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KIIFB Borrowings Issue

Why in News Recently, the Comptroller and Auditor General (CAG) of India has opined that the off-budget borrowings made by the Kerala Infrastructure...

21 Jan 2021 Capital Market
Indian Railway Finance Corporation: IPO

Why in News The Initial Public Offering (IPO) of Indian Railway Finance Corporation (IRFC) got 65% subscription on the first day of...

19 Jan 2021 Capital Market
Special Zero Coupon Recapitalisation Bonds

Why in News Recently, the government has used financial innovation to recapitalise Punjab & Sind Bank by issuing the bank Rs. 5,500 crore worth...

29 Dec 2020 Capital Market
US Puts India on Currency Watchlist

Why in News Recently, the US treasury has placed India on its currency manipulator watch list. Vietnam and Switzerland have been labelled as...

17 Dec 2020 Capital Market
Vehicle Insurance in India

Why in News Recently, the Insurance Information Bureau of India released its annual report (Motor Annual Report 2018-19). Insurance Information...

14 Dec 2020 Capital Market
FinTech In India

This article is based on “Realising India’s fintech potential: Regulation and tech must evolve” which was published in The...

08 Dec 2020 Capital Market
Digital Rupee

This article is based on “Encrypting the rupee” which was published in The Hindu Business line on 01/12/2020. It talks about the...

05 Dec 2020 Capital Market
Municipal Bonds

Why in News Recently, Rs. 200-crore worth Lucknow Municipal Corporation (LMC) bonds have been listed on the Bombay Stock Exchange (BSE). Lucknow...

04 Dec 2020 Capital Market
Negative Yield Bonds

Why in News Recently, demand for negative yield bonds is on rise in the global market. Key Points Negative Yield Bonds: Are debt instruments...

24 Nov 2020 Capital Market
Lakshmi Vilas Bank Crisis

Why in News Recently, the Reserve Bank of India (RBI) has decided to impose a 30-day moratorium on Chennai-based Lakshmi Vilas Bank Ltd (LVB). Key...

20 Nov 2020 Capital Market
Insurance Sector in India

This article is based on “Keeping it Saral” which was published in The Hindu Businessline on 22/10/2020. It talks about the journey of...

26 Oct 2020 Capital Market
Sovereign Gold Bond Scheme

Why in News A seventh tranche of the gold bond scheme - in which the Reserve Bank of India (RBI) issues bonds linked to the market price of gold on...

13 Oct 2020 Capital Market
Nobel Prize in Economic Sciences

Why in News The Royal Swedish Academy of Sciences awarded Sveriges Riksbank Prize in Economic Sciences, 2020 to Paul Milgrom and Robert Wilson (both...

13 Oct 2020 Capital Market
National Startup Awards 2020

Why in News The results of the first edition of National Startup Awards (2020) were recently released by the Ministry of Commerce &...

07 Oct 2020 Capital Market
Parliamentary Committee Report on Startups

Why in News Recently, the Parliamentary Standing Committee on Finance tabled a report related to startups in Parliament. The Government of India has...

16 Sep 2020 Capital Market
Limits on Multi-Cap Fund Investments

Why in News Recently, the Securities and Exchange Board of India (SEBI) has imposed some limits on multi-cap funds. Multi-Cap Fund Multi-cap...

12 Sep 2020 Capital Market
Ranking of States on Support to Startup Ecosystems: DPIIT

Why in News The Results of the 2nd edition of Ranking of States on Support to Startup Ecosystems were released by the Department for Promotion of...

12 Sep 2020 Capital Market
Increased Investments through P-notes

Why in News According to SEBI data, the value of participatory note (P-note) investments in Indian capital markets increased to Rs. 63,288 crore...

22 Aug 2020 Capital Market
Increase in Gold Prices

Why in News Recently, the gold prices crossed Rs. 50,000 per 10 grams after nine years in India. Gold prices in India are dictated by...

24 Jul 2020 Capital Market
Initial Public Offer: LIC

Why in News The Central government has started the process to launch the Initial Public Offer (IPO) of Life Insurance Corporation (LIC). LIC is...

