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External Benchmarks Lending Rate

Why in News According to a recent RBI report on ‘Monetary transmission in India’, the share of outstanding loans linked to External...

20 Jul 2021 Monetary Policy
Inflation Data: June 2021

Why in News Recently, the Office of the Economic Adviser, Department for Promotion of Industry and Internal Trade has released the Wholesale Price...

15 Jul 2021 Monetary Policy
Falling Bond Yield

Why in News Recently, the Reserve Bank of India’s (RBI) decision to step up purchase of Government Securities (G-Sec) under the Government...

07 May 2021 Monetary Policy
RBI Report on Asset Reconstruction Companies

Why in News The Reserve Bank of India (RBI) in its report on Asset Reconstruction Companies (ARCs) said that the growth of the ARC industry has not...

29 Apr 2021 Monetary Policy
Depreciation in Rupee

Why in News Recently, the Indian Rupee depreciated to a nine-month low of 75.4 against the USD, it is one of the biggest losers among the emerging...

15 Apr 2021 Monetary Policy
The Big Picture: Economic Recovery for India

Why in News Recently, the International Monetary Fund (IMF) upgraded its FY 2021-22 growth projection for India to 12.5% from 11.5% estimated in...

13 Apr 2021 Monetary Policy
Monetary Policy Report: RBI

Why in News The Reserve Bank of India (RBI) has released the Monetary Policy Report for the month of April 2021. Key Points Unchanged Policy...

09 Apr 2021 Monetary Policy
4% Inflation Target Retained by Government

Why in News The Government of India has decided to retain the inflation target of 4%, with a tolerance band of +/- 2 percentage points for the...

01 Apr 2021 Monetary Policy
Open Market Operations by RBI

Why in News The Reserve Bank of India (RBI) has decided to conduct simultaneous purchase and sale of government securities (G-Sec) under Open Market...

20 Mar 2021 Monetary Policy
Inflation Data: February 2021

Why in News Recently, the Office of the Economic Adviser, Department for Promotion of Industry and Internal Trade has released the Wholesale Price...

16 Mar 2021 Monetary Policy
Flexible Inflation Target

Why in News The Reserve Bank of India (RBI) in its Currency and Finance (RCF) report for the year 2020-21 has said that the current inflation target...

27 Feb 2021 Monetary Policy
RBI Monetary Policy 2021

Why in News Recently, the Reserve Bank of India (RBI) has forecasted that real Gross Domestic Product (GDP), hit by the Covid pandemic in 2020-21,...

06 Feb 2021 Monetary Policy
Asset Reconstruction Company

Why in News In the Budget 2021-22, Asset Reconstruction Company (ARC) have been proposed to be set up by state-owned and private sector banks, and...

04 Feb 2021 Monetary Policy
Highlights of Economic Survey 2021

Why in News Recently, the Union Minister of Finance presented the Economic Survey that details the state of the economy ahead of the government's...

01 Feb 2021 Monetary Policy
Data on Retail Inflation and Factory Output

Why in News Separate data on retail inflation and factory output have been recently released by the Ministry of Statistics & Programme...

13 Jan 2021 Monetary Policy
Monetary Policy: RBI

Why in News Recently, the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) has left the repo rate unchanged and maintained an...

05 Dec 2020 Monetary Policy
Inflation Data: October 2020

Why in News Recently, the wholesale price inflation data for the month of october 2020 was released. The wholesale price-based inflation is...

17 Nov 2020 Monetary Policy
GDP Revival Forecast: RBI

Why in News The Monetary Policy Committee of the Reserve Bank of India (RBI) has announced the extension of its accommodative policy stance for the...

10 Oct 2020 Monetary Policy
Inflation Data: August 2020

Why in News Recently, the inflation data for the month of August 2020 was released. The inflation data includes retail inflation and wholesale...

15 Sep 2020 Monetary Policy
Financing the Fiscal Deficit

Why in News India, being one the hardest hit major economy due to Covid-19, faces the challenge of managing its fiscal deficit. Borrowing more...

