Tag: GS-3

Context:

Union Finance Minister Nirmala Sitharaman said that the GST Council is currently reviewing GST rates for rationalisation on an item-by-item basis. She noted that this process had been delayed due to various factors, including the COVID-19 pandemic and state elections.

 

More in News:

• End of GST Compensation: Nirmala Sitharaman stated that GST compensation cannot continue beyond June 30, 2022, as mandated by law. Compensation payments were made for the first five years post-GST implementation.
• Discussion on Cess: The GST Council is currently discussing whether the compensation cess should continue, its rate, and the items it applies to.

 

Key aspects of GST tax rationalisation include:

Simplification of Tax Structure: The GST system currently has multiple tax slabs (0%, 5%, 12%, 18%, and 28%), which can cause confusion and misclassification of goods; thus, reducing the number of slabs aims to enhance clarity and ease compliance for both businesses and consumers.

 

Rate Adjustments:

• Essential Goods: In India, the GST rate for items like sanitary pads was reduced from 12% to 5% to make them more affordable.
• Cess on Luxury Goods: Certain luxury items, like cars, have higher GST rates (28%) along with an additional cess, but there have been discussions to rationalise these to boost sales during economic slowdowns.

 

Reducing Compliance Burdens:

• Quarterly Returns: The introduction of the QRMP (Quarterly Return Monthly Payment) scheme allows small taxpayers with a turnover of up to ₹5 crore to file returns quarterly, reducing the frequency of compliance.
• Simplified Forms: The government has made efforts to simplify GST return forms, like the introduction of GSTR-3B, which requires less detailed information compared to earlier forms.

• Streamlining Classification: The GST Council often releases clarifications and FAQs to resolve ambiguities about the classification of certain goods and services, such as distinguishing between composite and mixed supply.

 

Enhancing Technology:

• e-Invoicing: The implementation of e-invoicing mandates for businesses above a certain turnover has streamlined the invoicing process and improved compliance through real-time reporting.
• GST Portal Improvements: Continuous updates to the GST portal to enhance user experience and facilitate easier filing and payment processes.

 

Addressing Revenue Shortfalls:

• Incentives for Compliance: Introducing schemes like the “Vivad Se Vishwas” scheme to encourage voluntary compliance and settle disputes to improve revenue collection.

• Ensuring Input Tax Credit Efficiency: Matching Mechanism: The GST system has improved the matching of input tax credits with supplier filings to reduce fraudulent claims, enhancing taxpayer accountability.

 

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GST Council

Establishment of the GST Council

• Constitutional Basis: Established under the 101st Amendment Act of 2016, which introduced GST in India.
• Article 279-A: This article empowers the President to constitute the GST Council.

Composition of the Council

• The GST Council consists of the Union Finance Minister as the Chairperson, the Union Minister of State for Revenue or Finance, and the Finance Ministers or nominated Ministers from the states. 
• A Vice-Chairperson is elected from among the state members, while the Chairperson of the Central Board of Excise and Customs (CBEC) serves as a permanent invitee.

Working of the Council

• To conduct a meeting, the quorum requires half of the total members.
• Decisions are made by a three-fourths majority of weighted votes, with the central government holding one-third of the total votes and state governments combined holding two-thirds.
• Proceedings of the Council remain valid despite any vacancies or procedural irregularities.

Functions of the GST Council:

The GST Council is responsible for making recommendations to the central and state governments on the following matters:

• Tax Mergers: Taxes, cesses, and surcharges to be merged into GST.
• Goods and Services: Identification of items subject to GST or exempt from it.
• Model GST Laws: Principles of levy, apportionment of GST on inter-state trade, and governing place of supply.
• GST Rates: Establishing rates, including floor rates and bands.
• Special Rates: Recommendations for special rates during natural calamities or disasters.
• Northeastern States: Special provisions for specific states (e.g., Arunachal Pradesh, Jammu and Kashmir).

Other Functions of the Council

• GST on Petroleum Products: Recommend the date for GST implementation on petroleum and natural gas.
• Dispute Resolution: Establish mechanisms for adjudicating disputes between the centre and states or among states.
• Compensation Recommendations: Advice on compensation for states for revenue loss due to GST for five years, leading to parliamentary action.

