CURRENT

AFFAIRS CRASH

COURSE 2020

ECONOMY CURRENT

AFFAIRS

AGR-ADJUSTED GROSS REVENUES

• National Telecom Policy, 1994 after which licenses were issued to companies in return for a fixed license fee.

• 1999 gave an option to the licensees to migrate to the revenue sharing fee model.

• Mobile telephone operators were required to share a percentage of their AGR with the government as annual license fee (LF) and spectrum usage charges (SUC).

• 8% on LF and 3-5 % on SUC

DOT Stand

• AGR includes all revenues (before discounts) from both telecom and non-telecom services.

Companies Stand

• Just the revenue accrued from core services and not dividend, interest income or profit

DEFINITION OF AGR:

• 2005, CELLULAR OPERATORS ASSOCIATION OF INDIA (COAI) CHALLENGED THE GOVERNMENT’S DEFINITION FOR AGR CALCULATION.

• 2015 TDSAT - TELECOM DISPUTES SETTLEMENT APPELLATE TRIBUNAL (TDSAT) RULED IN FAVOUR OF COAI

• DOT DECIDED TO MOVE SC AGAINST THE TDSAT ORDER.

• SUPREME COURT ON OCTOBER 24, 2019 UPHELD THE DEFINITION OF AGR.

• TOTAL DUES ARE TO THE TUNE OF RS. 1.47 LAKH CRORE INCLUDING INTEREST AND PENALTIES AS ON DATE

• DEADLINE OF 23RD JANUARY TO PAY THE DUES.

• FEB 26 A CONTEMPT CASE WAS FILED.

• LOBBY BY COMPANIES FOR A RELIEF

• WHILE NOT WAIVING IT DOT ON MARCH 16 GAVE A 20 YEAR REPAYMENT PLAN MUCH TO THE RELIEF OF TELECOM PLAYERS

IMPLICATIONS

• BUT MAJOR COMPANIES LIKE VODAFONE IDEA ARE DEBT RIDDEN.

• THE GOVT UNDERSTANDING THE SITUATION PROMISED A RELIEF

• CHANCES OF A DUOPOLY

• NPA OF BANKS TO RISE IF VODAFONE ALLOWED TO EXIT OR FAIL

• INCREASE IN TARIFF RATES DUE TO RISING COSTS AND RBI FLAGGED IT AS A RISK TO INFLATION

• NATIONAL DIGITAL COMMUNICATIONS POLICY 2018

• ATTRACT $100 BILLION INVESTMENT

• CREATE 4 MILLION JOBS IN THE SECTOR BY 2022

• THE PAYMENTS SHRINKS CAPEX

• BUT IF PAID THE GOVT WILL HAVE A WINDFALL TO TIDE OF FINANCIAL STRESS

RBI SURPLUS TRANSFER

HOW DOES IT EARN INCOME

• GOVT SECURITIES HOLDING

• INVESTMENTS IN FOREIGN CURRENCY ASSETS

• CONDUCTING OMO’S

• FOREIGN CURRENCY AND GOLD RESERVES REVALUATION (UNREALISED)

• TRANSFER OF DIVIDEND (REMAINING)

THE FLASHPOINT IS THE QUESTION OF

CAPITAL ADEQUACY

Is there a right level of reserves?

Why this question when RBI had been

overcapitalised as always?

In November 2018 Board Meeting, RBI

and Govt decided to constitute a

Economic capital framework panel-Bimal

Jalan

• The Reserve Bank of India (RBI) has decided to transfer a sum of Rs. 1,76,051 crore to the Government of India as per the recommendations made by Bimal Jalan Committee.

• The surplus money includes a sum of Rs. 1,23,414 crore for the year 2018-19 and Rs. 52,637 crore of excess provisions identified as per the revised Economic Capital Framework (ECF)

• Accordingly the NON TAX revenue of the GOI increased.

IMPORTANT MONETARY POLICY

DECISIONS

As we know the first 2 quarters showed trends of

slowdown and lower inflation and from q3 inflation

began to rise especially due to food prices.

For most of the MPC 1-4, RBI maintained an

accommodative stance while cutting Repo rates.

This year is unusual due to 7 MPC instead of six.

