CURRENT BULLETIN (AUGUST-2019) CSB IAS ACADEMY

ECONOMY
Start-ups write to govt. on equalisation levy  The payment should be made to a non-
Context: resident service provider;
Domestic SMEs and start-ups have written to  The annual payment made to one service
Revenue Secretary complaining about the provider exceeds Rs. 1,00,000 in one finan-
equalisation levy they have to pay to foreign cial year.
companies doing business in India, resulting in · The following services covered:
increased costs as well as lost revenue for the
government.  Online advertisement;
In brief:  Any provision for digital advertising space
· The start-up sector, represented by LocalCircles, or facilities/ service for the purpose of online
held a meeting with the Revenue Secretary and advertisement;
discussed several aspects of direct and indirect · Currently the applicable rate of tax is 6% of the
taxation affecting the sector. gross consideration to be paid.
· Among the issues discussed was the equali-
sation levy that SMEs and startups have to pay
to foreign companies sending invoices from
abroad for services rendered within India.
· The complaint by the SMEs and start-ups is that
many companies, despite doing business in
India, were sending invoices from abroad, thereby
making their clients pay the equalisation levy.
· Since this is a levy, they [SMEs and startups]
are unable to claim Input Tax Credit for this cost
incurred.
· The start-ups have requested the government to
mandate that “any global corporation having
sales and marketing operations in India must be
required to invoice their customers in India from
a registered entity in India.” Elected directors in PSBs will be appointed
· Their suggestion is that if a global corporation by board: RBI
has one million citizens of India registered with
them or has 100 paying customers or annual Context:
revenues of over Rs.10 crore from customers in The Reserve Bank of India (RBI) has mandated
India, then they must be required to invoice all that the elected directors of public sector banks
Indian customers from their India entity. (PSBs) are to be appointed by the nomination
Equalisation Levy: and remuneration committee of the board of the
respective banks
· Equalisation Levy was introduced in India in
2016, with the intention of taxing the digital ‘Fit and proper’ criteria:
transactions i.e. the income accruing to foreign · The RBI has come out with guidelines on ‘fit and
e-commerce companies from India. proper’ criteria of elected directors in PSBs and
· It is aimed at taxing business to business (B2B) said all these banks were required to constitute
transactions. a nomination and remuneration committee
consisting of a minimum of three non-executive
· Equalisation Levy is a direct tax, which is
directors from the board, out of which not less
withheld at the time of payment by the service
than one-half will be independent directors and
recipient. The two conditions to be met to be
should include at least one member from the
liable to equalisation levy:
risk management committee of the board.

39 www.csbias.com
CURRENT BULLETIN (AUGUST-2019)
· The non-executive chairperson of the bank may
be appointed as a member of the committee but
shall not chair such a committee.
Maximum tenure:
· On the tenure, the RBI said an elected director
can be appointed for three years and could be
re-elected but cannot hold oce for than six years.
“The candidate should not be holding the position
of a Member of Parliament or State Legislature
or Municipal Corporation or municipality or other
local bodies,” the RBI said.
· Candidates engaged in stock broking, or a
member of any other board of a bank or financial
institution, connected with hire purchase,
financing, money lending, investment, leasing
and other para banking activities cannot be
considered for the appointment.
· Moreover, the RBI said the candidate should not
be acting as a partner of a chartered
accountant’s firm which is currently engaged as
a statutory central auditor of any nationalized
bank or the State Bank of India
RBI proposed easing of rules for SANDBOX
Model
Context
· The Reserve Bank of India (RBI) has issued the
final framework for regulatory sandbox in order
to enable innovations in the financial technology
space.
40
CSB IAS ACADEMY
· Regulatory sandbox(RS) is an infrastructure that
helps financial technology (FinTech) players live
test their products or solutions before getting the
necessary regulatory approvals for a mass launch
which saves start-up time and cost.
Background
· The target applicants for entry to the RS are
FinTech companies including startups, banks,
financial institutions and any other company
partnering with or providing support to financial
services businesses, subject to the sandbox
criteria laid down in these guidelines.
· The requirements that should mandatorily be
complied by the regulatory applicants are
a) customer privacy and data protection,
b) secure storage of and access to payment data
of stakeholders,
c) security of transactions
d) KYC requirements
e) statutory restrictions.
Details:
· RBI said that the entity should have a minimum
net worth of Rs 25 lakh as per its latest audited
balance sheet.
· The promoters/ directors of the entity should be
fit and proper and the conduct of the bank
accounts of the entity as well its promoters/
directors should be satisfactory.
www.csbias.com
CURRENT BULLETIN (AUGUST-2019)
· However, the regulatory relaxation which may be
granted by the RBI are
A. liquidity requirements
B. board composition
C. management experience
D. financial soundness and
E. track record.
· Further, the negative list of products, services
and technology which may not be accepted for
testing are (a)credit registry (b)credit information,
(c)crypto currency (d)trading or investing in
crypto asset among others
Changes in PMLA Act empower ED
Context:
The Centre has issued a notification on certain
changes in the Prevention of Money Laundering
Act (PMLA).
Details:
· Under the PMLA, the Enforcement Directorate
is empowered to conduct money laundering
investigation.
· The most crucial amendments are the deletion
of provisos in sub-sections (1) of Section 17
(Search and Seizure) and Section 18 (Search of
Persons), doing away with the pre-requisite of
an FIR or chargesheet by other agencies that
are authorised to probe the offences listed in the
PMLA schedule.
· Another important change is the insertion of an
explanation in Section 44. It says that the
jurisdiction of the Special Court, while dealing
with the offence under this Act, during
investigation, enquiry or trial under this Act, shall
not be dependent upon any orders passed in
respect of the scheduled offence, and the trial of
both sets of offences by the same court shall
not be construed as joint trial.
The changes are in line with the intent to treat
proceedings under the Act as separate from
those under the scheduled offences.
Some of the changes tend to treat money
laundering as a stand-alone crime and also
expand the ambit of “proceeds of crime” to
assets that may have been derived from any other
criminal activity related to scheduled offences.
An explanation added to Section 45 clarifies that
all PMLA offences will be cognisable and non-
bailable.
41
CSB IAS ACADEMY
Therefore, ED officers are empowered to arrest
an accused without warrant, subject to certain
conditions.