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Context:

A series of legal actions against tech giants across various jurisdictions, along with the implementation of the European Union’s (EU) Digital Markets Act, signals a significant shift in policy attitudes toward big tech. 

 

More on News:

• Apple and Google are currently battling antitrust cases in the United States, and both have faced legal defeats in the EU. 
• Meanwhile, Meta is defending a class-action lawsuit under the UK’s Competition Act. 
• In India, the Competition Commission of India (CCI) has fined Google $113 million for anti-competitive practices, and Apple is also under investigation by the CCI. 

 

Tech Monopolisation:

• It refers to the phenomenon where technology companies dominate their respective markets to the extent that they can significantly influence prices, control supply, and limit competition. 
• This dominance often leads to practices that stifle innovation and restrict consumer choices. 
• Examples of Tech Monopolisation: Companies like Google, Amazon, Apple, Meta (Facebook), and Microsoft have been identified as major players in tech monopolisation. 

 

Implications:

• Reduced Competition: This leads to fewer choices for consumers and can result in higher prices.
• Innovation Stagnation: This can slow technological advancement and reduce the overall quality of products and services.
• Consumer Exploitation: Monopolistic practices can lead to unfair pricing strategies and reduced service quality, as consumers have limited alternatives.
• Data Privacy Concerns: Dominant tech firms often collect vast amounts of personal data, leading to concerns over privacy and surveillance. 
• Impact on Democracy: The concentration of power in a few tech giants can pose risks to democratic processes by influencing public opinion through control over information dissemination.
• The 2016 US presidential election highlighted the potential for tech giants, like Facebook, to significantly influence democratic processes. 

 

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In his most ambitious and sweeping work to date, Techno feudalism: What Killed Capitalism renowned economist Yanis Varoufakis contends that capitalism is no longer the dominant economic system—it’s been replaced by a new era. The vast sums of money pumped into the economy following the financial crisis and the pandemic have only served to strengthen big tech’s grip on every facet of the economy. The traditional foundations of capitalism—markets and profit—have been overtaken by big tech’s platforms and rent-seeking practices. Now, with each click and scroll, we labour like modern-day serfs, further consolidating their control.

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Actions Against Tech Monopolisation:

European Union: 

• Digital Markets Act (DMA): Effective from May 2023, the DMA imposes strict regulations on “gatekeeper” platforms to ensure fair competition and prevent anti-competitive practices. It sets out clear dos and don’ts for these companies to maintain an open digital market.
• Antitrust Investigations: The EU has been proactive in investigating major tech firms for suspected anti-competitive behaviour, leading to fines and mandates for changes in business practices.

 

United States:

• Antitrust Lawsuits: The U.S. government has filed multiple antitrust lawsuits against major tech companies, including Google, Amazon, Facebook (Meta), and Apple.
• Legislative Proposals: Various bills have been proposed to enhance antitrust enforcement and prevent unfair competition practices, although these have faced challenges in gaining bipartisan support.

 

United Kingdom:

• Competition and Markets Authority (CMA): The CMA has launched several investigations into Big Tech companies and is working on a new regulatory framework for digital markets to prevent monopolistic behaviour.
• Digital Markets, Competition and Consumer Bill: This upcoming legislation aims to empower regulators to impose specific conduct requirements on firms with strategic market status.

 

India:

• Competition Commission of India (CCI): The CCI has initiated investigations into various tech companies for potential anti-competitive practices, particularly concerning data privacy and market dominance.
• Drafting New Regulations: India is considering new regulations that would address digital markets more effectively, focusing on consumer protection and fair competition.
• Public Consultation: The Indian government is engaging stakeholders through consultations to develop a comprehensive framework that addresses the challenges of monopolisation in the tech sector.

 

Way Forward

Strengthening Regulatory Frameworks:

• Implementing Comprehensive Legislation: Governments should develop and enforce robust regulatory frameworks tailored to the unique challenges posed by tech monopolies. 
• Enhancing Antitrust Laws: Existing antitrust laws must be updated to reflect the complexities of digital economies.

