borrower, the amount and risks sought to be covered by a sovereign guarantee, the terms of the

borrowing, the justification and public purpose to be served, probabilities that various commitments

will become due and possible costs of such liabilities, etc.

Article 292 of the Constitution of India extends the executive power of the Union to the giving of

guarantees on the security of the Consolidated Fund of India, within such limits as may be fixed by

Parliament. Article 293 provides that the legislature of a State can fix limits on borrowing by a State as

well as limits on guarantees to be given by it. Articles 292 and 293 refer, respectively, to borrowings

by the Government of India and borrowings by the States. In article 292, a limit on the borrowing as

well as on guarantees to be given by the Union government can be fixed by Parliament by law.

Similarly article 293 provides that the legislature of a State can fix limits on borrowing by a State as

well as limits on guarantees to be given by it. Article 299 of the Constitution provides that all contracts

made in the exercise of the executive power of the Union shall be made expressly indicating that the

contract has been made on behalf of the President.

The Ninth Finance Commission observed that in order that the capital stock of the country might be

maintained intact, there should be adequate provision for depreciation and loan should be repaid out

of the amortization/sinking fund. The Tenth Finance Commission recommended the establishment of

sinking funds for overall fiscal discipline. Eleventh Finance Commission also emphasized the need for

setting up of Sinking Fund in each State for the amortization of debt.

On the recommendations of Twelfth Finance Commission that all States should set up sinking funds /

guaranteed redemption fund for amortization of all loan including loans from banks, liabilities on

account of NSSF, etc through earmarked guarantee fees, fifteen States have set up Guarantee

Redemption Fund and twenty States Consolidated Sinking Fund. This fund is maintained outside the

consolidated fund of the States and the public account and is not to be used for any other purpose,

except for redemption of loans. This ensures good fiscal governance.

Green BuildingWith the growing population, India has to not only provide adequate housing, commercial buildings,

infrastructure, institutions etc. to cater to the basic shelter needs and the growing aspirational needs of

people but also to ensure that the process is environmentally sustainable. In recent times, there has been a

greater consciousness about environmental degradation and alternatives to cement are being actively

considered. Materials which use less water and other natural resources and require less energy to be

maintained are increasingly being preferred by Government town planners in India. The Ministry of New

and Renewable Energy has developed an organization called Green Rating for Integrated Habitat

Assessment (GRIHA) along with TERI to ensure that more and more Green Buildings are created. Clear

parameters have been defined to indicate what constitutes a green building.

GuillotineEach year, after the Budget is presented in the floor of the Lok Sabha by the Finance Minister, the House

has the opportunity to discuss the financial proposals contained in it. The process of deliberations on the

Budget sets off with a general discussion followed by the Vote on Account, debating and voting on the

Demands for Grants and finally, consideration and passing of the Appropriation and Finance Bills.

Guillotine refers to the exercise vide which the Speaker of the House, on the very last day of the period

allotted for discussions on the Demands for Grants, puts to vote all outstanding Demands for Grants at a

time specified in advance. The aim of the exercise is to conclude discussions on financial proposals within

the time specified.

All outstanding Demands for Grants must be voted by the House without discussions once the guillotine is

invoked.

Once the pre-specified time for invoking the guillotine is reached, the member who is in possession of the

house at that point in time, is requested by the Speaker to resume his or her seat following which Demands

for Grants under discussion are immediately put to vote. Thereafter, all outstanding Demands

are guillotined.

Invoking the guillotine ensures timely passage of the Finance Bill and the conclusion of debates and

discussions on the year’s Budget.

Headline inflationIn general, reflects the rate of change in prices of all goods and services in an economy over a period of

time. Every country has its own set of commodity basket to track inflation. While some countries use

Wholesale Price Index (WPI) as their official measure of inflation and some others use the Consumer Price

Index (CPI). The International Monetary Fund (IMF) statistics reveals that, while 24 countries use WPI as

the official measure to track inflation, 157 countries use CPI. Conceptually these two measures of inflation

stress different stages of price realization as well as composition: while WPI measures the change in price

level at wholesale market, CPI measures the change in price level at retail level.

In India, headline inflation is measured through the WPI – which consists of 676 commodities (services are

not included in WPI in India). It is measured on year-on-year basis i.e., rate of change in price level in a

given month vis a vis corresponding month of last year. This is also known as point to point inflation.

In India, there are three main components in WPI – Primary Articles (weight: 20.12%), Fuel & Power

(weight: 14.91%) and Manufactured Products (weight: 64.97). Within WPI, Food commodities (from which

Food Inflation) have a combined weight of 24.31%. This includes “Food Articles” in the Primary Articles

(14.34%) and “Food Products” in the Manufactured Products category (9.97%). Food Inflation is also

calculated on year-on-year basis.

Apart from WPI, CPI is also computed to capture inflation in India. In particular, four categories of CPI are

computed – for Industrial Workers (CPI-IW), Urban Non-Manual Employees (CPI-UNME), Agricultural

Labourers (CPI-AL) and Rural Labourers (CPI-RL). However, WPI is considered as the preferred measure

of headline inflation due to its wider coverage. To overcome this lacuna, the Central Statistical Organization

(on 18th February 2011) has introduced a new series of CPI (with 2010=100 as the base year), which

would be calculated for all-India as well as States/UTs – with separate categorization for rural, urban and

combined (rural + urban).

Hindu rate of growthThe term ‘secular’ rate of growth (which connotes long term trend growth) is well established in

literature of development economics. (It is also used in the sense of a religious belief, practice and

process of the State). In distinctive contrast, ‘Hindu’ rate of growth was coined to refer to the

phenomenon of sluggishness in growth rate of Indian economy (3.5 per cent observed persistently

during 1950s through 1980s).

The term, which owes to Professor Raj Krishna, Member, Planning Commission, captured popular

imagination and was used synonymously to describe inadequacy of India’s growth performance.

However, of late, the term has lost its relevance and appeal as economic reforms and liberalization in

India since 1990s manifested in tripling of growth rate of Indian economy from this paltry level.

Import Tariffs, Open General License, Restricted List and Negative ListImport Tariff: A tariff is any tax or fee collected by a government. An import tariff is a tax imposed on

goods to be imported. Though tariff is used in a non-trade context, it is commonly applied to a tax on

imported goods.

There are two broad ways in which tariffs are normally levied namely, specific tariffs and ad valorem tariffs.

A specific tariff is levied as a fixed charge per unit of imports. Whereas an ad valorem tariff is levied as a

fixed percentage of the value of the imported items/commodity.

Open General License (OGL): As per ITC (HS) classification, there is no terminology called Open General

License (OGL). However, in India, during the EXIM policies of 70s and 80s the freely imported/exported

items were still used to be monitored based on the licence issued under OGL. Today OGL is no more

required. All these items and the sensitive import items are monitored byDirectorate General of

Commercial Intelligence and Statistics (DGCI&S), Kolkata, without the need of a separate licence. As

on date, importability or the exportability of items in India is classified into three categories namely, (a)

Prohibited items, (b) Restricted items including items reserved for STEs or requiring permission etc., and

(c) Freely importable.

Restricted List and Negative List: In the context of export and import, negative list normally implies the

list of items which are not permitted to be freely imported or exported. However, in the context of Free

Trade Agreement (FTA), the "negative list" would mean that barring the services and goods listed,

everything else could be taxed, making the exempted goods and services cheaper. In other words, item on

which no concessions (no reduction in import tariffs) would be allowed. Therefore, an articulated negative

list will clearly bring out the intentions of the policy makers as to what precisely is outside the tax

concession net.

Inclusive GrowthThe agenda for inclusive growth was envisaged in the Eleventh Plan document which intended to achieve

not only faster growth but a growth process which ensures broad-based improvement in the quality of life of

the people, especially the poor, SCs/STs, other backward castes (OBCs), minorities and women and which

seeks to provide equality of opportunity to all. Bringing these excluded sections of the society into the

mainstream of the society so that they are able to reap the benefits of faster economic growth is the kind of

‘inclusion’ which is being envisioned in the concept of inclusive growth.

Inclusive growth means economic growth that creates employment opportunities and helps in reducing

poverty. It means having access to essential services in health and education by the poor. It includes

providing equality of opportunity, empowering people through education and skill development. It also

encompasses a growth process that is environment friendly growth, aims for good governance and a helps

in creation of a gender sensitive society. Special efforts to increase employment opportunities are essential

as it is a necessary condition for bringing about an improvement in the standard of living of the people.

Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), one of the largest social safety

network in India, has improved the standard of living of people and has been able to check migration to a

great extent. Apart from this, the Government has launched various flagship programmes like Sarva Siksha

Abhiyan (SSA), National Rural Health Mission (NRHM), Bharat Nirman etc. to bring about improvement in

the area of education, health and infrastructure thereby making growth more inclusive.

The growth story of Indian economy has been remarkable in the recent years. During 2005-06 to 2007-08 it

has achieved an average growth rate of 9.47%, though declined somewhat afterwards in the wake of global

financial crisis. Even then it was able to maintain a decent average growth rate of 7.76% for the period

2008-09 to 2010-11. Further, it is expected that the growth is likely to average 8.2% for the Eleventh Five

Year Period (2007-12) which is less than the targeted 9% but above 7.7% achieved during the Tenth Five

Year plan. India has comfortable level of investment and savings rate to steer such a growth rate.

But in terms of Human Development Index, India is lagging behind China, Sri Lanka and many other

African and Latin American countries. India has a rank of 119 in the HDI ranking done by the UNDP

(Human Development Report 2010). Similarly in terms of other indicators like poverty, unemployment and

regional disparities India has lot more to do. The HDR 2010, has also come up with a new parameter to

measure poverty called Multidimensional Poverty Index (MPI) replacing Human Poverty Index (HPI). India’s

performance is dismal in this regard poorer than China, Sri Lanka, Kenya and Indonesia as about 41.6 per

cent of India’s population (in terms of $ 1.25 a day) lives below the poverty line. Thus, there is a need to

broadbase the economic growth, increase participation of people and share the benefits of the growth

process in order to make it more inclusive. Reducing rural-urban gap, gender discrimination and achieving

higher level of human development will also bring about inclusiveness. Inclusive growth can hardly ignore

the environmental concerns. India’s effort in this regard is commendable as India is one of the lowest

Greenhouse Gas (GHG) emitters in the world and still India has announced that, by proactive policies, it

will reduce the emissions intensity of its GDP by 20-25 percent over the 2005 levels by the year 2020.

India’s Twelfth Five Year Plan (to be launched on 1st April, 2012) will also focus on achieving a low carbon

inclusive growth as one of its targets.

Index of Industrial ProductionIndex of Industrial Production (IIP) measures the quantum of changes in the industrial production in an

economy and captures the general level of industrial activity in the country. It is a composite indicator

expressed in terms of an index number which measures the short term changes in the volume of

production of a basket of industrial products during a given period with respect to the base period. IIP is a

short term indicator of industrial growth till the results from Annual Survey of Industries and National

Accounts Statistics are available.

The base year is always given a value of 100. The current base year for the IIP series in India is 2004-05.

So, if the current IIP reads as 116 it means that there has been 16% growth compared to the base year.

Index of Industrial Production is compiled and published every month by Central Statistics Office (CSO) of

the Ministry of Statistics and Programme Implementation with a time lag of six weeks from the reference

month. i.e., at the time of release of IIP data, quick estimates for the relevant month along with revised and

final indices of previous two months respectively, (on the basis of updated production data) are released.

For eg the quick estimate of IIP of August 2012 along with revised indices of July 2012 and final indices of

May 2012 has been released on 12th October 2012.