12 Sep 2020 Monetary Policy

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		'article_id' => (int) 8923,
		'category_id' => (int) 21,
		'title' => 'External Benchmarks Lending Rate',
		'description' => '<h3>Why in News</h3>
<p>According to a recent <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> report on<strong> &lsquo;Monetary transmission in India&rsquo;,</strong> the share of outstanding loans linked to <a href="/daily-updates/daily-news-analysis/external-benchmark-rates" target="_blank" rel="noopener"><strong>External Benchmarks Lending Rate (EBLR</strong></a> - like repo rate), increased from as low as 2.4% during September 2019 to 28.5% during March 2021.</p>
<ul style="list-style-type: square;">
<li>This increase in EBLR linked lending will <strong>contribute to significant improvement in <a href="/daily-updates/daily-news-editorials/challenges-faced-by-rbi" target="_blank" rel="noopener">monetary policy transmission.</a></strong></li>
<li>However, still <strong>71.5% of outstanding loans are Internal Benchmark Lending Rate</strong> (IBLR- like base rate and MCLR) linked loans, which continues to impede the monetary policy transmission.</li>
</ul>
<div class="border-bg">
<p><strong>Note</strong></p>
<ul style="list-style-type: square;">
<li><strong>Transmission of Monetary Policy:</strong> The transmission of monetary policy describes how changes made by the Reserve Bank of India (RBI) to the policy rate flow through to economic activity (like lending) and inflation.</li>
<li><strong>Repo Rate:</strong> It is also known as the benchmark interest rate and is the rate at which the RBI lends money to the banks for a short term. Here, the central bank purchases security.</li>
</ul>
</div>
<h3>Key Points</h3>
<ul style="list-style-type: square;">
<li><strong>Internal Benchmark Lending Rate (IBLR):</strong>
<ul style="list-style-type: circle;">
<li>The Internal Benchmark Lending Rates are<strong> a set of reference lending rates which are calculated after considering factors like the bank's current financial overview, deposits and non performing assets</strong> (NPAs) etc. BPLR, Base rate, MCLR are the examples of Internal Benchmark Lending Rate.</li>
<li><strong>Benchmark Prime Lending Rate (BPLR):</strong> <br />
<ul style="list-style-type: disc;">
<li>BPLR was <strong>used as a benchmark rate by banks for lending till June 2010.</strong></li>
<li>Under it, bank loans were<strong> priced on the actual cost of funds.</strong></li>
<li>However, <strong>the BPLR was subverted,</strong> resulting in an opaque system. The bulk of wholesale credit (loans to corporate customers) was <strong>contracted at sub-BPL rates</strong> and it comprised nearly 70% of all bank credit.</li>
<li>Under this system, <strong>banks were subsidising corporate loans</strong> by charging high interest rates from retail and small and medium enterprise customers.</li>
</ul>
</li>
<li><strong>Base Rate:</strong> <br />
<ul style="list-style-type: disc;">
<li>Loans taken<strong> between June 2010 and April 2016</strong> from banks were on base rate.</li>
<li>During the period, base rate was the <strong>minimum interest rate</strong> at which commercial banks could lend to customers.</li>
<li>Base rate is calculated on <strong>three parameters &mdash; </strong>the<strong> cost of funds, unallocated cost of resources and return on net worth.</strong></li>
<li>Hence, the rate depended on individual banks and they changed it whenever their cost of funds and other parameters changed.</li>
</ul>
</li>
<li><strong>Marginal Cost of Lending Rate (MCLR):</strong> <br />
<ul style="list-style-type: disc;">
<li>It came into effect in <strong>April 2016.</strong> It is <strong>a benchmark lending rate for floating-rate loans.</strong> This is the minimum interest rate at which commercial banks can lend.</li>
<li>This rate is based on<strong> four components&mdash;the marginal cost of funds, negative carry on account of <a href="/daily-updates/daily-news-analysis/rbi-monetary-policy-2021" target="_blank" rel="noopener">cash reserve ratio</a>, operating costs and tenor premium.</strong></li>
<li>MCLR is <strong>linked to the actual deposit rates.</strong> Hence, when deposit rates rise, it indicates the banks are likely to hike MCLR and lending rates are set to go up.</li>
</ul>
</li>
</ul>
</li>
<li><strong>Issues Related to IBLR Linked Loans:</strong>
<ul style="list-style-type: circle;">
<li>The problem with the IBLR regime was that when RBI cut the repo and reverse repo rates, banks did not pass the full benefits to borrowers.</li>
<li>In the IBLR Linked Loans, the interest rate has <strong>many variables</strong> including bank&rsquo;s spread, their current financial overview, deposits and non performing assets (NPAs) etc.<br />
<ul style="list-style-type: disc;">
<li>Due to this, such internal benchmarks <strong>did little to facilitate any swift change in interest rates</strong> as per changes in RBI repo rate policy.</li>
<li>The<strong> opacity in interest rate</strong> setting processes under internal benchmark regime hinders transmission to lending rates.</li>
</ul>
</li>
</ul>
</li>
<li><strong>EBLR and Its Benefits:</strong>
<ul style="list-style-type: circle;">
<li><strong>About:</strong><br />
<ul style="list-style-type: disc;">
<li>To ensure <strong>complete transparency and standardization,</strong> RBI mandated the banks to adopt a uniform external benchmark within a loan category, effective <strong>1<sup>st</sup> October, 2019.</strong></li>
<li>Unlike MCLR which was internal system for each bank, RBI has offered banks the options to choose from <strong>4 external benchmarking mechanisms:</strong> <br />
<ul style="list-style-type: disc;">
<li>The RBI repo rate</li>
<li>The 91-day T-bill yield</li>