 

Global Cooperation:

• International Collaboration: Countries should collaborate on a global scale to create consistent regulatory standards for tech companies operating across borders. 
• Sharing Best Practices: Governments can benefit from sharing experiences and strategies regarding tech regulation, learning from each other’s successes and failures.

 

Promoting Competition:

• Encouraging Market Entry: Policies should be designed to lower barriers for new entrants in the tech industry, fostering innovation and competition.
• Monitoring Mergers and Acquisitions: Stricter scrutiny of mergers and acquisitions involving major tech firms is essential to prevent further consolidation of market power. 

 

Empowering Consumers:

• Consumer Education: Governments should promote awareness among consumers about their rights and the implications of monopolistic practices. 
• Data Protection Regulations: Stronger data protection laws can empower consumers by giving them greater control over their personal information, reducing the leverage that monopolistic companies have over users.

 

Incentivising Ethical Business Practices:

• Corporate Accountability: Companies should be held accountable for their business practices through transparency requirements and ethical guidelines. 
• Encouraging Fair Competition Practices: Governments can incentivise companies to adopt fair competition practices through tax benefits or recognition programs that highlight ethical business behaviour.

 

Addressing Emerging Technologies:

• Regulating AI and Emerging Tech: As technologies like artificial intelligence evolve, regulators must proactively address how these innovations may reinforce existing monopolies or create new ones. 
• Monitoring Platform Economies: Continuous oversight of platform economies is necessary to ensure that they do not exploit their gatekeeping positions to stifle competition or manipulate market dynamics.

 

Public Consultation and Stakeholder Engagement:

• Engaging Stakeholders: Governments should actively engage with stakeholders, including consumers, businesses, and advocacy groups, to gather insights on the impact of tech monopolisation and potential regulatory responses.
• Public Consultations: Conducting public consultations can help ensure that regulations are well-informed and consider diverse perspectives, leading to more effective policies.

Context:

With reference to the death of a young Chartered Accountant who had recently joined EY, the Union Finance Minister Nirmala Sitharaman emphasised the need for colleges and universities to offer stress management lessons to help students build inner strength. 

 

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• Anna Sebastian Perayil, a Chartered Accountant who passed her exams in 2023 and had been working at EY’s Pune office for four months, passed away in July. 
• According to a letter her mother wrote to EY India Chairman Rajiv Memani, Perayil had been overworked with a “backbreaking” load that took a toll on her physically, emotionally, and mentally.

 

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The 1948 Universal Declaration of Human Rights (UDHR), particularly Article 24, states, “Everyone has the right to rest and leisure, including reasonable limitation of working hours and periodic holidays with pay.” 

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Causes of Workplace Stress

• High Workloads: Many professionals face overwhelming workloads that can lead to burnout. 
• Long Hours: The culture of long working hours, especially in competitive fields like finance, contributes significantly to stress levels. Employees often feel compelled to work overtime to meet expectations.
• The culture of long working hours in India, particularly highlighted by the comments of Infosys founder Narayana Murthy’s call for young Indians to work 70 hours a week has sparked widespread debate.
• Lack of Support: Insufficient support from management and colleagues can exacerbate feelings of isolation and stress. Employees may not feel comfortable discussing their mental health challenges.
• The Institute of Chartered Accountants of India (ICAI), of which the deceased woman was likely a member, has neither issued a statement of regret nor offered any guidance to member firms on fostering a healthier work culture. 
• Unclear Expectations: Ambiguity regarding job roles and performance expectations can create anxiety among employees, leading to stress and decreased job satisfaction.

 

Implications 

Physical Health Issues:

• • • Chronic Health Conditions: Stress is linked to 70% of doctor visits and is associated with increased susceptibility to illnesses due to a weakened immune system .
    • Physical Symptoms: Employees may experience headaches, muscle tension, digestive issues, and sleep disturbances, which can further impair their ability to perform effectively

 

Mental Health Challenges:

• Increased Anxiety and Depression: Approximately 38% of U.S. employees report cognitive weariness, while many experience emotional exhaustion leading to burnout .
• Cognitive Impairment: Stress can impair concentration, decision-making abilities, and memory, resulting in decreased productivity and increased errors in work .