The data for compilation of IIP is received from 16 different source agencies viz. Department of Industrial

Policy & Promotion (DIPP); Indian Bureau of Mines; Central Electricity Authority; Joint Plant Committee;

Ministry of Petroleum & Natural Gas; Office of Textile Commissioner; Department of Chemicals &

Petrochemicals; Directorate of Sugar; Department of Fertilizers; Directorate of Vanaspati, Vegetable Oils &

Fats; Tea Board; Office of Jute Commissioner; Office of Coal Controller; Railway Board; Office of Salt

Commissioner and Coffee Board.

IIP covers 682 items comprising Mining (61 items), Manufacturing (620 items) & Electricity (1 item). The

weights of the three sectors are 14.16%, 75.53% and 10.32% respectively and are on the basis of their

share of GDP at factor cost during 2004-05. The general scope of IIP, as recommended by United Nations

Statistics Division includes Mining & Quarrying, Manufacturing, Electricity, Gas steam, Air conditioning

supply, Water supply, Sewerage, Waste management and Remediation activities. But in India, due to

constraints of data availability and other resources, the index is compiled using figures of mining,

manufacturing and electricity sectors only.

The all India IIP was first complied by Office of Economic Adviser, Ministry of Commerce & Industry with

the base year 1937. With the establishment of CSO in 1951, the compilation of index was shifted to this

office. The base year of the index has been subsequently revised to 1946, 1951, 1956, 1960, 1970, 1980-

81 and 1993-94. The new index with base year 2004-05 was released on 10th June 2011(Index figures of

April 2011).

Internal and Extra Budgetary Resources (IEBR)IEBR is an important part of the Central plan of the Government of India and constitutes the resources

raised by the PSUs through profits, loans and equity.

The global economic slowdown has affected the profits of the PSUs and has hampered their resource

generation capacities. In 2009-10 the Total Central Plan Outlay was Rs.406, 912 crores. It consisted of the

Gross Budget Support (GBS) for the Central Plan to the tune of 218,901 crores (53.8%) and IEBR of

Central Public Sector Units (CPSUs) to the tune of 188,011 crores (46.2%). The share of government

support for the Central Plan Outlay for 2011-12 continues to be high at 56.6% while the increase in IEBR

has been marginal due to the global economic slowdown

Kisan Credit CardKisan Credit Card is a pioneering credit delivery innovation for providing adequate and timely credit to

farmers under single window. It is a flexible and simplified procedure, adopting whole farm approach,

including short-term, medium-term and long-term credit needs of borrowers for agriculture and allied

activities and a reasonable component for consumption needs.

Credit card and pass book or credit card cum pass book provided to eligible farmers facilitate revolving

cash credit facility. Any number of drawals and repayments within a limit, which is fixed on the basis of

operational land holding, cropping pattern and scale of finance can be made. Each drawal has to be repaid

within a maximum period of 12 months and the Card is valid for 3 to 5 years subject to annual review.

Conversion/reschedulement of loans is permissible in case of damage to crops due to natural calamities.

Crop loans disbursed under KCC Scheme for notified crops are covered under Rashtriya Krishi Bima

Yojana (National Crop Insurance Scheme), to protect farmers against loss of crop yield caused by natural

calamities, pest attacks etc.

KudumbashreeKudumbashree ( which means prosperity of the family) is one of the largest women-empowering projects in

the country and is a model for implementing various poverty implementing programmes at the local self

government level in Kerala. The programme has 37 lakh members and covers more than 50% of the

households in Kerala. The three pillars of this programme are micro

credit,entrepreneurship and empowerment of women. Kudumbashree perceives poverty not just as the

deprivation of money, but also as the deprivation of basic rights.

Kudumbashree was conceived as a joint programme of the Government of Kerala and NABARD and is

implemented through Community Development Societies (CDSs) of poor women, serving as the

community wing of Local Governments.

Kudumbashree is formally registered as the "State Poverty Eradication Mission" (SPEM), a society

registered under the Travancore Kochi Literary, Scientific and Charitable Societies Act 1955. It has a

governing body chaired by the State Minister of LSG. There is a state mission with a field officer in each

district. This official structure supports and facilitates the activities of the community network across the

state.

A major problem in Kerala is the problem of Waste Management and Kudumbashree is actively involved in

solid waste management in cities in Kerala. Kudumbashree is also involved in a variety of initiatives such

as holistic health, rehabilitation of destitute families, special schools etc

Liquidity Adjustment Facility (LAF)Liquidity adjustment facility (LAF) is a monetary policy tool which allows banks to borrow money through

repurchase agreements. LAF is used to aid banks in adjusting the day to day mismatches in liquidity.LAF

consists of repo and reverse repo operations. Repo or repurchase option is a collaterised lending i.e. banks

borrow money from Reserve bank of India to meet short term needs by selling securities to RBI with an

agreement to repurchase the same at predetermined rate and date. The rate charged by RBI for this

transaction is called the repo rate. Repo operations therefore inject liquidity into the system. Reverse repo

operation is when RBI borrows money from banks by lending securities. The interest rate paid by RBI is in

this case is called the reverse repo rate. Reverse repo operation therefore absorbs the liquidity in the

system. The collateral used for repo and reverse repo operations comprise of Government of India

securities. Oil bonds have been also suggested to be included as collateral for Liquidity adjustment facility

Liquidity adjustment facility has emerged as the principal operating instrument for modulating short term

liquidity in the economy. Repo rate has become the key policy rate which signals the monetary policy

stance of the economy.

The origin of repo rates, one of the component of liquidity adjustment facility, can be traced to as early as

1917 in U.S financial market when war time taxes made other sources of lending unattractive . The

introduction of Liquidity adjustment facility in India was on the basis of the recommendations of Narsimham

committee on banking sector reforms. In April 1999, an interim LAF was introduced to provide a ceiling and

the fixed rate repos were continued to provide a floor for money market rates. As per the policy measures

announced in 2000, the Liquidity Adjustment Facility was introduced with the first stage starting from June

2000 onwards. Subsequent revisions were made in 2001 and 2004. When the scheme was introduced,

repo auctions were described for operations which absorbed liquidity from the system and reverse repo

actions for operations which injected liquidity into the system. However in international nomenclature, repo

and reverse repo implied the reverse. Hence in October 2004 when revised scheme of LAF was

announced, the decision to follow the international usage of terms was adopted.

Repo and reverse repo rates were announced separately till the monetary policy statement in 3.5.2011. In

this monetary policy statement, it has been decided that the reverse repo rate would not be announced

separately but will be linked to repo rate. The reverse repo rate will be 100 basis points below repo rate.

The liquidity adjustment facility corridor, that is the excess of repo rate over reverse repo, has varied

between 100 to 300 basis points. The period between April 2001 to March 2004 and June 2008 to early

November 2008 saw a broader corridor ranging from 150-250 and 200-300 basis points respectively.

During March 2004 to June 2008 the corridor was narrow with the rates ranging from 100-175 basis points.

A narrow LAF corridor is reflected from November 2008 onwards. At present the width of the corridor is 100

basis points. This corridor is used to contain any volatility in short term interest rates.

Labour BudgetLabour Budget (LB) under Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA)

2005 refers to advanced labour estimate for execution of a shelf of works for the next financial year. The

advance assessment of labour demand in a district takes into account seasonality aspects along with the

examination of employment and livelihood opportunities in the respective rural areas. On the basis of LB

estimates, the Central Government projects its central liability towards the districts.

Marginal Standing FacilityMarginal Standing Facility (MSF) is a new scheme announced by the Reserve Bank of India (RBI) in its

Monetary Policy (2011-12). It came into effect from 9th May 2011. MSF scheme is provided by RBI where

the banks can borrow overnight upto 1 per cent of their net demand and time liabilities (NDTL) i.e. 1 per

cent of the aggregate deposits and other liabilities of the banks. The rate of interest for the amount

accessed through this facility is fixed at 100 basis points (i.e. 1 per cent) above the repo rate for all

scheduled commercial banks.

The MSF would be the last resort for banks once they exhaust all borrowing options including the liquidity

adjustment facility by pledging through government securities, which has lower rate of interest in

comparison with the MSF. The MSF would be a penal rate for banks and the banks can borrow funds by

pledging government securities within the limits of the statutory liquidity ratio. The scheme has been

introduced by RBI with the main aim of reducing volatility in the overnight lending rates in the inter-bank

market and to enable smooth monetary transmission in the financial system.

Banks can borrow through MSF on all working days except Saturdays, between 3.30 and 4 30 p.m. in

Mumbai where RBI has its headquarters. The minimum amount which can be accessed through MSF is

Rs.1 crore and in multiples of Rs.1 crore. ( Rs 1 crore = Rs 10 million). The application for the facility can

be submitted electronically also by the eligible scheduled commercial banks. The banks used the facility for

the first time in June 2011 and borrowed Rs.1 billion via the MSF.

Currently the MSF rate is 9.25 per cent, which is 1 per cent above the repo rate which is at 8.25 per cent.

MSF represents the upper band of the interest corridor and reverse repo (7.25 per cent) as the lower band

and the repo rate in the middle. To balance the liquidity, RBI would use the sole independent policy rate

which is the repo rate and the MSF rate automatically adjusts to 1 per cent above the repo rate.

The ECB (European Central Bank) also offers standing facilities called marginal lending facilities similar to

the MSF introduced in India. The Federal Reserve has discount window systems similar to Standing

facilities. Like the MSF, the secondary credit facility made available by the Federal Reserve to the

depository institutions in USA is typically overnight credit on a very short term basis at rates above the

primary credit rate.

The effectiveness of standing facilities in reducing volatility have been examined by many scholars and

certain studies have pointed out that in the Federal Reserve System in the United States, the design of the

facility decreases a bank’s incentive to participate actively in interbank market due to the perceived stigma

from using such facility. This in turn reduces the effectiveness of standing facility in reducing interest rate

volatility.

Market Stabilization Scheme (MSS)This scheme came into existence following a MoU between the Reserve Bank of India (RBI) and the

Government of India (GoI) with the primary aim of aiding the sterilization operations of the RBI.

Historically, the RBI had been sterilizing the effects of significant capital inflows on domestic liquidity by

offloading parts of the stock of Government Securities held by it. It is pertinent to recall, in this context, that

the assets side of the RBI’s Balance Sheet (July 1 to June 30) includes Foreign Exchange Reserves and

Government Securities while liabilities are primarily in the form of High Powered Money (consisting of

Currency with the public and Reserves held in the RBI by the Banking System). Thus, any rise in Foreign

Exchange Reserves resulting from the intervention of the RBI in the Foreign Exchange Markets (with the

intention, say, to maintain the exchange rate on the face of huge capital inflows) entails a corresponding

rise in High Powered Money. The Money Supply in the economy is linked to High Powered Money via the

money multiplier. Therefore, on the face of large capital inflows, to keep the liabilities side constant so as to

not raise the Supply of Money, corresponding reduction in the stock of Government Securities by the RBI is

necessary.

The MSS was devised since continuous resort to sterilization by the RBI depleted its limited stock of

Government Securities and impaired the scope for similar interventions in the future. Under this scheme,

the GoI borrows from the RBI (such borrowing being additional to its normal borrowing requirements) and

issues Treasury-Bills/Dated Securities that are utilized for absorbing excess liquidity from the market.

Therefore, the MSS constitutes an arrangement aiding in liquidity absorption, in keeping with the overall

monetary policy stance of the RBI, alongside tools like the Liquidity Adjustment Facility (LAF) and Open

Market Operations (OMO).

The securities issued under MSS, termed as Market Stabilization Scheme (MSS) Securities/Bonds, are

issued by way of auctions conducted by the RBI and are done according to a specified ceiling mutually

agreed upon by the GoI and the RBI. They possess all the attributes of existing Treasury-Bills/Dated

Securities and are included as a part of the country’s ‘internal Central Government debt’.

The amount raised under the MSS does not get credited to the Government Account but is maintained in a

separate cash account with the RBI and are used only for the purpose of redemption/buy back of Treasury-

Bills/Dated Securities issued under the scheme.