23 Jun 2020 Capital Market

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		'article_id' => (int) 7513,
		'category_id' => (int) 21,
		'title' => 'KIIFB Borrowings Issue',
		'description' => '<h3>Why in News</h3>
<p>Recently, the <a href="/important-institutions/drishti-specials-important-institutions-national-institutions/comptroller-and-auditor-general-of-india-cag" target="_blank" rel="noopener"><strong>Comptroller and Auditor General (CAG)</strong></a> of India has opined that the <strong>off-budget borrowings</strong> made by the <strong>Kerala Infrastructure Investment Fund Board (KIIFB)</strong> for critical infra projects have <strong>bypassed the limits set on government borrowings under Article 293 (1) of the Constitution</strong> and such borrowings do not have legislative approval.</p>
<ul style="list-style-type: square;">
<li><strong>Off-budget borrowings</strong> are a means by which the government keeps its fiscal deficit in check by making quasi-government entities borrow on its behalf, to partly fund its expenditure plan for the year.</li>
</ul>
<div class="border-bg">
<p><strong>Provisions of Borrowings under Constitution</strong></p>
<ul style="list-style-type: square;">
<li><strong>Borrowing by Centre and the States:</strong> Chapter II in Part XII of the Constitution of India deals with borrowing. Article 292 covers borrowing by the Central Government, and Article 293 covers borrowing by States.</li>
<li><strong>Empowering State Legislatures:</strong> Article 293(1) provides State legislatures the power by law to enable or limit the State&rsquo;s executive powers of borrowing and giving guarantees.</li>
<li><strong>Consent of the Centre:</strong> Under clauses (3) and (4) of Article 293, State Governments need to obtain the consent of the Centre for raising fresh loans in case they are indebted to the latter, and such consent may be granted subject to conditions.</li>
</ul>
</div>
<h3>Key Points</h3>
<ul style="list-style-type: square;">
<li><strong>Issues:</strong><br />
<ul style="list-style-type: circle;">
<li><strong>Bypassed Constitutional Limit:</strong> CAG reported that KIIFB has bypassed the limits set on government borrowings under Article 293 of the Constitution as these borrowings did not have legislative approval.</li>
<li><strong>Encroachment on Powers of Centre:</strong> The CAG said that<strong> Entry 37 of the List 1 of the Seventh schedule of the Constitution</strong> gives powers of raising foreign loans only to the Centre. Thus, KIIFB borrowings are in violation of the Constitution and encroachment on the powers of the Centre.</li>
<li><strong>Lack of Transparency:</strong> KIIFB borrowings have not been disclosed in the Budget documents or in the accounts. <br />
<ul style="list-style-type: disc;">
<li>It raises doubts on transparency, and of inter-generational equity of the borrowings, the State has to furnish to Centre all the financial statements showing the estimates of receipts and payments of all sources of borrowings, including Open Market borrowings.</li>
</ul>
</li>
<li><strong>Burdened State Finances:</strong> KIIFB raised funds by issuance of bonds which were to be repaid from the petroleum cess and motor vehicle tax. <br />
<ul style="list-style-type: disc;">
<li>CAG reported that since the KIIFB has no source of income, the borrowings by the KIIFB for which the State stood as guarantor, may ultimately turn out to be a <strong>direct liability of the State government.</strong></li>
</ul>
</li>
<li><strong>Risk of Mounting External Liabilities:</strong> The RBI was criticised for granting approval to the state to float<a href="/daily-updates/daily-news-analysis/kerala-the-first-indian-state-to-issue-masala-bond" target="_blank" rel="noopener"><strong> masala bonds.</strong></a> The CAG raised concerns that if this mode was followed by other States, the <strong>external liabilities of the country</strong> would rise substantially without the Centre&rsquo;s knowledge of such liabilities.</li>
</ul>
</li>
</ul>
<div class="border-bg">
<p><strong>Kerala Infrastructure Investment Fund Board (KIIFB)</strong></p>
<ul style="list-style-type: square;">
<li><strong>Establishment:</strong> KIIFB came into existence in 1999 through the <strong>Kerala Infrastructure Investment Fund Act.</strong></li>
<li><strong>Aim:</strong> To provide investment for critical and large infrastructure projects in the State of Kerala.</li>
<li><strong>Features:</strong><br />
<ul style="list-style-type: circle;">
<li>KIIFB was the <strong>first sub-sovereign entity</strong> in India<strong> to tap the offshore rupee international bond market.</strong></li>
<li>In 2019, KIIFB issued its <strong>masala bond</strong> of ₹2,150 crore on the <strong>London Stock Exchange. <a href="/daily-updates/daily-news-analysis/kerala-the-first-indian-state-to-issue-masala-bond" target="_blank" rel="noopener">Masala Bonds</a></strong> are <strong>rupee-denominated bonds</strong> i.e. the funds would be raised from overseas market in Indian rupees.</li>
<li><strong>Attracted investments:</strong> The bond issue helped Kerala government to get multinational corporations to invest in the state, which has traditionally been known for its unfriendly business policies, bureaucratic delays and recurrent industrial strikes.</li>
</ul>
</li>
<li><strong>Change in Role:</strong> In 2016, the role of KIIFB was changed<strong> from handler of investment bonds to an entity to mobilize the resources</strong> for developmental projects over and beyond the budget.</li>
</ul>
</div>
<ul style="list-style-type: square;">
<li><strong>Kerala Government's Concerns:</strong><br />
<ul style="list-style-type: circle;">
<li><strong>Detrimental to State development:</strong> According to the government of Kerala, funds from KIIFB are being used to build public infrastructures such as schools, roads, hospitals etc. and such a move by CAG could hurt the interests of the State.</li>
<li><strong>Unilateralism:</strong> Kerala government raised concerns over not giving the State an opportunity to offer its comments, observations or explanation before publishing of the report by the CAG.</li>
<li><strong>Already RBI Approved:</strong> The Kerala government also highlighted the fact that the KIIFB Bonds were raised with the approval of RBI- which is a central body under Government of India, then how such borrowings can be unconstitutional. <br />
<ul style="list-style-type: disc;">
<li><strong>Role of RBI:</strong> <br />
<ul style="list-style-type: disc;">
<li>The<a href="/important-institutions/drishti-specials-important-institutions-national-institutions/important-institutions-national-institution-reserve-bank-of-india" target="_blank" rel="noopener"><strong> RBI</strong> </a>is authorised to act as <strong>an agent of the Central and State Governments</strong> for the issue and management of the latter&rsquo;s bonds and debentures.</li>
<li>The<strong> Internal Debt Management Department</strong> of the RBI has the power to float State Government loans, facilitating investment of surplus cash balances of State Governments in dated securities under various funds.</li>
<li>It is also authorised to make<a href="/daily-updates/daily-news-analysis/wma-borrowings-of-states" target="_blank" rel="noopener"><strong> Ways and Means Advances (WMAs)</strong></a> to the Centre and States, and to fix the limits thereof.</li>
</ul>
</li>
</ul>
</li>
<li><strong>Undermines Federalism:</strong> For decentralisation of financial autonomy, it is necessary to provide a mechanism for regulation of state subnational debt. <br />
<ul style="list-style-type: disc;">
<li>It could promote macroeconomic fiscal stability of the states. Hence, exercise of power conferred to the centre by the article 293 should be strictly confined to the purposes and circumstances.</li>
</ul>
</li>
</ul>
</li>
</ul>
<h3>Way Forward</h3>
<ul style="list-style-type: square;">
<li><strong>Review of sub-national Fiscal Policy:</strong> Since the state debt burdens have been rising because of recent fiscal shocks such as<a href="/daily-updates/daily-news-analysis/four-years-of-demonetisation" target="_blank" rel="noopener"><strong> demonetisation</strong></a>, introduction of <a href="/to-the-points/paper3/goods-and-services-tax-gst-1" target="_blank" rel="noopener"><strong>GST</strong></a> and <a href="/daily-updates/daily-news-editorials/covid-19-and-india-1" target="_blank" rel="noopener"><strong>Covid 19 crisis</strong></a>, sub-national fiscal policy of India needs to be reviewed to enable states for subnational borrowings. It shall provide them more opportunities to avail fiscal autonomy.</li>
<li><strong>Validating State Fiscal Responsibility Laws:</strong> Even the Kerala High Court in <strong>Matthew vs Union of India</strong> ruled that that Article 293 is an enabling provision authorising State borrowing and it empowers the states to pass their own<strong> Fiscal Responsibility Laws (FRLs).</strong></li>
<li><strong>Cooperative Federalism:</strong> There is a need to address the legislative concerns of KIIB raised by CAG, and the Centre and Kerala government should take out remedial measures in public interest.</li>
</ul>
<p><a href="https://www.thehindu.com/news/national/kerala/kiifb-borrowings-bypass-limits-for-state-cag/article33603716.ece" target="_blank" rel="noopener"><strong>Source: TH</strong></a></p>',
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		'article_id' => (int) 7493,
		'category_id' => (int) 21,
		'title' => 'Indian Railway Finance Corporation: IPO ',
		'description' => '<h3>Why in News</h3>
<p>The <strong>Initial Public Offering (IPO) of Indian Railway Finance Corporation (IRFC)</strong> got 65% subscription on the first day of bidding.</p>
<ul style="list-style-type: square;">
<li>Earlier, <a href="/daily-updates/daily-news-analysis/irctc-ipo" target="_blank" rel="noopener"><strong>Indian Railway Catering and Tourism Corporation Ltd. held an IPO</strong></a> on the National Stock Exchange in 2019.</li>
</ul>
<h3>Key Points</h3>
<ul style="list-style-type: square;">
<li><strong>First Issue:</strong><br />
<ul style="list-style-type: circle;">
<li>It is the <strong>first IPO in the calendar year 2021</strong> and the <strong>first public issue by a railway <a href="/daily-updates/daily-news-analysis/liquidity-boost-to-nbfcs" target="_blank" rel="noopener">non-banking financial company</a>.</strong></li>
</ul>
</li>
<li><strong>Amount Raised:</strong><br />
<ul style="list-style-type: circle;">
<li>Through the initial public offer, <strong>the Centre, the promoter of IRFC, will offload 13.6% stake in the company.</strong></li>
<li>At the higher price band of Rs 26 per share, <strong>the government would raise Rs 3,243 crore</strong> and the company will have a market cap of Rs 23,845 crore.</li>
</ul>
</li>
<li><strong>Objective:</strong> <br />
<ul style="list-style-type: circle;">
<li>IRFC will use the IPO proceeds from the fresh issue to <strong>boost its capital base and general corporate purposes.</strong></li>
</ul>
</li>
<li><strong>Other Government Interventions to Enhance Railway&rsquo;s Efficiency:</strong><br />
<ul style="list-style-type: circle;">
<li><a href="/daily-updates/daily-news-analysis/dedicated-freight-corridor-1#:~:text=Key%20Points,state%20of%20the%20art%20technology." target="_blank" rel="noopener"><strong>Development of freight corridors</strong></a></li>
<li><strong>High-speed railway </strong></li>
<li><strong>Elevated corridors</strong></li>
</ul>
</li>
</ul>
<div class="border-bg">
<p><strong>Indian Railway Finance Corporation</strong></p>
<ul style="list-style-type: square;">
<li><strong>About:</strong> <br />
<ul style="list-style-type: circle;">
<li>A <strong>subsidiary of the <a href="/daily-updates/daily-news-editorials/privatizing-indian-railways" target="_blank" rel="noopener">Indian Railways</a></strong>, it is the <strong>dedicated market borrowing arm</strong> of the Indian Railways.</li>
</ul>
</li>
<li><strong>Established:</strong> <br />
<ul style="list-style-type: circle;">
<li>It was <strong>incorporated in 1986.</strong></li>
</ul>
</li>
<li><strong>Finance Model:</strong> <br />
<ul style="list-style-type: circle;">
<li>It follows a<strong> financial leasing model</strong> to finance the acquisition of rolling stock assets, which includes locomotives, coaches, wagons, trucks, flats, electric multiple units, containers, cranes, trollies, etc.<br />
<ul style="list-style-type: disc;">
<li><strong>Finance Leasing Model:</strong><br />
<ul style="list-style-type: disc;">
<li>Deriving revenues through the leasing model typically <strong>involves three parties: the seller, the buyer (lessee) and the financier (lessor).</strong></li>
<li>In exchange for payment, <strong>ownership of an item</strong> (usually equipment) is <strong>transferred from the seller to the lessor.</strong></li>
<li>The <strong>lessee then contracts with the lessor</strong> for <strong>the use of the item in exchange for a periodic fee.</strong></li>
<li>The seller may or may not retake ownership of the item once the leasing contract has ended.</li>
</ul>
</li>
</ul>
</li>
</ul>
</li>
<li><strong>Contribution:</strong> <br />
<ul style="list-style-type: circle;">
<li>It plays a<strong> significant role in supporting the capacity enhancement of the Indian Railways</strong> by financing the majority proportion of their annual plan outlay which gives a long term business visibility, the brokerage feels.</li>
</ul>
</li>
<li><strong>Other Functions:</strong> <br />
<ul style="list-style-type: circle;">
<li>It is also into<strong> leasing railway infrastructure assets and national projects of the Government of India (project assets)</strong> and <strong>lending to other entities</strong> under the Ministry of Railways (MoR).</li>
</ul>
</li>
</ul>
</div>
<h3>Initial Public Offering (IPO)</h3>
<ul style="list-style-type: square;">
<li><strong>About:</strong><br />
<ul style="list-style-type: circle;">
<li>IPO is the<strong> selling of securities to the public in the primary market.</strong><br />
<ul style="list-style-type: disc;">
<li><strong>Primary market deals with new securities</strong> being issued for the first time. It is also known as the <strong>new issues market.</strong></li>
<li>It is different from the<strong> secondary market</strong> where <strong>existing securities are bought and sold.</strong> It is also known as the stock market or <a href="/daily-updates/daily-news-analysis/vix-measure-of-market-volatility" target="_blank" rel="noopener"><strong>stock exchange</strong></a>.</li>
</ul>
</li>
<li>It is <strong>when an unlisted company makes either a fresh issue of securities or an offer for sale</strong> of its existing securities or both for the first time to the public.<br />
<ul style="list-style-type: disc;">
<li><strong>Unlisted companies</strong> are companies that are not listed on the stock exchange.</li>
</ul>
</li>
<li>It is generally <strong>used by new and medium-sized firms that are looking for funds to grow and expand their business.</strong></li>
</ul>
</li>
<li><strong>Benefits:</strong><br />
<ul style="list-style-type: circle;">
<li>The funds raised by IPO allows the company<strong> to invest in new capital equipment and infrastructure.</strong></li>
<li>An IPO paves way for<strong> listing and trading of the issuer&rsquo;s securities on the Stock exchange market.</strong></li>
<li>The IPO also allows the company to <strong>attract top talent</strong> because it <strong>can offer stock options to its employees.</strong> This enables the company <strong>to pay its executives fairly low wages initially.</strong> And later, in return, the employees as promised can cash out with the IPO.</li>
</ul>
</li>
</ul>
<p><a href="https://indianexpress.com/article/explained/explained-should-you-invest-in-the-irfc-ipo-7151683/" target="_blank" rel="noopener"><strong>Source: IE</strong></a></p>',
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		'article_id' => (int) 7327,
		'category_id' => (int) 21,
		'title' => 'Special Zero Coupon Recapitalisation Bonds',
		'description' => '<h3>Why in News</h3>
<p>Recently, the government has used<strong> financial innovation to recapitalise Punjab &amp; Sind</strong> Bank by issuing the bank <strong>Rs. 5,500 crore</strong> worth <strong>Special Zero Coupon Recapitalisation Bonds.</strong></p>
<ul style="list-style-type: square;">
<li>Punjab &amp; Sind Bank is a<strong> Government of India undertaking.</strong></li>
</ul>
<h3>Key Points</h3>
<ul style="list-style-type: square;">
<li><strong>Bank Recapitalisation:</strong> <br />
<ul style="list-style-type: circle;">
<li>It means <strong>infusing more capital in state-run banks</strong> so that they meet the capital adequacy norms. <br />
<ul style="list-style-type: disc;">
<li>Indian public sector banks are emphasized to maintain a <strong>Capital Adequacy Ratio (CAR) of 12%.</strong></li>
<li>CAR is the ratio of a bank&rsquo;s capital in relation to its risk weighted assets and current liabilities.</li>
</ul>
</li>
<li>The government, <strong>using different instruments,</strong> infuses capital into banks facing shortage of capital. As the government is the biggest shareholder in public sector banks, the responsibility of bolstering banks' capital reserves lies with the government.</li>
<li>The government infuses capital in banks <strong>by either buying new shares or by issuing bonds.</strong></li>
</ul>
</li>
<li><strong>Reason for Recapitalisation:</strong><br />
<ul style="list-style-type: circle;">
<li>In compliance with <a href="/important-institutions/drishti-specials-important-institutions-national-institutions/important-institutions-national-institution-reserve-bank-of-india" target="_blank" rel="noopener"><strong>Reserve Bank of India (RBI)</strong> </a>guidelines which are based on <a href="/to-the-points/paper3/basel-norms/" target="_blank" rel="noopener"><strong>Basel norms</strong> </a>requiring banks to maintain certain amounts of capital reserves.</li>
</ul>
</li>
<li><strong>Recapitalisation Bonds:</strong><br />
<ul style="list-style-type: circle;">
<li>The government <strong>issues bonds which are subscribed by banks.</strong> The money collected by the government goes to banks in the form of equity capital as the government increases its share of equity holding, thereby shoring up banks' capital reserves.</li>
<li>The money invested by banks in recapitalisation bonds is classified as an investment which earns them an interest. This <strong>helps the government in maintaining its fiscal deficit target</strong> as no money directly goes out from its coffers.</li>
</ul>
</li>
<li><strong>Special Zero Coupon Recapitalisation Bonds :</strong><br />
<ul style="list-style-type: circle;">
<li>These are special types of bonds <strong>issued by the Central government specifically to a particular institution.</strong></li>
<li><strong>Only those</strong> banks, whosoever is <strong>specified, can invest</strong> in them, <strong>nobody else.</strong></li>
<li>It is <strong>not tradable,</strong> it is <strong>not transferable.</strong> It is<strong> limited</strong> only to a<strong> specific bank,</strong> and it is for a <strong>specified period.</strong></li>
<li>There is<strong> no coupon,</strong> it is zero coupon, it is <strong>issued at par</strong> and will be <strong>paid at the end of the specified period.</strong><br />
<ul style="list-style-type: disc;">
<li><strong>Coupon</strong> is the Interest which the Investor gets on a bond.</li>
</ul>
</li>
<li>It is held at the <strong>Held-To-Maturity (HTM)</strong> category of the bank as per the RBI guidelines. <br />
<ul style="list-style-type: disc;">
<li><strong>HTM</strong> securities are purchased to be <strong>owned until maturity.</strong></li>
</ul>
</li>
<li>These are instruments which are <strong>a variation of the recapitalisation bonds</strong> but effectively meet the same purpose, and these are <strong>issued in conformity with the RBI guidelines.</strong></li>
<li><strong>Financial Innovation:</strong> As the issuance of these special bonds will <strong>not affect the <a href="/printpdf/increased-fiscal-deficit" target="_blank" rel="noopener">fiscal deficit</a></strong> while at the same time <strong>provide much needed equity capital to the bank.</strong></li>
</ul>
</li>
<li><strong>Difference Between Normal Zero Coupon Bonds and Special Zero Coupon Bonds:</strong><br />
<ul style="list-style-type: circle;">
<li><strong>Zero Coupon Bonds:</strong><br />
<ul style="list-style-type: disc;">
<li><strong>Zero-Coupon Bond,</strong> also known as the <strong>pure discount bond or deep discount bond,</strong> is purchased at a discounted price and <strong>does not pay any coupons or periodic interests to the fundholders.</strong></li>
<li>The <strong>difference</strong> between the <strong>purchase price</strong> of a zero coupon bond and the <strong>par value at the time of maturity,</strong> indicates the<strong> investor's return.</strong></li>
<li>The Zero Coupon bonds <strong>generally</strong> come with a <strong>time horizon of 10 to 15 years.</strong></li>
</ul>
</li>
<li><strong>Difference: Special Zero Coupon Bonds</strong> are being <strong>issued at par,</strong> there is no interest however <strong>Normal Zero Coupon Bonds</strong> are<strong> issued at discount</strong> therefore they technically are interest bearing.</li>
</ul>
</li>
</ul>
<div class="border-bg">
<p><strong>Bonds</strong></p>
<ul style="list-style-type: square;">
<li>A bond is a <strong>fixed income instrument</strong> that represents a loan made by an investor to a borrower. In simpler words, a bond acts as a <strong>contract between the investor and the borrower.</strong></li>
<li>Mostly Companies and Government issue bonds and Investors buy those bonds as a <strong>savings and security option.</strong></li>
<li>These bonds<strong> have a maturity date</strong> and when once that is attained, the issuing company needs to pay back the amount to the investor along with a part of the profit.</li>
</ul>
</div>
<p><a href="https://indianexpress.com/article/explained/zero-coupon-bonds-innovative-govt-tool-to-fund-psbs-keep-deficit-in-check-7122716/" target="_blank" rel="noopener"><strong>Source: IE</strong></a></p>',
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		'article_id' => (int) 7234,
		'category_id' => (int) 21,
		'title' => 'US Puts India on Currency Watchlist',
		'description' => '<h3>Why in News</h3>
<p>Recently, the US treasury has placed <strong>India on its currency manipulator watch list. Vietnam and Switzerland</strong> have been labelled<strong> as currency manipulators.</strong></p>
<ul style="list-style-type: square;">
<li>In 2019, the US Treasury Department<a href="/daily-updates/daily-news-analysis/usa-removes-india-from-currency-monitoring-watch-list" target="_blank" rel="noopener"><strong> had removed India from its currency manipulator watch list</strong></a> of major trading partners.</li>
</ul>
<h3>Key Points</h3>
<ul style="list-style-type: square;">
<li><strong>Currency Manipulators:</strong><br />
<ul style="list-style-type: circle;">
<li>This is<strong> a label given by the US government to countries</strong> it feels are engaging in <strong>&ldquo;unfair currency practices&rdquo; by deliberately devaluing their currency against the dollar.</strong></li>
<li>The practice would mean that the country in question is<strong> artificially lowering the value of its currency</strong> to gain an unfair advantage over others. This is because the <strong>devaluation would reduce the cost of exports from that country</strong> and artificially show a reduction in trade deficits as a result.</li>
</ul>
</li>
<li><strong>Currency Manipulator Watch List:</strong><br />
<ul style="list-style-type: circle;">
<li>The US Department of Treasury releases<strong> the semi-annual report</strong> where it has <strong>to track developments in international economies and inspect foreign exchange rates.</strong></li>
<li><strong>Criteria:</strong> An economy <strong>meeting two of the three criteria in the Trade Facilitation and Trade Enforcement Act of 2015</strong> is placed on the Watch List. This includes:<br />
<ul style="list-style-type: disc;">
<li>A <strong>&ldquo;significant&rdquo; bilateral trade surplus with the US &mdash;</strong> one that is <strong>at least USD 20 billion</strong> over a 12-month period.</li>
<li>A material <strong>current account surplus equivalent to at least 2% of gross domestic product (GDP)</strong> over a 12-month period.</li>
<li>&ldquo;Persistent&rdquo;, one-sided intervention &mdash; when <strong>net purchases of foreign currency totalling at least 2% of the country&rsquo;s GDP</strong> over a 12 month period are conducted repeatedly, in at least six out of 12 months.</li>
</ul>
</li>
<li><strong>Consequence:</strong> Inclusion in the list does not subject to any kind of penalty and sanctions but it <strong>deteriorates the global financial image</strong> of the country in the financial markets in terms of foreign exchange policies including undervaluation of currencies to gain export advantages.</li>
</ul>
</li>
<li><strong>India&rsquo;s Status:</strong><br />
<ul style="list-style-type: circle;">
<li><strong>India, Taiwan and Thailand</strong> have been <strong>added to seven others</strong> already in <strong>the watch list.</strong><br />
<ul style="list-style-type: disc;">
<li>Others on the list include China, Japan, Korea, Germany, Italy, Singapore and Malaysia.</li>
</ul>
</li>
<li>As per the report by the US Treasury, <strong>India and Singapore</strong> had intervened in the foreign exchange market in a "sustained, asymmetric manner" but did not meet other requirements to warrant designation as manipulators.</li>
<li>India, which has for several years maintained a &ldquo;significant&rdquo; bilateral goods trade surplus with the US, crossed the USD 20 billion mark, according to the latest report. <br />
<ul style="list-style-type: disc;">
<li>Bilateral goods trade surplus totalled USD 22 billion in the first four quarters through June 2020.</li>
</ul>
</li>
<li>Further, <strong>India&rsquo;s net purchases of foreign exchange</strong> accelerated notably in the second half of 2019. Following sales during the initial onset of the pandemic, India sustained net purchases for much of the first half of 2020, which pushed net purchases of foreign exchange to USD 64 billion&ndash;or 2.4% of GDP&ndash;over the four quarters through June 2020.</li>
<li>According to some experts, the tag could <strong>lead to the rupee appreciating</strong> as the Reserve Bank of India (RBI) might step back from its dollar purchases. <br />
<ul style="list-style-type: disc;">
<li><strong>Currency appreciation</strong> is an increase in the value of one currency in relation to another currency. A currency is strong if it is becoming more valuable relative to another country&rsquo;s currency.</li>
</ul>
</li>
</ul>
</li>
</ul>
<p><a href="http://www.drishtiias.com/images/uploads/1608201738_image1.png" target="_blank" rel="noopener"><img class="content-img" src="http://www.drishtiias.com/images/uploads/1608201738_image1.png" style="display: block; margin-left: auto; margin-right: auto;" width="550" caption="false" /></a></p>
<p><a href="https://economictimes.indiatimes.com/news/international/business/us-treasury-labels-switzerland-vietnam-as-currency-manipulators-adds-india-in-monitoring-list/articleshow/79762881.cms" target="_blank" rel="noopener"><strong>Source:ET</strong></a></p>',
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		'article_id' => (int) 7205,
		'category_id' => (int) 21,
		'title' => 'Vehicle Insurance in India',
		'description' => '<h3>Why in News</h3>
<p>Recently, the <strong>Insurance Information Bureau of India</strong> released its annual report <strong>(Motor Annual Report 2018-19).</strong></p>
<ul style="list-style-type: square;">
<li><strong>Insurance Information Bureau (IIB)</strong> was promoted by <a href="/daily-updates/daily-news-analysis/sandbox-for-fintech" target="_blank" rel="noopener"><strong>Insurance Regulatory Development Authority of India (IRDAI)</strong> </a>as a single platform to meet the needs of the insurance industry, in 2009.</li>
</ul>
<h3>Key Points</h3>
<ul style="list-style-type: square;">
<li><strong>Key Findings:</strong><br />
<ul style="list-style-type: circle;">
<li><strong>Uninsured Vehicles:</strong><br />
<ul style="list-style-type: disc;">
<li>Nearly<strong> 57% of the total vehicles on the road were uninsured</strong> as of March 2019, up from <strong>54% in March 2018.</strong></li>
<li>The<strong> bulk of uninsured vehicles are two-wheelers,</strong> with the numbers being as high as 66%. <br />
<ul style="list-style-type: disc;">
<li>According to the <a href="/daily-updates/daily-news-editorials/the-motor-vehicles-bill-for-road-safety#:~:text=The%20Motor%20Vehicles%20(Amendment)%20Bill%2C%202019%20is%20based%20on,while%20dealing%20with%20transport%20departments." target="_blank" rel="noopener"><strong>Motor Vehicles Act, 2019</strong></a>, it is <strong>mandatory</strong> for all vehicles to be insured with <strong>third-party vehicle insurance policy.</strong></li>
<li>Third-party insurance is essentially a form of liability insurance purchased by an insured (first-party) from an insurer (second party) for protection against the claims of another (third party). The first party is responsible for their damages or losses, regardless of the cause of those damages.</li>
</ul>
</li>
</ul>
</li>
<li><strong>Reasons:</strong><br />
<ul style="list-style-type: disc;">
<li><strong>Weak enforcement</strong> by traffic police in states, lack of follow-up by insurers and <strong>rising cost of third-party covers</strong> has resulted in a larger number of vehicle owners not renewing their motor insurance policy.</li>
</ul>
</li>
</ul>
</li>
<li><strong>Concerns:</strong><br />
<ul style="list-style-type: circle;">
<li>About 13.2 crore vehicles on Indian roads are plying without the mandatory third-party insurance covers. <strong>Victims of accidents caused by these vehicles will not get adequate compensation</strong> as there would not be any one insurance company on which the liability can be pinned. The owners, too, have limited means to provide compensation.</li>
<li>Findings from the<a href="/daily-updates/daily-news-analysis/road-accidents-in-india-2018" target="_blank" rel="noopener"><strong> annual report on Road Accidents in India</strong></a>, released by the Ministry of Road Transport and Highways in 2019:<br />
<ul style="list-style-type: disc;">
<li><strong>The road accidents numerics:</strong><br />
<ul style="list-style-type: disc;">
<li>It<strong> kills</strong> almost <strong>1.5 lakh people annually</strong> in India.</li>
<li>The<strong> accidents, as well as accident-related deaths</strong> in the period 2010-2018, <strong>dropped drastically compared with the previous decades,</strong> despite the very high rate of growth of automobiles.</li>
<li>The road accident <strong>severity</strong> (the number of persons killed per 100 accidents) has <strong>increased by 0.6% in 2018 compared to 2017.</strong></li>
</ul>
</li>
<li><strong>Major Cause:</strong><br />
<ul style="list-style-type: disc;">
<li><strong>Over-speeding</strong> is a major cause, accounting for 64.4% of the persons killed.</li>
<li><strong>Two-wheelers accounted for the highest share</strong> (35.2%) in total accidents in 2018.</li>
</ul>
</li>
</ul>
</li>
<li><strong>For insurance companies,</strong> the low level of compliance results in a <strong>higher claims ratio as,</strong> on several occasions, the tribunals have held the insurers liable for compensation, asking them to recover from the insured.</li>
</ul>
</li>
<li><strong>Related Global initiatives:</strong><br />
<ul style="list-style-type: circle;">
<li><a href="/daily-updates/daily-news-analysis/global-status-report-on-road-safety-who" target="_blank" rel="noopener"><strong>Brasilia Declaration on Road Safety (2015):</strong></a><br />
<ul style="list-style-type: disc;">
<li>The declaration was signed at the second Global High-Level Conference on Road Safety held in Brazil. The first conference was held in Russia (2009).</li>
<li>Through the Brasilia Declaration, countries plan to achieve the <a href="/loksabha-rajyasabha-discussions/in-depth-indias-sustainable-development-goals" target="_blank" rel="noopener"><strong>Sustainable Development Goal</strong> </a>3.6 i.e. to half the number of global deaths and injuries from road traffic accidents by 2030.</li>
</ul>
</li>
<li>The<a href="/important-institutions/drishti-specials-important-institutions-international-institution/united-nations-1" target="_blank" rel="noopener"><strong> United Nations</strong></a> has also declared <strong>2010-2020 as the decade of action for Road Safety.</strong></li>
</ul>
</li>
</ul>
<h3>Way Forward</h3>
<ul style="list-style-type: square;">
<li>India is <strong>one of the largest auto markets in the world</strong> with over 20 million vehicles sold annually. It is also among the countries with the <strong>highest number of road accidents and fatalities.</strong> In this scenario, it is very risky and dangerous when more than half the vehicles in the country are uninsured.</li>
<li>Insurance will definitely not reduce the death and accidents however it will reduce the loss and will help in post accident recovery.</li>
<li>There is a <strong>need for complementary thrust to spread awareness and improve financial literacy, particularly the concept of insurance, and its importance.</strong></li>
<li>Another area that necessitates regulatory scrutiny is that of<strong> application of technology</strong> in insurance.</li>
<li>The regulator needs to <strong>exercise vigilance</strong> on three other aspects.<br />
<ul style="list-style-type: circle;">
<li>It must ensure that <strong>insurance is not denied to lower-income people</strong> who make up the bulk of the population and have the most need for protection.</li>
<li>It should insist that <strong>insurers facilitate a simple online process</strong> for direct buying of insurance products, bypassing intermediaries.</li>
<li>It should ensure that <strong>players do not overcharge or add hidden costs.</strong></li>
</ul>
</li>
</ul>
<p><a href="https://indianexpress.com/article/india/over-50-vehicles-on-road-uninsured-report-7103787/" target="_blank" rel="noopener"><strong>Source:IE</strong></a></p>',
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		'article_id' => (int) 7165,
		'category_id' => (int) 22,
		'title' => 'FinTech In India',
		'description' => '<div class="border">
<p>This article is based on <a href="https://economictimes.indiatimes.com/blogs/et-editorials/realising-indias-fintech-potential-regulation-and-tech-must-evolve/" target="_blank" rel="noopener"><strong>&ldquo;Realising India&rsquo;s fintech potential: Regulation and tech must evolve&rdquo;</strong> </a>which was published in The Economic Times on 07/12/2020. It talks about the active areas, opportunities and associated challenges of Fintech in India.</p>
</div>
<p>Recently, India has overtaken China as Asia&rsquo;s top<a href="/daily-updates/daily-news-editorials/daily-updates-news-editorials-the-challenges-for-fintech-adoption-in-India" target="_blank" rel="noopener"><strong> financial technology (FinTech)</strong> </a>market. Having emerged as the world&rsquo;s second-largest fin-tech hub (trailing only the US), India is experiencing the &lsquo;FinTech Boom&rsquo;.</p>
<p>Fintech is used to describe new technology that seeks to improve and automate the delivery and use of financial services. The key segments within the FinTech space include Digital Payments, Digital Lending, BankTech, InsurTech and RegTech, Cryptocurrency.</p>
<p>FinTech now includes different sectors and industries such as education, retail banking, fundraising and nonprofit, and investment management to name a few. FinTech is amongst the most thriving sectors at present in terms of both business growth and employment generation. Apart from this, FinTech can also help in the furtherance of the goal of financial inclusion.</p>
<div class="border-bg">
<p><strong>Active Areas of FinTech Innovation</strong></p>
<ul style="list-style-type: square;">
<li><strong>Cryptocurrency</strong> and digital cash.</li>
<li><strong>Blockchain technology,</strong> that maintains records on a network of computers, but has no central ledger.</li>
<li><strong>Smart contracts,</strong> which utilize computer programs (often utilizing the blockchain) to automatically execute contracts between buyers and sellers.</li>
<li><strong>Open banking,</strong> a concept that leans on the blockchain and posits that third-parties should have access to bank data to build applications that create a connected network of financial institutions and third-party providers.</li>
<li><strong>Insurtech,</strong> which seeks to use technology to simplify and streamline the insurance industry.</li>
<li><strong>Regtech,</strong> which seeks to help financial service firms meet industry compliance rules, especially those covering Anti-Money Laundering and Know Your Customer protocols which fight fraud.</li>
<li><strong>Cybersecurity,</strong> given the proliferation of cybercrime and the decentralized storage of data, cybersecurity and fintech are intertwined.</li>
</ul>
</div>
<h3>Key Growth Drivers of FinTech in India</h3>
<ul style="list-style-type: square;">
<li>Widespread identity formalisation (<a href="/daily-updates/daily-news-analysis/aadhar-and-its-voluntary-use" target="_blank" rel="noopener"><strong>Aadhar</strong></a>): 1.2 bn enrolments.</li>
<li>High level of banking penetration through the Jan Dhan Yojana: 1+ bn bank accounts.</li>
<li>High smartphone penetration: 1.2 bn mobile subscribers.</li>
<li><a href="/daily-updates/daily-news-editorials/a-digital-push-for-healthcare" target="_blank" rel="noopener"><strong>India Stack</strong></a>: Set of APIs for businesses and startups.</li>
<li>Growing disposable income of Indians.</li>
<li>Key government initiatives such as UPI and <a href="/loksabha-rajyasabha-discussions/in-depth-digital-india" target="_blank" rel="noopener"><strong>Digital India.</strong></a></li>
<li>Wide middle-class expansion: By 2030, India will add 140 mn middle-income and 21 mn high-income households which will drive the demand and growth in the Indian FinTech space.</li>
</ul>
<h3>Opportunities Related to FinTech</h3>
<ul style="list-style-type: square;">
<li><strong>Driving Financial Inclusion in India:</strong> A significant number of people in India remain outside the purview of the formal financial system.
<ul style="list-style-type: circle;">
<li>Use of financial technologies can help address the gaps in financial inclusion left by the traditional models of banking and finance.</li>
</ul>
</li>
<li><strong>Providing Financial Assistance to the MSMEs:</strong> Lack of capital is one of the biggest threats to their existence. According to the IFC Report, the total addressable credit gap in the MSME segment is estimated to USD 397.5 billion.
<ul style="list-style-type: circle;">
<li>This is where FinTech comes into the picture, and has the potential to solve the credit availability issues.</li>
<li>With several FinTech start-ups offering easier and quicker access to loans, MSMEs are no longer required to go through the tedious process of documentation, paperwork and multiple visits to a bank.</li>
</ul>
</li>
<li><strong>Enhancing Customer Experience and Transparency:</strong> FinTech start-ups offer convenience, personalisation, transparency, accessibility and ease of use &ndash; factors that empower customers to a great extent.
<ul style="list-style-type: circle;">
<li>The FinTech industry will develop unique and innovative models for assessing risks.</li>
<li>Leveraging big data, machine learning, and alternative data to underwrite credit and develop credit scores for customers with a limited credit history will improve the penetration of financial services in India.</li>
</ul>
</li>
</ul>
<h3>Associated Challenges</h3>
<ul style="list-style-type: square;">
<li><strong>Cyber-Attacks:</strong> Automation of processes and digitization of data makes fintech systems vulnerable to attacks from hackers.
<ul style="list-style-type: circle;">
<li>Recent instances of hacks at debit card companies and banks are illustrations of the ease with which hackers can gain access to systems and cause irreparable damage.</li>
</ul>
</li>
<li><strong>Data Privacy Issue:</strong> The most important questions for consumers pertain to the responsibility for cyber attacks as well as misuse of personal information and important financial data.</li>
<li><strong>Difficulty in Regulation:</strong> Regulation is also a problem in the emerging world of FinTech, especially cryptocurrencies.
<ul style="list-style-type: circle;">
<li>In most countries, they are unregulated and have become fertile ground for scams and frauds.</li>
<li>Due to the diversity of offerings in FinTech, it is difficult to formulate a single and comprehensive approach to these problems.</li>
</ul>
</li>
</ul>
<h3>Way Forward</h3>
<ul style="list-style-type: square;">
<li><strong>Guarding Against Cybercriminals:</strong> Currently, India majorly relies on import of offensive as well as defensive cybersecurity capabilities. Given the growing scale of adoption of technology, it is imperative for India to attain Atma-Nirbharta (Self-Sufficiency) in this domain.</li>
<li><strong>Educating Consumers:</strong> Apart from establishing technological safeguards, educating and training customers to spread awareness about the benefits of fintech and guard against cyberattacks will also help in democratisation of FinTech.</li>
<li><strong>Data Protection Law:</strong> Established fintech sandboxes by RBI to evaluate the implications of technology in the sector is a step in the right direction.
<ul style="list-style-type: circle;">
<li>However, there is a requirement for a strong data protection framework in India.</li>
<li>In this context, the <a href="/daily-updates/daily-news-editorials/personal-data-protection-bill-2019" target="_blank" rel="noopener"><strong>personal data protection bill, 2019,</strong></a> must be passed after thorough debate and deliberation.</li>
</ul>
</li>
</ul>
<h3>Conclusion</h3>
<p>Fintech has the potential to transform other financial services like insurance, investment, remittances. However, regulation must help, not hinder its evolution.</p>
<p><a href="http://www.drishtiias.com/images/uploads/1607429815_image%200.png" target="_blank" rel="noopener"><img class="content-img" src="http://www.drishtiias.com/images/uploads/1607429815_image 0.png" style="display: block; margin-left: auto; margin-right: auto;" caption="false" width="583" height="304" /></a></p>
<table border="1" style="border-collapse: collapse; width: 100%;">
<tbody>
<tr>
<td style="width: 100%; border-style: dotted; border-color: #ff0000; background-color: #fffffa;">
<p><span style="color: #333399;"><em><strong>Drishti Mains Question</strong></em></span></p>
<p>Development of financial technology (FinTech) in India can help in the furtherance of the goal of financial inclusion. Critically analyse.</p>
</td>
</tr>
</tbody>
</table>
<p style="text-align: center;"><iframe width="560" height="315" src="https://www.youtube.com/embed/o3J4OGHVnjY" frameborder="0" allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture" allowfullscreen="allowfullscreen"></iframe></p>
<p>This editorial is based on <strong><a href="https://www.hindustantimes.com/editorials/a-boost-for-defence-ties-in-west-asia-ht-editorial/story-r6Pr614YiKWRafjvuzHz3O.html" target="_blank" rel="noopener">&ldquo;A boost for defence ties in West Asia&rdquo;</a></strong> which was published in The Hindustan Times on December 7<sup>th</sup>, 2020. Now watch this on our Youtube channel.</p>',
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		'article_id' => (int) 7144,
		'category_id' => (int) 22,
		'title' => 'Digital Rupee',
		'description' => '<div class="border">
<p>This article is based on <a href="https://www.thehindubusinessline.com/opinion/editorial/the-rbi-should-start-working-on-an-official-cryptocurrency-for-india/article33223897.ece" target="_blank" rel="noopener"><strong>&ldquo;Encrypting the rupee&rdquo;</strong></a> which was published in The Hindu Business line on 01/12/2020. It talks about the prospects of a Central Bank issued Digital Currency in India.</p>
</div>
<p>The growing popularity of<a href="/daily-updates/daily-news-editorials/supreme-court-on-cryptocurrency" target="_blank" rel="noopener"><strong> digital currencies (or cryptocurrency)</strong></a> such as Bitcoin, over the last decade, had made most central banks look seriously at launching a digital currency controlled by them that can address the shortcomings of digital currencies while hastening the shift towards a cashless society.</p>
<p>In this context, the European Central Bank has expressed its intention to evaluate a <a href="/daily-updates/daily-news-analysis/china-to-launch-official-digital-currency" target="_blank" rel="noopener"><strong>Central Bank issued Digital Currency (CBDC)</strong></a> for the Euro Zone. The RBI had, in 2018, directed financial institutions against facilitating transactions involving cryptocurrencies, leading to many crypto trading platforms shutting down.</p>
<p>However, recently RBI has indicated that it is conducting a feasibility study of developing a government-backed digital currency. As many countries today explore the prospects of a sovereign digital currency, India should not lag behind in developing Digital Rupee.</p>
<div class="border-bg">
<p><strong>Note: Digitalisation of Fiat Currency From Digital Currency.</strong></p>
<ul style="list-style-type: square;">
<li>In order to understand the importance of a Digital Rupee, it is required to distinguish the digitalisation of fiat currency from digital currency.</li>
<li>The digitisation of fiat currency stems from the advent of electronic payment and interbank IT systems, allowing commercial banks to more efficiently and independently generate the credit flows that expand the broad money supply.</li>
<li>By contrast, digital currency, enabled by <a href="/daily-updates/daily-news-analysis/blockchain-technology-in-voting" target="_blank" rel="noopener"><strong>blockchain technology</strong></a>, affects the base currency allowing the central bank to bypass commercial banks and regain control of currency creation and supply end-to-end.</li>
</ul>
</div>
<h3>Need For CBDC in India</h3>
<ul style="list-style-type: square;">
<li><strong>Addressing the Malpractices:</strong> The need for a sovereign digital currency arises from the anarchic design of existing cryptocurrencies, wherein their creation, as well as maintenance, are in the hands of the public.
<ul style="list-style-type: circle;">
<li>With no government supervision and ease of cross-border payments, renders them vulnerable to malpractices like tax evasion, terror funding, money laundering, etc.</li>
<li>By regulating digital currency, the central bank can put a check on their malpractices.</li>
</ul>
</li>
<li><strong>Addressing Volatility:</strong> As the cryptocurrencies are not pegged to any asset or currency, its value is solely determined by speculation (demand and supply). It is due to this, there has been huge volatility in the value of cryptocurrencies like bitcoin.
<ul style="list-style-type: circle;">
<li>As CBDCs will be pegged to any assets (like gold or fiat currency) and hence will not witness the volatility being seen in cryptocurrencies.</li>
</ul>
</li>
<li><strong>Next Big Thing:</strong> In a survey conducted by <a href="/to-the-points/paper3/basel-norms" target="_blank" rel="noopener"><strong>Bank for International Settlements</strong></a>, around 80 per cent of the 66 responding central banks said they have begun working on central bank-issued digital currency (CBDC) in some form.
<ul style="list-style-type: circle;">
<li>Moreover, China is quietly bringing about a revolutionary change to the currency and payment system by launching its Digital Renminbi.</li>
</ul>
</li>
<li><strong>Digital Currency Proxy War:</strong> India runs the risk of being caught up in the whirlwind of a proxy digital currency war as the US and China battle it out to gain supremacy across other markets by introducing new-age financial products.
<ul style="list-style-type: circle;">
<li>Today, a sovereign Digital Rupee isn&rsquo;t just a matter of financial innovation but a need to push back against the inevitable proxy war which threatens our national and financial security.</li>
</ul>
</li>
<li><strong>Reducing Dependency on Dollar:</strong> Digital Rupee provides an opportunity for India to establish the dominance of Digital Rupee as a superior currency for trade with its strategic partners, thereby reducing dependency on the dollar.</li>
</ul>
<div class="border-bg">
<p><strong>Digital Proxy War</strong></p>
<ul style="list-style-type: square;">
<li>For too long, the dollar has been unchallenged as the world&rsquo;s reserve currency giving the US leverage over the world&rsquo;s financial system and also enabling it to impose sanctions against countries.</li>
<li>However, in wake of the recent trade war, China is now pushing for a more advanced financial system using Digital Renminbi.</li>
</ul>
</div>
<h3>Advantages of Digital Rupee</h3>
<ul style="list-style-type: square;">
<li><strong>Complete Transmission of Monetary Policy:</strong> Digital Rupee will empower the RBI by providing it direct tools to control monetary policy.
<ul style="list-style-type: circle;">
<li>Directly influenced creation and supply flow using a Digital Rupee will immediately reflect the effects of policy changes instead of relying on commercial banks to make those changes when they deem fit.</li>
</ul>
</li>
<li><strong>Safeguarding the Interest of Deposit Holders:</strong> The recent <a href="/daily-updates/daily-news-editorials/shadow-banking-and-the-crisis-in-the-indian-economy" target="_blank" rel="noopener"><strong>NBFC crisis</strong> </a>resulting in the current downturn in the economy and the PMC Bank scandal which has locked out depositors from withdrawing their funds due to high NPAs are a testament to the fragility of our current banking model.
<ul style="list-style-type: circle;">
<li>Officially backed Digital Rupee will empower the regulators to monitor transactions and credit flow across the economy helping them weed out scams and fraud instantly and secure depositors&rsquo; money.</li>
<li>Moreover, it will help distract investors from the current bunch of crypto assets that are highly risky.</li>
</ul>
</li>
<li><strong>New Paradigm For Banking</strong>: Digital Rupee will turn every large technology company into a fintech company without the need for permission or partnership with a bank.
<ul style="list-style-type: circle;">
<li>This will create new incentives for companies to bank the unbanked, while also providing financial services to those who have been at the mercy of banks till date.</li>
</ul>
</li>
<li><strong>Enabler of Cashless Society:</strong> Official digital currencies can play an important role in weaning users away from using cash, which will help control tax evasion.
<ul style="list-style-type: circle;">
<li>Digital Rupee will also make cashback, remittances, loans, insurance, stocks and other financial products a natural extension using programmable smart contracts.</li>
</ul>
</li>
</ul>
<h3>Conclusion</h3>
<p>The creation of a Digital Rupee will provide an opportunity for India to empower its citizens and enable them to use it freely in our ever-expanding digital economy and break free from an outdated banking system. Looking into its impact on macroeconomy and liquidity, banking systems and money markets, it is imperative of policymakers to thoroughly consider the prospects of Digital Rupee in India.</p>
<p><a href="http://www.drishtiias.com/images/uploads/1607170284_image0.jpg" target="_blank" rel="noopener"><img class="content-img" src="http://www.drishtiias.com/images/uploads/1607170284_image0.jpg" style="display: block; margin-left: auto; margin-right: auto;" width="650" caption="false" /></a></p>
<table border="1" style="border-collapse: collapse; width: 100%;">
<tbody>
<tr>
<td style="width: 100%; border-style: dotted; border-color: #ff0000; background-color: #fefff7;">
<p><span style="color: #333399;"><em><strong>Drishti Mains Question</strong></em></span></p>
<p>Discuss the prospects of Central Bank Issued Digital Currency on the money market in India.</p>
</td>
</tr>
</tbody>
</table>
<p style="text-align: center;"><iframe width="560" height="315" src="https://www.youtube.com/embed/T3w6oTOqHT0" frameborder="0" allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture" allowfullscreen="allowfullscreen"></iframe></p>
<p>This editorial is based on <a href="https://www.financialexpress.com/opinion/govt-must-get-its-vaccine-talk-right/2142888/" target="_blank" rel="noopener"><strong>&ldquo;Modi govt must get its vaccine talk right&rdquo;</strong></a> which was published in The Financial Express on December 4<sup>th</sup>, 2020. Now watch this on our Youtube channel.</p>',
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	(int) 7 => object(Cake\ORM\Entity) {