Another vital amendment to Section 3 makes
concealment of proceeds of crime, possession,
acquisition, use, projecting as untainted money,
or claiming as untainted property as independent
and complete offences under the Act.
These activities have been explicitly declared to
be continuing offences until such time a person
is directly or indirectly enjoying the proceeds of
crime.
Amendments have been made to Section 72 to
include a part, giving power to the Centre to set
up an Inter-Ministerial Coordination Committee
for inter-departmental and inter-agency
coordination for operational and policy level
cooperation, besides consultation with all
stakeholders on anti-money laundering and
counter-terror funding initiatives.
Crisil cuts FY20 GDP growth forecast to
6.9% from 7.1%
Context
· Credit rating agency Crisil has cut the gross
domestic product (GDP) estimate for India to
6.9% from 7.1% in 2019-20.
· Crisil has said that revision in growth forecast
was due to inadequate monsoon, slowing global
growth and sluggish high-frequency data for the
first quarter.
Background
· However, the report said that the second half
should find support from expected monetary
easing, consumption and statistical low-base
effect.
· The report noted that India’s GDP had grown at
an impressive 8.2% in fiscal 2017.
· But it was derailed by disruptions stemming from
policy initiatives, reforms and rising global
uncertainty including from trade disputes.
Details:
· Further, agricultural growth is also expected to
improve with a pick-up in food inflation.
· In addition, farmers would benefit from income
transfer of ¹ 6,000 per year announced by the
Centre and farm loan waivers in a few states.
· The report also said that the banking sector
stressed assets are expected to come down to
about 8% by the end of financial year 2019-20
www.csbias.com
CURRENT BULLETIN (AUGUST-2019)
based on lower additional NPAs and increased
recoveries.
· The report also expects corporate sector growth
to slow to 8% in 2019-20 lower than the double-
digit growth trend of the last two financial years.
Draft Policy on Logistics Ignores Express
Industry
Context:
The draft National Logistics Policy, released by
the government earlier this year, has allegedly
ignored the role of the express industry (courier
and parcel) and air cargo sectors.
Draft National Logistics Policy
· The government had issued the draft national
logistics policy with a target to bring down
logistics costs from 13-14% of GDP to 10% “in
line with best-in-class global standards.
· The policy also seeks to optimise the current
multimodal mix, where road has a share of 60%,
while railways account for 31% and waterways
9%, to bring the sector on par with international
benchmarks.
· The international benchmarks are 25-30% share
of road, 50-55% share of railways, and 20-25%
share of waterways.
Concerns:
· The policy document does not focus on the
express industry and air cargo sectors, which
are integral parts of the logistics network.
· The air express has also been overlooked in the
multimodal mix even though air is an essential
segment of the movement of goods
· Excise duty and value-added tax, charged by
central and State governments on ATF, add
another 30-35% to the cost.
· For the air cargo sector, aviation turbine fuel
(ATF) is the single largest component of direct
operating cost with a share of 40%.
· The GST regime disallows input credit on ATF,
increasing the tax burden on express cargo
airlines further.
Solutions:
· The government should permit express cargo
airlines to avail input credit of excise duty as
was done before the GST regime.
· ATF should be brought under GST and input credit
on GST paid on ATF should be made available
to express cargo airlines.
42
CSB IAS ACADEMY
Conclusion:
· In developing countries such as India, an efficient
air express infrastructure could contribute directly
to global competitiveness of the country by
ensuring just-in-time deliveries and reducing
clearance dwell time.
New Norms for Insurance Marketing Firms
(IMFs)
Context:
Insurance Regulatory and Development Authority
of India (IRDAI) has notified changes to regula-
tions governing Insurance Marketing Firms
(IMFs), amending the 2015 regulations.
What are IMFs?
· Insurance Marketing Firm (IMF) is a new
distribution channel approved by IRDAI as per
the Govardhan Committee’s report submitted in
2007.
· It is a new distribution channel to solicit or
procure insurance products, to distribute other
financial products by employing individuals
licensed to market, distribute and service such
other financial products.
· IMF is a great opportunity for financial profes-
sionals/entrepreneurs who aspire to provide
wholesome financial protection through
professionally run firms.
Objective of the new Norms:
· The amendments have been introduced for
increasing insurance penetration by providing an
enabling environment.
What are the Changes Introduced?
· A net worth of Rs. 5 lakh would suffice for IMFs
applying to launch operations in only one district,
which is an aspirational district as defined by
NITI Aayog or an economically backward district.
· An IMF is allowed to register for three districts
in a State, with at least one of them being
aspirational district.
· The net worth would continue to be a minimum
of Rs.10 lakh for all other cases.
· Now, IMFs can engage with Agriculture Insurance
Company of India and Export Credit Guarantee
Corporation.
· Earlier norms allowed IMFs to solicit business
for two life, two general and two health insurers
only.
· IMFs can solicit business for all kinds of products
sold on individual and/or retail basis, including
www.csbias.com
CURRENT BULLETIN (AUGUST-2019)
crop insurance for non-loanee farmers and combi-
products.
· Property, group personal accident, group health,
GSLI and term insurance policies for Micro, Small
and Medium Enterprises (MSME) form part of
this list.
· There will be a relaxation in the work experience
requirement of IMF’s Principal Officer.
· The regulator had also constituted a committee
that made many recommendations, including a
reduction in the net worth, expansion of the area
of operation of IMFs, as well as the basket of
products.
· A new clause requires insurers to file with
authority their policies for utilization of IMFs.
CBDT eases plight of start-ups with
pending angel tax cases
Context
· The Central Board of Direct Taxes (CBDT) has
issued a circular on angel taxes on startups.
· The circular has instructed income tax officers
that registered startup companies that have
already been selected for verification under the
angel tax provision will not be scrutinised.
Background
· Further, even unregistered companies have been
given relief with the assessing officer being
43
CSB IAS ACADEMY
allowed to scrutinise them only after getting
permission from his superior officer.
· This development comes after finance minister
in the budget had said that startups who file
requisite declarations and provide information in
their returns will not be subjected to any kind of
scrutiny in respect of valuations of share
premiums.
Angel Tax
· Angel Tax is a 30% tax that is levied on the
funding received by startups from an Angel
investor.
· However, this 30% tax is levied when startups
receive angel funding at a valuation higher than
its ‘fair market value’.
· It is counted as income to the company and is
taxed.