<li>The 182-day T-bill yield</li>
<li>Anny other benchmark market interest rate as developed by the <strong>Financial Benchmarks India Pvt. Ltd.</strong><br />
<ul style="list-style-type: disc;">
<li><strong>T-Bill or <a href="/daily-updates/daily-news-analysis/ways-and-means-advance" target="_blank" rel="noopener">Treasury bills</a></strong> are money market instruments issued by the Government of India as a promissory note with guaranteed repayment at a later date.</li>
<li><strong>Financial Benchmarks India Pvt. Ltd</strong> was recognised by the Reserve bank of India as an independent Benchmark administrator on 2<sup>nd</sup> July 2015.</li>
</ul>
</li>
</ul>
</li>
</ul>
</li>
<li><strong>Benefits:</strong><br />
<ul style="list-style-type: disc;">
<li>Banks are <strong>free to decide the spread</strong> over the external benchmark. <br />
<ul style="list-style-type: disc;">
<li>However, the interest rate must be reset as per the external benchmark at least once every three months.</li>
</ul>
</li>
<li>Being an external system, this means any <strong>policy rate cut decision will reach borrowers faster.</strong></li>
<li>The adoption of external benchmarking will make the<strong> interest rates transparent.</strong><br />
<ul style="list-style-type: disc;">
<li>The borrower will also know the spread or profit margin for each bank over the fixed interest rate making loan comparisons easier and more transparent.</li>
</ul>
</li>
</ul>
</li>
</ul>
</li>
</ul>
<p><a href="http://www.drishtiias.com/images/uploads/1626780209_image8.png" target="_blank" rel="noopener"><img class="content-img" src="http://www.drishtiias.com/images/uploads/1626780209_image8.png" style="display: block; margin-left: auto; margin-right: auto;" width="500" caption="false" /></a></p>
<h3>Way Forward</h3>
<ul style="list-style-type: square;">
<li>Higher interest rates offered by competing saving instruments such as small saving schemes and debt mutual fund schemes have impeded transmission especially during the easing cycle.</li>
<li>Thus, the government should synchronise the<a href="/to-the-points/paper3/government-budgeting" target="_blank" rel="noopener"><strong> Fiscal policy</strong> </a>with the monetary policy in the long-term.</li>
</ul>
<p><a href="https://indianexpress.com/article/business/economy/roadblock-for-rate-transmission-external-benchmark-linked-loans-rise-but-mclr-still-dominant-7412758/" target="_blank" rel="noopener"><strong>Source: IE</strong></a></p>',
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		'article_id' => (int) 8875,
		'category_id' => (int) 21,
		'title' => 'Inflation Data: June 2021',
		'description' => '<h3>Why in News</h3>
<p>Recently, the <strong>Office of the Economic Adviser, Department for Promotion of Industry and Internal Trade</strong> has released the <a href="/daily-updates/daily-news-analysis/inflation-data-august-2020#:~:text=Wholesale%20Inflation%3A,%25%20and%20July%20(%2D)%200.58%25." target="_blank" rel="noopener"><strong>Wholesale Price Index (WPI)</strong></a> for the month of June, 2021.</p>
<h3>Key Points</h3>
<ul style="list-style-type: square;">
<li><strong>Wholesale Price- Inflation:</strong><br />
<ul style="list-style-type: circle;">
<li>Inflation in wholesale prices <strong>stayed high in June 2021 at 12.07%</strong> following the record high of 12.94% in May 2021.</li>
</ul>
</li>
<li><strong>Reason:</strong><br />
<ul style="list-style-type: circle;">
<li>The high rate of inflation in June 2021, is primarily due to<strong> low base effect.</strong><br />
<ul style="list-style-type: disc;">
<li><strong>Base effect:</strong> It is the effect that choosing a different reference point for a comparison between two data points can have on the result of the comparison.</li>
</ul>
</li>
<li><strong>Rise in prices</strong> of mineral oils viz petrol, diesel, naphtha, furnace oil etc.</li>
<li>Increased <strong>costs of manufactured products</strong> like basic metal, food products, chemical products etc as compared the corresponding month of the previous year.<br />
<ul style="list-style-type: disc;">
<li><strong>Retail inflation</strong> based on the <a href="/daily-updates/daily-news-analysis/cpi-iw-base-year-revised-to-2016" target="_blank" rel="noopener"><strong>Consumer Price Index (CPI)</strong></a>, was at 6.26% in June 2021.</li>
</ul>
</li>
</ul>
</li>
<li><strong>Implication:</strong><br />
<ul style="list-style-type: circle;">
<li>Wholesale Price- Inflation&rsquo;s potential to spill over into retail inflation (CPI inflation) levels <strong>will inject &lsquo;uneasiness&rsquo; in the <a href="/daily-updates/daily-news-analysis/rbi-monetary-policy-2021" target="_blank" rel="noopener">monetary policy</a>.</strong><br />
<ul style="list-style-type: disc;">
<li><strong>Monetary policy</strong> is the macroeconomic policy laid down by the central bank. It involves management of money supply and interest rate and is the demand side economic policy used by the government of a country to achieve macroeconomic objectives like inflation, consumption, growth and liquidity.</li>
</ul>
</li>
</ul>
</li>
</ul>
<h3>Wholesale Price Index</h3>
<ul style="list-style-type: square;">
<li>It <strong>measures the changes in the prices</strong> of goods sold and <strong>traded in bulk by wholesale businesses to other businesses.</strong></li>
<li>Published by the <strong>Office of Economic Adviser,</strong> Ministry of Commerce and Industry.</li>
<li>It is the <strong>most widely used</strong> inflation indicator in India.</li>
<li>Major criticism for this index is that the general public does not buy products at wholesale price.</li>
<li>The<strong> base year of All-India WPI</strong> has been revised <strong>from 2004-05 to 2011-12 in 2017.</strong></li>
</ul>