		'article_id' => (int) 7127,
		'category_id' => (int) 21,
		'title' => 'Municipal Bonds',
		'description' => '<h3>Why in News</h3>
<p>Recently, <strong>Rs. 200-crore worth Lucknow Municipal Corporation (LMC) bonds</strong> have been listed on the <strong>Bombay Stock Exchange (BSE).</strong></p>
<ul style="list-style-type: square;">
<li><strong>Lucknow</strong> becomes<strong> ninth city</strong> to raise municipal bonds, incentivised by the <strong>Ministry of Housing and Urban Affairs (Mohua)</strong> under <a href="/daily-updates/daily-news-analysis/amrut-mission" target="_blank" rel="noopener"><strong>Mission Amrut.</strong></a></li>
<li><strong>BSE</strong> is the oldest stock exchange in India as well as Asia.</li>
</ul>
<div class="border-bg">
<p><strong>Mission Amrut</strong></p>
<ul style="list-style-type: square;">
<li><strong>Atal Mission for Rejuvenation and Urban Transformation</strong> (Amrut) was<strong> launched in 2015</strong> to:<br />
<ul style="list-style-type: circle;">
<li>Ensure that every household has access to a tap with the <strong>assured supply of water</strong> and a <strong>sewerage connection.</strong><br />
<ul style="list-style-type: disc;">
<li>The Priority zone of the Mission is water supply followed by sewerage.</li>
</ul>
</li>
<li><strong>Increase the amenity value of cities</strong> by developing greenery and well maintained open spaces (e.g. parks).</li>
<li><strong>Reduce pollution by switching to public transport</strong> or constructing facilities for non-motorized transport (e.g. walking and cycling).</li>
</ul>
</li>
<li>It is a <a href="/daily-updates/daily-news-analysis/data-governance-quality-index-niti-aayog" target="_blank" rel="noopener"><strong>centrally sponsored scheme</strong> </a>with <strong>80%</strong> budgetary support from the Centre.</li>
</ul>
</div>
<h3>Key Points</h3>
<ul style="list-style-type: square;">
<li><strong>Municipal Bonds :</strong> <br />
<ul style="list-style-type: circle;">
<li>A <strong>municipal bond (muni)</strong> is a <strong>debt security issued by a state, municipality or county </strong>to<strong> finance its capital expenditures,</strong> including the construction of highways, bridges or schools.<br />
<ul style="list-style-type: disc;">
<li>Through muni bonds, a municipal corporation raises money from individuals or institutions and promises to pay a <strong>specified amount of interest</strong> and returns the <strong>principal amount</strong> on a specific maturity date.</li>
</ul>
</li>
<li>These are mostly<strong> exempt from federal taxes and from most state and local taxes,</strong> making them especially attractive to people in high income tax brackets.</li>
</ul>
</li>
<li><strong>History of Municipal Bonds Issuance in India:</strong><br />
<ul style="list-style-type: circle;">
<li>Municipal bonds were first issued in India in 1997, five years after the <a href="/important-institutions/drishti-specials-important-institutions-national-institutions/panchayati-raj-institution-pri#:~:text=74th%20Amendment%20provides%20for%20a,and%20Municipalities%20(Article%20243ZD).&amp;text=The%20Eleventh%20Scheduled%20of%20the,of%20the%20Panchayati%20Raj%20bodies." target="_blank" rel="noopener"><strong>74<sup>th</sup> Constitutional Amendment</strong></a> decentralized urban local bodies and gave them autonomy; made them accountable to citizens, and reformed their finances enabling them to access capital markets and financial institutions.</li>
<li>Between 1997 and 2010, the city corporations of Bengaluru, Ahmedabad and Nashik <strong>experimented with bond issues</strong> but barely managed to raise Rs. 1,400 crore.</li>
<li>The <strong>poor investor response</strong> was due to the fact that<strong> these bonds were not tradable </strong>and<strong> lacked regulatory clarity.</strong></li>
<li><a href="/important-institutions/drishti-specials-important-institutions-national-institutions/securities-and-exchange-board-of-india-sebi" target="_blank" rel="noopener"><strong>Securities and Exchange Board of India (SEBI)</strong></a>&rsquo;s detailed guidelines for the issue and listing of municipal bonds in March 2015, clarified their regulatory status and rendered them safer for investors.</li>
<li>In 2017, Pune Municipal Corporation had raised Rs. 200 crore through muni bonds at an interest of 7.59% to finance its 24x7 water supply project. <br />
<ul style="list-style-type: disc;">
<li>The plan was to raise Rs. 2,264 crore in five years in what was then the biggest municipal bonds programme in the country.</li>
</ul>
</li>
</ul>
</li>
<li><strong>Significance of Municipal Bonds Market:</strong><br />
<ul style="list-style-type: circle;">
<li>Municipal Bonds can help the <strong>Urban Local Bodies (ULBs)</strong> to garner revenue to complete budgetary projects as property tax is the only major source of municipal revenue.</li>
<li>Growth of the municipal bond market is critical for India&rsquo;s large cities and towns to <strong>upgrade their creaking infrastructure.</strong></li>
<li>The ability of municipal bodies to be self-sustaining is also critical to the success of the Centre&rsquo;s pet projects<strong> such as <a href="/daily-updates/daily-news-analysis/smart-cities-command-centres#:~:text=Smart%20City%20Mission,create%20smart%20outcomes%20for%20citizens." target="_blank" rel="noopener">Smart Cities</a> and Amrut.</strong></li>
</ul>
</li>
<li><strong>Benefits of Municipal Bonds for Investors:</strong><br />
<ul style="list-style-type: circle;">
<li><strong>Transparency:</strong><br />
<ul style="list-style-type: disc;">
<li>Municipal bonds that are issued to the public are rated by renowned agencies such as <a href="/to-the-points/paper3/credit-rating-in-india" target="_blank" rel="noopener"><strong>CRISIL</strong></a>, which allows investors transparency regarding the credibility of the investment option.</li>
</ul>
</li>
<li><strong>Tax benefits:</strong><br />
<ul style="list-style-type: disc;">
<li>In India, municipal bonds are exempted from taxation if the investor conforms to certain stipulated rules. In addition to such conformation, interest rates generated on such investment tools are also exempt from taxation policy.</li>
</ul>
</li>
<li><strong>Minimal risk:</strong><br />
<ul style="list-style-type: disc;">
<li>Municipal bonds are issued by municipal authorities, implying involvement of minimal risk with these securities.<br />
<ul style="list-style-type: disc;">
<li>Government bonds are usually viewed as low-risk investments, because the likelihood of a government defaulting on its loan payment tends to be low.</li>
</ul>
</li>
</ul>
</li>
</ul>
</li>
<li><strong>Challenges:</strong><br />
<ul style="list-style-type: circle;">
<li><strong>Reduced investor trust and confidence:</strong> Weak financial position and poor governance and management of city agencies have limited their ability to issue bonds, and reduced investor trust and confidence.</li>
<li><strong>No authentic financial data available:</strong> Investors have doubt over local bodies as there is no authentic financial data available.</li>
<li><strong>Other Issues:</strong> Low accountability and autonomy of city agencies followed by lack of an enabling environment.</li>
</ul>
</li>
</ul>
<h3>Way Forward</h3>
<ul style="list-style-type: square;">
<li>With the plight of the <a href="/daily-updates/daily-news-editorials/covid-19-and-indian-federalism" target="_blank" rel="noopener"><strong>Covid-19</strong></a>, revenue generation and state finances have come to a virtual standstill,<strong> hampering the funding of ULBs.</strong> However, under the <a href="/daily-updates/daily-news-analysis/atmanirbhar-bharat-and-economic-stimulus" target="_blank" rel="noopener"><strong>Atmanirbhar Bharat Abhiyan</strong></a> package, states are <strong>offered an increase in borrowing capacity, based on potential reform of the urban property tax regimen.</strong></li>
<li>Still, most urban local bodies <strong>do not have the institutional agency to raise funds,</strong> systemise accounting, and put up bankable projects. In order to address this, the reforms enlisted in the<a href="/pdf/j-k-and-15th-finance-commission.pdf" target="_blank" rel="noopener"><strong> 15<sup>th</sup> Finance Commission</strong></a> <strong>(which makes it mandatory for urban local bodies to submit audited accounts by linking them to grant disbursement)</strong> must be implemented.</li>
<li><strong>Transparency within ULBs will increase their credit worthiness,</strong> thereby improving their prospects of<strong> floating Muni bonds,</strong> enabling them to contribute towards building resilient infrastructure under the<strong> Atmanirbhar Bharat Abhiyan.</strong></li>
</ul>
<p><a href="https://indianexpress.com/article/india/not-here-to-snatch-anything-yogi-adityanath-hits-back-at-uddhav-thackeray-7078476/" target="_blank" rel="noopener"><strong>Source</strong></a></p>',
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	(int) 8 => object(Cake\ORM\Entity) {