· Section 56(2)(vii)(b) deals with the taxation of
share premiums received in excess of the fair
market value and has been used in the past to
serve demand notices to startups over the angel
capital they have raised.
CSR expenditure may be made
tax deductible, says committee
Context:
The High Level Committee on Corporate Social
Responsibility (CSR) has recommended making
www.csbias.com
CURRENT BULLETIN (AUGUST-2019)
CSR expenditure tax deductible and that
compliance violations be treated as a civil offence
that attracts penalties.
Details:
· The main recommendations of the committee
include:
· Making CSR expenditure tax deductible.
· Allowing the carry-forward of unspent balance
for a period of 3-5 years.
· Aligning Schedule 7 of the Companies Act (which
outlines the kinds of activities that qualify as
CSR) with the United Nations Sustainable
Development Goals.
The Committee has also recommended that
companies having CSR-prescribed amount below
Rs.50 lakh may be exempted from constituting
a CSR Committee.
The Committee has also recommended that
violation of CSR compliance may be made a civil
offence and shifted to the penalty regime.
The report recommends balancing local area
preferences with national priorities when it comes
to CSR.
It recommends introducing impact assessment
studies for CSR obligations of Rs.5 crore or
more.
It also recommends the registration of imple-
mentation agencies on the Ministry of Corporate
Affairs portal.
Significance:
· If the suggestion of carrying forward the unspent
balance is implemented, it would come as a
major relief to companies who are hassled about
meeting stringent CSR norms or facing
penalties.
· Sustainable development goals which would
additionally include sports promotion, senior
citizens’ welfare, welfare of differently-abled
persons, disaster management and heritage
protection would be covered under Schedule 7
of the Companies Act.
· Several other recommendations such as
developing a CSR exchange portal to connect
contributors, beneficiaries and agencies,
promoting social impact companies, and third-
party assessment of major CSR projects, would
be a welcome move.
· The committee has also strongly opposed
treating CSR as a means of resource gap funding
44
CSB IAS ACADEMY
for government schemes. Also, the committee
has discouraged passive contribution of CSR into
different funds.
‘Uber for Tractors’: Government to
launch app to aid farmers
Context
· “Uber for tractors” is a new app that’s being being
described as the most wanted to farmers to have
affordable access to cutting-edge technology at
their doorsteps.
· The new mobile app will efficiently connect
farmers with custom hiring centres (CHCs) just
like Uber connects us to cabs.
About the app
· There are now more than 38,000 custom hiring
centres (CHCs) across the country, which rent
out 2.5 lakh pieces of farm equipment every year.
· The CHC app is already open for registrations
by the farmers, societies and entrepreneurs who
run these centres.
· So far, almost 26,800 CHCs have registered to
offer more than one lakh pieces of equipment for
hire.
· Once the app is officially launched, farmers who
wish to hire equipment can register using their
names, addresses and mobile numbers, and
then punch in their requirements.
Significance
· This will help farmers save precious groundwater
and increase productivity by 10 to 15%.
· Such hitech levellers cost at least Rs.3 lakh,
way beyond the reach of the average small farmer.
· The Ministry’s app will also create an invaluable
database for policy-makers, who can track the
use and cost of equipment.
· The system would also help to track the usage
of new technology that the government wants to
promote, such as the Happy Seeder that aims
to prevent stubble burning that causes air
pollution, or solar dryers that can help farmers
process and preserve their produce.
· This was already done very successful demo
runs in Chhattisgarh, Madhya Pradesh,
Rajasthan and Punjab.
www.csbias.com
CURRENT BULLETIN (AUGUST-2019)
Certification of seeds
Context:
The Union Government plans to mandate uniform
certification of seed by amending the Seeds Act,
1966. The new act aims to regulate the quality
of all seeds sold in the country, as well as
exported and imported seeds.
Background
· More than half of all seeds sold in India are not
certified by any authentic testing agency.
· Currently, about 30% of seeds are what the farmer
himself saves from his crop.
· 45% come through the Indian Council of
Agricultural Research (ICAR) system and have
gone through the mandated certification process.
· The remaining is sold by private companies, most
of which are not certified, but rather called as
‘truthful label seeds’.
Details :
· As per the Ministry, The Centre hopes to roll out
a software to barcode seeds. Barcoding of seeds
will be made mandatory.
45
CSB IAS ACADEMY
· In order to ensure transparency and traceability.
Planting materials such as cuttings, grafting, and
tissue culture, etc. also will be brought under
the ambit of the law.
· The National Informatics Centre has been
collaborating with the Agriculture Ministry for the
project.
Benefits:
· Weeding out of poor quality seeds could increase
productivity by 20 to 25%
· Barcoding of seeds will ensure their traceability.
By connecting to a dealer licensing system,
seeds will be tracked through the distribution
process as well.
· The software system will be able to track seeds
through the testing, certification and manufac-
turing process.
· It will hold the companies accountable for the
quality of the seeds they sell
Challenges:
· There is little progress in the regime since the
revised seeds legislation was originally proposed
in 2004.
www.csbias.com
CURRENT BULLETIN (AUGUST-2019)
· Private seed companies fear whether the new
mechanism will assure them that data on their
seeds are not shared with their competitors.
Government looks to Reverse Economic
Slowdown with a Stimulus Package
Context:
· The government is planning a set of measures
to reverse an economic slowdown that is going
through losses, layoffs and an investment freeze.
· The measures include (a) steps to boost
infrastructure investments (b) goods and services
tax (GST) relief to specific sectors (c)ways to
further cut red tape on cross-border trade and
(d)steps to improve ease of doing business.
Background
· The government is also working on a new World
Trade Organization (WTO) compliant duty
reimbursement scheme.
· Further, fiscal responsibility and budget
management (FRBM) Act constrained the
government from providing a fiscal push in the
Union budget.
Details:
· But the government is considering the use of
escape clause in the FRBM Act for deviation in
the fiscal deficit up to 50 basis points.
· This may give the government leeway to spend
an additional Rs. 1.15 trillion in the current fiscal.
46
CSB IAS ACADEMY
· The package will have concrete steps to
implement the government’s ambitious plans for
Rs. 100 trillion infrastructure investment over the
next five years.
· The panel led by N.K. Singh to review the FRBM
Act had suggested an escape clause allowing
deviations up to 0.5 percentage points of Gross
Domestic Product based on triggers including
far-reaching structural reforms in the economy
with unanticipated fiscal implications, acts of war
and farm distress.