<h3>Consumer Price Index</h3>
<ul style="list-style-type: square;">
<li>It measures <strong>price changes from the perspective of a retail buyer.</strong> It is released by the <a href="/daily-updates/daily-news-analysis/repo-rate-unchanged-1" target="_blank" rel="noopener"><strong>National Statistical Office (NSO).</strong></a></li>
<li>The <strong>CPI calculates the difference in the price of commodities and services</strong> such as food, medical care, education, electronics etc, which Indian consumers buy for use.</li>
<li>The CPI <strong>has several sub-groups</strong> including food and beverages, fuel and light, housing and clothing, bedding and footwear.</li>
<li>Four <strong>types of CPI are as follows:</strong><br />
<ul style="list-style-type: circle;">
<li>CPI for <strong>Industrial Workers</strong> (IW).</li>
<li>CPI for <strong>Agricultural Labourer</strong> (AL).</li>
<li>CPI for<strong> Rural Labourer</strong> (RL).</li>
<li>CPI (<strong>Rural/Urban/Combined</strong>).</li>
<li>Of these, the first three are compiled by the <strong>Labour Bureau</strong> in the Ministry of Labour and Employment. Fourth is compiled by the NSO in the Ministry of Statistics and Programme Implementation.</li>
</ul>
</li>
<li><strong>Base Year</strong> for CPI in general is<strong> 2012.</strong> However the base year for <a href="/daily-updates/daily-news-analysis/cpi-iw-base-year-revised-to-2016" target="_blank" rel="noopener"><strong>CPI for Industrial Worker (CPI-IW) is 2016.</strong></a></li>
<li>The <a href="/daily-updates/daily-news-analysis/repo-rate-unchanged-1" target="_blank" rel="noopener"><strong>Monetary Policy Committee (MPC)</strong></a> uses CPI data to control inflation (within range 4+/-2%). In April 2014, 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> had adopted the CPI as its key measure of inflation.</li>
</ul>
<h3>CPI vs. WPI</h3>
<ul style="list-style-type: square;">
<li>WPI tracks inflation at the producer level and CPI captures changes in prices levels at the consumer level.</li>
<li><strong>WPI does not capture changes in the prices of services,</strong> which CPI does.</li>
</ul>
<div class="border-bg">
<p><strong>Inflation</strong></p>
<ul style="list-style-type: square;">
<li>Inflation refers to the<strong> rise in the prices of most goods and services of daily or common use,</strong> such as food, clothing, housing, recreation, transport, consumer staples, etc.</li>
<li>Inflation measures the <strong>average price change in a basket of commodities and services</strong> over time.</li>
<li>Inflation is<strong> indicative of the decrease in the purchasing power</strong> of a unit of a country&rsquo;s currency.<br />
<ul style="list-style-type: circle;">
<li>This could ultimately lead to a<strong> deceleration in economic growth.</strong></li>
</ul>
</li>
<li>However, a<strong> moderate level of inflation is required</strong> in the economy to ensure that production is promoted.</li>
<li>In India, inflation is primarily measured by<strong> two main indices &mdash;WPI &amp; CPI</strong> which measure wholesale and retail-level price changes, respectively.</li>
</ul>
<p><strong>Core Inflation</strong></p>
<ul style="list-style-type: square;">
<li>It is the <strong>change in the costs of goods and services but does not include those from the food and energy sectors.</strong> This measure of inflation excludes these items<strong> because their prices are much more volatile.</strong><br />
<ul style="list-style-type: circle;">
<li><strong>Core inflation</strong> = Headline inflation &ndash; (Food and Fuel) inflation.</li>
</ul>
</li>
</ul>
</div>
<p><a href="https://www.thehindu.com/business/Economy/wpi-inflation-at-1207-in-june/article35315854.ece" target="_blank" rel="noopener"><strong>Source:TH</strong></a></p>',
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		'article_id' => (int) 8319,
		'category_id' => (int) 21,
		'title' => 'Falling Bond Yield',
		'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&rsquo;s (RBI)</strong></a> decision to step up purchase of <a href="/daily-updates/daily-news-analysis/direct-access-to-g-sec-market-for-retail-investors-rbi#:~:text=A%20G%2DSec%20is%20a,acknowledges%20the%20Government's%20debt%20obligation.&amp;text=Gilt%2Dedged%20securities%20are%20high,a%20means%20of%20borrowing%20funds." target="_blank" rel="noopener"><strong>Government Securities (G-Sec)</strong></a> under the <a href="/daily-updates/daily-news-analysis/monetary-policy-report-rbi-1" target="_blank" rel="noopener"><strong>Government Securities Acquisition Programme (G-SAP)</strong></a> led to the <strong>yield on the benchmark 10-year bond falling below 6%.</strong></p>
<ul style="list-style-type: square;">
<li>In India, the<strong> yield of 10-year G-Sec is considered the benchmark</strong> and shows the overall interest rate scenario.</li>
</ul>
<h3>Key Points</h3>
<ul style="list-style-type: square;">
<li><strong>Bond Yield:</strong><br />
<ul style="list-style-type: circle;">
<li>Bond yield is the <strong>return an investor realizes on a bond.</strong> The <strong>mathematical formula</strong> for calculating yield is the <strong>annual coupon rate divided by the current market price of the bond</strong><br />
<ul style="list-style-type: disc;">
<li><strong>Bond:</strong> Is an <strong>instrument to borrow money.</strong> A bond could be issued by a country&rsquo;s government or by a company to raise funds.</li>
<li><strong>Coupon Rate:</strong> It is the <strong>rate of interest paid by bond issuers on the bond's face value.</strong></li>
</ul>
</li>
</ul>
</li>
<li><strong>Effect of General Movement of Bond Yields:</strong><br />
<ul style="list-style-type: circle;">
<li>Movements in yields depend on trends in interest rates, <strong>it can result in capital gains or losses for investors.</strong> <br />