		'article_id' => (int) 7057,
		'category_id' => (int) 21,
		'title' => 'Negative Yield Bonds',
		'description' => '<h3>Why in News</h3>
<p>Recently, demand for <strong>negative yield bonds</strong> is on rise in the global market.</p>
<h3>Key Points</h3>
<ul style="list-style-type: square;">
<li><strong>Negative Yield Bonds:</strong> Are<strong> debt instruments</strong> that offer to pay the investor a maturity amount <strong>lower than the purchase</strong> price of the bond. These are generally <strong>issued</strong> by <strong>central banks or governments,</strong> and<strong> investors pay interest to the borrower</strong> to keep their money with them.<br />
<ul style="list-style-type: circle;">
<li><strong>Bond:</strong> Is an <strong>instrument</strong> to<strong> borrow money.</strong> A bond could be<strong> floated/issued</strong> by a country&rsquo;s<strong> government</strong> or by a <strong>company</strong> to raise funds.</li>
<li><strong>Yield:</strong> The yield of a bond is the <strong>effective rate of return</strong> that it earns. But the rate of return is <strong>not fixed;</strong> it changes with the price of the bond.<br />
<ul style="list-style-type: disc;">
<li>Generally, investors purchase the bonds at their <strong>face value,</strong> which is the principal amount invested. In return, <strong>investors typically earn a yield</strong> of a bond.</li>
<li>Each bond has a<strong> maturity date,</strong> which is when the investor gets paid back the <strong>principal amount.</strong></li>
</ul>
</li>
</ul>
</li>
<li><strong>Reasons behind buying Negative Yield Bonds:</strong><br />
<ul style="list-style-type: circle;">
<li><strong>To create a diverse portfolio:</strong> Many hedge funds and <strong>investment firms</strong> that manage <a href="/daily-updates/daily-news-editorials/mutual-funds-and-emerging-indian-economy" target="_blank" rel="noopener"><strong>mutual funds</strong> </a>invest in negative bonds in order to diversify their investment.</li>
<li><strong>To use them as collateral:</strong> Bonds are often used to pledge as <strong>collateral</strong> for financing and as a result, need to be held regardless of their price or yield.</li>
<li><strong>To take Benefit from Currency Gain:</strong> Foreign investors might believe the currency's exchange rate will rise, which would offset the negative bond yield.</li>
<li><strong>To Avoid Domestic Deflation Risk:</strong> Domestically, investors might expect a period of deflation, or lower prices in the economy.<br />
<ul style="list-style-type: disc;">
<li><strong>For Example:</strong> Consider a one-year bond that yields minus 5% but at the same time inflation is expected to be minus 10% over the same period.<br />
<ul style="list-style-type: disc;">
<li>That means the investor in the bond would have more purchasing power at the end of the year because prices for goods and services would have declined far more than would the value of the investment in the fixed-income security.</li>
</ul>
</li>
</ul>
</li>
<li><strong>To Create Safe Haven Assets:</strong> Investors might also be interested in negative bond yields if the loss is less than it would be with another investment. In times of <strong>economic uncertainty,</strong> many investors rush to buy bonds because they're considered<strong> safe-haven investments.</strong> <br />
<ul style="list-style-type: disc;">
<li>These purchases are called the <strong>flight-to-safety-trade</strong> in the bond market. During such a time, investors might accept a negative-yielding bond because the negative yield might be far less of a loss than a potential double-digit percentage loss in the equity markets.</li>
</ul>
</li>
</ul>
</li>
<li><strong>Current Scenario:</strong><br />
<ul style="list-style-type: circle;">
<li>Today when the world is fighting the <a href="/daily-updates/daily-news-editorials/covid-19-and-indian-federalism" target="_blank" rel="noopener"><strong>Covid-19 pandemic</strong></a> and <strong>interest rates</strong> related to bonds and other financial instruments in developed markets across Europe are much lower, investors are looking for relatively better-yielding debt instruments<strong> to safeguard their interests.</strong></li>
<li><strong>China</strong> sold its negative-yield bonds for the first time, and this saw a high demand from investors across<strong> Europe.</strong></li>
<li><strong>Reason for High Demand:</strong><br />
<ul style="list-style-type: disc;">
<li><strong>Low risk with Chinese Bonds :</strong> Yields offered in safe European bonds are much lower than ones offered by China.<br />
<ul style="list-style-type: disc;">
<li>As against minus &mdash;0.15% yield on the 5-year bond issued by China, the yields offered in safe European bonds are much lower, between &ndash;0.5% and &mdash;0.75%.</li>
</ul>
</li>
<li><strong>China&rsquo;s positive<a href="/daily-updates/daily-news-analysis/gdp-decreases-to-11-year-low" target="_blank" rel="noopener"> Gross Domestic Product (GDP)</a></strong>: Majority of the large economies are facing a contraction in their GDP for 2020-21 while China is one country that is set to witness positive growth as its GDP expanded by 4.9% in the third quarter of 2020.</li>
<li><strong>Increase in Covid-19 cases:</strong> While Europe, the United States and other parts of the world are facing a second wave of <strong>Covid-19 cases,</strong> China has demonstrated that it has controlled the spread of the pandemic and is therefore seen as a more <strong>stable region.</strong></li>
</ul>
</li>
<li><strong>Factor Driving the High Demand:</strong><br />
<ul style="list-style-type: disc;">
<li><strong>Availability of money:</strong> Huge amount of <strong>liquidity</strong> injected by the <strong>global central banks</strong> after the pandemic.<br />
<ul style="list-style-type: disc;">
<li>They have injected an estimated more than <strong>10 trillion dollars</strong> of liquidity through various instruments in the financial system.</li>
</ul>
</li>
<li><strong>Avoiding risk:</strong> Investors might also be temporarily parking money in negative yield bonds for the purpose of hedging their risk portfolio in equities. To gain profit and avoid losses in case the fresh wave of the <strong>Covid-19 pandemic</strong> leads to further lockdowns of economies.</li>
</ul>
</li>
</ul>
</li>
</ul>
<p><a href="https://indianexpress.com/article/explained/explained-why-chinas-negative-yield-bonds-are-in-demand-7063061/" target="_blank" rel="noopener"><strong>Source:IE</strong></a></p>',
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	(int) 9 => object(Cake\ORM\Entity) {