Status of Financial Creditors to
Home Buyers
Context:
The Supreme Court has confirmed the constitu-
tional validity of the Insolvency and Bankruptcy
Code (Second Amendment) Act of August 2018,
which gave home buyers the status of “financial
creditors” with power to vote in the Committee
of Creditors.
Background
· The Amendment Act allowed home buyers, as
financial creditors, to trigger bankruptcy proceed-
ings under the Insolvency and Bankruptcy Code
(IBC) of 2016 and have their “rightful place” on
the Committee of Creditors (CoC).
· The CoC, by voting, makes important decisions
on the future of a bankrupt builder.
· These calls include what to do with his assets
and who should finish the pending housing
projects.
www.csbias.com
CURRENT BULLETIN (AUGUST-2019)
Details:
· As per the amendment, home buyers can ini-
tiate bankruptcy proceedings against errant real
estate builders under section 7 of the IBC.
· Before the Amendment Act of 2018 came into
existence, the assets of the bankrupt builder
were divided among his employees, creditor
banks and other operational creditors.
· Home buyers had hardly figured, despite they
finance from 50% to even 100% of a housing
project.
· Homebuyers now have the option to avail legal
remedies before a consumer court, Real Estate
Regulatory Authorities (RERA), as well as bank-
ruptcy courts.
Finance Minister to review jail term clause
for Non-Compliance of CSR
Context:
· Finance Minister has assured the industry that
the government would review the criminal penal
provisions on corporate social responsibility
(CSR).
· The amendments to the Companies Act have
empowered the government to put the concerned
officers in jail for up to three years, besides im-
posing monetary fines if they do not adhere to
47
CSB IAS ACADEMY
CSR norms.
Background
· The amendment also says that any unspent
annual CSR funds must be transferred to one of
the funds under Schedule 7 of the Act (for ex-
ample, the Prime Minister’s Relief Fund) within
six months of the financial year.
· Prior to that, companies that were required to
budget for Corporate Social responsibility (CSR)
used to disclose in their annual reports the rea-
sons why they were unable to fully spend these
funds.
CSR:
· Corporate social responsibility (CSR) was initi-
ated through the Companies Act, 2013.
· The act mandated companies and government
organisations with (a)turnover of Rs1,000 crore
or more(b)net worth exceeding Rs 500crore or
(c)having more than Rs 5 crore in net profits, to
set aside 2% of their average net profits for CSR
activities.
· Further as per the CSR Rules, the provisions of
CSR are not only applicable to Indian compa-
nies but also applicable to branch and project
offices of a foreign company in India.
· The qualifying company are required to consti-
tute a CSR Committee consisting of 3 or more
directors.
www.csbias.com
CURRENT BULLETIN (AUGUST-2019)
· Further, CSR Committee are required to formu-
late and recommend to the Board, a policy which
indicates the activities to be undertaken, allo-
cate resources and monitor the CSR Policy of
the company.
DOCUMENT IDENTIFICATION NUMBER
Context:
A computer-generated Document Identification Num-
ber (DIN) will soon be allotted by the CBDT to all
communications made by the tax department
to assess.
Details:
· This step was taken by the Central Board of Di-
rect Taxes (CBDT) to provide a better taxpayer
service and accountability in official dealing.
· This intends to insure proper audit trail of such
communication.
· In a circular issued by CBDT, any communica-
tion issued by any I-T authority relating to as-
sessment, appeals, orders, statutory or other-
wise, exemptions, enquiry, investigation, verifi-
cation of information, penalty, prosecution, rec-
tification, approval etc. to the assesse or any
other person will be dealt with this order.
· With a view to bringing greater transparency in
the functioning of the tax administration and im-
provement in service delivery, almost all notices
and orders of Income-Tax Department are being
generated electronically on the Income Tax Busi-
ness Application (ITBA) platform.
48
CSB IAS ACADEMY
· The circular has mentioned five specific circum-
stances under which communication can be is-
sued manually but there too conditions applied.
· Circumstances include technical difficulty in is-
suance of DIN, unavailability of concerned offi-
cial in the office, delay in PAN migration, un-
availability of PAN and functionality to issue com-
munication in the system.
What is DIN?
DIN is a unique Director identification number
allotted by the Central Government to any per-
son intending to be a Director or an existing di-
rector of a company.
Features of DIN
· It is an 8-digit unique identification number which
has a lifetime validity.
· Through DIN, details of the directors are main-
tained in a database.
· DIN is specific to a person, which means even if
he is a director in 2 or more companies, he has
to obtain only 1 DIN.
· And if he leaves a company and joins some other,
the same DIN would work in the other company
as well.
Use:
Whenever a return, an application or any infor-
mation related to a company will be submitted
under any law, the director signing such return,
application or information will mention his DIN
underneath his signature.
www.csbias.com
CURRENT BULLETIN (AUGUST-2019)
Bonds, yields and inversions
Context:
The global economy has been slowing down for
the better part of the last two years. Some of the
biggest economies are either growing at a slower
rate (such as the US and China) or actually con-
tracting (such as Germany). As a result, last
week, US Treasury bond yields fell sharply as
there was confirmation of a slowdown in Ger-
many and China.
Reasons for Treasury bond yields fell sharply:
· Investors, both inside the US and outside, fig-
ured that if growth prospects are plummeting, it
makes little sense to invest in stocks or even
riskier assets. It made more sense rather, to in-
vest in something that was both safe and liquid
(that is, something that can be converted in to
cash quickly).
· US Treasury bonds are the safest bet in this
regard. So, many investors lined up to buy US
Treasury bonds, which led to their prices going
up, and their yields falling sharply.
What are bonds?
· A bond is an instrument to borrow money. It could
be floated/issued by a country’s government or
by a company to raise funds.
· Government bonds (referred to as G-secs in In-
49
CSB IAS ACADEMY
dia, Treasury in the US, and Gilts in the UK)
come with the sovereign’s guarantee, they are
considered one of the safest investments. As a
result, they also give the lowest returns on in-
vestment or yield.
· Investments in corporate bonds tend to be riskier
because the chances of failure and, therefore,
the chances of the company not repaying the
loan are higher.
What are bonds yields?
· The yield of a bond is the effective rate of return
that it earns. But the rate of return is not fixed it
changes with the price of the bond.