Due to an emergency COVID-19 MPC on 27th March

2020

• OMO- OPERATION TWIST

• FOCUS ON TRANSMISSION OF RATES

• INTRODUCTION OF LTRO AND TLTRO

• SOME OTHER DECISIONS RELATED TO 7TH MPC.

OMO- OPERATION TWIST

• YIELD CURVE FLATTENING.

• DEVIATION BETWEEN LONGTERM AND SHORT TERM BONDS.

• UNUSUAL DEVIATION AND A SURPLUS LIQUIDITY IN TBHE MARKET FORCED RBI TO UNDERTAKE A ZERO LIQUIDITY OPERATION

• INVERSE RELATION BETWEEN BOND YIELD AND BOND PRICE.

• WE USUALLY UNDERSTAND ONLY INTEREST RATES WITH BONDS. SO YIELD SHOULD BE EQUAL TO INTEREST RATES BUT NOT SO.

WHY INVERSE RELATION B/W BP AND BY

BOND PRICE= 1000 @ 10 % p.a for 5 years

Bond Yield = 100 yielded in first year / 1000 (price) = 10 %

But when the bond is sold the yield changes because it will not be sold at the same price.

Ex. Sold at 1100 then yield = 100 (interest)/1100 = 9% {Demand for bond is higher}

Ex. Sold at 900 then yield =100/900=11% {Demand for bond is lower}

Thus yield is inversely proportional to Bond price. Remember the interest rate in 10 but yield might change as per the resale value

RBI's simultaneous selling of short-term securities and

buying of long term securities through open market

operations (OMO).

FOCUS ON TRANSMISSION OF

RATES

EBLR – EXTERNAL BENCHMARK TRANSITION IS TAKING

SOME TIME

6TH MPC LTRO- LONG TERM REPO OPERATIONS

•THIS WILL ENABLE BANKS TO TRANSMIT THE RATE

CUTS OF PREVIOUS PERIODS

• INCREMENTAL CRR EXEMPTION OF MSME

7TH MPC LTRO MODIFIED TO A TLTRO

EXTERNAL BENCHMARKS-

(SHIFT FROM MCLR)

RBI POLICY REPO RATE

91 DAY T-BILL RATE

182 DAY T-BILL RATE

ANY BENCHMARK OF FBIP LTD.

7TH MPC

ASSYMETRIC CORRIDOR FROM A SYMMETRIC CORRIDOR

• CASH RESERVE RATIO AT 4 % LOWERED TO 3 % FOR A YEAR

• WHY TARGETED LTRO?

•MASSIVE SELLING IN STOCKS AND REDMPTION PRESSURES IN MF BONDS ETC. SO, MONEY AVAILED THROUGH TLTRO SHOULD BE SPECIFICALLY USED FOR INVESTMENT GRADE CORPORATE BONDS, COMMERCIAL PAPER, AND NON-CONVERTIBLE DEBENTURES

• BORROWING AGAINST SLR SECURITIES HAS BEEN INCREASED TO 3 %. UNDER MSF

• CCB REMAINING TRANCHE/ PHASE OF 0.625% HAD TO DELAYED IT TO SEP 2020.

• BANKS TO PARTICIPATE IN OFFSHORE RUPEE DERIVATIVES. RBI HAS GIVEN ITS NOD FOR BANKS TO TRADE FROM JUNE 2020.

CAPITAL BUFFER- CYCLICAL

Basel III introduced two additional capital buffers

A mandatory "capital conservation buffer", equivalent to 2.5% of risk-weighted assets.

A "discretionary counter-cyclical buffer", allowing national regulators to require up to an additional 2.5% of capital during periods of high credit growth.

The level of this buffer ranges between 0% and 2.5% of RWA and must be met by CET1 capital.

CCB REMAINING TRANCHE/ PHASE OF 0.625% HAD TO BE OVER BY 2019 MARCH. DUE TO NBFC CRISIS, RBI DELAYED IT TO MARCH 2020. AGAIN, DELAYED TO SEP 2020.

USHA THORAT TASK FORCE ON

OFFSHORE RUPEE DERIVATIVES

• A fine example of OFFSHORE Derivatives are P notes.

• Why a big deal about ORD especially in the format of Non Deliverable forwards?