 

Decreased Job Satisfaction:

• Low Morale: A toxic work environment characterised by stress can lead to low employee morale and job dissatisfaction. 
• Withdrawal from Work: High levels of stress often lead employees to withdraw from social interactions at work, further isolating them and compounding feelings of dissatisfaction .

 

Impact on Organisational Performance:

• Reduced Productivity: Stress negatively affects overall organisational performance, leading to decreased productivity and efficiency. 
• Increased Turnover Rates: This results in additional costs related to recruitment and training new hires .
• Higher Absenteeism Rates: Stress-related health issues contribute to increased absenteeism, as employees take time off to manage their physical or mental health problems. 
• Cost to Organisations: The financial impact of workplace stress is significant, costing businesses billions annually due to lost productivity, increased healthcare expenses, and high turnover rates . 

 

Way Forward

• Incorporating Mental Health Education: Educational institutions should integrate mental health education into their curricula, equipping students with tools for managing stress before they enter the workforce.
• Inspiration could be drawn from Australia and European nations, where workers have the right to disconnect after working hours. 
• Building Supportive Cultures: Organisations must prioritise creating a culture where discussing mental health is normalised, reducing stigma and encouraging employees to seek help when needed.
• Google is well-known for its flexible work policies, allowing employees to choose their work hours and locations. 
• Regular Assessments: Companies should conduct regular assessments of employee well-being and stress levels through surveys or feedback mechanisms to identify areas for improvement.
• Collaboration with Mental Health Professionals: Businesses should collaborate with mental health professionals to design effective programs tailored to their specific workforce needs.
• Salesforce prioritises employee well-being through initiatives like “Ohana Culture,” which emphasises family and community support. They offer mental health resources and wellness reimbursement programs.
• Leadership Commitment: Leadership must demonstrate a commitment to employee well-being by actively participating in wellness initiatives and modelling healthy work-life balance behaviours.
• Promoting Work-Life Balance: Initiatives like mandatory time off, no-meeting days, and encouraging employees to take breaks are being adopted to reduce stress levels.
• The International Labour Organisation (ILO), whose 2023 report on work-life balance notes that the number of hours worked and how they are structured can significantly affect both job quality and life outside of work.

Context:

The Union Labour Ministry is set to integrate the e-Shram portal with the Employees Provident Fund Organisation (EPFO) database to track workforce formalisation trends in India. 

 

More on News:

• This initiative aims to create a comprehensive system for monitoring the movement of unorganised sector workers into the formal sector and vice versa, which will help in designing targeted welfare policies.
• The Finance Minister announced in the Union Budget that the government aims to provide a wide range of services related to employment and skills through the comprehensive integration of e-Shram with other relevant portals.

 

Key Objectives and Developments:

• Integration of Databases: The integration will help observe real-time transitions of workers between the unorganised and formal sectors. 

• If an unorganised worker registered on e-Shram generates a Universal Account Number (UAN) under EPFO, it will indicate their formalisation.

• Single Window Access: The labour ministry is working to develop e-Shram as a centralised platform, integrating it with various welfare schemes from both central and state governments, making it easily accessible to millions of workers.

• Current Integration Progress: Ten central welfare schemes have already been integrated with the e-Shram database, including programs like MGNREGA, PMAY, and various pension schemes.

• e-Shram Portal Expansion: The e-Shram portal currently holds data on approximately 300 million unorganised workers.

• The ministry aims to onboard an additional 200 million workers, reaching a saturation point of around 500 million workers in total.

 

Implications:

• The integration of these databases represents a significant step towards enhancing the government’s ability to support unorganised workers, promoting their transition into formal employment, and ensuring better access to welfare benefits. 

• This initiative aligns with broader goals of improving labour conditions and formalising the workforce in India.