· Every bond has a face value and a coupon
payment. There is also the price of the bond,
which may or may not be equal to the face value
of the bond.
· For exp Suppose the face value of a 10-year G-
sec is Rs 100, and its coupon payment is Rs 5.
Buyers of this bond will give the government Rs
100 (the face value); in return, the government
will pay them Rs 5 (the coupon payment) every
year for the next 10 years and will pay back their
Rs 100 at the end of the tenure. In this case, the
bond’s yield, or the effective rate of interest, is
5%.
Why and how do yields go up and down?
· Suppose there is just one bond and two buyers.
www.csbias.com
CURRENT BULLETIN (AUGUST-2019)
In such a scenario, the selling price of the bond
may go from Rs 100 to Rs 105 or Rs 110 be-
cause of competitive bidding by the two buyers.
Importantly, even if the bond is sold at Rs 110,
the coupon payment of Rs 5 will not change.
Thus, as the price of the bond increases from Rs
100 to Rs 110, the yield falls to 4.5%.
What is yield inversion?
· Yield inversion happens when the yield on a longer
tenure bond becomes less than the yield for a
shorter tenure bond.
· This, too, happened last week when the 10-year
Treasury yield fell below the 2-year Treasury
yield.
· A yield inversion typically portends a reces-
sion. An inverted yield curve shows that inves-
tors expect future growth to fall sharply.
Resolve stressed assets on time in your
interest, RBI tells banks
Context:
· Reserve Bank of India Deputy Governor N.S.
Vishwanathan has urged banks for timely reso-
lution of stressed assets in their ‘own interest’.
· Vishwanathan, was speaking at a banking semi-
nar organised by industry body FICCI and the
Indian Banks’ Association.
Details:
· He said that the banks should resolve assets
under the new framework that was announced
by RBI in June to extract the best value.
· He emphasised the need for dealing only in
‘genuine’ cases.
· He emphasised how timely resolution, besides
meeting the regulatory requirement, could result
in better valuation.
· It was said that RBI is making less intrusive regu-
lations with the hope that banks will use it to
deal with genuine stress in their balance sheets
to address the problem.
Stressed Assets:
· Stressed assets = Non Performing Assets +
Restructured loans + Written off assets
· Stressed assets is a powerful indicator of the
health of the banking system.
· NPA means interest or principal is not repaid by
the borrower during a specified time period.
· But NPA alone doesn’t tell the whole story of
bad asset quality of loans given by banks. Some
50
CSB IAS ACADEMY
of the loans are restructured by banks by giving
a further opportunity to the borrower if they de-
fault.
· This opportunity is in the form of an extended
time period for repayment and a reduced inter-
est rate or such soft conditions. Hence a new
classification is made in the form of stressed
assets that comprises restructured loans and
written off assets besides NPAs.
· Restructured asset or loan are that assets which
got an extended repayment period, reduced in-
terest rate, converting a part of the loan into eq-
uity, providing additional financing, or some com-
bination of these measures.
· Written off assets are those the bank or lender
doesn’t count the money borrower owes to it. The
financial statement of the bank will indicate that
the written off loans are compensated through
some other way.
Compliance culture in banks not
satisfactory
Context:
The Reserve Bank of India (RBI) has come down
heavily on commercial banks after slapping a
series of penalties for not complying with sev-
eral regulatory guidelines speaking at the FICCI-
IBA banking seminar.
Background:
· The Reserve Bank of India (RBI) has come down
heavily on commercial banks after slapping a
series of penalties for not complying with sev-
eral regulatory guidelines.
· Between January and July this year, the bank-
ing regulator had imposed penalties worth about
Rs. 122.9 crore on 70 occasions on banks for
non-compliance.
· In March 2019, RBI imposed penalties worth Rs
71 crore on 36 public, private and foreign banks
for non-compliance with various directions on
time-bound implementation and strengthening of
SWIFT operations.
· In August 2019, RBI issued a notice for Rs 8.5
crore fine on eleven banks for not complying with
fraud reporting.
· Some of the weaknesses and irregularities ob-
served have been recurring, in spite of affirma-
tion by bank managements that they have car-
ried out remediation.
www.csbias.com
CURRENT BULLETIN (AUGUST-2019)
Details:
· RBI Deputy Governor in-charge M.K. Jain,
stressed on the need for banks to demonstrate
good compliance culture.
· He said following the global financial crisis, the
importance of compliance had increased signifi-
cantly, particularly in the areas of know-your-
customer, anti-money laundering and appropri-
ateness of banking products, among others.
· He cautioned that a bank or a financial institu-
tion can suffer if it does not adhere to laws, rules,
regulations and related self-regulatory standards
or even codes of conducts applicable to its bank-
ing activities.
· He highlighted the fact that some of the banking
frauds — for which banks had suffered big losses
— could have been avoided if they had had ‘good
compliance culture’.
· It was also said that trust generates hidden earn-
ings, which most banks don’t bother to quantify
and hence, don’t realise.
· For many banks, translating the broader risk
management framework to a centralized and fun-
damental process can be daunting. Many still
struggle with primary control issues such as
compliance literacy, accountability, performance
incentives and risk culture.
· Creating a clear link to the bank’s overarching
compliance protocol and implementing the right
technology backbone that supports their initia-
tives can create the cultural and structural
changes needed to compete in a new time and
a new era of compliance.
Centre to Ease Approval Process for
Mining Leases
Context:
The Centre is planning to scrap the need for State
governments to take an approval from the Cen-
tre prior to granting a mining lease to compa-
nies.
Details:
· Union Coal Secretary expressed the plan while
kicking off a stakeholder consultation process
on coal sector issues.
· It is required to be effected through an amend-
ment in Parliament.
Background:
· Currently, before granting a mining lease, the
State Governments are required to put the pro-
51
CSB IAS ACADEMY
posed project, through a process called ‘prior
approval’.
· Under the process, the State Governments had
to file an application with the Centre seeking its
nod for a project for which clearances had been
already granted.
· Among the several measures being taken to
hasten coal projects in the pipeline was allow-
ing the sale of 25% of coal in case of allocation
of specific end-use
Reasons behind the Move
· State-level clearances are necessary but ‘prior
approval’ amounts to duplication and time wast-
age.
· Although since 2014, about 80 allocations were
auctioned or nominated for coal mining, the
conversion to production has not been great.