However, following the global financial crisis of 2008, that necessitated fiscal stimulus measures, an

amendment to the original MoU between the RBI and the GoI in February 2009 allowed the Government to

convert a portion of the MSS funds into normal government borrowing for financing its stimulus expenditure

requirements.

Treasury-Bills/Securities issued under MSS are matched by equivalent cash balances that are held by the

Government with the RBI. Such payments are not made from the MSS account just as receipts due to

premium or accrued interest on these Securities are not credited to it.

As and when MSS securities are issued by the RBI as well as the annual ceiling, when decided, is notified

through a press release. For the fiscal year 2010-11 the annual ceiling for such securities outstanding

stand at Rs. 50,000 crore, with a review due when the outstanding reaches the threshold of Rs. 35,000

crore.

Minimum Support PricesMinimum Support Price (MSP) is a form of market intervention by the Government of India to insure

agricultural producers against any sharp fall in farm prices. The minimum support prices are

announced by the Government of India at the beginning of the sowing season for certain crops on the

basis of the recommendations of the Commission for Agricultural Costs and Prices (CACP). MSP is

price fixed by Government of India to protect the producer - farmers - against excessive fall in price

during bumper production years. The minimum support prices are a guarantee price for their produce

from the Government. The major objectives are to support the farmers from distress sales and to

procure food grains for public distribution. In case the market price for the commodity falls below the

announced minimum price due to bumper production and glut in the market, govt. agencies purchase

the entire quantity offered by the farmers at the announced minimum price.

Minimum support prices are currently announced for 24 commodities including seven cereals (paddy,

wheat, barley, jowar, bajra, maize and ragi); five pulses (gram, arhar/tur, moong, urad and lentil); eight

oilseeds (groundnut, rapeseed/mustard, toria, soyabean, sunflower seed, sesamum, safflower seed

and nigerseed); copra, raw cotton, raw jute and virginia flu cured (VFC) tobacco.

Such minimum support prices are fixed at incentive level, so as to induce the farmers to make capital

investment for the improvement of their farm and to motivate them to adopt improved crop production

technologies to step up their production and thereby their net income. In the absence of such a

guaranteed price, there is a concern that farmers may shift to other crops causing shortage in these

commodities.

Historical context

The emergence of agricultural Price Policy in India was in the backdrop of food scarcity and price

fluctuations provoked by drought, floods and international prices for exports and imports. This policy in

general was directed towards ensuring reasonable food prices for consumers by providing food grains

through Public Distribution System (PDS) and inducing adoption of the new technology for increasing

yield by providing a price support mechanism through Minimum Support Price (MSP) system.

In recognition of the importance of assuring reasonable produce prices to the farmers, motivating

them to adopt improved technology and to promote investment by them in farm enterprises, the

Agricultural Prices Commission (renamed as the Commission for Agricultural Costs and Prices in

1985) was established in 1965 for advising the Government on agricultural prices policy on a

continuing basis. The thrust of the policy in 1965 was to evolve a balanced and integrated structure to

meet the overall needs of the economy and with due regard to the interests of the producers and the

consumers. The first Commission was headed by Prof M L Dantwala and in its final report the

Commission suggested the Minimum Support Prices for Paddy.

Method of Calculation

In formulating the recommendations in respect of the level of minimum support prices and other non-

price measures, the CACP takes into account a comprehensive view of the entire structure of the

economy of a particular commodity or group of commodities. Other Factors include cost of production,

changes in input prices, input-output price parity, trends in market prices, demand and supply, inter-

crop price parity, effect on industrial cost structure, effect on cost of living, effect on general price

level, international price situation, parity between prices paid and prices received by the farmers and

effect on issue prices and implications for subsidy. The Commission makes use of both micro-level

data and aggregates at the level of district, state and the country.

Supply related information - area, yield and production, imports, exports and domestic availability and

stocks with the Government/public agencies or industry, cost of processing of agricultural products,

cost of marketing - storage, transportation, processing, marketing services, taxes/fees and margins

retained by market functionaries; etc. are also factored in.

Most-favoured-nation (MFN)Under the World Trade Organisation (WTO) agreements, countries cannot normally discriminate

between their trading partners. If any country grants one country a special favour such as a lower

customs duty rate for one of their products the same would need to be extended to all other WTO

members. This principle is known as most-favoured-nation (MFN) treatment.

MFN is so important a principle that it is the first article of the General Agreement on Tariffs and

Trade (GATT), which governs trade in goods. MFN is also a priority in the General Agreement on

Trade in Services (GATS) (Article 2) and the Agreement on Trade-Related Aspects of Intellectual

Property Rights (TRIPS) (Article 4). Together, those three agreements cover all three main areas of

trade handled by the WTO.

Some exceptions, however, are allowed under WTO regime. For example, countries can set up a free

trade agreement that applies only to goods traded within the group — discriminating against goods

from outside. Or they can give developing countries special access to their markets. Or a country can

raise barriers against products that are considered to be traded unfairly from specific countries. And in

services, countries are allowed, in limited circumstances, to discriminate. But the agreements only

permit these exceptions under strict conditions. In general, MFN means that every time a country

lowers a trade barrier or opens up a market, it has to do so for the same goods or services for all its

trading partners whether developed or developing.

National Development Council (NDC)The National Development Council or the Rashtriya Vikas Parishad was set up on 6th August 1952 to

strengthen and mobilise the effort and resources of the nation in support of the plan, to promote common

economic policy in all vital spheres, and to ensure the balanced and rapid development of all parts of the

country. The Council which was re-constituted on October 7, 1967 is the highest decision making authority

in the country in the area of development matters. It is a constitutional body with representation from both

the Centre and States. The Council is headed by the Prime Minister and all Union Cabinet Ministers, State

Chief Ministers, representatives of Union Territories; Members of Planning Commission are its members.

The Secretary/ Member-Secretary of Planning Commission functions as the Secretary of the Council and

all administrative assistance is rendered by Planning Commission.

The functions of NDC are

(i) to prescribe guidelines for formulation of the National Plan, including assessment of

resources for the Plan

(ii) (ii) to consider the National Plan as formulated by the Planning Commission

(iii) to consider important questions of social and economic policy affecting national

development and

(iv) (iv) to review the working of the Plan from time to time and to recommend such

measures as are necessary for achieving the aims and targets set out in the National

Plan.

The prime function of the Council is to act as a bridge between the Union government, Planning

Commission and the State Governments. It is a forum not only for discussion of plans and programmes but

also social and economic matters of national importance are discussed in this forum before policy

formulation. It is a very democratic forum where the States openly express their views. No resolution is

passed by the Council. The practice is to have a complete record of the discussion and gather out of its

general trends pinpointing particular conclusions. Sub-Committees under the Chairmanship of Union

Cabinet Minister/State Chief Minister are also formed under the NDC to deliberate on policy areas requiring

wide-range of consultations.

The NDC ordinarily meets twice a year. So far 55 meetings of the NDC have been held. The last meeting of

the NDC was held in July 2010 where the Mid-Term Appraisal Report of the XI Five Year Plan was

discussed. In the next meeting of the NDC the Approach Paper to the XII Five Year Plan is to be

discussed. On the occasion of the 50th meeting of the NDC Planning Commission released a voluminous

resourceful publication on the Summary Record of the 50 meetings of NDC.

National Food Processing MissionIndia cannot afford any waste of food grains, milk, poultry, fish, fruits and vegetables due to lack of

adequate processing facilities. Ministry of Food Processing Industries has launched a new scheme

called National Mission on Food Processing (NMFP) during 12th Plan (2012-13) for implementation

through States / UTs. The basic objective of NMFP is to promote the growth of food processing

industries in the country, by creating a National Mission at the Centre and State Missions in the

various States/UTS. Better planning, supervision and monitoring of various schemes is expected

through this decentralised approach. Food procesors in the private sector and co-operative sector will

be encouraged and incentivised to increase capital outlay, use new technology , upgrade skills etc.

Self help groups will be encouraged to become viable commercial entities. The other objectives are to

raise the standards of food safety and hygiene to the globally accepted norms; to facilitate food

processing industries to adopt HACCP and ISO certification norms; to augment farm gate

infrastructure, supply chain logistic, storage and processing capacity and to provide better support

system to organized food processing sector. State food processing missions have been created to

implement the schemes.

National Food Security Mission (NFSM)The National Food Security Mission (NFSM) was launched in 2007-08 with a view to enhancing the

production of rice, wheat, and pulses by 10 million tonnes, 8 million tonnes, and 2 million tonnes

respectively by the end of the Eleventh Plan (viz. March 2012). The Mission aims to increase

production through area expansion and productivity; create employment opportunities; and enhance

the farm-level economy (i.e. farm profits) to restore confidence of farmers. The approach is to bridge

the yield gap in respect of these three crops through dissemination of improved technologies and farm

management practices while focusing on districts which have high potential but relatively low level of

productivity at present.

The NFSM has three components (i) National Food Security Mission - Rice (NFSM-Rice); (ii) National

Food Security Mission - Wheat (NFSM-Wheat); and National Food Security Mission - Pulses (NFSM

Pulses).

To achieve the envisaged objectives, the Mission is mandated to adopt following strategies:

Speedy implementation of programmes through active engagement of all the

stakeholders at various levels.

Promotion and extension of improved technologies i.e., seed, Integrated Nutrient

Management including micronutrients (like iron, cobalt, copper etc), soil amendments,

Integrated Pest Management (IPM) and resource conservation technologies along with

capacity building of farmers.

Flow of fund would be closely monitored to ensure that interventions reach the target

beneficiaries on time.

The proposed interventions would be integrated with the targets fixed for each identified

district in the existing District Plan (formulated as a part of national Five Year Plans).

Constant monitoring and concurrent evaluation for assessing the impact of the

interventions for a result oriented approach by the implementing agencies.

The NFSM is presently being implemented in 476 identified districts of 17 States of the country.

20 million hectares of rice, 13 million hectares of wheat and 4.5 million hectares of pulses are

included in these districts that roughly constitute 50% of cropped area for wheat and rice. For

pulses, an additional 20% cropped area would be created. Total financial implications for the

NFSM will be Rs.48824.8 million during the XI Plan (2007-08 – 2011-12). Beneficiary farmers

will contribute 50% of cost of the activities / work to be taken up at their / individual farm

holdings.

National Highways Development ProgrammeNational Highways Development Programme (NHDP) was launched in 1998 with the objective of

developing roads of international standards which facilitate smooth flow of traffic. It envisages creation

of roads with enhanced safety features, better riding surface, grade separator and other salient

features. National Highways constitute only 2% of the total road length in the country but carry 40% of

the total traffic.

NHDP is being implemented by National Highways Authority of India (NHAI), an organisation under

the aegis of Ministry of Road, Transport and Highways. The programme is being implemented in the

following seven phases;

Phase I: Phase I consists of Golden Quadrilateral network comprising a total length of 5,846 km

which connects the four major cities of Delhi, Chennai, Mumbai & Kolkata and 981 km of North-

South and East-West corridor .NS-EW corridor connects Srinagar in the north to Kanyakumari in

the south and Silchar in the east to Porbandar in the west. Phase I also includes improving

connectivity to ports.

Phase II: Phase II covers 6,161 km of the NS-EW corridor (The total NS-EW corridor consists of

7,142 km) and 486 km of other NHs.

Phase III: Four-laning of 12,109 km of high density national highways connecting state capitals

and places of economic, commercial and tourist importance.

Phase IV: Upgradation of 20,000 km of single-lane roads to two-lane standards with paved

shoulders.

Phase V: Six-laning of 6,500 km of four-laned highways.

Phase VI: Construction of 1,000 km of expressways connecting major commercial and industrial

townships.