 

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Employees’ Provident Fund Organisation (EPFO) 

• • • Established under the Employees’ Provident Funds and Miscellaneous Provisions Act of 1952, EPFO plays a crucial role in promoting savings for retirement among workers. It is a statutory body that administers the Employees’ Provident Fund (EPF) scheme, which is designed to provide social security and retirement benefits to employees in the organised sector. 

e-Shram

• • • The e-Shram card is a social security scheme launched by the Government of India to provide benefits to unorganised sector workers.
    • Eligibility: Workers aged 16 to 59 in the unorganised sector are eligible for the e-Shram card, provided they are not members of EPFO, ESIC, or NPS.
    • Integration with Other Portals: The platform has been integrated with the National Career Service (NCS) Portal, allowing unorganised workers to register using their Universal Account Number (UAN) and search for job opportunities.
    • Additionally, it is integrated with the Pradhan Mantri Shram-yogi Maandhan (PM-SYM) pension scheme, enabling unorganised workers aged 18-40 to register easily on the Maandhan portal using their UAN.

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Context:

The Reserve Bank of India (RBI) has recognised the Fintech Association for Consumer Empowerment (FACE) as a self-regulatory organisation (SRO) in the fintech sector.

 

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The Fintech Association for Consumer Empowerment (FACE) is a prominent self-regulatory organisation in India, recognised by the Reserve Bank of India (RBI). Its primary focus is to promote consumer-centric practices within the fintech sector, ensuring that financial services are safe, suitable, and transparent.

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More on News:

• The banking regulator received three applications for SRO status. 
• One was granted the status, another was asked to reapply after meeting specific requirements, and the third is still under review.
• The total number of RBI-approved SROs is four, with FACE now included.

 

Current SRO Landscape in India:

• Foreign Exchange Dealers’ Association of India (FEDAI): Established in 1958, this was the first SRO in the banking sector, focusing on foreign exchange. 
• It was formed as an association of banks authorised to deal in foreign exchange and is incorporated under Section 25 of the Companies Act, 1956.
• Sa-Dhan: Formed in 1999, it received SRO status in 2015, representing microfinance entities.
• Microfinance Institutions Network (MFIN): Established in 2009, it also gained SRO recognition in 2015.

 

Overview of SROs:

• These SROs aim to facilitate communication between the RBI and their respective sectors, promote ethical practices, and ensure compliance with regulations.
• Functions: They are expected to monitor compliance, set standards, address grievances, and represent their members in dialogues with regulatory bodies.

 

The primary function of fintech SROs, as outlined by the RBI, includes:

• Representing all stakeholders in the fintech ecosystem.
• Setting standards and best practices.
• Collecting data, monitoring compliance, and reporting violations.
• Addressing grievances and resolving disputes.
• Raising customer awareness and protecting consumer rights.
• Supporting research and development.
• The RBI’s guidelines emphasise that SROs must operate independently, free from external influence, and be committed to upholding regulatory standards. 
• Regulation: In October 2022, the RBI issued draft guidelines for establishing SROs that would oversee payment system operators, including card networks, payment aggregators, and platforms like UPI. 
• Upcoming SRO for NBFCs: In June 2024, the RBI invited applications for SRO recognition in the non-banking financial companies (NBFC) sector. 
• This independence is crucial for fostering a transparent and accountable environment. 

 

Examples of Financial SROs:

• Financial Industry Regulatory Authority (FINRA): FINRA is one of the most prominent SROs in the United States. It regulates brokerage firms and professionals, enforces rules designed to protect investors, and oversees securities trading in the country.
• New York Stock Exchange (NYSE): The NYSE is another major SRO that regulates its members and ensures that trading practices are fair and transparent.

 

Challenges and Considerations:

• Need for SROs: Questions arise about the necessity of SROs in banking, given the effectiveness of existing industry bodies.
• Heterogeneity of NBFCs: The diverse nature of NBFCs raises concerns about limiting SROs to two, potentially impacting representation.
• Tech Giants: The role of large technology companies in financial services remains ambiguous under current guidelines.
• Overlapping Regulations: With various RBI departments overseeing different aspects of the fintech ecosystem, clarity and coherence are necessary.

 

Conclusion:

One approach could be to establish SROs for different segments based on their primary activities and the relationships among entities. Additionally, regulated and unregulated entities could be treated differently. The key to effective implementation of the SRO regime is to avoid overlap.

Context:

The 2024 State of Food Security and Nutrition in the World report estimates that as of 2022, 55.6% of India’s population—around 788 million people—could not afford a diet that met their nutritional needs.