• Understand how a derivative like NDF works- settled in dollars but underlying asset is Rupee.

• NDF markets started in currencies like the

Korean won, Brazil real and the like and

developed in global financial centres such as

London and Singapore Thus, they are also

called offshore markets

• As the Indian economy has become more

globalised, the rupee has become an

important NDF market as well.

• INDIA – Convertibility of Rupee- Not full in Capital Account.

• Tarapore committee (2006) and the Mumbai International Financial Centre Report (2007) had advocated removing restrictions on capital flows to prevent developing of NDF market. However, back then, volumes in rupee NDF were low.

RISK OF INDIAN RUPEE VOLATILITY

• The Task Force was set up to examine the issues relating to the offshore Rupee markets

• Ensuring stability of the external value of the Rupee

• Incentivising non-residents to access the onshore foreign exchange market.

SOME RECOMMENDATIONS

• Indian banks should not be allowed to deal in the offshore rupee derivative market — or Non-Deliverable Forward (NDF) markets — for the present.

• Extension of onshore market hours to improve access of overseas users

• Permit Indian banks to freely offer prices to global clients around the clock

• Enabling rupee derivatives (settled in foreign currency) to be traded in the International Financial Services Centres (IFSC) in India.

15TH FINANCE COMMISSION- NK SINGH

The share of states in the centre’s taxes is

recommended to be decreased from 42% during

the 2015-20 period to 41% for 2020-21

The population reference mandate caused

concerns among certain states but the criteria for

devolution has not really punished states for

population control

• One TOR was The possible elimination of “Revenue Deficit Grants”

• But The Commission recommended revenue deficit grants for Certain states

• Special grants-Karnataka, Mizoram, and Telangana

• Sector-specific grants-.Nutrition , Health etc

• Performance-based grants

• Local Body grants

• Disaster Risk Management- National and State Disaster Management Funds (NDMF and SDMF) Promote local level mitigation. This will follow the pattern of SDRF financing.

TAX AMNESTY SCHEMES

SABKA VISHWAS: legacy dispute resolution scheme

Service Tax and Central Excise cases.

Taxpayers can pay the outstanding tax amounts due and

be free from any other consequences under the Law.

• There will be complete amnesty from prosecution

proceedings.

• Full waivers of interest, penalties and fines.

From June 2019 to Dec 31 2019

VIVAD SE VISHWAS

• This is a direct tax scheme announced in Budget 2020 like VIVAD SE VISHWAS

• Scheme till Mach 31,2020- No interest, penalty etc

• additional 10 per cent penalty on the disputed tax amount after that under the scheme.

• Amnesty against other proceeding by the income tax department or any other designated authority.

NATIONAL STATISTICAL OFFICE

(NSO)

• Last year in March 2019,

• Central Statistical Organisation (CSO) and the National

Sample Survey Office (NSSO) merged to form a National

Statistical Office (NSO)

• GDP, household surveys, Inflation, ASI, Crop estimates

etc

• The NSO has four Divisions:

• Survey Design and Research Division(SDRD)

• Field Operations Division (FOD)

• Data Processing Division (DPD)

• Survey Coordination Division (SCD

7TH ECONOMIC CENSUS

• The non‐farm economic activities carried out in India have lot of diversity in terms of organization and management.

• the units engaged in non‐farm economic activities, if measured properly, will give indications about location‐wise economic activities, occupations, employment and relatively inactive locations

• The First Economic Census was conducted throughout the country, except Lakshadweep, during 1977

• Task Force on Improving Employment Data in May,

2017 NITI AAYOG

• It said to undertake the Economic Census every 3

years, beginning with the 7th Economic Census so

that more frequent information on the various

economic characteristics of establishments are

available and could be compared with the existing

databases in the GSTN, EPFO, MCA etc.

• A nation‐wide Business Register

NATIONAL STATISTICAL

COMMISSION

• The National Statistical Commission (NSC) of India is an

autonomous body which formed in June 2005 under the

recommendation of Rangarajan commission.

• mandate to evolve policies, priorities and standards in

statistical matters.

• The NSC has four Members besides a Chairperson,

each having specialization and experience in specified

statistical fields.