· There was reluctance on the part of the allotted
entities to go the extra mile to operationalize
mines as they continue to have coal linkages.
· As steps are taken for import-substitution and
correction of structural issues in power sector,
the coal sector needs to gear up for meeting an
additional demand of 400 to 425 million tonnes
per annum (MTPA) beyond the usual growth.
Objectives:
· It would be among the government’s initiatives
to speed up operationalization of coal mines.
· The move will reduce the entire process by around
a year.
· The government is pursuing a carrot-and-stick
policy by promoting ease-of-doing business on
the one-hand and strict implementation of exist-
ing rules, on the other.
· This would boost the profitability of the firms
implementing the projects.
· The move will also bring in more players in coal
exploration.
SEBI Simplifies Norms for Foreign Investors
Context:
The Securities and Exchange Board of India
(SEBI) has simplified the compliance and op-
erational requirements for foreign portfolio inves-
tors (FPIs), to make the regulatory framework
more investor-friendly.
Background:
· The move coincides with a period when foreign
investors are selling Indian shares in huge quan-
tum.
www.csbias.com
CURRENT BULLETIN (AUGUST-2019)
· FPIs have cumulatively sold shares worth over
Rs. 22,000 Cr. in July and August.
· SEBI has expressed concerns over the recent
proposal of the government to increase the mini-
mum threshold of public holding in listed com-
panies from the current 25% to 35%.
Details:
· The SEBI board decided to do away with the
requirement that every FPI should have at least
20 investors.
· It has also simplified the KYC (Know-Your-Cus-
tomer) document requirement for overseas in-
vestors.
· It has also allowed central banks of countries
that are not members of Bank for International
Settlement (BIS) to register as FPIs in India.
· As per SEBI, such entities are “relatively long
term, low risk investors directly/indirectly man-
aged by the government”.
52
CSB IAS ACADEMY
Protection of Whistle Blowers:
· The regulator has also amended the Prohibition
of Insider Trading Regulations to include a clause
to reward whistle-blowers up to Rs.1 Cr. if the
information leads to a disgorgement order of at
least Rs.1 Cr.
· It has also brought in clauses to protect the in-
formant from victimisation in the form of termina-
tion, suspension or demotion, among other
things.
Objectives:
· The key focus of the proposed regulations is to
ease the operational constraints and compliance
requirements.
· It will impart a much-needed boost to the FPI
route, which had been languishing on account
of multiple issues in the past few months.
Challenge:
· A significant number of listed public sector un-
www.csbias.com
CURRENT BULLETIN (AUGUST-2019)
dertakings are yet to comply with the 25% pub-
lic holding norm and have been given time till
August 2020 to comply.
RBI SHOWERS RS.1.76 LAKHL CRORE
BONANZA ON GOVERNMENT
Context:
The Reserve Bank of India (RBI) at its board
meeting has decided to transfer Rs.1.76 lakh
crore to the Centre — including interim dividend
of Rs.28,000 crore paid in February, 2019. This
follows the RBI board accepting the recommen-
dation of a high-level panel headed by its former
Governor Bimal Jalan.
Transfer of Surplus profits:
· The government nationalised RBI in January
1949, making the sovereign its “owner”. RBI,
therefore, transfers the surplus to the govern-
ment, in accordance with Section 47 (Allocation
of Surplus Profits) of the Reserve Bank of India
Act, 1934.
· The additional amount of Rs. 86,000 crores that
the government will receive this year above its
budgeted 90,000 crore as transfers from RBI
could be either used
 to provide fiscal stimulus to a sagging
economy (or)
 reduce off-balance sheet borrowings (or)
 meet the expected shortfall in revenue col-
lections.
Bimal Jalan Committee:
· The six-member panel headed by Ex-RBI Gov-
ernor Bimal Jalan was appointed in December,
2018 to review the Economic Capital Framework
for RBI.
· Economic capital framework refers to the risk
capital required by the central bank while taking
into account different risks.
· The expert panel on RBI’s economic capital
framework was formed to address the issue of
RBI reserves.
· The committee was to propose a suitable profits
distribution policy taking into account all the
likely situations of the RBI, including the situa-
tions of holding more/less provisions than re-
quired.
Recommendations:
· The panel recommended a clear distinction be-
53
CSB IAS ACADEMY
tween the two components of economic capital
– realized equity and revaluation balances.
· It was recommended that realized equity could
be used for meeting all risks/ losses as they
were primarily built up from retained earnings,
while revaluation balances could be reckoned
only as risk buffers against market risks as they
represented unrealized valuation gains and
hence were not distributable.
· The committee also recognised that RBI’s provi-
sioning for monetary, financial and external sta-
bility risks is the country’s savings for a (mon-
etary or financial stability) crisis, which has been
consciously maintained with the RBI in view of
its role as the Monetary Authority and the Lender
of Last Resort.
· This risk provisioning made primarily from re-
tained earnings is cumulatively referred to as the
Contingent Risk Buffer (CRB) and has been rec-
ommended to be maintained within a range of
6.5% to 5.5% of the RBI’s balance sheet
· The ‘Surplus Distribution Policy’, as recom-
mended by the committee, says only if realized
equity is above its requirement, the entire net
income will be transferable to the Government.
· RBI’s central board accepted all the recommen-
dations of the committee.
Details:
· The transfer includes Rs. 1.23 trillion of surplus
for 2018-19 and Rs.52,637 crore of excess pro-
visions identified as per the revised Economic
Capital Framework (ECF) adopted at the meet-
ing.
· The higher surplus is due to the long-term forex
swaps and the open market operations
(OMO) conducted by the RBI over the last fis-
cal.
· The surplus transfer was finalized in line with
the recommendations of the Bimal Jalan com-
mittee.
· RBI’s realized equity, which is a form of contin-
gency fund for meeting all risks/losses primarily
built up from retained earnings, currently stands
at 6.8%
· Keeping the recommendations of the commit-
tee in view, the central board has decided to set
the realized equity level at 5.5% of the balance
sheet, while transferring the remaining excess
reserves worth Rs. 52,637 crore to the govern-
ment.
www.csbias.com
CURRENT BULLETIN (AUGUST-2019)
FISCAL STIMULUS
Context:
Union Finance Minister Nirmala Sitharaman an-
nounced a number of measures to boost growth.