 

More on News

• A healthy, nutritious diet is widely recognised as essential to addressing the “triple burden of malnutrition,” which refers to the simultaneous presence of undernutrition, overnutrition, and micronutrient deficiencies, as seen in India. 
• The National Family Health Surveys (NFHS) of 2015-16 and 2019-21 reveal persistently high levels of child undernutrition and rising rates of anaemia among adults, even as obesity and overweight cases have surged in both rural and urban areas.

 

Thalinomics

• The cost of a thali has recently gained popularity as a way to measure meal expenses, especially for the poor. 
• In 2019-20, the Economic Survey dedicated a chapter to “Thalinomics,” where they calculated the cost of “typical” thalis. 
• These thalis included rice and wheat, a variety of pulses (for vegetarian thalis) or an animal-based protein (for non-vegetarian thalis), along with a mix of vegetables, mustard, coconut or groundnut oil, and spices. 
• The quantities used were based on the 2011 Food-Based Dietary Guidelines (FBDGs) developed by the Indian Council of Medical Research-National Institute of Nutrition (ICMR-NIN).

 

Problem with Thalinomics

• However, the thali does not fully align with nutritional recommendations. 
• Its main ingredients provide only about 61% of the recommended daily intake of various foods by weight and meet 65% of the NIN’s 2021 caloric guidelines. 
• Additionally, it excludes several nutrient-dense food groups, such as green leafy vegetables, dairy, and nuts and seeds. 
• The thali’s construction is also data-intensive, relying on quantities from the outdated 2011-12 National Sample Survey Consumer Expenditure Survey (NSS-CES) to determine weights. 
• While Thalinomics may appear to represent “typical” meals, this classification is somewhat arbitrary, given the wide variation in food preferences and local availability across India.

 

An Alternative Method

• An alternative approach is to advocate for the Indian government to track the cost of a healthy diet (CoHD) as a regular measure of the expense required to meet nutritional needs. 
• The CoHD reflects the minimum daily per person expenditure necessary to meet food group-wise energy recommendations based on national Food-Based Dietary Guidelines (FBDGs), assuming all food is purchased from the market. 
• This approach is supported by three key points: 
• First, the CoHD uses existing price data and doesn’t depend on costly household consumption surveys like the thali calculation. 
• Second, the computations are straightforward, easily automated, and simple to interpret. 
• Third, and most crucially, the CoHD captures a different measure than the cost of a thali.

 

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State of Food Security and Nutrition in the World

The State of Food Security and Nutrition in the World 2024 (SOFI 2024) report, published by the FAO, IFAD, UNICEF, WFP, and WHO, provides a comprehensive analysis of global food security and nutrition trends. 

Key Findings

• Global Hunger Rates: Between 713 and 757 million people faced hunger in 2023, equating to one in eleven people globally, with one in five individuals in Africa experiencing hunger. Asia has the highest number of undernourished individuals at 384.5 million, despite a lower percentage of the population being affected.
• Food Insecurity: Approximately 2.33 billion people experienced moderate or severe food insecurity in 2023, with over 864 million suffering from severe food insecurity.
• Cost of a Healthy Diet: The average global cost of a healthy diet rose to $3.96 per person per day in purchasing power parity terms in 2022. Despite this increase, the number of people unable to afford a healthy diet decreased to 2.83 billion.
• Regional Disparities: The cost of a healthy diet is highest in Latin America and the Caribbean while being lowest in Oceania. 
• Child Nutrition: There have been improvements in reducing stunting and wasting among children under five; however, progress remains insufficient to meet the Sustainable Development Goals (SDG) targets for 2030.
• Obesity and Anaemia: Rising obesity rates globally and increasing anaemia among women aged 15 to 49 pose significant public health challenges.

Recommendations

• Increase Public Investment: There is a critical need for enhanced public spending on food security and nutrition programs aimed at reducing hunger.
• Addressing Disparities: Targeted interventions are necessary to address the widening gaps between different income groups, particularly focusing on low-income countries that continue to face high levels of food insecurity.

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Context:

The official YouTube channel of the Supreme Court of India was hacked for several hours on September 20, 2024, in a significant cybersecurity breach. 