NATIONAL STATISTICAL

COMMISSION BILL 2019

• To Give statutory backing to NSC

• Composition: The draft Bill proposes for a full time

Chairman and members nominated from amongst eminent

persons, including, Deputy Governor of RBI as a member

of the Commission and the Chief Economic Adviser as its

ex-officio member.

• Chief Statistician of India (CSI): This position has been created to head the National Statistical Office (NSO).

• CSI will be a member of NSC.

• Statistical Audit: The bill provides for establishing a National Statistical Audit and Assessment Organization (within NSC) with a Chief Statistical Auditor in the rank of Secretary to the GOI.

PLFS VS NSSO EMPLOYMENT SURVEY

Employment and Unemployment Surveys -quinquennial Lat EUS 2011-12

1st April 2017, the NSSO has adopted a new employment and

unemployment survey called Periodic Labour Force Survey (PLFS)

1st report released on May 31 2019

TERMINOLOGIES TO

REMEMBER

• Current Weekly Status (CWS)

• Usual Status

• Unemployment rate (UR)

• Labour force participation rate (LFPR)

• Worker Population Ratio (WPR)

WHAT DOES THE PLFS DO

• Quarterly employment and unemployment data at urban level

Current Weekly Status (CWS).

• Usual Status and CWS based data annually for Urban and rural

Usual status of those 15yrs above and completed secondary

education

SOME FINDINGS

• According to Periodic Labour Force Survey (PLFS) 2017-

18, 6.1% of India’s labour force, and 17.8% of young

people (15-29 years) in the labour force are unemployed.

• 2011-12 unemployment rate from the Employment-

Unemployment Survey (EUS)

• Formalisation of Jobs nearly 5 % increase.

RBI PRUDENTIAL FRAMEWORK FOR

RESOLUTION OF STRESSED ASSETS JUNE

CIRCUAR

Due to SC quashing FEB 12 circular.

i. Early recognition and reporting of default of large borrowers by

banks, Financial Institutions (FIs) and Non-Banking Finance

Companies (NBFCs);

i. SMA classification

ii. Central Repository of Information on Large Credits (CRILC)

ii. Complete discretion to lenders with regard to the design and

implementation of resolution plans, in supersession of earlier

resolution schemes (S4A, SDR, 5/ 25, etc.), subject to the specified

timeline and independent credit evaluation;

iv. Withdrawal of asset classification dispensations on

restructuring. Future upgrades to be contingent on a

meaningful demonstration of satisfactory performance for

a reasonable period;

v. A system of disincentives in the form of additional

provisioning for delay in implementation of resolution plan

or initiation of insolvency proceedings;

vi. Signing of inter-creditor agreement (ICA) by all lenders

to be mandatory, which will provide for a majority decision

making criteria.

PM GARIB KALYAN YOJANA PACKAGE

• FINANCIAL PACKAGE TOWARDS COVID 19- 1.7 LAKH

CRORE

• AN INSURANCE COVER OF RS. 50 LAKH ANY HEALTH

WORKER IN GOVERNMENT HOSPITALS AND HEALTHCARE

CENTRES WHO ARE TREATING THE COVID-19 PATIENTS

• FREE PULSES FOR THE NEXT 3 MONTHS UNDER PM

GARIB KALYAN ANN YOJANA

• 5 KG WHEAT AND 1 KG PULSE FREE.

• PM KISAN 2000 RS FRONTLOADED

• LPG CYLINDERS

• PREVENT DISRUPTION IN THEIR EMPLOYMENT. 24 PERCENT OF THEIR MONTHLY WAGES INTO THEIR PF ACCOUNTS FOR NEXT THREE MONTHS

• MNREGA WAGES WOULD ALSO BE INCREASED BY RS. 20

• CRITICISM AGAINST THE MEAGRE SUM AND COMPARISON EITH THE 2 TN American stimulus Package

• It will provide high insurance cover for exporters and reduce premium

for small exporters.

• called the Export Credit Insurance Scheme (ECIS), the insurance

guarantee could cover up to 90% of the principal and interest.

• At present, the Export Credit Guarantee Corporation provides credit

guarantee of up to 60% loss.

• Export Credit Guarantee Corporation of India (ECGC)

• Its objective was to promote exports from the country by providing

credit risk insurance and related services for exports.

NIRVIK