Phase VII: Construction of ring roads, by-passes, underpasses, flyovers, etc. comprising 700 km

of road network.

National Small Savings FundSmall Saving schemes have been always an important source of household savings in India. Small

savings instruments can be classified under three heads. These are: (i) postal deposits [comprising

savings account, recurring deposits, time deposits of varying maturities and monthly income

scheme(MIS)]; (ii) savings certificates [(National Small Savings Certificate VIII (NSC) and Kisan Vikas

Patra (KVP)]; and (iii) social security schemes [(public provident fund (PPF) and Senior Citizens‘

Savings Scheme(SCSS)].

A “National Small Savings Fund” (NSSF) in the Public Account of India has been established with

effect from 1.4.1999. A new sub sector has been introduced called “National Small Savings Fund” in

the list of Major and Minor Heads of Government Accounts. All small savings collections are credited

to this Fund. Similarly, all withdrawals under small savings schemes by the depositors are made out

of the accumulations in this Fund. The balance in the Fund is invested in Central and State

Government Securities. The investment pattern is as per norms decided from time to time by the

Government of India.

The Fund is administered by the Government of India, Ministry of Finance (Department of Economic

Affairs) under National Small Savings Fund (Custody and Investment) Rules, 2001, framed by the

President under Article 283(1) of the Constitution. The objective of NSSF is to de-link small savings

transactions from the Consolidated Fund of India and ensure their operation in a transparent and self-

sustaining manner. Since NSSF operates in the public account, its transactions do not impact the

fiscal deficit of the Centre directly. As an instrument in the public account, the balances under NSSF

are direct liabilities and constitute a part of the outstanding liabilities of the Centre. The NSSF flows

affect the cash position of the Central Government.

Historical context

Prior to April 1999, deposits and withdrawals by subscribers were made from the public account and

interest payments to subscribers and interest receipts from the States were recorded in the revenue

account of the Consolidated Fund of India. Disbursement of loans against small savings made to the

States and repayment of such loans were recorded in the capital account of the Consolidated Fund of

India. All the payments against the cost of operating the fund were also debited from the Consolidated

Fund.

The Committee on Small Savings (Chairman: Shri. R.V. Gupta), which submitted its report in

February 1999, examined and identified some lacunae in the prevailing accounting procedure of the

small savings like (i) There was no formal transfer of funds collected under small savings in the Public

Account to the Consolidated Fund. (ii) Loans to the States/Union Territories were made out of the

Consolidated Fund without corresponding receipts. (iii) Transactions in small savings could not be

segregated for the purpose of analysing their financial viability.(iv) The on-lending to States from the

small savings collections was treated as part of Central Government‘s expenditure and added to

Central Government‘s fiscal deficit. Therefore, other things remaining the same, an increase in small

savings collections led to an increase in fiscal deficit.

In the light of the above, the Committee recommended creation of a separate Fund called the National

Small Savings Fund (NSSF) within the Public Account. NSSF would formalise the Central

Government’s use of small savings collections accruing in the Public Account to finance its fiscal

deficit. Further, NSSF was expected to lend transparency to the accounting system, enable an easy

examination of the income and expenditure of small savings process, bring into sharp focus the asset-

liability mismatch and pave the way for correction.

Operation of NSSF

All deposits under small savings schemes are credited to NSSF and all withdrawals by the depositors

are made out of accumulations in the Fund. The collections under the small saving schemes net of

the withdrawals are the sources of funds for the NSSF. NSSF invests the net collections of small

savings in the special State Government securities (SSGS) as per the sharing formula decided by the

Government of India. The remaining amount is invested in special Central Government securities

(SCGS) with the same terms as that for the States. These securities are issued for a period of 25

years, including a moratorium of five years on the principal amount. The special securities carry a rate

of interest fixed by GoI from time to time. The rate of interest has remained unchanged at 9.5 per cent

per annum since April 1, 2003. The NSSF is also permitted to invest in securities issued by IIFCL.

The income of NSSF comprises of the interest receipts on the investments in Central, State

Government and other securities. While the interest rate on the investments on the Central and State

share of net small saving collection is as per the rates fixed from time to time, the interest rate on the

reinvestment of redeemed amounts are at market rate for 20 year Government Securities. The

expenditure of NSSF comprises interest payments to the subscribers of Small Savings and PPF

Schemes and the cost of operating the schemes, also called management cost.

NORKAA large number of Indians work abroad and remit much of their earnings back into the country to take

care of their families or to acquire assets. Kerala is a state where non residents contribute significantly

to the state’s resources. Keeping this important revenue channel in mind, the Government of Kerala

launched the department of Non-resident Keralites' Affairs (NORKA) in 1996 to redress the

grievances of Non-resident Keralites. NORKA is the first of its kind formed in an Indian state.

NORKA makes efforts to solve the grievances raised in petitions for remedial action on threats to the

lives and property of those who are left at home, tracing of missing persons abroad, compensation

from sponsors, harassment from sponsors, cheating by recruiting agents, educational facilities for

children of NRKs, introduction of more flights, etc. It provides assistance to stranded Keralites through

follow up action initiated on all the petitions.

NORKA has established NORKA Roots that acts as an interface between the Non-Resident Keralites

and the Government of Kerala. Some important objectives are creation of a heritage village for

parents of non residents, cultural exchange programmes, promotion of Malayalam language,

employment mapping, maintaining a data base etc.

Non Plan ExpenditureThe Indian development process is centrally planned through a series of 5 year plans. At the

beginning of each Plan, funds are estimated for approved plan schemes and every financial year

(starting April 1), after a series of deliberations with stakeholders, the Planning Commission (in

consultation with the Finance Ministry) allocates funds to various Central Ministries and to sub-

national governments to implement these plans. There are, however a large number of heads of

expenditure which are not allocated by the Planning Commission.

Expenditure, which does not come under the purview of the Planning Commission is called non-plan

expenditure. This includes both developmental and non-developmental expenditure. Part of the

expenditure is obligatory in nature e.g. interest payments, pensionary charges and

devolution/statutory transfers to States, which are recommended by the Finance Commission.

A part of the expenditure is an essential obligation of the State, e.g. Defence and internal security.

Then, there are special responsibilities of the Centre like external affairs, co-operation with other

countries and currency and mint. Expenditure on maintaining the assets created in previous Plans is

also treated as Non-plan expenditure. Similarly, expenditure on continuing services and activities at

levels already reached in a Plan period is classified as Non-plan expenditure in the next Plan period,

e.g. continuing research projects and operating expenses of power stations. Expenditure on salaries

as well as explicit subsidies provided by the Government also form part of non-plan expenditure.

Thus, as more Plans are completed, in addition to the interest on borrowings to finance the Plan, a

large amount of expenditure on operation and maintenance of facilities and services created gets

added to Non-plan expenditure.

The Committee on Non Plan Expenditure (CNE) in the Department of Expenditure (Ministry of

Finance), chaired by Secretary (Expenditure) approves annual allocations towards non plan

expenditure based on the inter-se priorities.

In the Central budget of 2011-12, non plan expenditure accounted for nearly 65 per cent of the total

expenditure. Of this, defence expenditure accounted for a quarter of the non plan expenditure. In sub-

national government budgets, also non plan expenditure accounts for a major share of total

expenditure.

In sub-national governments annual financial statements also expenditure is divided into plan and non

plan expenditure just as it is done in the case of the Union Government.

Non-Resident Indian Deposits (NRI Deposits)Foreign Exchange Management (Deposit) Regulations, 2000 permits Non-Resident Indians (NRIs) to

have deposit accounts with authorized dealers and with banks authorized by the Reserve Bank of

India (RBI). These accounts include:

1. Foreign Currency Non-Resident (Bank) account (FCNR(B) account)

2. Non-Resident External account (NRE account)

3. Non-Resident Ordinary Rupee account (NRO account)

FCNR(B) accounts can be opened by NRIs and Overseas Corporate Bodies (OCBs) with an

authorized dealer. The accounts can be opened in the form of term deposits. Deposits of funds are

allowed in Pound Sterling, US Dollar, Japanese Yen and Euro. Rate of interest applicable to these

accounts are in accordance with the directives issued by RBI from time to time.

NRE accounts can be opened by NRIs and OCBs with authorized dealers and with banks authorized

by RBI. These can be in the form of savings, current, recurring or fixed deposit accounts. Deposits are

allowed in any permitted currency. Rate of interest applicable to these accounts are in accordance

with the directives issued by RBI from time to time.

NRO accounts can be opened by any person resident outside India with an authorized dealer or an

authorized bank for collecting their funds from local bonafide transactions in Indian Rupees. When a

resident becomes an NRI, his existing Rupee accounts are designated as NRO. These accounts can

be in the form of current, savings, recurring or fixed deposit accounts.

There were two more NRI deposit accounts in operation, viz. Non-Resident (Non-Repatriable) Rupee

Deposit Account and Non-Resident (Special) Rupee Account. An amendment to Foreign Exchange

Management (Deposit) Regulations, in 2002, discontinued the acceptance of deposits in these two

accounts from 1st April 2002 onwards.

Repatriation of funds in FCNR(B) and NRE accounts is permitted. Hence, deposits in these accounts

are included in India’s external debt outstanding. While the principal of NRO deposits is non-

repatriable, current income and interest earning is repatriable. Account-holders of NRO accounts are

permitted to annually remit an amount up to US$ 1 million out of the balances held in their accounts.

Therefore, deposits in NRO accounts too are included in India’s external debt.

New National Permit SystemTo facilitate uninterrupted movement of goods vehicles across the country, the New National Permit

System was made effective from 8.5.2010 in accordance with Central Motor Vehicle Rules, 1989, as

amended on 7.5.2010. An electronic system of grant of national permits for goods carriages, developed by

Ministry of Road Transport and Highways, in consultation with National Informatics Centre, was

implemented on 15.9.2010. The new system enables the permit holder to operate throughout the country

on payment of a consolidated fee of Rs. 15,000/.

The transporters apply for a new national permit or renewal of old national permits in terms of the forms

specified in the amended Central Motor Vehicle Rules. The transport authorities verify the content of the

application and other relevant documents regarding the age of the vehicle, its fitness, insurance and taxes

paid, and collect an authorisation fee. On verification of the application and other papers, the transport

authorities upload the data on the national permit web portal and advise transporters to pay a consolidated

fee. The consolidated fee can be deposited at any branch of State Bank of India. The transport authorities

compile the information on permits issued/renewed on a monthly basis and submit to Transport

Commissioners/Principal Secretaries of their States/Union Territories (UTs). The States/UTs forward the

information to the Ministry of Road Transport and Highways. On verification of information received from

the States/UTs, the funds are released to the States/UTs through Reserve Bank of India on a monthly

basis. The share of States/UTs in the consolidated fee is fixed according to the notification dated 28.7.2010

Organisation of Derivatives Market in IndiaVarious models exist for the regulation of derivative products across the globe. In some countries, all

financial markets including those for commodity derivatives and securities derivatives are organised under

one regulator. Certain countries keep money market operations exclusively under Central Bank and all the

other segments of financial markets under a separate regulator. Some countries have a very fragmented

system of regulation with separate regulators for each class of product. In many jurisdictions, the market for

non-standardised contracts or better known as over the counter marketor negotiated market are not under

any specific regulators.

Derivatives instruments in India are regulated by the Reserve Bank of India, Securities and Exchange

Board of India (SEBI) and Forward Markets Commission (FMC).

The framework for regulating derivative transactions is provided in the various Acts of Government of India

such as Securities Contracts (Regulation) Act, 1956, Reserve Bank of India Act, 1934,Forward Contracts

(Regulation) Act 1952 and related Rules, Regulations, Guidelines, Circulars etc.