Some of the steps announced are:
· Controversial surcharge on Foreign Portfolio In-
vestors (FPIs) to be withdrawn. But increased
surcharge will apply to high net-worth individu-
als earning more than Rs. 2 crore a year.
· Violations of Corporate Social Responsibility
(CSR) rules will not be treated as criminal of-
fences.
· The government also decided to front-load the
Rs. 70,000 crore of capital infusion in public sec-
tor banks that was announced in the Budget, a
move that is further aimed at increasing private
investment by facilitating greater credit disbur-
sal by the banks.
· The government had rescinded its ban on the
purchase of new vehicles by its departments to
replace old ones. Vehicles bought till March 31,
2020, will also be eligible for an additional 15%
depreciation.
· To curb the discretionary powers of the tax au-
thorities, from October 1, all notices and sum-
mons by the Income Tax Department would be
generated by a centralised computer and would
54
CSB IAS ACADEMY
carry a unique code. Any notices not carrying
these codes would be considered invalid.
· Public sector banks have also decided to in-
crease their repo rate-linked loan offerings.
· Government has announced an additional Rs.
20,000 crore of liquidity to the housing finance
companies, over and above the Rs. 10,000 crore
earlier announced.
FM steps in to accelerate auto demand
Context:
Finance Minister Nirmala Sitharaman announced
a slew of measures to boost demand in the auto
sector.
Details:
· The announcements aimed at reducing any un-
certainty that was dampening sentiments.
· It was said that the government will now replace
old vehicles with new ones.
· It would serve to increase demand for the auto
sector.
· A higher depreciation of 30%, up from 15%, for
all vehicles purchased from now till March 31,
2020.
· Deferment of the higher one-time registration
fees, mooted by the Ministry of Road Transport
www.csbias.com
CURRENT BULLETIN (AUGUST-2019)
and Highways (MoRTH), till June 2020 was an-
other significant announcement.
· In July 2019, MoRTH had issued a draft notifica-
tion that proposed to increase the registration
charges for new IC engine powered vehicles to
5,000 from the current Rs.600.
· This was met with intense resistance from the
auto industry.
· It was also announced that the government will
look into other measures to boost demand in
the sector, including a scrappage policy.
· The government has clarified that BS-IV compli-
ant vehicles purchased till March 31, 2020 would
be allowed to remain operational for the full pe-
riod of their registration.
· Auto Sector Statistics and FM’s Remedy
Advisory Board for Banking Frauds
Context:
The Central Vigilance Commission (CVC) has
constituted the Advisory Board for Banking
Frauds (ABBF) to examine bank fraud of over 50
crore rupees and recommend action.
55
CSB IAS ACADEMY
Details:
· The panel in its previous avatar called the Advi-
sory Board on Bank, Commercial and Financial
Frauds.
· The ABBF headed by former Vigilance Commis-
sioner has been formed in consultation with the
RBI and it will function as the first level of exami-
nation of all large fraud cases before recommen-
dations or references are made to the investiga-
tive agencies by the respective Public Sector
Banks.
· According to CVC, the four-member board’s ju-
risdiction will be confined to those cases involv-
ing officers of General Manager level and above
in the PSBs in respect of an allegation of fraud
in a borrowal account.
· The banks will refer all large fraud cases above
50 crore rupees to ABBF and on receipt of its
recommendation, they concerned will take fur-
ther action in such matter.
Data Reporting in India
Context:
According to the IMF’s “Annual Observance
Report of the Special Data Dissemination Stan-
www.csbias.com
CURRENT BULLETIN (AUGUST-2019)
dard for 2018”, India failed to comply with mul-
tiple requirements prescribed in the Special Data
Dissemination Standard (SDDS) — a practice
mandatory for all IMF members — whereas com-
parable economies comprising the BRICS group-
ing of Brazil, China, South Africa and Russia,
have maintained a near impeccable record in the
same period.
Background:
Also, India’s non-compliance in multiple catego-
ries in 2018 and to an extent in 2017 breaks
with an otherwise near perfect dissemination
record.
Details:
· The IMF launched the SDDS initiative in 1996 to
guide members to enhance data transparency
and help financial market participants with ad-
equate information to assess the economic situ-
ations of individual countries. India subscribed
to the SDDS on December 27, 1996.
· The yearly observance report for each member
country lists the compliances and deviations from
the SDDS under each data category for that year.
· There are over 20 data categories which IMF
considers for this report to capture a nation’s
economic health including national accounts
(GDP, GNI), production indices, employment,
and central government operations.
· The report lists three types of deviations from
SDDS.
56
CSB IAS ACADEMY
· The first deals with delays in data dissemination
from the periodicity prescribed in the SDDS.
· The second occurs when member countries do
not list a data category in their Advance Release
Calendars (ARC) despite the category being
mandated by the SDDS.
· The third deviation occurs when data is not dis-
seminated at all for a particular period.
· The IMF document also states that “monitoring
observance of the SDDS is central to maintain-
ing the credibility of the IMF’s data standards
initiatives and its usefulness to policymakers.”
· It further states that if the IMF staff considers a
non-observance as a “serious deviation” then
procedures would be initiated against the
IMF
· The International Monetary Fund (IMF) is an or-
ganization of 189 countries, working to foster
global monetary cooperation, secure financial
stability, facilitate international trade, promote
high employment and sustainable economic
growth, and reduce poverty around the world.
· Created in 1945, the IMF is governed by and
accountable to the 189 countries that make up
its near-global membership.
· The IMF’s primary purpose is to ensure the sta-
bility of the international monetary system—the
system of exchange rates and international pay-
ments that enables countries (and their citizens)
to transact with each other.
www.csbias.com
CURRENT BULLETIN (AUGUST-2019)
· The Fund’s mandate was updated in 2012 to in-
clude all macroeconomic and financial sector
issues that bear on global stability.
Imports from U.S to grow, trade Ministers
to meet soon
Context:
· Indian Prime Minister has met US President on
the sidelines of the G-7 Summit in France.
· During the meeting, the Indian PM said that In-
dia has planned to increase imports including
oil from the US and $4 billion worth of imports
were already in the pipeline.
Background:
· India and the US has differences over trade im-
balance between the two countries.
· India’s exports to the U.S. in 2017-18 stood at
$47.9 billion while imports were at $26.7 billion.
· The trade balance is in favour of India.
· Further, the Indian PM is also expected to hold
57
CSB IAS ACADEMY
talks with the top CEOs of the energy compa-
nies in the US.