<ul style="list-style-type: disc;">
<li>A rise in bond yields in the market will bring the price of the bond down.</li>
<li>A drop in bond yield would benefit the investor as the price of the bond will rise, generating capital gains.</li>
</ul>
</li>
</ul>
</li>
<li><strong>Reason for Decreasing Bond Yields:</strong><br />
<ul style="list-style-type: circle;">
<li>Due to <strong>economic uncertainty caused by <a href="/daily-updates/daily-news-editorials/covid-19-and-indian-federalism" target="_blank" rel="noopener">Covid-19</a>.</strong></li>
<li>In April 2021, the RBI launched <strong>G-SAP</strong> which has <strong>caused a decrease in G-sec yields</strong> which has continued since then.</li>
</ul>
</li>
<li><strong>Impact:</strong><br />
<ul style="list-style-type: circle;">
<li><strong>Better Equity Markets:</strong><br />
<ul style="list-style-type: disc;">
<li>A decline in yield is also <strong>better for the equity markets because money starts flowing out of debt investments to equity investments.</strong>
<ul style="list-style-type: disc;">
<li><strong>Equity market:</strong> It is a <strong>market in which shares of companies are issued and traded</strong>, either through exchanges or over-the-counter markets. <strong>Also known as the stock market.</strong></li>
</ul>
</li>
<li>That means <strong>as bond yields go down, the equity markets tend to outperform</strong> by a bigger margin and as bond yields go up equity markets tend to falter.</li>
</ul>
</li>
<li><strong>Reduced Cost of Capital:</strong><br />
<ul style="list-style-type: disc;">
<li>When <strong>bond yields go up</strong>, the cost of capital goes up. That means that <strong>future cash flows get discounted at a higher rate.</strong> <br />
<ul style="list-style-type: disc;">
<li><strong>Discounting</strong> is the process of determining the present value of a payment or a stream of payments that is to be received in the future.</li>
</ul>
</li>
<li>This compresses the valuations of these stocks. That is one of the reasons that <strong>whenever the interest rates are cut by the RBI, it is positive for stocks.</strong></li>
</ul>
</li>
<li><strong>Reduces Risk of Bankruptcy:</strong><br />
<ul style="list-style-type: disc;">
<li>When<strong> bond yields go up</strong>, it is a signal that <strong>corporates will have to pay a higher interest cost on debt.</strong></li>
<li>As debt servicing costs go higher, <strong>the risk of bankruptcy and default also increases</strong> and this typically makes mid-cap and highly leveraged companies vulnerable.</li>
</ul>
</li>
</ul>
</li>
<li><strong>RBI&rsquo;s Stand:</strong><br />
<ul style="list-style-type: circle;">
<li>The RBI has been <strong>aiming to keep yields lower as that reduces borrowing costs for the government</strong> while preventing any upward movement in lending rates in the market.</li>
<li>A rise in bond yields will put pressure on interest rates in the banking system which will lead to a hike in lending rates. The RBI <strong>wants to keep interest rates steady to kick-start investments.</strong></li>
</ul>
</li>
</ul>
<div class="border-bg">
<p><strong>Government Securities Acquisition Programme</strong></p>
<ul style="list-style-type: square;">
<li><strong>About:</strong><br />
<ul style="list-style-type: circle;">
<li>The RBI, for the year 2021-22, has decided to put in place a secondary market <strong>G-SAP 1.0.</strong><br />
<ul style="list-style-type: disc;">
<li>It is part of RBI&rsquo;s <strong><a href="/daily-updates/daily-news-analysis/open-market-operations" target="_blank" rel="noopener">Open Market Operations (OMOs)</a>.</strong></li>
</ul>
</li>
<li>Under the programme, the <strong>RBI will commit upfront to a specific amount of Open Market Purchases of G-Secs.</strong></li>
</ul>
</li>
<li><strong>Objective:</strong><br />
<ul style="list-style-type: circle;">
<li>To <strong>avoid volatility in the G-sec market</strong> in view of its central role in the pricing of other financial market instruments across the term structure and issuers, both in the public and private sectors.</li>
</ul>
</li>
<li><strong>Significance:</strong><br />
<ul style="list-style-type: circle;">
<li>It will <strong>provide certainty to the bond market participants</strong> with regard to RBI&rsquo;s commitment of support to the bond market in<a href="/current-affairs-news-analysis-editorials/news-analysis/03-02-2021" target="_blank" rel="noopener"><strong> Financial Year</strong></a> (FY) 2021-2022.</li>
<li>It will <strong>help reduce the difference between the repo rate and the 10-year government bond yield.</strong> <br />
<ul style="list-style-type: disc;">
<li>That, in turn, will <strong>help to reduce the aggregate cost of borrowing for the Centre and states in FY 2021-22.</strong></li>
<li><strong>Repo rate</strong> is the rate at which RBI lends money to commercial banks.</li>
</ul>
</li>
<li>It will <strong>enable a stable and orderly evolution of the yield curve</strong> amidst comfortable liquidity conditions.<br />
<ul style="list-style-type: disc;">
<li><strong>Yield curve:</strong> It is a line that plots yields (interest rates) of bonds having equal credit quality but differing maturity dates.<br />
<ul style="list-style-type: disc;">
<li>The slope of the yield curve gives an idea of future interest rate changes and economic activity.</li>
</ul>
</li>
</ul>
</li>
</ul>
</li>
</ul>
</div>
<p><a href="https://indianexpress.com/article/explained/explained-why-rbi-wants-moderate-bond-yields-and-what-it-means-for-investors-7304997/" target="_blank" rel="noopener"><strong>Source:IE</strong></a></p>',
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	(int) 3 => object(Cake\ORM\Entity) {