Exchange traded equity derivatives market is regulated by Securities and Exchange Board of India (SEBI)

while the Forward Markets Commission (FMC) regulates the exchange traded commodity derivatives

market in India. Reserve Bank of India (RBI) as well as SEBI jointly regulates the exchange traded foreign

currency and interest rate futures. The foreign currency, interest rate and credit derivatives traded in

the over the counter (OTC) market is under the jurisdiction of RBI and is permitted as long as at least one

of the parties in the transaction is regulated by RBI.

Other WorkersAll workers, i.e., those who have been engaged in some economic activity during the last one year, but are

not cultivators or agricultural labourers or in Household Industry, are 'Other Workers (OW)'. The type of

workers that come under this category of 'OW' include all government servants, municipal employees,

teachers, factory workers, plantation workers, those engaged in trade, commerce, business, transport

banking, mining, construction, political or social work, priests, entertainment artists, etc. All those workers

other than cultivators or agricultural labourers or household industry workers are 'Other Workers'.

Out of pocket expenditureHouseholds, in general, avail healthcare services from public as well as private health care facilities,

depending on their accessibility and affordability to these facilities. In Public Health Institutions,

Government incurs expenditure for providing healthcare infrastructure as well as payment of salaries

for medical staff, while in private sector hospitals, the service providers charge directly from

households for their services. Although the services provided by Public Health Institutions, particularly

Primary Health Centres / Government hospitals are accessible to the public, mostly free of cost, in

practice, there are various instances, where households have to pay ‘out of pocket expenditure’. The

expenses that the patient or the family pays directly to the health care provider, without a third-party

(insurer, or State) is known as ‘Out of Pocket Expenditure’ (OOP). These expenses could be medical

as well as non-medical expenditure. Out of Pocket Medical expenditure could be payments towards

doctor’s fees, medicine, diagnostics, operations, charges for blood, ambulance services etc, while

non-medical expenditure include money spent towards travelling expenses, lodging charges of escort,

attendant charges, etc.

Out-of-pocket expenditure (OOP) on healthcare forms a major barrier to health seeking behaviour.

The poor sections do not have any form of financial protection and are forced to make OOP payments

when they fall sick. Often, these households have to resort to borrowings or sell assets to meet this

expenditure. In literature, Catastrophic Out of Pocket Expenditure is defined as that level of out of

pocket expenditure which exceeds some fixed proportion of household income or household’s

capacity to pay. As per National Health Accounts (NHA) of India (2004-05), 71.13% of Total Health

Expenditure in India is considered to be ‘Out of Pocket Expenditure’ by the individuals / households.

NHA takes into account only ‘out of pocket’ towards medical expenditure.

Participatory Notes (PNs)A Participatory Note (PN or P-Note) in the Indian context, in essence, is a derivative instrument issued in

foreign jurisdictions, by a SEBI registered Foreign Institutional Investor (FII) or its sub-accounts or one of its

associates, against underlying Indian securities. The underlying Indian security instrument may be equity,

debt, derivatives or may even be an index. Further, a basket of securities from different jurisdictions can

also be constructed in which a portion of the underlying securities is Indian securities or indices.

PNs are also known as Overseas Derivative Instruments, Equity Linked Notes, Capped Return Notes, and

Participating Return Notes etc.

The investor in PN does not own the underlying Indian security, which is held by the FII who issues the PN.

Thus the investors in PNs derive the economic benefits of investing in the security without actually holding

it. They benefit from fluctuations in the price of the underlying security since the value of the PN is linked

with the value of the underlying Indian security. The PN holder also does not enjoy any voting rights in

relation to security/shares referenced by the PN.

Rationale for issuance of PNs

One of the primary reasons for the emergence of an Off-shore Derivative market is the restrictions on

foreign investments. For eg, a foreign investor intending to make portfolio investments in India was required

to seek FII registration for which he is required to meet certain eligibility criteria. Lack of full Capital Account

Convertibility further enhances the entry barriers from the perspective of a foreign investor. However, Since

January 2012, Indian government has taken a decision to give direct access to such prospective foreign

individual investors who were hitherto banned to invest in equity of Indian companies.

The off-shore derivative market allows investors to gain exposure to the local shares without incurring the

time and costs involved in investing directly. In return, the foreign investor pays the PN issuer a certain

basis point(s) of the value of PNs traded by him as costs. For instance, directly investing in the Indian

securities markets as an FII, has significant cost and time implications for the foreign investor. Apart from

seeking FII registration, he is required to establish a domestic broker relationship, a custodian bank

relationship, deal in foreign exchange and bear exchange rate fluctuation risk, pay domestic taxes and/or

filing tax return, obtain or maintain an investment identity etc. These investors would rather look for

derivatives alternatives to gain a cost-effective exposure to the relevant market.

Besides reducing transactions costs, PNs also provide customized tools to manage risk, lower financing

costs, and enhance portfolio yields. For instance, PNs can also be designed for longer maturities than are

generally available for exchange-traded derivative.

PNs also offer an important hedging tool to a foreign investor already registered as an FII. For example; an

FII may wish to obtain long exposure to a particular Indian security. The FII can hedge the downside

exposure to the listed security, already purchased by purchasing a cash settled put option. Although the

Indian exchanges offer options contract, these contracts have a maximum life period of three months,

beyond which the FII shall have to rollover its positions i.e. purchase a fresh option contract. Alternatively, it

can avail of a PN which can be customized to cater to its hedging requirements.

Although PNs are privately negotiated Over-The-Counter (OTC) contracts, the terminology, terms and

conditions used in these contracts are standardized and uniform, just as in the case of exchange-traded

derivative contracts.

Potential investors who would like to take direct Indian exposure in future, may make initial investments

through the PN route so as to get a flavor of future anticipated returns.

Further, trading in ODI/PNs gives an opportunity to offshore entities to have a commission based business

model. This route provides ease to subscribers as it bypasses the direct route which may be resource

heavy for them. All the above-said points make it a good avenue to take exposure in Indian securities.

PNs are thus issued, inter-alia, to provide access to a set of foreign investors who intend to reduce their

overall costs and the time involved in making investments in India. In other words, the attraction of

investing in PNs is primarily one of efficiency (from an infrastructure and time perspective) for which they

are willing to forego certain benefits of directly holding the local securities (e.g title and voting rights) whilst

also assuming other risks.

Regulation of PNs

PNs are market instruments that are created and traded overseas. Hence, Indian regulators cannot ban the

issue of PNs. However, they can only be regulated, and they are indeed being regulated by the securities

market regulator in India, SEBI. When a PN is traded on an overseas exchange, the regulator in that

jurisdiction would be the authority to regulate that trade.

Participatory Notes have been used by FIIs since FIIs were permitted to invest in the Securities Market.

They were not specifically dealt with under the regulations until 2003. According to Regulation 15(A) of

the Securities and Exchange Board of India (SEBI) Regulations, 1995, which was inserted later in 2004

and further amended in 2008 with the objective of tightening regulations in this regard, PNs can be issued

only to those entities which are regulated by the relevant regulatory authority in the countries of their

incorporation and are subject to compliance of "Know Your Client" norms. Down-stream issuance or

transfer of the instruments can also be made only to a regulated entity. Further, the FIIs who issue PNs

against underlying Indian securities are required to report the issued and outstanding PNs to SEBI in a

prescribed format.

In addition, SEBI can call for any information from FIIs under Regulation 20(A) of the SEBI (FII)

Regulations concerning off-shore derivative instruments issued by it, as and when and in such form as

SEBI may require.

In order to monitor the investment through these instruments, SEBI, vide circular dated October 31, 2001,

advised FIIs to submit information regarding issuance of derivative instruments by them, on a monthly

basis. These reports require the communication of details such as name and constitution of the subscribers

to PNs, their location, nature of Indian underlying securities etc.

FIIs cannot issue PNs to non-resident Indians (NRIs) and those issuing PNs are required to give an

undertaking to the effect.

SEBI has also mandated that Qualified Foreign Investors, the recently allowed foreign investor class, shall

not issue PNs.

SEBI in consultation with the Government had decided in October 2007, to place certain restrictions on the

issue of Participatory Notes (PNs) by FIIs and their sub-accounts. This decision was taken with a view to

moderate the surge in foreign capital inflows into the country and to address the know-your-client concerns

for the PN holders. However, it was found that such restrictions were ineffective. Therefore, SEBI in

October 2008 reviewed its earlier decision and decided to remove these restrictions in the light of the

above factors. Rather more attention is given to effective disclosures.

What Concerns are raised related to Participatory Notes?

Being derivative instruments and freely tradable, PNs can be easily transferred, creating multiple layers,

thereby obfuscating the real beneficial owner. It is in this respect that concerns about the identity of ultimate

beneficial owner and the source of funds arises.

For the reason that such instruments are issued outside India, these transactions are outside the purview

of SEBI surveillance and it is the FII which acts as mini-exchange overseas. The actual transactions in the

underlying are executed by the FIIs only at its discretion, as and when necessary and there is no one-to-

one correspondence between transactions in the underlying instruments and issuance of PNs.

The ex-post reporting requirement enjoined upon the FII in respect of PNs on a monthly basis effectively

keeps the transactions in PNs out of the real time market surveillance mechanism and beyond the

enforceability jurisdiction of SEBI.

There are also concerns that some of the money coming into the market via PNs could be the unaccounted

wealth camouflaged under the guise of FII investment. However, this has not been proved so far. SEBI has

indeed been successful in taking action against FIIs who are non-compliant and those who have

misreported off shore derivatives. (See SEBI's orders against the two FIIs issued onDecember 9,

2009 (Barclays) and January 15, 2010 (Societe Generale))

Poverty, Poverty Line, Below and Above poverty line (APL, BPL)

In India, Planning Commission estimates the number and proportion of people living below the poverty line

at national and State levels, separately for rural and urban areas. It makes poverty estimates based on a

large sample survey of household consumption expenditure carried out by the National Sample Survey

Organization (NSSO) after an interval of approximately five years. The Commission has been estimating

the poverty line and poverty ratio since 1997 on the basis of the methodology spelt out in the report of the

Expert Group on 'Estimation of Number and Proportion of Poor' (popularly known as Lakdawala Committee

Report).

Poverty is a social as well as a multidimensional phenomenon. According to the World Bank, “poverty is

pronounced deprivation in wellbeing.” Amartya Sen in his capability approach perhaps gave the broadest

meaning to well-being. According to him well-being comes from a capability to function in society. Poverty

arises when people lack key capabilities due to inadequate income or education, or poor health, or

insecurity, or low self-confidence, or a sense of powerlessness, or the absence of rights such as freedom of

speech.

The Human Development Report (2010) pioneered the Multidimensional Poverty Index (MPI) which is

grounded in the capability approach and an innovative effort to complement the income based poverty

indices. It includes an array of dimensions from participatory exercises among poor communities and an

emerging international consensus. The MPI shows the share of population that is multidimensionally poor

adjusted by the intensity of deprivation in terms of living standards, heath and education.

Some Estimates:

Global Estimates: Based on new internationally comparable data, World Bank has found that “poverty

levels across the globe have declined, with 1.4 billion people (one in four) in the developing world living

below US$1.25 a day in 2005, down from 1.9 billion (one in two) in 1981. In other words, global poverty

rates fell from 52% in 1981 to 26% in 2005.”

Estimates for India: World Bank estimates for India also indicate a continuing decline in poverty. The

revised estimates suggest that the percentage of people living below $1.25 a day in 2005 (which based on

India’s PPP rate) decreased from 60% in 1981 to 42% in 2005. Even at a dollar a day poverty declined

from 42% to 24% over the same period.

In India there are two methods of estimation namely Uniform Recall Period (URP) and Mixed Recall Period

(MRP). On the basis of NSS 61st Round (July 2004 to June 2005) consumer expenditure data, the poverty

ratio is estimated at 28.3 per cent in rural areas, 25.7 per cent in urban areas, and 27.5 per cent for the

country as a whole in 2004-05 using uniform recall period (URP). In URP, consumer expenditure data for

all the items are collected for a 30-day recall period.