· The objective of the meeting would be
(a) To see how India can import more oil from the
US and
(b) How India can invest in the energy sector in the
US.
Details:
· Although trade is an important part of the bilat-
eral strategic partnership, a dispute over market
access and tariffs has escalated between India
and the US.
· India has also imposed long pending retaliatory
tariffs on 29 US products after US had withdrawn
Generalized system of preferences (GSP) for
Indian exporters.
· GSP is a preferential tariff system extended by
developed countries to developing countries.
· It is a preferential arrangement in the sense that
it allows concessional low/zero tariff imports from
developing countries.
www.csbias.com
CURRENT BULLETIN (AUGUST-2019)
FDI POLICY REFORM
Context:
The Union cabinet cleared a raft of changes in
Foreign Direct Investment (FDI) regulations,
including easing rules for overseas single-brand
stores and permitting FDI through the automatic
route in contract manufacturing and all areas of
coal mining.
Details:
The government, clearly concerned by the eco-
nomic slowdown and persistently weak invest-
ment activity, has sought to provide a policy fil-
lip to attract more foreign capital into sectors
that it sees as having a multiplier effect particu-
larly in terms of job creation.
Single-Brand Retail
· In single-brand retail, the government allowed
companies to conduct online retail trading prior
to opening of physical stores, subject to the
condition that brick-and-mortar stores come up
within two years from the date it starts online
operations.
· To provide greater flexibility and ease of opera-
tions to foreign single-brand retail entities with
more than 51% FDI, the cabinet decided that all
procurements made from India by the entity for
that single brand shall be counted towards local
sourcing of 30%, irrespective of whether the
goods procured are sold in India or exported.
· Further, the current cap of considering exports
for five years only was removed, to give an impe-
tus to exports.
· So far, only incremental sourcing of the single
brand entity was taken into account while current
sourcing was not considered. From now on, total
sourcing, including by group companies, will be
considered for meeting the 30% local sourcing
norm.
Contract Manufacturing:
· The cabinet allowed 100% FDI in contract manu-
facturing, allowing large foreign electronics and
pharmaceutical companies to directly invest in
local or foreign contract manufacturers. This will
give a big boost to the government’s Make in
India policy.
· Manufacturing activities may be conducted either
by the investee entity or through contract
manufacturing in India under a legally tenable
contract, whether on Principal to Principal or
Principal to Agent basis
58
CSB IAS ACADEMY
Coal Sector:
· As per the present FDI policy, 100% FDI under
automatic route is allowed for coal & lignite min-
ing for captive consumption by power projects,
iron & steel and cement units and other eligible
activities permitted under and subject to appli-
cable laws and regulations.
· Further, 100% FDI under automatic route is also
permitted for setting up coal processing plants
like washeries subject to the condition that the
company shall not do coal mining and shall not
sell washed coal or sized coal from its coal pro-
cessing plants in the open market and shall sup-
ply the washed or sized coal to those parties
who are supplying raw coal to coal processing
plants for washing or sizing.
· The Union cabinet has now allowed 100% FDI
under the automatic route for coal mining as well
as sale and export of coal.
· This is expected to end the monopoly enjoyed
so far by Coal India Ltd (CIL), which is often con-
sidered lacking capability to mine the coalfields.
Significance:
· The changes in FDI policy will result in making
India a more attractive destination, leading to
benefits of increased investments, employment
and growth
· Online sales will lead to creation of jobs in logis-
tics, digital payments, customer care, training
and product skilling
· Further, manufacturing through contract contrib-
utes equally to the objective of Make in India.
FDI now being permitted under automatic route
in contract manufacturing will be a big boost to
Manufacturing sector in India.
· In the coal sector, for sale of coal, 100% FDI
under automatic route for coal mining, activities
including associated processing infrastructure
will attract international players to create an effi-
cient and competitive coal market.
· The reforms are part of India’s strategy to be-
come part of the global supply chain amid its
disruption due to the US-China trade war.
· A closer examination, however, raises several
concerns about the ultimate attractiveness of
these changes.
· For instance, the tweaks to investment norms
on coal appear at first flush to be a win-win for
both the economy at large and the coal indus-
try, but the environmental costs of focusing on
one of the most polluting fossil fuels needs fo-
cus
www.csbias.com
CURRENT BULLETIN (AUGUST-2019) CSB IAS ACADEMY

· This is predicated on the prospect of seeing an mestic supply of the key raw material for power,
influx of both capital and modern technology into steel and cement production thereby cutting
mining and processing, as well as raising do- costly and burgeoning imports.

59 www.csbias.com
CURRENT BULLETIN (AUGUST-2019) CSB IAS ACADEMY

· But for foreign mining companies to make a bee- · The number of 500 notes significantly increased
line to pitheads, several related regulatory and to 21,518 million pieces from 15,469 million
market challenges will have to be addressed pieces during the period under review.
post-haste. · The 500 notes, as at end-March 2019, was
· While domestic thermal power plants have had 19.8% of the total circulation in volume (as com-
to rely on increased imports in recent times, pared to 15.1%) and 51% in terms of value (as
many of the electricity producers themselves are compared to 42.9% in end March 2018), So, in
in financial stress. How much additional invest- value terms, the 500 notes are more than half of
ments may actually accrue is not clear. the currency in circulation.
Steps that need to be taken up: · “In value terms, the share of 500 and 2,000
Large miners will need economies of scale and banknotes, which had together accounted for
so require access to large contiguous fields with 80.2% of the total value of banknotes in circula-
minimal bureaucratic constraints on operations. tion at end-March 2018, increased to 82.2% at
end-March 2019.
2,000 notes in circulation fall · There was a sharp increase in the value of 500
banknotes in circulation from 42.9% to 51.0%
Context: over the year.
The 2,000 currency notes introduced during the
demonetization exercise of 2016 have dropped
in circulation in the last one year ended in March
2019.
Details:
· According to data in the Reserve Bank of India’s
annual report, there were 3,363 million pieces of
such notes in circulation as at end-March 2018,
which was 3.3% of the total currency in circula-
tion, in terms of volume.
· In value terms, the 2,000 notes’ share in total
currency circulation was 37.3%.
· The number of pieces dropped to 3,291 million
in the year ended March 2019, which was 3% in
terms of volume and 31.2% in value of total cir-
culation.

60 www.csbias.com