		'article_id' => (int) 8260,
		'category_id' => (int) 21,
		'title' => 'RBI Report on Asset Reconstruction Companies',
		'description' => '<h3>Why in News</h3>
<p>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> in its report on<a href="/daily-updates/daily-news-analysis/asset-reconstruction-company#:~:text=The%20ARC%2C%20which%20will%20have,version%20of%20a%20bad%20bank." target="_blank" rel="noopener"><strong> Asset Reconstruction Companies (ARCs)</strong> </a>said that the <strong>growth of the ARC industry has not been consistent</strong> over time and <strong>not always been synchronous with the trends in <a href="/daily-updates/daily-news-editorials/lessons-from-npa-crisis" target="_blank" rel="noopener">Non-Performing Assets (NPAs)</a></strong> of banks and <a href="/daily-updates/daily-news-analysis/4-tier-structure-for-regulation-of-nbfcs#:~:text=A%20Non%2DBanking%20Financial%20Company,leasing%2C%20hire%2Dpurchase%2C%20insurance" target="_blank" rel="noopener"><strong>Non-Banking Financial Companies (NBFCs).</strong></a></p>
<ul style="list-style-type: square;">
<li>However, the RBI has<strong> supported the government&rsquo;s proposal for a new ARC,</strong> saying that &ldquo;such an entity will strengthen the asset resolution mechanism further.&rdquo;</li>
</ul>
<h3>Key Points</h3>
<ul style="list-style-type: square;">
<li><strong>About the Asset Reconstruction Company (ARC):</strong> <br />
<ul style="list-style-type: circle;">
<li>It is <strong>a specialized financial institution that buys the Non Performing Assets (NPAs) from banks</strong> and financial institutions so that they can clean up their balance sheets.<br />
<ul style="list-style-type: disc;">
<li>A <strong>NPA</strong> is a loan or advance for which the principal or interest payment remained overdue for a period of 90 days.</li>
</ul>
</li>
<li>This <strong>helps banks to concentrate in normal banking activities.</strong> Banks rather than going after the defaulters by wasting their time and effort, can sell the bad assets to the ARCs at a mutually agreed value.</li>
<li>The <a href="/daily-updates/daily-news-analysis/co-operative-banks-under-sarfaesi-act#:~:text=The%20Sarfaesi%20Act%20is%20effective,can%20enforce%20the%20underlying%20security.&amp;text=Enforces%20the%20security%20interest%20without,enforce%20the%20recovery%20of%20debt." target="_blank" rel="noopener"><strong>Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002</strong></a> provides the <strong>legal basis for the setting up of ARCs</strong> in India.<br />
<ul style="list-style-type: disc;">
<li>The Act helps reconstruction of bad assets without the intervention of courts. Since then, a large number of ARCs were formed and were registered with the RBI.</li>
</ul>
</li>
<li><strong>RBI</strong> has got the <strong>power to regulate the ARCs.</strong></li>
</ul>
</li>
<li><strong>Growth of the ARC Industry:</strong><br />
<ul style="list-style-type: circle;">
<li><strong>Number of ARCs:</strong> The <strong>ARC industry began</strong> with the <strong>establishment of the Asset Reconstruction Company India Ltd (ARCIL) </strong>in<strong> 2003.</strong> After remaining<strong> subdued in the initial years</strong> of their inception,<strong> a jump</strong> was seen in the number of ARCs<strong> in 2008,</strong> and then in <strong>2016. </strong></li>
<li><strong>Concentration of Business among Few ARCs:</strong> There has been a concentration in the industry<strong> in terms of Assets Under Management (AUM) and the Security Receipts (SRs)</strong> issued.<br />
<ul style="list-style-type: disc;">
<li><strong>Security Receipts (SR) are issued by the ARCs</strong> when NPAs of commercial banks and/or financial institutions are acquired by the ARCs for the purpose of recovery.</li>
<li><strong>AUMs can be measured</strong> with the help of SRs outstanding.</li>
</ul>
</li>
<li><strong>Decline in &lsquo;Assets Under Management&rsquo;:</strong> The <strong>growth in ARCs&rsquo; AUM has been largely trendless</strong> except for a major spurt in FY14.<br />
<ul style="list-style-type: disc;">
<li>The AUM of ARCs has been on a declining trend <strong>when compared with the volume of NPAs of banks and NBFCs,</strong> except during the period of high growth in the AUM around 2013-14.</li>
<li>During<strong> 2019-20, asset sales by banks to ARCs declined,</strong> which could probably be due to <strong>banks opting for other resolution channels</strong> such as <a href="/to-the-points/paper3/insolvency-and-bankruptcy-code-3#:~:text=To%20consolidate%20and%20amend%20all,in%20a%20time%2Dbound%20manner." target="_blank" rel="noopener"><strong>Insolvency and Bankruptcy Code (IBC)</strong></a> and SARFAESI.</li>
</ul>
</li>
</ul>
</li>
<li><strong>Issues with Indian ARCs:</strong><br />
<ul style="list-style-type: circle;">
<li>Indian ARCs have been <strong>private sector entities</strong> registered with the Reserve Bank. <strong>Public sector AMCs in other countries</strong> have often enjoyed easy access to government funding or government-backed.<br />
<ul style="list-style-type: disc;">
<li>The <strong>capital constraints</strong> have often been highlighted as an area of concern for ARCs in India.</li>
</ul>
</li>
<li>Despite the regulatory push to broaden, and thereby enhance, the capital base of these companies, they <strong>have remained reliant primarily on domestic sources of capital, particularly banks.</strong></li>
<li>Banks supply NPAs to the ARCs, hold shareholding in these entities and also lend to them, which makes it necessary to monitor if there is a <strong>"circuitous movement of funds between banks and these institutions".</strong></li>
</ul>
</li>
<li><strong>About the New ARC:</strong><br />
<ul style="list-style-type: circle;">
<li>The <strong>movement in asset quality of banks and NBFCs</strong> following the Covid-19 pandemic <strong>could bring ARCs into greater focus and action.</strong></li>
<li>The <strong>ARC</strong> proposed in the Budget <strong>will be set up by state-owned and private sector banks,</strong> and there will be <strong>no equity contribution from the Centre.</strong> <br />
<ul style="list-style-type: disc;">
<li>The ARC, which will have an Asset Management Company (AMC) to manage and sell bad assets, <strong>will look to resolve stressed assets of Rs. 2-2.5 lakh crore</strong> that remain unresolved in around 70 large accounts.</li>
</ul>
</li>
<li>The introduction of a new ARC for addressing the NPAs of public sector banks <strong>may also shape the operations of the existing ARCs.</strong></li>
<li>There is <strong>a definite scope</strong> for the entry of a well-capitalised and well-designed entity in the Indian ARC industry. Such an entity will strengthen the asset resolution mechanism further.</li>
</ul>
</li>
<li><strong>Committee on ARCs:</strong><br />
<ul style="list-style-type: circle;">
<li>The RBI has announced the setting up of a committee, under the <strong>chairmanship of Sudarshan Sen,</strong> to undertake a comprehensive review of the working of ARCs in the financial sector ecosystem.</li>
</ul>
</li>
</ul>
<p><a href="https://indianexpress.com/article/business/economy/growth-of-arcs-not-in-line-with-npa-trends-rbi-report-7291790/" target="_blank" rel="noopener"><strong>Source: IE</strong></a></p>',
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		'article_id' => (int) 8157,
		'category_id' => (int) 21,
		'title' => 'Depreciation in Rupee',
		'description' => '<h3>Why in News</h3>
<p>Recently, the <strong>Indian <a href="/daily-updates/daily-news-analysis/depreciation-of-rupee#:~:text=The%20rupee%20depreciated%20by%2016,account%20of%20global%20risk%20aversion.&amp;text=Under%20risk%20aversion%2C%20an%20investor,higher%20returns%20with%20unknown%20risks." target="_blank" rel="noopener">Rupee depreciated</a> to a nine-month low</strong> of 75.4 against the USD, it is<strong> one of the biggest losers among the emerging market currencies.</strong></p>