Whereas based on mixed recall period (MRP) for the same period, the poverty ratios are 21.8 per cent in

rural areas, 21.7 per cent in urban areas, and 21.8 per cent for the country as a whole. In MRP, consumer

expenditure data for five non-food items, namely clothing, footwear, durable goods, education, and

institutional medical expenses, are collected for a 365-day recall period and the consumption data for the

remaining items are collected for a 30-day recall period.

The poverty line in India is income based. The poverty line was originally fixed in terms of income/food

requirements in 1978. It was stipulated that the calorie standard for a typical individual in rural areas were

2400 calorie and was 2100 calorie in urban areas. Then the cost of the grains (about 650 gms) that fulfill

this normative standard was calculated. This cost was the poverty line. In 1978, it was Rs. 61.80 per

person per month for rural areas and Rs. 71.30 for urban areas. Since then the Planning Commission

calculates the poverty line every year adjusting for inflation. The poverty line in monetary terms (i.e. Rs. Per

capital per month) during 2005-06 has been estimated at Rs. 368 in rural area and Rs. 560 in urban area

as compared to Rs. 328 in rural area and Rs. 454 in urban area in 2000-01. The state specific poverty lines

have also been estimated by the planning commission for the year 2004-05 in monetary terms (Rs. Per

capital per month) (available at:http://planningcommission.nic.in/news/prmar07.pdf).

Methodology for estimating BPL: The methodology of estimating poverty and the identification of BPL

households have been a matter of debate. Two committees under the chairmanship of Prof. Suresh D.

Tendulkar and Dr. N.C. Saxena have submitted their reports on methodology for estimation of poverty and

methodology for conducting BPL census in rural areas, respectively. Further, an Expert Group under the

chairmanship of Prof. S.R. Hasim has been set up to recommend methodology for identification of BPL

families in urban areas.

Primary, Secondary and Tertiary HealthCarePrimary Healthcare

Primary healthcare denotes the first level of contact between individuals and families with the health

system. According to Alma Atta Declaration of 1978, Primary Health care was to serve the community it

served; it included care for mother and child which included family planning, immunization, prevention of

locally endemic diseases, treatment of common diseases or injuries, provision of essential facilities, health

education, provision of food and nutrition and adequate supply of safe drinking water. In India, Primary

Healthcare is provided through a network of Sub centres and Primary Health Centres in rural areas,

whereas in urban areas, it is provided through Health posts and Family Welfare Centres. The Sub centre

consists of one Auxiliary Nurse Midwife and Multipurpose Health worker and serves a population of 5000 in

plains and 3000 persons in hilly and tribal areas. The Primary Health Centre (PHC), staffed by Medical

Officer and other paramedical staff serves every 30000 population in the plains and 20,000 persons in hilly,

tribal and backward areas. Each PHC is to supervise 6 Sub centres.

Secondary Health Care

Secondary Healthcare refers to a second tier of health system, in which patients from primary health care

are referred to specialists in higher hospitals for treatment. In India, the health centres for secondary health

care include District hospitals and Community Health Centre at block level.

Tertiary Health Care

Tertiary Health care refers to a third level of health system, in which specialized consultative care is

provided usually on referral from primary and secondary medical care. Specialised Intensive Care Units,

advanced diagnostic support services and specialized medical personnel on the key features of tertiary

health care. In India, under public health system, tertiary care service is provided by medical colleges and

advanced medical research institutes.

Public AccountsThis term derives its origin from the Constitution of India.

Besides the normal receipts and expenditure of Government which relate to the Consolidated Fund, certain

other transactions enter Government Accounts, in respect of which Government acts more as a banker.

Transactions relating to provident funds, small savings, other deposits, etc., are a few examples. The public

monies thus received are kept in the Public Account set up under Article 266(2) of the Constitution and the

connected disbursements are also made there from.

Similarly, Receipt and disbursement in respect of certain transactions such as small savings, provident

funds, reserve funds, deposits, suspense, remittances etc which do not form part of the Consolidated Fund

of the state, are kept in the Public Account are not subject to vote by the State Legislature.

Public DebtArticle 292 of the Indian Constitution states that the Government of India can borrow amounts specified by

the Parliament from time to time. Article 293 of the Indian Constitution mandates that the State

Governments in India can borrow only from internal sources. Thus the Government of India incurs both

external and internal debt, while State Governments incur only internal debt.

As per the recommendations of the 12th Finance Commission, access to external financing by the States

for various projects is facilitated by the Central Government, which provides the sovereign guarantee for

these borrowings. From April 1, 2005, all general category states borrow from multi-lateral and bilateral

agencies ( World Bank, ADB etc.) on a back-to-back basis viz. the interest cost and the risk emanating

from currency and exchange rate fluctuations are passed on to States. In the case of special category

states ( North-eastern states, Himachal, Uttarakhand and J&K), external borrowings of state governments

are given by the Union Government as 90 per cent loan and 10 per cent grant.

This note explains the coverage of the ‘Public Debt’ of the Central Government of India.

In India, total Central Government Liabilities constitutes the following three categories;

[i] Internal Debt.

[ii] External Debt.

[iii] Public Account Liabilities.

Public Debt in India includes only Internal and External Debt incurred by the Central Government. Internal

Debt includes liabilities incurred by resident units in the Indian economy to other resident units,

while External Debt includes liabilities incurred by residents to non-residents.

The major instruments covered under Internal Debt are as follows:

Dated Securities: Primarily fixed coupon securities of short, medium and long term maturity which

have a specified redemption date. These are the single-most important component of financing the

fiscal deficit of the Central Government (around 91 % in 2010-11) with average maturity of around 10

years.

Treasury-Bills: Zero coupon securities that are issued at a discount and redeemed in face value at

maturity. These are issued to address short term receipt-expenditure mismatches under the auction

program of the Government. These are primarily issued in three tenors, 91,182 and 364 day.

14 Day Treasury Bills.

Securities issued to International Financial Institutions: Securities issued to institutions viz. IMF,

IBRD, IDA, ADB, IFAD etc. for India’s contributions to these institutions etc.

Securities issued against ‘Small Savings’: All deposits under small savings schemes are credited to

the National Small Savings Fund (NSSF). The balance in the NSSF (net of withdrawals) is invested in

special Government securities.

Market Stabilization Scheme (MSS) Bonds: Governed by a MoU between the GoI and the RBI, MSS

was created to assist the RBI in managing its sterilization operations. GoI borrows under this scheme

from the RBI, while proceeds from such borrowings are maintained in a separate cash account with the

latter and is not used only for redemption of T-bills /dated securities raised under this scheme.

Public Private Partnership (PPP)Project means a project based on a contract or concession agreement, between a Government or statutory

entity on the one side and a private sector company on the other side, for delivering a service on payment

of user charges. The rights and obligations of all stakeholders including the government, users and the

concessionaire flow primarily out of the respective PPP contracts. Unlike private projects where prices are

generally determined competitively and Government resources are not involved, PPP projects typically

involve transfer of public assets, delegation of governmental authority for recovery of user charges, private

control of monopolistic services and sharing of risks and contingent liabilities by the Government. The

justification for promoting PPP lies in its potential to improve the quality of service at lower costs, besides

attracting private capital to fund public projects.

For creating a transparent, fair and competitive environment, the Government of India has been relying

increasingly on standardising the documents and processes for award and implementation of PPP projects.

Based on international best practices, a number of Model Concession Agreements (MCAs) have been

evolved for different sectors. The process of prequalification and selection of bidders has also been

standardised through adoption of model documents for a two-stage selection comprising the Request for

Qualification (RFQ) and Request for Proposals (RFP). These documents can be adapted for meeting the

specific requirements of individual projects.

A poorly structured PPP contract can easily compromise user interests by recovery of higher charges and

provision of low quality services. It can also compromise the public exchequer in the form of costlier or

uncompetitive bids as well as subsequent claims for additional payments or compensation. The process of

structuring PPPs is complex and it is, therefore, necessary to rely on experienced consultants for procuring

financial, legal and technical advice in formulating project proposals and bid documents for award and

implementation of PPP projects in an efficient, transparent and fair manner. Ministry of Finance,

Government of India has notified the guidelines to be followed by all Ministries and Departments of the

Central Government, all statutory entities under the control of Central Government and all Central Public

Sector Undertakings for selection of technical, legal and financial consultants for PPP projects.

Public Sector Undertakings/EnterprisesAt the time of independence in 1947, Indian industry was ill-developed and required considerable

policy thrust. The Second Five year Plan (1956-61) and the Industrial Policy Resolution of 1956

provided the framework for public sector undertakings/enterprises in India, which were expected to

play a substantial role in preventing the concentration of economic power, reducing regional

disparities and ensuring that planned development serves the common good. A list of 17 industrial

sectors was reserved for the public sector in Schedule A of the 1956 Resolution and no new units in

the private sector in these categories would be permitted. Another list of industries was included in

Schedule B where the Government actively encouraged public ownership. The Union Government

and various sub-national governments made considerable investment on setting up and running

public sector undertakings/enterprises.

Public Sector undertakings refer to commercial ventures of the Government where user fees are

charged for services rendered. The tariff/fees may be market based or subsidised. They are usually

fully owned and managed by the Government such as Railways, Posts, Defence Undertakings, Banks

etc. Public sector enterprises on the other hand refer to those companies registered under the

Companies Act, 1951,which are predominantly owned by Government and which are managed by a

Government appointed Chairman and Managing Director. Government nominees represent the

interests of the Government on the board of Public sector enterprises. Public sector companies

usually compete with private sector enterprises in the domestic as well as international market.

Initially, the public sector was confined to core and strategic industries such as irrigation projects (e.g.

the Damodar Valley Corporation), Fertilizers and Chemicals (e.g. Fertilizers and Chemicals,

Travancore Limited) Communication Infrastructure (e.g. Indian Telephone Industries), Heavy

Industries (e.g. Bhilai Steel Plant, Hindustan Machine Tools, Bharat Heavy Electricals, Oil and Natural

Gas Commission etc.). Subsequently, however, the Government nationalized several banks (starting

with nationalization of the Imperial Bank of India which was renamed State Bank of India in 1955) and

foreign companies (Jessop & Co, Braithwaite & Co, Burn & Co.).Later Public Sector companies

started manufacturing consumer goods (e.g. Modern Foods, National Textile Corporation etc) and

providing consultancy, contracting, and transportation services.

Investment decisions of PSUs are passed by the respective boards and then appraised and approved

by the adminsitrative ministry to which they are accountable (e.g. Shipping Corporation of India is

under the Department of Shipping in the Union Ministry of Surface Transport) or the Public Investment

Board under the Department of Expenditure, Union Ministry of Finance and if the investment is

beyond a certain threshold level or if a new public sector company is being created, then the proposal

has to be approved by Cabinet. Central public sector enterprises are classified as “mahratnas” “mini-

ratnas” and other enterprises depending on their track record based on guidelines approved by the

Government from time to time.

The internal (profits) and extra-budgetary resources (borrowed funds) of public sector undertakings

are factored into the preparation of the Annual Financial Statement (Budget) of the Government.

However, poor productivity, poor project management, over-manning, lack of continuous technological

upgradation, and inadequate attention to R&D and human resource development resulted in a large

number of public enterprises showing a very low rate of return on the capital invested and the need for

budgetary support for day to day running. Several of them accumulated huge losses and ran up huge

debts which had to be written off /settled from time to time by the Government.

Reviewing the role of the public sector, the Industrial Policy Resolution 1991 reduced the number of

industrial undertakings exclusively reduced to the public sector to just six areas which included

strategic industries like atomic energy, defence, coal, mineral oils etc. as well as railway transport.