 

More on News

• During this time, the channel featured videos promoting XRP, a cryptocurrency developed by Ripple Labs, a U.S.-based company. 
• The channel was later disabled, showing a 404 error message to visitors.
• Additionally, it appears that the hackers made previous videos of Supreme Court hearings private.
• This attack follows similar incidents, such as the hacking of Hyderabad Metro’s X (formerly Twitter) account, which promoted a cryptocurrency token named $HACKED on the Solana blockchain. A day later, the Indian Hockey team’s X account was also hacked, displaying a message promoting the same token. 

 

What is Cryptocurrency?

• Cryptocurrency is a digital or virtual currency that is secured by cryptography, making it nearly impossible to counterfeit or double-spend. 
• It is a form of digital money designed to be used over the internet.
• Cryptocurrencies are decentralised, meaning they are not issued or controlled by any government or central authority.

 

How Does Cryptocurrency Work?

• Cryptocurrencies run on a distributed public ledger called a blockchain, which is a record of all transactions updated and held by currency holders. 
• Transactions are verified by network nodes and recorded and cannot be altered.

 

Cryptocurrency and India

• Legality: Cryptocurrencies are legal in India, allowing individuals to trade and hold digital assets but they lack clear regulatory guidelines.
• Taxation: The Indian government has implemented a 30% tax on income from cryptocurrency transactions and a 1% Tax Deducted at Source (TDS) on transactions exceeding ₹50,000 annually. 
• Proposed Legislation: The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 aims to create a regulatory framework for cryptocurrencies.

Context:

The Reserve Bank of India (RBI) is encouraging non-banking financial companies (NBFCs) to reduce reliance on banks. Consequently, NBFCs are increasingly accessing the bond market for funding, according to PRIME Database.

 

About NBFC shifting from banks to bond market:

• Rise in Bond Issuance: There has been a marked increase in NBFCs raising funds through bond markets. 
• For many NBFCs, bonds now represent 35% to 40% of their total borrowings.

 

Factors driving NBFC shifting to bond market:

• Regulatory Changes: The Reserve Bank of India (RBI) raised risk weights on bank lending to NBFCs, making bank borrowing more expensive for them.
• Cost Efficiency: Bonds often provide cheaper financing compared to bank loans, especially for established NBFCs with good credit ratings.
• Diversification: NBFCs aim to reduce dependency on banks and diversify funding sources to improve liquidity and financial flexibility.
• Attractive Bond Market Rates: Favourable interest rates in the bond market make it an attractive option.

 

Impact of NBFC shifting to bond market:

• Opportunities for Retail Investors: The surge in bond issuance presents opportunities for retail investors, especially with the minimum investment limit reduced from approximately ₹1 lakh to ₹10,000.

• Cost of Capital: If bond yields are lower than bank interest rates, NBFCs may benefit from reduced borrowing costs; higher yields could increase financing costs.

• Liquidity and Flexibility: The bond market offers diverse funding sources, potentially enhancing liquidity and providing more flexible repayment structures.

• Risk Management: Accessing the bond market diversifies funding sources, reducing reliance on banks and mitigating risks during financial stress.

• Impact on Interest Rates: Increased NBFC participation in the bond market could influence overall market interest rates, potentially raising them if demand rises significantly.

• Strong Opportunities in Corporate Bonds: Corporate bonds, particularly those maturing in three to five years, offer significant opportunities, with AAA-rated bonds yielding around 7.5%, well above expected inflation.

 

Risks associated with higher Bond market investment:

• Interest Rate Risk: If the RBI raises rates, the value of existing bonds declines, with longer-term bonds being more sensitive to these changes.
• Credit Risk: Lower-rated bonds carry a higher credit risk, including potential downgrades in ratings due to worsening financial conditions.
• Liquidity Risk: Lower-rated bonds may be difficult to sell, impacting liquidity for investors.
• Reinvestment Risk: If bonds mature or are called back early, reinvesting may not be possible at the same rate, especially in a low interest-rate environment.
• Market Volatility: The bond market is more prone to fluctuations than bank loans, particularly during economic uncertainty impacting NBFCs’ ability to secure favourable borrowing terms.