		'article_id' => (int) 7029,
		'category_id' => (int) 21,
		'title' => 'Lakshmi Vilas Bank Crisis',
		'description' => '<h3>Why in News</h3>
<p>Recently, the <a href="/important-institutions/drishti-specials-important-institutions-national-institutions/important-institutions-national-institution-reserve-bank-of-india" target="_blank" rel="noopener"><strong>Reserve Bank of India</strong></a> (RBI) has decided to impose a <strong>30-day moratorium</strong> on Chennai-based <strong>Lakshmi Vilas Bank Ltd</strong> (LVB).</p>
<h3>Key Points</h3>
<ul style="list-style-type: square;">
<li><strong>Background:</strong><br />
<ul style="list-style-type: circle;">
<li>LVB was placed under the <a href="/to-the-points/paper3/prompt-corrective-action-pca" target="_blank" rel="noopener"><strong>prompt corrective action (PCA) framework</strong></a> in September 2019 considering the breach of PCA thresholds as on 31st March, 2019. <br />
<ul style="list-style-type: disc;">
<li>The RBI has specified certain regulatory trigger points, as a part of prompt corrective action (PCA) Framework, in terms of<strong> three parameters,</strong> i.e.<strong> capital to risk weighted assets ratio (CRAR), net non-performing assets (NPA) and Return on Assets (RoA),</strong> for initiation of certain structured and discretionary actions in respect of banks hitting such trigger points.</li>
</ul>
</li>
<li>After taking into consideration various developments, the RBI had come to the conclusion that in the absence of a credible revival plan, with a view to protect depositors&rsquo; interest and in the interest of financial and banking stability, there is no alternative but to apply to the Central Government for imposing a moratorium under <strong>section 45 of the Banking Regulation Act, 1949.</strong></li>
</ul>
</li>
<li><strong>Challenges Faced by LVB:</strong><br />
<ul style="list-style-type: circle;">
<li><strong>Domino Effect of Yes Bank Crisis:</strong> The LVB episode started unfolding after the RBI and banks led by State Bank of India bailed out fraud-hit <a href="/daily-updates/daily-news-editorials/the-yes-bank-crisis" target="_blank" rel="noopener"><strong>Yes Bank</strong></a> in <strong>March 2020.</strong><br />
<ul style="list-style-type: disc;">
<li>Yes Bank illustrated the widening damage from India&rsquo;s <a href="/daily-updates/daily-news-editorials/shadow-banking-and-the-crisis-in-the-indian-economy" target="_blank" rel="noopener"><strong>shadow banking crisis</strong></a>, highlighted by the <strong>collapse of IL&amp;FS in 2018.</strong></li>
<li>On the same lines, <strong>Punjab and Maharashtra Cooperative Bank</strong> was hit by a loan scam highlighting the riskiness of banks, especially <a href="/daily-updates/daily-news-editorials/co-operative-banking-in-india" target="_blank" rel="noopener"><strong>cooperative banks.</strong></a></li>
</ul>
</li>
<li><strong>Declining Net Worth:</strong> The financial position of the LVB has undergone a<strong> steady decline, with continuous losses over the last three years</strong> eroding the bank&rsquo;s net worth.<br />
<ul style="list-style-type: disc;">
<li>Almost one-fourth of the bank&rsquo;s advances have turned bad assets.</li>
</ul>
</li>
<li><strong>Inadequacy to Raise Capital:</strong> LVB has <strong>not been able to raise adequate capital</strong> to address the issues and was also <strong>experiencing the continuous withdrawal of deposits</strong> and<strong> low levels of liquidity.</strong></li>
<li><strong>Governance Issues:</strong> Serious <strong>governance issues</strong> in recent years have led to a deterioration in the performance of the bank.</li>
<li><strong>Lack of Promoters:</strong> The functioning of LVB, along many such banks, has been under scrutiny as most of them <strong>do not have strong promoters,</strong> making them targets for mergers.</li>
<li><strong>Rising NPAs:</strong> Its gross <a href="/daily-updates/daily-news-editorials/lessons-from-npa-crisis" target="_blank" rel="noopener"><strong>non-performing assets</strong></a> (NPAs) stood 25.4% of its advances as of June 2020, as against 17.3% in 2019. Due to which, it was unable to raise capital to shore up its balance sheet.<br />
<ul style="list-style-type: disc;">
<li><strong>NPAs in the banking sector are expected to increase</strong> as the <strong><a href="/daily-updates/daily-news-analysis/covid-19-now-pandemic-who" target="_blank" rel="noopener">pandemic</a> affects cash flows</strong> of people and companies.</li>
</ul>
</li>
</ul>
</li>
<li><strong>Impact on Investors:</strong><br />
<ul style="list-style-type: circle;">
<li><strong>Equity capital will be fully written off,</strong> which means existing shareholders face a <strong>total loss on their investments</strong> unless there are buyers in the secondary market who may ascribe some value to these.</li>
<li>Individual investors will face a loss on their investments in<a href="/daily-updates/daily-news-analysis/at-1-bonds" target="_blank" rel="noopener"><strong> AT-1 bonds.</strong></a><br />
<ul style="list-style-type: disc;">
<li>As per RBI rules based on the <strong>Basel-III framework,</strong> AT-1 bonds have <strong>principal loss absorption features,</strong> which can cause a full write-down or conversion to equity.</li>
</ul>
</li>
<li><strong>Shares of LVB closed at 20% lower circuit</strong> which means that there will be <strong>only sellers and no buyers.</strong><br />
<ul style="list-style-type: disc;">
<li>The lower circuit is the limit below which a stock price cannot trade on a particular trading day.</li>
<li>These regulatory mechanisms put in place to temporarily halt trading on an exchange to curb panic-selling.</li>
</ul>
</li>
</ul>
</li>
<li><strong>Measures Taken by RBI:</strong><br />
<ul style="list-style-type: circle;">
<li>The RBI monitors the performance of private banks and large <a href="/daily-updates/daily-news-editorials/A%20nuanced%20understanding%20of%20the%20NBFC%20sector" target="_blank" rel="noopener"><strong>Non-Banking Financial Companies</strong></a> (NBFCs).</li>
<li>On LVB, it has <strong>imposed a moratorium whose cash withdrawal limit</strong> has been capped at <strong>Rs. 25,000.</strong></li>
<li>It has also put in place a <strong>draft scheme for its amalgamation with DBS Bank India.</strong><br />
<ul style="list-style-type: disc;">
<li>The combined balance sheet of DBS India and LVB would remain healthy after the proposed amalgamation, with <a href="/daily-updates/daily-news-analysis/rbi-cancels-licence-of-ckp-co-op-bank#:~:text=Capital%20Adequacy%20Ratio,-Capital%20Adequacy%20Ratio&amp;text=It%20is%20decided%20by%20central,maintain%20a%20CAR%20of%209%25." target="_blank" rel="noopener"><strong>Capital to Risk Weighted Assets Ratio</strong></a> (CRAR) at 12.51% and <strong>Common Equity Tier-1</strong> (CET-1) capital at 9.61%, without taking into account the infusion of additional capital.<br />
<ul style="list-style-type: disc;">
<li><strong>CET-1 capital</strong> includes equity instruments where returns are linked to the banks&rsquo; performance and therefore the performance of the share price. They have no maturity.</li>
</ul>
</li>
<li>In September 2019, merger of banks, <a href="/daily-updates/daily-news-analysis/amalgamation-of-national-banks" target="_blank" rel="noopener"><strong>consolidation of 10 public sector banks into four mega state-owned ones</strong></a>, was announced ostensibly to help in better management of capital.</li>
</ul>
</li>
<li>One <strong>safety net for small depositors</strong> is the <a href="/daily-updates/daily-news-analysis/deposit-insurance" target="_blank" rel="noopener"><strong>Deposit Insurance and Credit Guarantee Corporation</strong></a> (DICGC), an RBI subsidiary, which gives <strong>insurance cover on up to Rs. 5 lakh deposits</strong> in banks.</li>
<li>RBI may ask for <strong>capital infusion by other banks and financial institutions, putting in equity capital</strong> in the reconstructed entity.<br />
<ul style="list-style-type: disc;">
<li>Budget 2019 had announced a<strong> Rs. 70,000 crore bank recapitalisation</strong> programme to help Public Sector Banks shore up their capital reserves and enhance credit flow into the economy.</li>
</ul>
</li>
</ul>
</li>
</ul>
<h3>Way Forward</h3>
<ul style="list-style-type: square;">
<li>These bank crises are not exactly new or unique and their problems with mounting bad loans reflect the underlying woes in the financial sector ranging from real estate to power and non-banking financial companies.</li>
<li>In September 2020, an <a href="/daily-updates/daily-news-analysis/k-v-kamath-committee-on-restructuring-of-loans" target="_blank" rel="noopener"><strong>expert committee headed by K V Kamath</strong></a> came out with <a href="/daily-updates/daily-news-analysis/need-for-balanced-loan-restructuring-scheme-rbi-governor#:~:text=The%20RBI%20set%20up%20a,by%20the%20Covid%2D19%20pandemic.&amp;text=The%20committee%20recommended%20five%20financial,stressed%20assets%20in%2026%20sectors." target="_blank" rel="noopener"><strong>recommendations on the financial parameters</strong></a> required for a one-time loan restructuring window for corporate borrowers under stress due to the pandemic which would help to deal with the time-specific concerns.</li>
<li>The crisis provides an opportunity for the various stakeholders to review their existing frameworks and revise them accordingly suiting to timely needs.</li>
</ul>
<p><a href="https://indianexpress.com/article/explained/lakshmi-vilas-what-a-failed-bank-means-7056518/" target="_blank" rel="noopener"><strong>Source: IE</strong></a></p>',
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	(int) 10 => object(Cake\ORM\Entity) {