Efforts were made to divest non strategic public sector industries and to increase private participation

in the equity of profitable public sector industries. At the same time a Board for Reconstruction of

Public Sector Enterprises has been set up to suggest ways to turn around sick and loss making public

sector enterprises.

Sub national governments also own and manage public sector undertakings and in most cases they

are loss making and require considerable budgetary support.

The audit of public sector undertakings is done by the Comptroller and Auditor General of India while

that of public sector enterprises is done first by Chartered Accountants and the supplementary audit is

done by the Comptroller and Auditor General of India.

Rajiv Gandhi Equity Savings Scheme (RGESS)Rajiv Gandhi Equity Saving Scheme (RGESS), is a tax saving scheme announced in the Union Budget

2012-13 (para 35), designed exclusively for the first time retail / individual investors in securities market,

who invest up to Rs. 50,000 and whose annual taxable income is below Rs. 10 lakh (around US$ 18500).

The investor would get a 50% deduction of the amount invested from the taxable income for that year.

The Scheme is named after the former Prime Minister of India Shri. Rajiv Gandhi. The broad provisions of

the Scheme and the income tax benefits under it have already been incorporated as a new Section -

80CCG- of the Income Tax (IT) Act, 1961, as amended by the Finance Act, 2012 . This means that the

allowed tax deduction will be over and above the Rs. 1 Lakh limit permitted under Section 80 C of the IT

Act, making it thus attractive for the middle class investors.

Honourable Finance Minister, Mr. Chidambaram announced the launch of the Scheme on 21 September

2012. The notification is expected in two weeks’ time.

Objective of the Scheme

The Scheme intends to encourage the flow of savings and improve the depth of domestic capital markets,

as stated in the Budget Speech by the then Finance Minister Shri Pranab Mukherjee. However, it also aims

to promote an ‘equity culture’ in India. This is also expected to widen the retail investor base in the Indian

securities markets and further the goal of financial stability and financial inclusion.

Investment Options under the Scheme

Under the Scheme, those stocks listed under the BSE 100 or CNX 100, or those of public sector

undertakings which are Navratnas, Maharatnas and Miniratnas would be eligible. Follow-on Public

Offers (FPOs) of the above companies would also be eligible under the Scheme. IPOs of PSUs, which are

getting listed in the relevant financial year and whose annual turnover is not less than Rs. 4000 cr for each

of the immediate past three years, would also be eligible.

One of the main objectives of the scheme is to promote an ‘equity culture’ in India. Accordingly, in

the Union Budget 2012-13, it was specified that the scheme would be available only for investing directly in

equities. Further, subsequent to the budget announcement, Income Tax Act, 1962 has been amended vide

the Finance Act, 2012[i] to include a new section 80CCG with effect from 1.4.2012. The investment referred

to at 3 (iii) of 80CCG is about investment to be made in listed equity shares, thereby limiting the ambit to

direct equity investment. Notwithstanding the above, within the limited scope of the Scheme, it is

provisioned in the interest of providing diversification and consequent minimization of losses to the investor

that investments in Exchange Traded Funds (ETFs) and Mutual Funds (MFs) that have RGESS eligible

securities as their underlying, and listed and traded in the stock exchanges and settled through a

depository mechanism will also be eligible under RGESS. Investment in listed ETFs and MFs are perceived

as investment into a combination of listed equity for the purposes of 80 CCG.

Highlights of the Design of the Scheme

Even though the scheme was designed for new retail individual investors, its scope has been expanded to

those who have already opened a demat account, provided they have not transacted in equity / derivatives

till the notification of the Scheme.

The choice of investments have been restricted to the stocks included in BSE 100 or CNX 100 and to

selected PSU stocks as they, generally, have shown relatively lower volatility, higher liquidity, and there is

adequate reporting and analysis available in the market. This has been done with the intention of protecting

the interest of the new investors.

Generally tax savings schemes are focused more on the quantum of investments. Here, perhaps the

emphasis is more on the entry of the investor. The Scheme, as such, is designed for only the first time new

investors. Since they can be ‘new’ only in the first year of entering the market, the benefits of the Scheme is

limited to only one year for a particular beneficiary, i.e., the tax benefit can be availed of only to the extent

of investments made in the first financial year in which the investor opts for the RGESS unlike other tax

savings scheme where continued contributions are made eligible for tax benefits. However, the Scheme is

for all eligible investors for all the coming years.

Generally the tax savings schemes are subject to lock-in conditions. In India, for instance, the Equity linked

Savings Scheme available for mutual funds subscriptions, are subject to 3 year lock-in. The total lock-in

period for investments under RGESS would also be three years including an initial blanket lock-in period of

one year, commencing from the date of last purchase of securities under RGESS. However, after the first

year, investors would be allowed to trade in the securities in furtherance of the goal of promoting an equity

culture and as a provision to protect them from adverse market movements or stock specific risks as well

as to give them avenues to realize profits. Investors would, however, be required to maintain their level of

investment during these two years at the amount for which they have claimed income tax benefit or at the

value of the portfolio before initiating a sale transaction, whichever is less, for at least 270 days in a year.

The calculation of 270 days includes those days pursuant to the day on which the market value of the

residual shares /units has automatically touched the stipulated value after the date of debit. Thus the

investor is allowed to take benefits of the appreciation of his RGESS portfolio, provided its value, as on the

previous day of trading, remains above the investment for which they have claimed income tax benefit. The

general principle under which trading is allowed is that whatever is the value of stocks / units sold by the

investor from the RGESS portfolio, RGESS compliant securities of at least the same value are credited

back into the account subsequently so that the 270 day criteria is met.

In contrast to the general provision that tax saving investments are to be made in one go, in RGESS,

investments can be brought in installments in the year in which tax claims are made.

The Scheme has a PAN based monitoring mechanism. The day to day valuation of securities in the

RGESS portfolio, certification of new investors etc will be done by the depositories / depository participants,

thus making it easier for the small investors while ensuring electronic monitoring of the Scheme by the Tax

Authorities.

In case the investor fails to meet the conditions stipulated, the tax benefit will be withdrawn.

Differences with ELSS

Equity Linked Savings Scheme (ELSS) and RGESS are entirely different schemes: They pertain to

different asset classes with ELSS offering passive investment avenues. ELSS is meant for indirect

participation in the stock market, whereas RGESS aims at encouraging direct participation in the stock

market. The operational differences are given below:

Operational differences

ELSS RGESS

Investments are in mutual funds which invests mostly in equity (80-100% in equity)

Investments are to be made directly in listed equity

100% deduction (upto Rs. 1,00,000) is allowed under ELSS Only 50% deduction (upto max.

of Rs. 25,000) is allowed under RGESS.

The ELSS benefit is coming under Section 80-C of the IT Act which has an aggregate limit of Rs. 1,00,000 for all such eligible instruments like LIC policy, PPF etc

Separate investment limit exclusively for RGESS over and above the Section 80 C Limit

Lock-in period of 3 years

Lock-in of 3-years. However, trading allowed after one-year subject to conditions.

Since investments are in mutual funds, it is perceived to be less risky

Since investments are in equity / risk / ownership capital, risk is perceived to be higher

Similar International Experiences

Fiscal incentives have been empirically established to encourage greater retail participation. International

experience in countries where such schemes were implemented supports this notion. For example, Loi-

Monory scheme introduced in France in 1978 was successful in significantly improving retail participation;

the proportion of French households investing in listed securities rose from 7% to 17% during 1977-1982.

Similar schemes were launched by other European countries, most notably Belgium and West Germany.

Such a scheme in Sweden turned one sixth of the population into investors. All these exemplify the positive

manner in which people of relatively modest means will respond to fairer tax treatment [ii].

Rashtriya Krishi Vikas YojanaThe RKVY (National Agriculture Development Programme/Rashtriya Krishi Vikas Yojana) was

devised by the Ministry of Agriculture with the aim of achieving 4% annual growth in the agriculture

sector during the Eleventh Plan period (2007-08 to 2011-12). The main objective of the Scheme is to

incentivize States to increase public investment in Agriculture and allied sectors by providing 100%

Central Government grants for State Agricultural Plans. The States, under RKVY, are required to

prepare the Agriculture Plans for their districts based on agro-climatic conditions, availability of

technology and natural resources.

The Scheme is an incentive scheme; wherein there are no automatic allocations. The eligibility of a

state for the RKVY is contingent upon the state maintaining or increasing the State Plan expenditure

for Agricultural and Allied sectors. Each state needs to ensure that the baseline share of agriculture in

its total State Plan expenditure is at least maintained, and upon its doing so, it will be able to access

the RKVY funds. The base line would be a moving average and the average of the previous three

years will be taken into account for determining the eligibility under the RKVY, after excluding the

funds already received.

Rashtriya Swasthya Bima Yojana (RSBY)RSBY is a cashless Smart Card based health insurance scheme for BPL families in the unorganised

sector launched in 2007-08. It provides health insurance cover of Rs. 30,000/- for a family of five on a

floater basis covering all pre-existing diseases, hospitalization expenses, maternity benefit etc. The

ambit of the scheme has been expanded to include MGNREGA workers, railway porters, construction

workers etc. The premium under the scheme is borne by the Central and the State Government in the

ratio of 75:25 (90:10 in case of J&K and NE States). The beneficiary pays Rs. 30 at the time of

enrolment. The uniqueness of the scheme lies in the fact that it provides interoperability throughout

the country to facilitate use by migrant labour.

RSBY has made available state of the art health facility to the poorest of the poor who can choose

between public and private health service provider. The ILO and UNDP have selected the scheme as

one of the eighteen successful social protection floor schemes in the world. A number of delegations

from countries like Bangladesh, Nigeria, Ghana, Vietnam, Cambodia, Nepal and Maldives have

visited India to study the scheme and some have even taken a decision to implement a variant in their

own country.

Regional Rural BanksRegional Rural Banks (RRBs) are financial institutions which ensure adequate credit for agriculture and

other rural sectors . Regional Rural Banks were set up on the basis of the recommendations of the

Narasimham Working Group (1975), and after the legislations of the Regional Rural Banks Act, 1976. The

first Regional Rural Bank “Prathama Grameen Bank” was set up on October 2, 1975. At present there are

82 RRBs in India.

The equity of a regional rural bank is held by the Central Government, concerned State Government and

the Sponsor Bank in the proportion of 50:15:35. The RRBs combine the characteristics of a cooperative in

terms of the familiarity of the rural problems and a commercial bank in terms of its professionalism and

ability to mobilise financial resources. Each RRB operates within the local limits as notified by Government.

The main objectives of RRB’s are to provide credit and other facilities‚ especially to the small and marginal

farmers‚ agricultural labourers artisans and small entrepreneurs in rural areas with the objective of bridging

the credit gap in rural areas, checking the outflow of rural deposits to urban areas and reduce regional

imbalances and increase rural employment generation.

The RRB’s have also been brought under the ambit of priority sector lending on par with the commercial

banks. Priority sector lending has been devised so that assistance from the banking system flowed in an

increasing measure to the vital sectors of the economy and according to national priorities. Sectors like

agriculture, small business, housing ,retail trade, education are categorised as priority sector by Reserve

Bank of India and a stipulated amount has to be lent to these sectors by the banks. As per the guidelines,

domestic banks have to ensure that forty percent of their advances are accounted for the priority sector.

Within the 40% priority target, 25% should go to weaker section or 10% of their total advances should go to

the weaker section .Weaker sections, under priority sector lending purposes, include scheduled castes,

scheduled tribes, small and marginal farmers, artisans and self help groups.

SarathiSarathi is a software package introduced in 2011 by National Informatics Centre and Ministry of Road

Transport & Highways for the creation of a complete computerized database of driving licenses,

conductors’ licenses, driving school licenses and fees. Since State Transport Departments adhere to State-

specific regulations, besides Central Motor Vehicle Rules, Sarathi has been customized State-wise.