 

Way Forward for investing in Bond market:

• Evaluate Credit Ratings: When assessing bonds, consider the credit rating, ideally AA or higher, as higher ratings indicate lower default risk.
• Review Issuer’s Financials: Examine the issuer’s financial health, including debt levels, and note who else is lending; involvement of major lenders suggests thorough due diligence.
• Interest Rate Type: Consider whether the bond’s interest rate is fixed or floating, as this impacts returns in a changing rate environment.
• Shorter Maturities Preferred: Avoid bonds with long maturities; a tenure of one to two years is recommended to minimise default risk.
• Watch for High Returns: Be cautious with bonds offering returns above 12%, as such rates may indicate a red flag.

Context:

The Ministry of New and Renewable Energy (MNRE) has unveiled a ₹500-crore sub-component under the ₹75,000-crore PM Surya Ghar: Muft Bijli Yojana, aimed at promoting innovative projects related to rooftop solar installations. 

 

Key Highlights:

• This initiative is set to revolutionise the solar energy landscape in India by incorporating cutting-edge technologies, including:
• Blockchain-based peer-to-peer rooftop solar systems
• Digital solutions for rooftop solar management
• Smart building materials integrated with solar technology
• Rooftop solar systems combined with electric vehicles (EVs)
• Grid-responsive rooftop solar systems with battery storage
• Distribution company (DISCOM) systems for managing rooftop solar installations
• Each project will have a maximum duration of 18 months, with financial assistance capped at 60% of the total project cost, up to ₹30 crore.
• The National Institute for Solar Energy (NISE), under the MNRE, will oversee the execution of the scheme.

 

About PM Surya Ghar: Muft Bijli Yojana:

• The Government of India launched the scheme on February 29, 2024.
• Objective: To significantly increase solar rooftop capacity and enable residential households to generate their own electricity. 
• The scheme is projected to run until FY 2026-27.
• As of recent reports, 1.3 crore families have registered for the scheme, with 3.75 lakh homes having installed connections since March.
• The scheme offers subsidised installations, with a maximum subsidy of ₹78,000 per household. 
• Unlike previous schemes, participants can now choose their preferred vendors online and access subsidised loans from banks for installation.

Context:

An article, part of the RBI’s September bulletin titled “State of the Economy” noted that despite CPI inflation staying below the target for two consecutive months, food price volatility remains a significant concern.

 

 

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Consumer Price Index (CPI) 

This is a critical economic indicator used to measure inflation by tracking changes in the price levels of a basket of goods and services purchased by households.

Composition of CPI

• Food and Beverages: This category holds the largest weight at approximately 45.86% of the total CPI, including subcategories like cereals, milk products, and vegetables.
• Housing: Accounts for about 10.07%, reflecting costs related to rent and utilities.
• Miscellaneous Expenses: This includes various sectors such as transportation (8.59%), healthcare (5.89%), and education (4.46%).

 

Methodology

• Data Collection: The Ministry of Statistics and Programme Implementation (MoSPI) collects price data from over 1,100 urban markets and nearly 1,200 villages, ensuring comprehensive coverage across different regions of India.
• Base Year Revision: The CPI was revised to a base year of 2012=100 in January 2015 to enhance accuracy and relevance in measuring inflation trends.

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More on News

• Headline inflation, measured by year-on-year (y-o-y) changes in the all-India CPI, increased slightly to 3.7% in August 2024, up from 3.6% in July. 
• The slight rise in inflation in August was attributed to an unfavourable base effect of about 5 basis points (bps), with the overall index remaining unchanged from the previous month (zero momentum). 
• The article also highlighted the global slowdown in economic activity and the sluggish pace of disinflation, which has led monetary authorities to act cautiously.

 

Inflation

• Inflation refers to the general increase in prices of goods and services in an economy over time, leading to a decrease in the purchasing power of money. 
• Headline Inflation: It refers to the total inflation within an economy, including all categories of goods and services, particularly volatile items such as food and energy prices. It is often reported through the Consumer Price Index (CPI).
• Core Inflation: It is a measure that excludes certain volatile items from the CPI, specifically food and energy prices. This adjustment provides a clearer view of long-term inflation trends without short-term fluctuations .