		'article_id' => (int) 6847,
		'category_id' => (int) 22,
		'title' => 'Insurance Sector in India',
		'description' => '<div class="border">
<p>This article is based on <a href="https://www.thehindubusinessline.com/opinion/editorial/keeping-it-saral/article32920441.ece" target="_blank" rel="noopener"><strong>&ldquo;Keeping it Saral&rdquo;</strong> </a>which was published in The Hindu Businessline on 22/10/2020. It talks about the journey of the insurance sector in India and its associated issues.</p>
</div>
<p>Insurance is the main element in the operation of national economies throughout the world today. It protects health and assets of the people and stimulates business activities to operate in a cost-effective manner.</p>
<p>Citing this, the <a href="/daily-updates/daily-news-analysis/sandbox-for-fintech" target="_blank" rel="noopener"><strong>Insurance Regulatory and Development Authority</strong> </a>(IRDA) has released guidelines for the insurance sector i.e. <strong>Saral Jeevan Bima (SJB).</strong> Saral Jeewan Bima provides for broad contours of a standard individual term life insurance product which must be adhered by insurance companies.</p>
<p>While India&rsquo;s insurance sector has been growing dynamically in recent years, its share in the global insurance market remains abysmally low.</p>
<p>There are many underlying issues which affect the insurance sector in India such as low penetration and density rates, inadequate investment in insurance products, and the dominant position and deteriorating financial health of public-sector players.</p>
<p>Therefore, the goal of making insurance accessible to all will remain difficult to achieve, until the above mentioned issues are addressed.</p>
<h3>Background of Insurance Sector</h3>
<p>The insurance sector has witnessed many changes over the years including:</p>
<ul style="list-style-type: square;">
<li>Nationalisation of life (LIC Act 1956) and non-life sectors (GIC Act 1972).</li>
<li>Constitution of the Insurance Regulatory and Development Authority of India (IRDAI) in 1999.</li>
<li>Opening up of the sector to both private and foreign players in 2000.</li>
<li>Increase in the foreign investment cap to 26% from 49% in 2015.</li>
<li>The recent notification of 100% foreign direct investment (FDI) for insurance intermediaries (announced in the Union Budget of 2019-20) has further liberalised the sector.</li>
</ul>
<h3>Saral Jeevan Bima</h3>
<p>With SJB, IRDA envisages to increase penetration of insurance in India. Under this scheme:</p>
<ul style="list-style-type: square;">
<li><strong>Standardisation:</strong> IRDA has come up with guidelines for a &ldquo;standard" product&mdash;Saral Jeevan Bima&mdash;specifying the terms and conditions, benefits, and features that life insurance companies must include. Thereby, making it simpler for individuals to buy a term insurance policy.<br />
<ul style="list-style-type: circle;">
<li>SJB will make it easier for the customers to make an informed choice, enhance the trust between the insurers and the insured, and reduce mis-selling as well as potential disputes at the time of claiming settlement.</li>
</ul>
</li>
<li><strong>Inclusive:</strong> The product guidelines mention that insurers should offer the product without restrictions on gender, place of residence, travel, occupation, or educational qualifications.</li>
<li><strong>Securing Interests of Insurers:</strong> Insurers will not be liable for a payout if the policyholder dies within 45 days of taking the policy except in case of accident.</li>
</ul>
<h3>Challenges in India&rsquo;s Insurance sector</h3>
<ul style="list-style-type: square;">
<li><strong>Prevalence of Insurance Gap:</strong> The insurance penetration (ratio of total premium to GDP (gross domestic product)) and density (ratio of total premium to population) stood at 3.69% and US$ 73, respectively for FY18 (fiscal year 2017-18), which is low in comparison with global levels. <br />
<ul style="list-style-type: circle;">
<li>These low penetration and density rates reveal the uninsured nature of large sections of population in India, and the presence of an insurance gap.</li>
</ul>
</li>
<li><strong>Public Sector Dominated:</strong> The insurance sector has transitioned from being an exclusive State monopoly to a competitive market, but public-sector insurers hold a greater share of the insurance market even though they are fewer in number.</li>
<li><strong>Nascent Non-life Insurance:</strong> Life insurance dominates the sector with a huge share of 74.7%, with non-life insurance accounting for the remaining 25.3%. <br />
<ul style="list-style-type: circle;">
<li>In the non-life insurance sector, motor, health, and crop insurance segments are driving growth. India&rsquo;s non-life insurance penetration is below 1%.</li>
<li>In addition, insurance products catering to speciality risks such as catastrophes and cyber security are at a nascent stage of development in the country.</li>
</ul>
</li>
<li><strong>Rural-Urban Divide:</strong> Low insurance penetration and density rates prevail in India. However, Rural participation of insurers remains deficient, and life insurers, especially private ones, gravitate towards the urban population.</li>
<li><strong>Capital Starved Insurers:</strong> Insurers in India lack sufficient capital, and their financial health, particularly that of the public-sector insurers, is in a precarious state.<br />
<ul style="list-style-type: circle;">
<li>Further, investment in the insurance sector got dwindled due to the crisis in banks and NBFCs (non-banking financial companies) sector.</li>
</ul>
</li>
</ul>
<h3>Way Forward</h3>
<ul style="list-style-type: square;">
<li><strong>Rural Centric Approach:</strong> Insurance companies in India will have to show long-term commitment to the rural sector as well, and will have to design products which are suitable for rural people.<br />
<ul style="list-style-type: circle;">
<li>In this context, government insurance schemes such as <a href="/daily-updates/daily-news-editorials/ayushmanbharat" target="_blank" rel="noopener"><strong>Pradhan Mantri Jan Arogya Yojana</strong></a>, <a href="/daily-updates/daily-news-analysis/pradhan-mantri-fasal-bima-yojana-pmfby" target="_blank" rel="noopener"><strong>Pradhan Mantri Fasal Bima Yojana</strong></a>, <a href="/daily-updates/daily-news-editorials/financial-inclusion-4" target="_blank" rel="noopener"><strong>Pradhan Mantri Suraksha Bima Yojana</strong></a>, and <a href="/daily-updates/daily-news-editorials/financial-inclusion-4" target="_blank" rel="noopener"><strong>Pradhan Mantri Jeevan Jyoti Bima Yojana</strong></a> are notable steps in right direction.</li>
</ul>
</li>
<li><strong>Need For Awareness Program:</strong> There is a need for complementary thrust to spread awareness and improve financial literacy, particularly the concept of insurance, and its importance.</li>
<li><strong>Technological Intervention:</strong> Another area that necessitates regulatory scrutiny is that of application of technology in insurance. An example is the emergence of &lsquo;InsurTech&rsquo;, designed to make the claim process simpler and more comprehensible.</li>
<li><strong>Enhanced Role of Regulator:</strong> The regulator needs to exercise vigilance on three other aspects. <br />
<ul style="list-style-type: circle;">
<li>It must ensure that insurance is not denied to lower-income people who make up the bulk of the population and have the most need for protection.</li>
<li>It should insist that insurers facilitate a simple online process for direct buying of insurance products, bypassing intermediaries.</li>
<li>It should ensure that players do not overcharge or add hidden costs.</li>
</ul>
</li>
</ul>
<h3>Conclusion</h3>
<p>Demographic factors, coupled with increasing awareness and financial literacy, are likely to catalyse the growth of the sector. An enhanced regulatory regime that focuses on increasing insurance coverage is the need of the hour.</p>
<p><a href="http://www.drishtiias.com/images/uploads/1603712025_image0.png" target="_blank" rel="noopener"><img class="content-img" src="http://www.drishtiias.com/images/uploads/1603712025_image0.png" style="display: block; margin-left: auto; margin-right: auto;" width="600" caption="false" /></a></p>
<table border="1" style="border-collapse: collapse; width: 100%;">
<tbody>
<tr>
<td style="width: 100%; border-style: dotted; border-color: #ff0000; background-color: #fafbff;">
<p><span style="color: #333399;"><em><strong>Drishti Mains Question</strong></em></span></p>
<p>Discuss the significance of the insurance sector in Indian economy and its underlying issues.</p>
</td>
</tr>
</tbody>
</table>',
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	(int) 11 => object(Cake\ORM\Entity) {

		'article_id' => (int) 6717,
		'category_id' => (int) 21,
		'title' => 'Sovereign Gold Bond Scheme',
		'description' => '<h3>Why in News</h3>
<p>A <strong>seventh tranche</strong> of the gold bond scheme - in which the <a href="/important-institutions/drishti-specials-important-institutions-national-institutions/important-institutions-national-institution-reserve-bank-of-india" target="_blank" rel="noopener"><strong>Reserve Bank of India (RBI)</strong></a> <strong>issues bonds linked to the market price of gold on behalf of the government -</strong> will be available for investment on five days starting 12<sup>th</sup> October, 2020.</p>
<h3>Key Points</h3>
<ul style="list-style-type: square;">
<li><strong>Launch:</strong> The Sovereign Gold Bond (SGB) scheme was <strong>launched in November 2015</strong> with an <strong>objective</strong> to reduce the demand for physical gold and shift a part of the domestic savings - used for the purchase of gold - into financial savings.</li>
<li><strong>Issuance:</strong> The Gold Bonds are issued as Government of India Stock under the <strong>Government Securities (GS) Act, 2006.</strong> <br />
<ul style="list-style-type: circle;">
<li>These are<strong> issued by the RBI on behalf of the Government of India.</strong></li>
<li>Bonds are<strong> sold through</strong> Commercial banks, Stock Holding Corporation of India Limited (SHCIL), designated post offices (as may be notified) and recognised stock exchanges viz., National Stock Exchange of India Limited and Bombay Stock Exchange, either directly or through agents.</li>
</ul>
</li>
<li><strong>Eligibility:</strong> The bonds are restricted for sale to <strong>resident individuals, Hindu Undivided Families (HUFs), trusts, universities </strong>and <strong>charitable institutions.</strong></li>
<li><strong>Features:</strong><br />
<ul style="list-style-type: circle;">
<li><strong>Issue Price:</strong> The price of the gold bonds is calculated based on the spot price of gold as provided by the Mumbai-based India Bullion and Jewellers Association (IBJA). <br />
<ul style="list-style-type: disc;">
<li>For the<strong> seventh tranche,</strong> a price of Rs. 5,051 per unit is applicable. Those <strong>purchasing the bonds through an online mode -</strong> using a digital mode of payment - get a <strong>discount of Rs. 50 on each unit.</strong></li>
</ul>
</li>
<li><strong>Investment Limit:</strong> Gold bonds can be<strong> purchased in the multiples of one unit,</strong> up to certain thresholds for different investors. <br />
<ul style="list-style-type: disc;">
<li>The <strong>upper limit</strong> for retail (individual) investors and HUFs is 4 kilograms (4,000 units) each per financial year. For trusts and similar entities, an upper limit of 20 kilograms per financial year is applicable.</li>
<li><strong>Minimum permissible investment</strong> is<strong> 1 gram of gold.</strong></li>
</ul>
</li>
<li><strong>Term:</strong> The gold bonds come with a <strong>maturity period of eight years, </strong>with<strong> an option to exit the investment after the first five years.</strong></li>
<li><strong>Interest Rate:</strong> A fixed rate of<strong> 2.5% per annum</strong> is applicable on the scheme, payable <strong>semi-annually.</strong><br />
<ul style="list-style-type: disc;">
<li>The interest on Gold Bonds <strong>shall be taxable</strong> as per the provision of Income Tax Act, 1961.</li>
</ul>
</li>
</ul>
</li>
<li><strong>Benefit:</strong> <br />
<ul style="list-style-type: circle;">
<li>Bonds can be used as <strong>collateral for loans.</strong></li>
<li>The <strong>capital gains tax</strong> arising on redemption of SGB to an <strong>individual</strong> has been <strong>exempted.</strong><br />
<ul style="list-style-type: disc;">
<li>Redemption is the act of an issuer repurchasing a bond at or before maturity.</li>
<li>Capital gain is the profit earned on the sale of an asset like stocks, bonds or real estate. It results in when the selling price of an asset exceeds its purchase price.</li>
</ul>
</li>
</ul>
</li>
</ul>
<p><a href="https://www.hindustantimes.com/business-news/sovereign-gold-bond-scheme-opens-chance-to-buy-gold-at-less-price-before-festive-season/story-rJ7adT5FqR0375jUqMojJP.html" target="_blank" rel="noopener"><strong>Source: HT</strong></a></p>',
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	(int) 12 => object(Cake\ORM\Entity) {