Sarathi envisages improved information availability of licenses, improved service delivery and access,

plugging revenue leakages and enhancing transparency in the system. For the citizens, Sarathi offers a

system of online license application submission and processing, application status tracking, fees payment

and online renewal of licenses.

The database of Sarathi can be a useful tool for curbing traffic offences. This, in turn, would reduce the

socio-economic cost of road accidents in India which has been estimated at 3 per cent of Gross Domestic

Product by Planning Commission

SkewflationEconomists usually distinguish between inflation and a relative price increase. ‘Inflation’ refers to a

sustained, across-the-board price increase, whereas ‘a relative price increase’ is a reference to an

episodic price rise pertaining to one or a small group of commodities. This leaves a third

phenomenon, namely one in which there is a price rise of one or a small group of commodities over a

sustained period of time, without a traditional designation. ‘Skewflation’ is a relatively new term to

describe this third category of price rise.

In India, food prices rose steadily during the last months of 2009 and the early months of 2010, even

though the prices of non-food items continued to be relatively stable. As this somewhat unusual

phenomenon stubbornly persisted, and policymakers conferred on how to bring it to an end, the term

‘skewflation’ made an appearance in internal documents of the Government of India, and then

appeared in print in the Economic Survey 2009-10, Government of India, Ministry of Finance.

The skewedness of inflation in India in the early months of 2010 was obvious from the fact that food

price inflation crossed the 20% mark in multiple months, whereas wholesale price index (WPI)

inflation never once crossed 11%. It may be pointed out that the skewflation has gradually given way

to a lower-grade generalized inflation, with the economy in the middle of 2011 inflating at around 9%

with food and non-food price increases roughly at the same level.

Given that other nations have faced similar problems, the use of this term picked up quickly, with

the Economist magazine (January 24, 2011), in an article entitled ‘Price Rises in China: Inflated

Fears,’ wondering if China was beginning to suffer from an Indian-style skewflation.

The distinction between these different kinds of inflation is important because they call for different

kinds of policy response from the government. Usually, a high inflation, and in particular core inflation,

is taken as a sign of aggregate demand outstripping aggregate supply and is met with monetary and

fiscal policy tightening. On the other hand, a relative price increase is often treated as the market’s

natural response to exogenous demand and supply shocks and many economists would argue that

they are best left with no government intervention. Such relative-price signals are the market’s way of

informing consumers and producers what to consume less and what to produce more. To impair

these signals does more damage than good.

In terms of policy, skewflation does not fall into either of the above categories neatly. Given that it is

sector specific, it is not evident that it calls for monetary or fiscal policy action. On the other hand,

given its sustained nature, it is not possible for government to ignore it, since cause stress to

consumers.

It is possible to argue that a small amount of skewflation, for instance, up to 2% per annum, centred in

the food and non-tradeable sector, is a natural concomitant of high growth in an emerging economy

(see Economic Survey 2010-11, Government of India, Ministry of Finance). This is because, as we

know from the study of empirical patterns, the purchasing power parity of poor nations tends to catch

up with industrialized nations during periods of rapid growth in the former countries. So a small

skewflation, usually of up to 2%, may be natural for an economy growing rapidly. However, if such

inflation rises to higher levels, government is forced to think of a policy cocktail, consisting of

aggregate demand tightening, along with measures to improve the production and supply of goods.

Section 25 CompanySection 25 company is one of the popular forms of Non- Profit Organisation in India. Section 25 companies,

under the Companies Act 1956, are companies formed for promoting commerce, art, science, religion,

charity or any other useful object. The profits accrued or any other income obtained is used in promotion of

its objectives and it prohibits payment of any dividend to its members. It may be registered as a Company

with limited liability without the addition of words “limited” or “private limited” in its name. As per the

Companies Act 1956, the minimum share capital required by a public company is Rs Five lakh and by a

private company is Rs One lakh. However a Section 25 company is not required to have any minimum paid

up capital. Further this category of company is required to maintain book of accounts relating to a period of

four years only instead of eight years stipulated for other companies under the Companies Act 1956.

Special Economic Zone (SEZ)The first Export Processing Zone (EPZ) was set up in 1959 at Shannon, in Ireland. India is one of the first

countries in Asia to recognize the effectiveness of the Export Processing Zone (EPZ) model in promoting

export. India was inspired by China for setting up of SEZ. Asia’s First EPZ was set up in Kandla in 1965.

Government of India first introduced the concept of SEZ in the export import policy 2000 with a view to

provide an internationally competitive and hassle free environment for exports. SEZ refers to a specially

demarcated territory usually known as ‘deemed foreign territory’ with tax holidays, exemption from duties

for export and import, world level economic and social infrastructure for production and augmentation of

export activities within the territory along with facilities like abundant and relatively cheap labour, strategic

location and market access etc

THE SPECIAL ECONOMIC ZONE ACT 2005: The act provides the umbrella legal framework, covering all important legal and regulatory aspects for setting up of SEZ’s as well units operating in SEZ. 

The central government gives the special economic zones viz, special tax incentives for foreign investments in the SEZs, greater independence on international trade activities, listed separately in the national planning (including financial planning) and have province- level authority on economic administration.

The major objectives of setting up a SEZ are to attract Foreign Direct Investment (FDI), earn foreign exchange and contribute to exchange rate stability, boost the export sector especially non traditional exports, to create employment opportunities, introduce new technology, develop backward regions etc. by stimulating sectors as electronics, information technology, R & D, tourism, infrastructure and human resource development that are regarded as strategically important to the economy.

Some SEZs in India are

Seepz Special Economic Zone

Kandla Special Economic Zone

Noida Special Economic Zone

Falta Special Economic Zone

Vishakhapatnam Special Economic Zone

Madras Special Economic Zone

Cochin Special Economic Zone.

SwavalambanThis is a social security scheme to popularize voluntary long-term retirement saving among low-

income earners in the unorganised sector. These low-income earners in the unorganised sector do

not usually realize the potential benefits of long-term retirement saving due to either low current

income or financial illiteracy. To encourage the people from the unorganised sector to voluntarily save

for their retirement, Central Government in its Budget Speech (FY 2010-11) introduced a scheme to

contribute Rs.1,000 per year to each NPS account opened in the year 2010-11, where the

unorganized income earner contributes an equivalent amount. This scheme was initially planned to

run till 2013-14. "Swavalamban” is available for persons who join National Pension Scheme, with a

minimum contribution of Rs.1,000 and a maximum contribution of Rs.12,000 per annum during the

financial year 2010-11. In the Budget Speech (FY 2011-12) the scheme has been extended till 2016-

17. The exit norms were also relaxed allowing exit at the age of 50 years instead of 60 years, or a

minimum tenure of 20 years, whichever occurs later. In the first year of operation ( FY 2010-11) the

number of beneficiaries reached 3,03,698.

There are at least five mutual advantages for Government and low-income earners in the unorganised

sector, which supports future continuance of Swavalamban on fiscally prudent parameters. First, the

government co-contribution is directly sent through electronic transfer eliminating leakages. This

ensures a long-term retirement savings are invested in different assets with the potential of fetching

adequate retirement income stream for low-income earners in the unorganised sector. Second, the

more an eligible person saves , upto the maximum amount of Rs 12,000 specified per annum, the

more he is entitled to get from the Government as a co-contribution and this is an in-built incentive will

help him to save more. . An incentive of Rs. 1000 can prompt households to save 1x to 12x,

theoretically. At present, an analysis of country-wise data shows that for every Rupee 1 allocated by

the Government for this scheme, there has been a corresponding savings of 1.34. As more

awareness of this scheme takes place, the savings of the eligible people are likely to be many times

the amount put aside by Government. In other words, there is an in-built multiplier effect. Third, this

pool of savings strengthens the options for funding long-term investment. This means this pool of

long-term savings of a twenty year tenure could be used to finance long-term projects, infrastructure,

for example. Fourth, at present Government spends a lot of budgetary funds on social welfare of the

elderly. In due course, Swavalamban can reduce the requirement for such schemes as all savers

under this scheme are less likely to need further social security. Not the least, in strict economic

terms, this makes more better fiscal sense than lowering taxes since any increase in disposable

income from tax cuts tends to go towards consumption rather than result in increased savings.

Similar to ‘Swavalamban’ there is a KiwiSaver scheme operational in New Zealand since 2007. This

scheme however is mandatory to all those who are employed for a period of one month or more, with

an optional exit possible during trial period 14days to 56 days.

Currently, all formal sector employees covered by the Employees Provident Fund Organization are

also covered by the Employees’ Pension Scheme, 1995 under which the Government of India

contributes 1.16% of their wages (subject to a monthly cap of Rs.6500) towards their pension.

Therefore, ‘Swavalamban’ in National Pension System generates similar benefits to unorganised

sector employees, and has potential for reducing poverty among older strata of population after the

next twenty years or so, without causing undue stress on the budget.

Swayam Sidha SchemeIt is a flagship programme of the Ministry of Women and Child Development (WCD), Government of

India. It is an integrated women empowerment programme (IWEP) initiated in 2001 by merging Mahila

Samriddhi Yojana and recasting Indira Mahila Yojana (IMY was the first Self Help Group based

women’s empowerment programme of Ministry of WCD launched in 1995-96) and including other

sectoral programmes meant for women empowerment. The objectives of the scheme include

empowerment through creation of confidence and awareness among members of SHGs regarding

women’s status, health, nutrition, education, sanitation and hygiene, legal rights, economic upliftment

and other social, economic and political issues; strengthening and institutionalizing the savings habit

among rural women and their control over economic resources; improving access of women to micro

credit; involvement of women in local level planning; and convergence of services of Department of

Women and Child Development and other Departments. The long term objective of the scheme is to

achieve an all round empowerment of women, both social and economic empowerment. Direct

access to and control over resources through income generating activities would be the main purpose

of women SHGs under Swayam Sidha.

The most important component of the programme is the formulation, implementation and monitoring

of block-specific composite projects for 4-5 years. The groups thus formed should be on a self

sustaining mode by the end of 5 years. To mobilize and sustain the groups, community involvement is

necessary. Towards this, innovative schemes are undertaken by State Governments and the Central

Government to engage the community and bring about convergence of schemes.

Swayam Sidha Phase-2 which commenced in 2008 will be for 10 years duration and is a country wide

programme covering all blocks in the country. During the 11th Plan period of second phase of

Swayam Sidha, formation of SHGs, clusters and federations, income generation activities etc. will be

undertaken. During the latter part of phase II, during 12th Five Year Plan, strengthening of clusters,

group income generation activities etc. will be undertaken.

Swayam Sidha has resulted in tremendous improvement in the socio-economic status of rural poor

women and it has helped in providing skill enhancement to the poor women for income generating

activities. The evaluation report of an external agency in 2005 indicated that women in Swayam Sidha

Blocks have strengthened their social standing in society and the awareness of social evils like

alcoholism, dowry & female feticide is visible. Economic status of women has definitely improved after

joining the SHGs. Number of women members in Panchayat levels has increased and some of them

have been elected to local bodies.

VahanVahan is a software package introduced in 2011 by National Informatics Centre and Ministry of Road

Transport & Highways for the creation of a complete computerized database of vehicle information

available with Regional Transport Offices (RTOs) and District Transport Offices (DTOs). Its functional

modules include vehicle registration, vehicle fitness, taxation, permits and enforcement. To address State-

specific requirements, Vahan is customized State-wise. The vehicular data of RTOs and DTOs is compiled

in each State to create the State Register. The State Registers of all States are compiled at the national

level to generate the National Register.

Some uses of the data generated by Vahan include instant access of vehicle information, better monitoring

of inter-state revenue; checking duplication of registration; and linking to the insurance companies’

database.