<ul style="list-style-type: square;">
<li>Over the last three weeks <strong>since 22<sup>nd</sup> March 2021,</strong> Rupee has<strong> lost 4.2%</strong> against the USD.</li>
</ul>
<p><a href="http://www.drishtiias.com/images/uploads/1618483631_image11.png" target="_blank" rel="noopener"><img class="content-img" src="http://www.drishtiias.com/images/uploads/1618483631_image11.png" style="display: block; margin-left: auto; margin-right: auto;" width="350" caption="false" /></a></p>
<h3>Key Points</h3>
<ul style="list-style-type: square;">
<li><strong>Reasons for the Decline:</strong><br />
<ul style="list-style-type: circle;">
<li><strong>Rising Covid Cases:</strong><br />
<ul style="list-style-type: disc;">
<li>Rising <a href="/daily-updates/daily-news-editorials/comprehensive-action-plan-for-covid-19#:~:text=Covid%2D19%20pandemic%20is%20a,crises%20in%20recent%20human%20history." target="_blank" rel="noopener"><strong>Covid-19</strong></a> cases have emerged as a key concern. As several states are now considering more stringent <a href="/daily-updates/daily-news-editorials/covid-19-and-lockdown" target="_blank" rel="noopener"><strong>lockdown</strong></a> measures, market participants are <strong>concerned over delay in the recovery of the economy,</strong> which was hit hard in 2020-21 by the <a href="/daily-updates/daily-news-analysis/future-pandemics-and-reduction-measures" target="_blank" rel="noopener"><strong>pandemic.</strong></a></li>
</ul>
</li>
<li><strong>Strengthening of USD:</strong><br />
<ul style="list-style-type: disc;">
<li>The strengthening of USD in line with expectations of <strong>better growth in the US economy,</strong> has also put pressure on the Rupee.</li>
</ul>
</li>
<li><strong>Reserve Bank of India's (RBIs) G-SAP:</strong><br />
<ul style="list-style-type: disc;">
<li><a href="/important-institutions/drishti-specials-important-institutions-national-institutions/important-institutions-national-institution-reserve-bank-of-india" target="_blank" rel="noopener"><strong>RBI&rsquo;s</strong> </a>announcement of <a href="/daily-updates/daily-news-analysis/monetary-policy-report-rbi-1" target="_blank" rel="noopener"><strong>Government Securities Acquisition Programme (G-SAP)</strong></a> programme to infuse liquidity has also put additional pressure on the Rupee.</li>
<li>This is being read as a sort of <strong>quantitative easing policy</strong> the global central banks had followed, in which the RBI will <strong>support the government&rsquo;s elevated borrowing programme</strong> through infusion of liquidity.</li>
</ul>
</li>
<li><strong>Decreasing FPI Investments:</strong><br />
<ul style="list-style-type: disc;">
<li>Another factor that is putting additional pressure is the <strong>decreasing support of the <a href="/daily-updates/daily-news-analysis/increased-foreign-portfolio-investments" target="_blank" rel="noopener">Foreign Portfolio Investors (FPIs)</a>,</strong> who pumped huge inflows into Indian equity markets between October 2020 and February 2021. <br />
<ul style="list-style-type: disc;">
<li>While the FPIs invested a net of Rs. <strong>1.94 lakh crore between October 2020 and February 2021</strong> (in the Indian markets), in the month of <strong>April 2021 they have pulled out a net of Rs 2,263 crore</strong> (till date).</li>
</ul>
</li>
</ul>
</li>
</ul>
</li>
<li><strong>Impact of Depreciating Rupee:</strong><br />
<ul style="list-style-type: circle;">
<li><strong>Losers:</strong><br />
<ul style="list-style-type: disc;">
<li>People <strong>Importing</strong> from outside.</li>
<li>People seeking <strong>foreign education.</strong></li>
<li>People <strong>travelling abroad.</strong></li>
<li>People <strong>investing abroad.</strong></li>
<li>People seeking <strong>medical treatment abroad</strong> etc.</li>
</ul>
</li>
<li><strong>Gainers:</strong><br />
<ul style="list-style-type: disc;">
<li>People<strong> exporting</strong> from India.</li>
<li>People receiving <a href="/daily-updates/daily-news-analysis/impact-of-covid-19-on-remittance-wb#:~:text=A%20remittance%20is%20money%20sent,recipient%20a%20relative%20back%20home."><strong>remittances</strong> </a>from <strong><a href="/to-the-points/Paper2/indian-diaspora" target="_blank" rel="noopener">Non Resident Indian (NRI).</a></strong></li>
<li>Foreign tourists as <strong>travel to India</strong> gets cheaper.</li>
</ul>
</li>
</ul>
</li>
</ul>
<div class="border-bg">
<p><strong>Currency Depreciation</strong></p>
<ul style="list-style-type: square;">
<li>Currency depreciation is a <strong>fall in the value of a currency</strong> in a<strong> floating exchange rate system.</strong><br />
<ul style="list-style-type: circle;">
<li>In a floating exchange rate system, <strong>market forces (based on demand and supply of a currency) determine the value of a currency.</strong></li>
</ul>
</li>
<li>Rupee depreciation means that<strong> rupee has become less valuable</strong> with respect to dollar.<br />
<ul style="list-style-type: circle;">
<li>It means that the rupee is now weaker than what it used to be earlier.</li>
<li><strong>For example:</strong> USD 1 used to equal to Rs. 70, now USD 1 is equal to Rs. 76, implying that the rupee has depreciated relative to the dollar i.e. it takes more rupees to purchase a dollar.</li>
</ul>
</li>
<li>Some of the factors that influence the value of a currency:<br />
<ul style="list-style-type: circle;">
<li><a href="/daily-updates/daily-news-analysis/inflation-data-august-2020#:~:text=Inflation%20measures%20the%20average%20price,a%20deceleration%20in%20economic%20growth." target="_blank" rel="noopener"><strong>Inflation</strong></a></li>
<li>Interest rates</li>
<li><a href="/daily-updates/daily-news-analysis/india-s-trade-deficit-with-china-at-five-year-low-in-2020" target="_blank" rel="noopener"><strong>Trade deficit</strong></a></li>
<li>Macroeconomic policies</li>
<li><a href="/daily-updates/daily-news-analysis/taxes-and-india-s-equity-market" target="_blank" rel="noopener"><strong>Equity market</strong></a></li>
</ul>
</li>
<li>Currency <strong>depreciation increases a country&rsquo;s export activity</strong> as its products and services become cheaper to buy.</li>
<li>The<strong> RBI intervenes</strong> in the currency market<strong> to support the rupee as a weak domestic unit can increase a country&rsquo;s import bill.</strong></li>
<li>There are a <strong>variety of methods</strong> by which RBI intervenes:<br />
<ul style="list-style-type: circle;">
<li>It can intervene<strong> directly in the currency market by buying and selling dollars.</strong><br />
<ul style="list-style-type: disc;">
<li>If the RBI wishes to increase the rupee value, then it can sell dollars and when it needs to bring down rupee value, it can buy dollars.</li>
</ul>
</li>
<li>The central bank can also<strong> influence the value of rupee</strong> by the way of <a href="/daily-updates/daily-news-analysis/repo-rate-unchanged" target="_blank" rel="noopener"><strong>monetary policy.</strong></a><br />
<ul style="list-style-type: disc;">
<li>RBI can adjust the<a href="/daily-updates/daily-news-analysis/rbi-s-covid-19-economic-relief-package" target="_blank" rel="noopener"><strong> repo rate</strong></a> (the rate at which RBI lends to banks) and the liquidity ratio (the portion of money banks are required to invest in government bonds) to control rupee.</li>
</ul>
</li>
</ul>
</li>
</ul>
</div>
<p><a href="https://indianexpress.com/article/explained/why-the-rupee-is-among-biggest-losers-over-the-past-few-weeks-7272922/" target="_blank" rel="noopener"><strong>Source: IE</strong></a></p>',
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	(int) 5 => object(Cake\ORM\Entity) {