		'article_id' => (int) 6716,
		'category_id' => (int) 21,
		'title' => 'Nobel Prize in Economic Sciences',
		'description' => '<h3>Why in News</h3>
<p>The <strong>Royal Swedish Academy of Sciences</strong> awarded <strong>Sveriges Riksbank Prize in Economic Sciences, 2020 to Paul Milgrom and Robert Wilson</strong> (both from the USA) for their work on <strong>commercial auctions.</strong></p>
<h3>Key Points</h3>
<ul style="list-style-type: square;">
<li><strong>About:</strong><br />
<ul style="list-style-type: circle;">
<li>Sveriges Riksbank Prize in Economic Sciences, 2020 is given in memory of Alfred Nobel and is popularly (but incorrectly) known as <a href="/daily-updates/daily-news-analysis/nobel-prize-in-economic-sciences-2019" target="_blank" rel="noopener"><strong>Nobel Prize for Economics.</strong> </a><br />
<ul style="list-style-type: disc;">
<li>As it is not one of the five Nobel prizes that Alfred Nobel established in his will in 1895, it is not a Nobel Prize.</li>
</ul>
</li>
<li>It was <strong>created in 1968</strong> by<strong> a donation from Sweden's central bank Sveriges Riksbank to the Nobel Foundation</strong> to commemorate the bank's 300<sup>th</sup> anniversary and includes a 10 million Swedish kronor award money &mdash; roughly Rs 8.33 crore. <br />
<ul style="list-style-type: disc;">
<li>It is officially titled the <strong>"Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel&rdquo;.</strong></li>
</ul>
</li>
</ul>
</li>
<li><strong>The 2020 Edition:</strong> <br />
<ul style="list-style-type: circle;">
<li>Milgrom and Wilson <strong>improved the auction theory and invented new auction formats</strong> for auctioning off many interrelated objects simultaneously, on behalf of a seller motivated by <strong>broad societal benefit rather than maximal revenue.</strong></li>
<li>Their work will <strong>benefit sellers, buyers and taxpayers around the world.</strong> It will help in auctioning <strong>goods and services,</strong> such as radio frequencies, which are <strong>difficult to sell in traditional ways.</strong></li>
<li>Wilson developed the <strong>theory for auctions of objects with a common value &mdash;</strong> a value which is uncertain beforehand but, in the end, is the same for everyone. <strong>Examples</strong> include the future value of radio frequencies or the volume of minerals in a particular area.</li>
<li>Wilson&rsquo;s work showed why rational bidders tend to bid under their own estimate of the worth due to worries over the <strong>&ldquo;winner&rsquo;s curse&rdquo;.</strong><br />
<ul style="list-style-type: disc;">
<li>The <strong>winner's curse</strong> is a tendency for the winning bid in an auction to exceed the intrinsic value or true worth of an item.</li>
</ul>
</li>
<li>Milgrom came up with a more general theory of auctions, by analysing <strong>bidding strategies in different auction forms.</strong></li>
</ul>
</li>
<li><strong>Auction Theory</strong><br />
<ul style="list-style-type: circle;">
<li>Auction theory studies<strong> how auctions are designed, what rules govern them, how bidders behave and what outcomes are achieved.</strong></li>
<li>The oldest form of auction is the auction of a bankrupt person&rsquo;s property to pay off his creditors. This simple design of such an auction is the highest open bidder getting the property (or the commodity in question).</li>
<li>Over time, the format of auctions has <strong>widened</strong> to include other commodities <strong>such as spectrum for radio or telecom use,</strong> carbon dioxide emission credits, electricity or the right to collect the local garbage etc.</li>
<li>Different auction models are needed for <strong>depending upon the commodities, purpose of the auction and the entities conducting the auction.</strong><br />
<ul style="list-style-type: disc;">
<li><strong>For e.g.</strong> Maximizing the profit may be the motive of a private auction while making a service affordable can be the purpose of auctioning a service by the government. Wrong auction design can lead to a second-hand market where companies trade among themselves with little revenue accruing to the government or little benefit to the public.</li>
</ul>
</li>
<li>How an auction is designed, has a <strong>tremendous impact not just on the buyers and the sellers but also on the broader society.</strong></li>
<li><strong>Three key variables</strong> need to be understood while designing an auction.<br />
<ul style="list-style-type: disc;">
<li><strong>Rules of Auction</strong> i.e. closed/sealed bids, single bids versus multiple bids.</li>
<li><strong>Commodity or service being put up for auction</strong> i.e. how does each bidder value an item.</li>
<li><strong>Uncertainty</strong> regarding which bidder has what information about the object, or even the value another bidder associates with the object.</li>
</ul>
</li>
</ul>
</li>
</ul>
<p><a href="https://www.thehindu.com/business/nobel-prize-in-economics-goes-to-paul-r-milgrom-robert-b-wilson-for-improvements-to-auction-theory/article32834033.ece" target="_blank" rel="noopener"><strong>Source: TH</strong></a></p>',
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		'article_id' => (int) 6669,
		'category_id' => (int) 21,
		'title' => 'National Startup Awards 2020',
		'description' => '<h3>Why in News</h3>
<p>The <strong>results of the first edition of National Startup Awards</strong> (2020) were recently released by the <strong>Ministry of Commerce &amp; Industry.</strong></p>
<ul style="list-style-type: square;">
<li>The <strong>Startup India Showcase and Blockchain-based Certificate Verification System</strong> were also launched during the event.</li>
</ul>
<h3>Key Points</h3>
<ul style="list-style-type: square;">
<li><strong>About the Startup Awards:</strong><br />
<ul style="list-style-type: circle;">
<li><strong>Designed by:</strong> Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce &amp; Industry.</li>
<li><strong>Aim:</strong> To<strong> recognize and reward outstanding Startups and ecosystem enablers</strong> that are building innovative products or solutions and scalable enterprises, with high potential of<strong> employment generation or wealth creation,</strong> demonstrating measurable<strong> social impact.</strong></li>
<li><strong>12 Sectors:</strong> The Awards invited applications across 12 sectors, which are Agriculture, Education, Enterprise Technology, Energy, Finance, Food, Health, <a href="/loksabha-rajyasabha-discussions/in-depth-industrial-revolution-4-0" target="_blank" rel="noopener"><strong>Industry 4.0</strong></a>, Space, Security, Tourism and Urban Services.<br />
<ul style="list-style-type: disc;">
<li>Apart from these, startups were selected from those which create impact in<strong> rural</strong> areas, are <strong>women-led</strong> and founded in <strong>academic campuses</strong> (3 special categories).</li>
</ul>
</li>
<li><strong>Prize:</strong> The <strong>winning startup founders</strong> will get a cash prize of Rs. 5 lakh and an opportunity to present their solutions to relevant public authorities and corporates. <strong>Incubators and accelerators</strong> will get Rs. 15 lakh as the winning amount.<br />
<ul style="list-style-type: disc;">
<li>A <strong>total of 38 startups were awarded,</strong> one in each of the 35 categories and 3 special categories in the 12 sectors.</li>
</ul>
</li>
</ul>
</li>
<li><strong>Startup India Showcase:</strong><br />
<ul style="list-style-type: circle;">
<li>It is part of the<a href="/daily-updates/daily-news-analysis/the-start-up-india-fund" target="_blank" rel="noopener"><strong> Startup India</strong></a> portal intended to be an online discovery platform for the most promising startups of the country.<br />
<ul style="list-style-type: disc;">
<li>The Government of India has initiated the Startup India Scheme in 2016.</li>
</ul>
</li>
<li>The <strong>startups showcased here shall be handpicked by experts</strong> and will span across different sectors like <a href="/daily-updates/daily-news-editorials/daily-updates-news-editorials-the-challenges-for-fintech-adoption-in-India" target="_blank" rel="noopener"><strong>FinTech</strong></a>, EdTech, Social Impact among others.</li>
<li>The showcase will <strong>help industry, investors and public authorities find and connect with startups</strong> for potential partnerships, investments and public procurement respectively.</li>
</ul>
</li>
<li><strong><a href="/daily-updates/daily-news-analysis/blockchain-technology-in-voting" target="_blank" rel="noopener">Blockchain</a>-based Certificate Verification System:</strong><br />
<ul style="list-style-type: circle;">
<li>It will enable instant verification and access to certificates of recognitions issued by DPIIT.</li>
<li>This feature introduces an added layer of<strong> security to the startup certificates.</strong></li>
<li>It can be accessed by Government Departments, procurement entities, investors, and other third parties to verify status of recognized startups for accessing different opportunities.</li>
</ul>
</li>
<li><strong>Other Related News:</strong><br />
<ul style="list-style-type: circle;">
<li>Recently, DPIIT also released the results of the 2<sup>nd</sup> edition of<a href="/daily-updates/daily-news-analysis/ranking-of-states-on-support-to-startup-ecosystems-dpiit" target="_blank" rel="noopener"><strong> Ranking of States on Support to Startup Ecosystem</strong> </a>in which Gujarat performed best among all States.</li>
<li>DPIIT has also released the <a href="/daily-updates/daily-news-analysis/ease-of-doing-business-rankings-of-the-states-dpiit" target="_blank" rel="noopener"><strong>Ease of Doing Business Rankings of the States-2019</strong></a> in which Andhra Pradesh topped.</li>
<li>Recently, the Parliamentary Standing Committee on Finance tabled a <a href="/daily-updates/daily-news-analysis/parliamentary-committee-report-on-startups" target="_blank" rel="noopener"><strong>report related to startups</strong></a> in Parliament.</li>
</ul>
</li>
</ul>
<h3>Way forward</h3>
<ul style="list-style-type: square;">
<li>The awards will generate excitement and enthusiasm among the young entrepreneurs in taking their innovative ideas to the higher levels and propel the startups to expand and serve new geographies and large numbers of people.</li>
<li>This will help in generation of employment and achieving the goal of <a href="/daily-updates/daily-news-editorials/atma-nirbhar-bharat-abhiyan-challenges" target="_blank" rel="noopener"><strong>Atmanirbhat Bharat</strong></a> (Self Reliant India).</li>
</ul>
<p><a href="https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1662079" target="_blank" rel="noopener"><strong>Source :PIB</strong></a></p>',
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		'article_id' => (int) 6494,
		'category_id' => (int) 21,
		'title' => 'Parliamentary Committee Report on Startups',
		'description' => '<h3>Why in News</h3>
<p>Recently, the <strong>Parliamentary Standing Committee on Finance</strong> tabled a report related to <a href="/daily-updates/daily-news-analysis/ranking-of-states-on-support-to-startup-ecosystems-dpiit" target="_blank" rel="noopener"><strong>startups</strong></a> in Parliament. The Government of India has initiated a <strong>Startup India Scheme</strong> in 2016.</p>
<h3>Key Points</h3>
<ul style="list-style-type: square;">
<li><strong>Recommendations:</strong> <br />
<ul style="list-style-type: circle;">
<li>Indian start-ups <strong>need to reduce their dependence on China and the USA,</strong> so that India becomes self-reliant by having several large domestic growth funds powered by domestic capital.<br />
<ul style="list-style-type: disc;">
<li>E.g <strong>Small Industries Development Bank of India</strong> (SIDBI) <strong>Fund-of-Funds</strong> vehicle should be expanded and fully operationalised to play an investment role.<br />
<ul style="list-style-type: disc;">
<li>A <strong>fund-of-funds</strong> also known as a <strong>multi-manager investment&mdash;</strong>is a <strong>pooled investment fund</strong> that invests in other types of funds.</li>
</ul>
</li>
<li><strong>Foreign development finance institutions</strong> may also be encouraged to <strong>participate</strong> with local asset management companies to set up fund-of-funds structures.</li>
</ul>
</li>
<li>The<strong> companies</strong> and Limited <strong>Liability Partnerships (LLPs)</strong> should be allowed to invest in start-ups without being classified as <a href="/daily-updates/daily-news-editorials/A%20nuanced%20understanding%20of%20the%20NBFC%20sector" target="_blank" rel="noopener"><strong>Non-banking Financial Companies</strong> </a><strong>(NBFCs)</strong> by the <a href="/important-institutions/drishti-specials-important-institutions-national-institutions/important-institutions-national-institution-reserve-bank-of-india" target="_blank" rel="noopener"><strong>Reserve Bank of India</strong></a> (RBI) to expand capital sources for start-ups.</li>
<li><strong>Abo&shy;lition </strong>of<strong> Long Term Capital Gains</strong> (LTCG)<strong> tax</strong> on <strong>Collective Investment Vehicles (CIVs)</strong> for at least the <strong>next two years</strong> to encourage investment in start-ups and to drive a sharp post-pandemic revival. <br />
<ul style="list-style-type: disc;">
<li>At present, LTCG earned by foreign investors in private companies attracts taxation at a rate of 10%, in comparison to the domestic venture capital investments which are taxed at 20% (for LTCG) with an enhanced surcharge of 37%.</li>
<li>After a two-year period, the <strong>Securities Transaction Tax</strong> (STT) may be applied to CIVs so that revenue neutrality is maintained.</li>
<li>A <strong>CIV is any entity</strong> that allows investors to pool their money and invest the pooled funds, rather than buying securities directly as individuals. It is usually managed by a fund management company which is paid a fee for doing so.</li>
<li><strong>Examples of CIV: angel funds, alternate investment funds</strong> and investment LLP.</li>
</ul>
</li>
</ul>
</li>
<li><strong>Benefits:</strong> A strong start-up ecosystem can propel investment, jobs, and demand creation in the economy.</li>
</ul>
<p><a href="http://www.drishtiias.com/images/uploads/1600244812_image%200.png" target="_blank" rel="noopener"><img class="content-img" src="http://www.drishtiias.com/images/uploads/1600244812_image 0.png" style="display: block; margin-left: auto; margin-right: auto;" width="700" caption="false" /></a></p>
<div class="border-bg">
<p><strong>Startup India Scheme</strong></p>
<ul style="list-style-type: square;">
<li>It is a flagship initiative of the Government of India,<strong> intended to catalyse startup culture</strong> and build a<strong> strong and inclusive ecosystem</strong> for innovation and entrepreneurship in India.</li>
<li>Since the <strong>launch of the initiative in 2016,</strong> Startup India has rolled out several programs with the objective of supporting entrepreneurs, and transforming India into a country of job creators instead of job seekers.</li>
<li>A startup is an enterprise that is initiated by its founders around an idea or a problem with a potential for significant business opportunity and impact.</li>
</ul>
<p><strong>Securities Transaction Tax</strong></p>
<ul style="list-style-type: square;">
<li>It is a tax levied at the time of purchase and sale of securities listed on stock exchanges in India.</li>
<li>Both purchaser and seller both need to pay 0.1% of share value as STT.</li>
</ul>
<p><strong>Capital Gain Tax</strong></p>
<ul style="list-style-type: square;">
<li>Any profit or gain that arises from the sale of a <strong>&lsquo;capital asset&rsquo;</strong> is a capital gain. This gain or profit comes under the category of &lsquo;income&rsquo;.<br />
<ul style="list-style-type: circle;">
<li>Land, building, house property, vehicles, patents, trademarks, leasehold rights, machinery, and jewellery are a <strong>few examples of capital assets.</strong></li>
</ul>
</li>
<li>Hence, the <strong>capital gain tax</strong> will be required to be paid for that amount in the year in which the transfer of the capital asset takes place. This is called the capital gains tax, which can be both short-term or long-term.</li>
<li><strong>Long-term Capital Gains Tax:</strong> It is a levy on the profits from the sale of assets held for more than a year.</li>
<li><strong>Short-term Capital Gains Tax:</strong> It applies to assets held for a year or less and is taxed as ordinary income.</li>
</ul>
<p><strong>Small Industries Development Bank of India </strong></p>
<ul style="list-style-type: square;">
<li><strong>Small Industries Development Bank of India (SIDBI)</strong> was set up in 1990. It is a <strong>statutory body</strong> established under an<strong> Act of Parliament.</strong></li>
<li>It <strong>acts as the principal financial institution</strong> for promotion, financing and development of the <a href="/daily-updates/daily-news-editorials/going-beyond-the-credit-requirements-of-msmes" target="_blank" rel="noopener"><strong>Micro, Small and Medium Enterprise (MSME)</strong> </a>sector as well as for coordination of functions of institutions engaged in similar activities.</li>
</ul>
</div>
<p><a href="https://indianexpress.com/article/business/startups/indian-startups-should-cut-reliance-on-foreign-funding-sources-like-us-and-china-6597547/" target="_blank" rel="noopener"><strong>Source: IE</strong></a></p>',
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		'article_id' => (int) 6468,
		'category_id' => (int) 21,
		'title' => 'Limits on Multi-Cap Fund Investments',
		'description' => '<h3>Why in News</h3>
<p>Recently, the <a href="/important-institutions/drishti-specials-important-institutions-national-institutions/securities-and-exchange-board-of-india-sebi" target="_blank" rel="noopener"><strong>Securities and Exchange Board of India</strong></a> <strong>(SEBI)</strong> has<strong> imposed some limits</strong> on <strong>multi-cap funds.</strong></p>
<div class="border-bg">
<p><strong>Multi-Cap Fund</strong></p>
<ul style="list-style-type: square;">
<li>Multi-cap funds are those that <strong>diversify their investments</strong> into all three categories (small, medium, and large-cap).</li>
<li>These funds invest by <strong>market capitalization of shares. </strong><br />
<ul style="list-style-type: circle;">
<li><strong>Market capitalization</strong> is the aggregate valuation of the company based on its current share price and the total number of outstanding stocks.</li>
<li>It is calculated by multiplying the current market price of the company's share with the total outstanding shares of the company.</li>
</ul>
</li>
<li><strong>Large cap stocks:</strong> Stocks of top 100 listed companies in terms of full market capitalisation.</li>
<li><strong>Mid-cap stocks:</strong> Stocks of top 101 to 250 companies in terms of full market capitalisation.</li>
<li><strong>Small-cap stocks:</strong> Stocks of companies above 251 in terms of full market capitalisation.</li>
</ul>
</div>
<h3>Key Points</h3>
<ul style="list-style-type: square;">
<li><strong>Changes Made:</strong><br />
<ul style="list-style-type: circle;">
<li>A multi cap fund will be required to<strong> invest a minimum of 75%</strong> of its total assets in equities and equity-related instruments. <br />
<ul style="list-style-type: disc;">
<li>At present, the rule is to invest a minimum of 65% in equities.</li>
</ul>
</li>
<li>Minimum investment of <strong>75% has to be allocated in between</strong> large cap companies, mid cap companies and small cap companies, with a <strong>minimum share of 25% in each.</strong> The rest 25% can be invested as per the investor&rsquo;s choice.<br />
<ul style="list-style-type: disc;">
<li>Till now, fund managers of multi cap mutual funds were investing across market capitalisation as per their choice.</li>
</ul>
</li>
</ul>
</li>
<li><strong>Reason:</strong><br />
<ul style="list-style-type: circle;">
<li>The changes have been done <strong>to diversify the underlying investments</strong> of multi-cap funds across the large-cap, mid-cap and small-cap companies and be true to the label.</li>
<li>Currently, the portfolio of most multi cap funds is <strong>biased towards large caps</strong> with 65% to 90% of their portfolio in large cap stocks.</li>
</ul>
</li>
<li><strong>Impact:</strong><br />
<ul style="list-style-type: circle;">
<li>Fund houses will have to cut their exposure to big cap stocks and invest in mid- and small-cap stocks.</li>
<li>This will result in up to Rs. 40,000 crore moving from largecap to broader market (mid-cap and small-cap fund).</li>
</ul>
</li>
</ul>
<p><a href="https://indianexpress.com/article/business/economy/sebi-imposes-limits-on-multi-cap-fund-investments-churn-in-mutual-fund-schemes-worth-rs-40k-cr-likely-6592542/" target="_blank" rel="noopener"><strong>Source: IE</strong></a></p>',
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		'article_id' => (int) 6464,
		'category_id' => (int) 21,
		'title' => 'Ranking of States on Support to Startup Ecosystems: DPIIT',
		'description' => '<h3>Why in News</h3>
<p>The Results of the 2<sup>nd</sup> edition of <strong>Ranking of States on Support to Startup Ecosystems</strong> were released by the <strong>Department for Promotion of Industry and Internal Trade (Ministry of Commerce &amp; Industry).</strong></p>
<ul style="list-style-type: square;">
<li>DPIIT has recently released the <a href="/daily-updates/daily-news-analysis/ease-of-doing-business-rankings-of-the-states-dpiit" target="_blank" rel="noopener"><strong>Ease of Doing Business Rankings of the States-2019</strong> </a>based on the State Business Reform Action Plan.</li>
</ul>
<h3>Key Points</h3>
<ul style="list-style-type: square;">
<li><strong>Objectives:</strong> The rankings were started with an objective of fostering <strong>competitiveness, mutual learning</strong> and propel States and Union Territories (UTs) to work proactively towards uplifting the startup ecosystem.</li>
<li><strong>Framework:</strong> The 2019 Ranking Framework has <strong>seven broad reform areas consisting of 30 action points</strong> ranging from institutional support, easing compliances, relaxation in public procurement norms, incubation support, seed funding support, venture funding support, and awareness and outreach.</li>
<li><strong>Participation:</strong> 22 States and 3 Union Territories.</li>
<li><strong>2 Categories:</strong> To establish uniformity and ensure standardization in the ranking process, States and UTs have been divided into two groups.<br />
<ul style="list-style-type: circle;">
<li><strong>Category Y: All UTs except Delhi and all States in North East India except Assam.</strong></li>
<li><strong>Category X: All other States and UT of Delhi.</strong></li>
</ul>
</li>
<li><strong>Results:</strong> The States and UTs were classified as: Best Performers, Top Performers, Leaders, Aspiring Leaders and Emerging Startup Ecosystems.<br />
<ul style="list-style-type: circle;">
<li><strong>Gujarat</strong> was the Best performer in <strong>Category X</strong> followed by Karnata and Kerala. Uttar Pradesh and Tamil Nadu occupied the lowest positions.</li>
<li><strong>Andaman and Nicobar Islands</strong> was the Best performer in <strong>Category Y.</strong> Sikkim secured the bottom place.</li>
<li>Gujarat had secured the Best Performer position previous year as well.</li>
</ul>
</li>
</ul>
<p><a href="http://www.drishtiias.com/images/uploads/1599902676_image2.jpg" target="_blank" rel="noopener"><img class="content-img" src="http://www.drishtiias.com/images/uploads/1599902676_image2.jpg" style="display: block; margin-left: auto; margin-right: auto;" width="500" caption="false" /></a></p>
<h3>Startup Landscape in India</h3>
<p><a href="http://www.drishtiias.com/images/uploads/1599902722_image3.png" target="_blank" rel="noopener"><img class="content-img" src="http://www.drishtiias.com/images/uploads/1599902722_image3.png" style="display: block; margin-left: auto; margin-right: auto;" width="500" caption="false" /></a></p>
<ul style="list-style-type: square;">
<li><strong>Government Initiatives:</strong> <br />
<ul style="list-style-type: circle;">
<li><strong><a href="/daily-updates/daily-news-analysis/the-start-up-india-fund" target="_blank" rel="noopener">Start Up India Fund</a>:</strong> Under the Startup India program, the Government created the 'Fund of Funds for Startups (FFS) with a corpus of INR 10,000 crore.</li>
<li><a href="/daily-updates/daily-news-analysis/policy-reforms-for-startups" target="_blank" rel="noopener"><strong>Policy Reforms for Startups</strong></a>: These include requirement of distributable profits for three years for a company to be eligible to issue shares with differential voting rights.</li>
<li><a href="/daily-updates/daily-news-analysis/start-up-cells" target="_blank" rel="noopener"><strong>Start-up Cells</strong></a>: The Cell will work towards redressal of grievances &amp; tax-related issues of Startups with respect to the administration of the Income-tax Act, 1961.</li>
<li><a href="/daily-updates/daily-news-analysis/national-startup-advisory-council" target="_blank" rel="noopener"><strong>National Startup Advisory Council</strong></a>: To advise the Centre on measures needed to build a strong ecosystem for nurturing innovation and start-ups in the country.</li>
<li><a href="/daily-updates/daily-news-analysis/aatmanirbhar-bharat-arise-atal-new-india-challenge" target="_blank" rel="noopener"><strong>Aatmanirbhar Bharat ARISE-Atal New India Challenge</strong></a>: It is a national initiative to promote research &amp; innovation and increase competitiveness of Indian startups and Micro, Small and Medium Enterprises (MSMEs).</li>
<li><a href="/daily-updates/daily-news-analysis/aim-icrest-niti-aayog" target="_blank" rel="noopener"><strong>AIM-iCREST</strong></a>: It is an Incubator Capabilities Enhancement program launched by <a href="/important-institutions/drishti-specials-important-institutions-national-institutions/niti-aayog-national-institution-for-transforming-india" target="_blank" rel="noopener"><strong>NITI Aayog</strong></a> for a Robust Ecosystem focused on creating high performing Startups.</li>
<li>More than <strong>1300 Startups</strong> have been supported by <strong>seed funding</strong> from State Governments. In addition to seed funding, 10 States have created <strong>Venture Funds</strong> or a Fund of funds and 218 startups have been provided with venture funding support.<br />
<ul style="list-style-type: disc;">
<li><strong>Seed funding :</strong> It is the initial capital used when starting a business.</li>
<li><strong>Venture Funds:</strong> This generally comes after the seed funding round. It is a means of equity financing for rapidly-growing private companies for expansion or purchase of a company. It is provided by venture capitalists after carefully scrutinizing the projects.</li>
</ul>
</li>
</ul>
</li>
</ul>
<h3>Way Forward</h3>
<ul style="list-style-type: square;">
<li>The initiative will help in<strong> capacity-building of States</strong> and building a robust Start-up ecosystem in the country for<strong> nurturing innovation and providing opportunities to budding entrepreneurs,</strong> as envisaged by the <a href="/daily-updates/daily-news-analysis/the-start-up-india-fund" target="_blank" rel="noopener"><strong>Start-up India Initiative</strong></a> launched in 2016. This is necessary for the country to realize the dream of becoming a 5 trillion dollar economy by 2024.</li>
<li>There is a need to ease the access to funding to Start-ups, especially those from small cities and the need for simplification of regulations. The central and state governments would have to invest heavily in Research &amp; Development and upcoming technologies, to build further on their competitive value addition to this exercise.</li>
</ul>
<p><a href="https://www.pib.gov.in/PressReleseDetailm.aspx?PRID=1653368" target="_blank" rel="noopener"><strong>Source: PIB</strong></a></p>',
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		'article_id' => (int) 6266,
		'category_id' => (int) 21,
		'title' => 'Increased Investments through P-notes',
		'description' => '<h3>Why in News</h3>
<p>According to SEBI data, the <strong>value of participatory note (P-note) investments</strong> in Indian capital markets increased to <strong>Rs. 63,288 crore till July 2020-end.</strong></p>
<ul style="list-style-type: square;">
<li>This is the<strong> fourth consecutive monthly rise in investments through P-notes.</strong></li>
</ul>
<h3>Key Points</h3>
<ul style="list-style-type: square;">
<li><strong>About the Investments:</strong> <br />
<ul style="list-style-type: circle;">
<li>Of the total Rs. 63,288 crore invested through the route till July, Rs 52,356 crore was invested in equities, Rs.10,429 crore in debt, Rs. 250 crore in hybrid securities and Rs. 190 crore in the derivatives segment.<br />
<ul style="list-style-type: disc;">
<li><strong>Derivative</strong> is a financial instrument which derives its value from the underlying assets.</li>
</ul>
</li>
</ul>
</li>
<li><strong>Monthly Rise:</strong> <br />
<ul style="list-style-type: circle;">
<li>The investments through P-notes was Rs 62,138 crore at the end of June 2020.</li>
<li>Prior to that, investment level was at Rs 60,027 crore and Rs 57,100 crore at the end of May and April, respectively.</li>
<li>The <strong>investment level had fallen to over a 15-year-low of Rs 48,006 crore at the end of March 2020.</strong><br />
<ul style="list-style-type: disc;">
<li>The figure at the end of March 2020 was the lowest level of investment since October 2004, when the total value of P-note investments in the Indian markets stood at Rs 44,586 crore.</li>
<li>The lower figure in March came amid <strong>significant volatility in broader markets on concerns over the <a href="/daily-updates/daily-news-analysis/coronavirus-disease-named-covid-19" target="_blank" rel="noopener">coronavirus</a>-triggered crisis.</strong></li>
</ul>
</li>
</ul>
</li>
</ul>
<div class="border-bg">
<p><strong>Participatory Notes</strong></p>
<ul style="list-style-type: square;">
<li>P-notes are<strong> Offshore Derivative Instruments (ODIs) issued by registered Foreign Portfolio Investors (FPIs) to overseas investors who wish to be a part of the Indian stock markets without registering</strong> themselves directly. <br />
<ul style="list-style-type: circle;">
<li>P-notes have <strong>Indian stocks as their underlying assets.</strong></li>
</ul>
</li>
<li>Though P-note holders have less stringent registration requirements, they have to go through a proper due diligence process of the <a href="/important-institutions/drishti-specials-important-institutions-national-institutions/securities-and-exchange-board-of-india-sebi" target="_blank" rel="noopener"><strong>Securities and Exchange Board of India (SEBI).</strong> </a><br />
<ul style="list-style-type: circle;">
<li>SEBI was established in 1992 in accordance with the provisions of the <strong>SEBI Act, 1992.</strong></li>
<li>Its functions include protecting the interests of investors in securities and to promote the development of, and to regulate the securities market and for matters connected therewith or incidental thereto.</li>
</ul>
</li>
<li><strong>FPIs are non-residents</strong> who invest in Indian securities like shares, government bonds, corporate bonds, etc.<br />
<ul style="list-style-type: circle;">
<li><strong>SEBI (Foreign Portfolio Investors) Regulations, 2019</strong> are related to FPIs.</li>
<li><strong>Foreign Portfolio investment is different from the <a href="/daily-updates/daily-news-analysis/rise-in-foreign-direct-investment" target="_blank" rel="noopener">Foreign Direct investment (FDI)</a></strong> as it does not give investors direct ownership of a company&rsquo;s assets.</li>
</ul>
</li>
</ul>
<p><strong>Capital Market</strong></p>
<ul style="list-style-type: square;">
<li><strong>Financial markets</strong> are classified on the basis of the maturity of financial instruments traded in them.</li>
<li><strong>Instruments with a maturity of less than one year</strong> are traded in the<strong> money market.</strong> E.g. <strong>Treasury Bills, Commercial Papers,</strong> etc.</li>
<li>Instruments with longer maturity are traded in the <strong>capital market.</strong> E.g. <strong>shares, debentures,</strong> etc.</li>
</ul>
</div>
<p><a href="https://www.business-standard.com/article/markets/inflows-from-p-notes-continue-to-soar-climb-to-rs-63-000-crore-120082101670_1.html" target="_blank" rel="noopener"><strong>Source: BS</strong></a></p>',
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	(int) 18 => object(Cake\ORM\Entity) {

		'article_id' => (int) 5996,
		'category_id' => (int) 21,
		'title' => 'Increase in Gold Prices',
		'description' => '<h3>Why in News</h3>
<p>Recently, the gold prices crossed Rs. 50,000 per 10 grams after nine years in India.</p>
<ul style="list-style-type: square;">
<li>Gold prices in India are dictated by international prices. <strong>India is the world&rsquo;s second-largest gold consumer after China.</strong></li>
</ul>
<h3>Key Points</h3>
<ul style="list-style-type: square;">
<li><strong>Reasons:</strong><br />
<ul style="list-style-type: circle;">
<li>Global uncertainties triggered by <a href="/daily-updates/daily-news-analysis/covid-19-now-pandemic-who" target="_blank" rel="noopener"><strong>Covid-19 pandemic</strong></a>,<strong> weak dollar, low-interest rates environment</strong> and<strong> stimulus programmes</strong> have increased the demand for gold.</li>
<li>Rising virus cases and<a href="/daily-updates/daily-news-editorials/new-cold-war" target="_blank" rel="noopener"><strong> USA-China tensions</strong></a> have also led to increase in the gold price.</li>
</ul>
</li>
<li><strong>Gold as Safe Haven:</strong><br />
<ul style="list-style-type: circle;">
<li>Whenever stock markets, real estate and bonds fall across the world, investors turn to gold to park their funds. It is considered as a <strong>safe haven for investors during periods of uncertainties.</strong></li>
<li>As gold is <strong>highly liquid</strong> and carries no default risk. It is scarce which has historically preserved its value over time.<br />
<ul style="list-style-type: disc;">
<li><strong>Liquidity</strong> describes the degree to which an asset can be quickly bought or sold.</li>
</ul>
</li>
<li>Further, <strong>supply growth of gold has changed little over time,</strong> in contrast to<strong> fiat money (paper currency),</strong> which can be printed in unlimited quantities to support monetary policy.</li>
<li>Gold is an integral part of wedding ceremonies in India. It is traditionally used as a <strong>hedge against <a href="/daily-updates/daily-news-analysis/retail-inflation-growth-at-6-09" target="_blank" rel="noopener">inflation.</a></strong> <br />
<ul style="list-style-type: disc;">
<li>Global economies are considering stimulus to boost growth which may lead to increase in inflation further.</li>
</ul>
</li>
</ul>
</li>
<li><strong>Return on Gold:</strong><br />
<ul style="list-style-type: circle;">
<li>Historically, gold has generated long-term positive returns. <br />
<ul style="list-style-type: disc;">
<li>The price of gold has increased by an average 14.1% per annum since 1973 after <a href="/important-institutions/drishti-specials-important-institutions-international-institution/international-monetary-fund-imf" target="_blank" rel="noopener"><strong>Bretton Woods</strong></a> collapsed and the gold standard system of pegging the currency to gold ended. <br />
<ul style="list-style-type: disc;">
<li>Bretton Woods System was a <strong>fixed exchange rate system,</strong> under which gold was the basis for the US dollar and other currencies were pegged to the US dollar&rsquo;s value.</li>
</ul>
</li>
</ul>
</li>
<li>Gold has<strong> surged nearly 40% in the last one year</strong> while the <a href="/daily-updates/daily-news-analysis/impact-of-covid-19-outbreak" target="_blank" rel="noopener"><strong>Sensex</strong></a> (benchmark index of Bombay Stock Exchange) <strong>showed a loss of 0.41%</strong> in the same period.</li>
</ul>
</li>
<li><strong>India&rsquo;s Gold Market:</strong><br />
<ul style="list-style-type: circle;">
<li>According to the <strong><a href="/daily-updates/daily-news-analysis/world-gold-council" target="_blank" rel="noopener">World Gold Council (WGC)</a></strong>, households in India may have around 24,000-25,000 tonnes of gold. Various temples across the country also hold sizable gold holdings.</li>
<li>The <a href="/important-institutions/drishti-specials-important-institutions-national-institutions/important-institutions-national-institution-reserve-bank-of-india" target="_blank" rel="noopener"><strong>Reserve Bank of India</strong></a> bought 40.45 tonnes of gold in the financial year 2019-20, taking its total <a href="/daily-updates/daily-news-analysis/rbi-s-gold-reserve-increased" target="_blank" rel="noopener"><strong>holdings</strong></a> of the gold to 653.01 tonnes. <br />
<ul style="list-style-type: disc;">
<li>It is a <strong>part of RBI&rsquo;s <a href="/daily-updates/daily-news-analysis/forex-reserves-2" target="_blank" rel="noopener">forex reserves.</a></strong></li>
</ul>
</li>
<li><strong>India&rsquo;s gold demand in 2019</strong> was 690.4 tonnes compared to 760.4 tonnes in 2018.<br />
<ul style="list-style-type: disc;">
<li>The<strong> demand has reduced in 2020</strong> due to lockdown caused by pandemic.</li>
</ul>
</li>
<li>Around 120-200 tonnes of gold are estimated to be <strong>smuggled</strong> into India every year.</li>
</ul>
</li>
</ul>
<p><a href="https://indianexpress.com/article/explained/why-gold-prices-are-going-up-and-will-the-trend-continue-6519592/" target="_blank" rel="noopener"><strong>Source: IE</strong></a></p>',
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		'article_id' => (int) 5690,
		'category_id' => (int) 21,
		'title' => 'Initial Public Offer: LIC',
		'description' => '<h3>Why in News</h3>
<p>The Central government has started the process to launch the Initial Public Offer (IPO) of Life Insurance Corporation (LIC).</p>
<ul style="list-style-type: square;">
<li>LIC is<strong> fully owned by the government.</strong> It was set up in 1956.</li>
<li>It has the <strong>biggest share in India&rsquo;s insurance business.</strong></li>
</ul>
<div class="border-bg">
<p><strong>Initial Public Offer</strong></p>
<ul style="list-style-type: square;">
<li>IPO is the selling of securities to the public in the <strong>primary market (a type of capital market).</strong><br />
<ul style="list-style-type: circle;">
<li><strong>Primary market</strong> deals with new securities being issued for the first time. It is also known as the new issues market.</li>
<li>It is<strong> different from the secondary market</strong> where existing securities are bought and sold. It is also known as the stock market or stock exchange.</li>
</ul>
</li>
<li>Under IPO, an unlisted company makes <strong>either a fresh issue of securities</strong> or an <a href="/daily-updates/daily-news-analysis/initial-public-offer-ipo" target="_blank" rel="noopener"><strong>offer for sale</strong> </a><strong>of its existing securities</strong> or<strong> both for the first time to the public.</strong><br />
<ul style="list-style-type: circle;">
<li>Through an IPO, an unlisted company can get listed on the stock exchange.</li>
</ul>
</li>
<li>It is generally used by new and medium-sized firms that are looking for funds to grow and expand their business.</li>
</ul>
</div>
<h3>Key Points</h3>
<ul style="list-style-type: square;">
<li><strong>LIC IPO:</strong><br />
<ul style="list-style-type: circle;">
<li>The IPO is <strong>expected to be the biggest in the Indian capital markets</strong> given the size and scale of LIC.</li>
<li>The LIC&rsquo;s total assets had touched an all-time high of Rs. 31.11 lakh crore in 2018-19.</li>
<li>The government is seeking some exemption related to the LIC IPO from the <a href="/important-institutions/drishti-specials-important-institutions-national-institutions/securities-and-exchange-board-of-india-sebi" target="_blank" rel="noopener"><strong>Securities and Exchange Board of India (SEBI)</strong></a>.</li>
</ul>
</li>
<li><strong>Benefit:</strong><br />
<ul style="list-style-type: circle;">
<li>It will help the government <strong>to meet its rising <a href="/daily-updates/daily-news-analysis/direct-monetisation" target="_blank" rel="noopener">fiscal deficit</a>.</strong><br />
<ul style="list-style-type: disc;">
<li>The rating agency S&amp;P has estimated India&rsquo;s government (centre and states) fiscal deficit to rise to 11% of GDP in FY21 from 7.8% in FY20.</li>
</ul>
</li>
<li>An IPO<strong> will bring transparency into affairs of LIC</strong> since it will be required to inform its value and other market-related developments on time to the stock exchanges.</li>
<li>It also <strong>gives an opportunity for retail investors to participate</strong> in the wealth creation of LIC.</li>
<li>Listing of companies on stock exchanges <strong>disciplines the company</strong> since it comes under greater scrutiny. It also <strong>provides access to financial markets,</strong> thus raising the company&rsquo;s value.</li>
</ul>
</li>
<li><strong>Issues Involved:</strong><br />
<ul style="list-style-type: circle;">
<li>LIC is currently dealing with huge non-performing assets.</li>
</ul>
</li>
<li><strong>Background:</strong><br />
<ul style="list-style-type: circle;">
<li>In the Budget 2020-21, the government had <strong>announced plans for IPO of LIC</strong> and a proposal to <strong>sell the government&rsquo;s equity in the stressed IDBI Bank</strong> to private, retail and institutional investors through the stock exchange. <br />
<ul style="list-style-type: disc;">
<li>LIC is also a majority shareholder in IDBI Bank.</li>
</ul>
</li>
<li>The government expects to raise Rs. 90,000 crore through stake sale in LIC and IDBI Bank, and another Rs. 1.2 lakh crore through other <a href="/to-the-points/paper3/strategic-disinvestment-1" target="_blank" rel="noopener"><strong>disinvestments</strong></a>.</li>
<li>Earlier, in 2017, the government had listed the shares of General Insurance Corporation and New India Assurance through IPOs.</li>
</ul>
</li>
</ul>
<p><a href="https://indianexpress.com/article/explained/lic-ipo-market-disinvestment-6470795/" target="_blank" rel="noopener"><strong>Source: IE</strong></a></p>',
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