		'article_id' => (int) 8137,
		'category_id' => (int) 15,
		'title' => 'The Big Picture: Economic Recovery for India',
		'description' => '<p style="text-align: center;"><iframe width="560" height="315" src="https://www.youtube.com/embed/aud04jc57JM" title="YouTube video player" frameborder="0" allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture" allowfullscreen="allowfullscreen"></iframe></p>
<h3>Why in News</h3>
<p>Recently, the <a href="/important-institutions/drishti-specials-important-institutions-international-institution/international-monetary-fund-imf" target="_blank" rel="noopener"><strong>International Monetary Fund (IMF)</strong> </a>upgraded its <a href="/daily-updates/daily-news-analysis/world-economic-outlook-imf-2" target="_blank" rel="noopener"><strong>FY 2021-22 growth projection for India to 12.5%</strong></a> from <a href="/daily-updates/daily-news-analysis/world-economic-outlook-imf-1" target="_blank" rel="noopener"><strong>11.5% estimated in January.</strong></a></p>
<ul style="list-style-type: square;">
<li>It has also cautioned that the forecast hasn&rsquo;t factored in the severe downside risks arising from the country&rsquo;s ongoing second wave of <a href="/daily-updates/daily-news-editorials/comprehensive-action-plan-for-covid-19" target="_blank" rel="noopener"><strong>Covid-19.</strong></a></li>
</ul>
<h3>Key Points</h3>
<ul style="list-style-type: square;">
<li><strong>World Economic Outlook Report:</strong> The IMF releases this report usually <strong>twice a year </strong>and it <strong>analyzes and predicts global economic developments</strong> during the near and medium term.
<ul style="list-style-type: circle;">
<li>Some high frequency economic indicators in the report are showing robust signs of economic growth of India while the others are bringing out implicit risks to growth from the second wave of the pandemic.</li>
</ul>
</li>
<li><strong>India&rsquo;s Economic Growth:</strong> As per the report findings, Indian economy is expected to grow by 12.5% in 2021 and 6.9% in 2022.
<ul style="list-style-type: circle;">
<li><strong>Growth rate for India in 2021 is stronger than that of China.</strong></li>
<li>The 1% increase in India&rsquo;s economic growth rate forecast came in the background of encouraging signs from some high-frequency indicators.</li>
</ul>
</li>
<li><strong>Global Economic Growth:</strong> The IMF predicted stronger recovery in 2021 and 2022 with growth projected to be 6% in 2021 and 4.4% in 2022.
<ul style="list-style-type: circle;">
<li>In 2020, the global economy contracted by 3.3%.</li>
</ul>
</li>
</ul>
<h3>Global Scenario</h3>
<ul style="list-style-type: square;">
<li><strong>Advanced Economies:</strong> The<strong> USA and Spain</strong> are the only two advanced economies that are expected to have an<strong> economic growth projected above 6%</strong> for FY 2021-22.
<ul style="list-style-type: circle;">
<li>The USA had been able to retain its economy <strong>due to its economy-centered approach amid the pandemic.</strong>
<ul style="list-style-type: disc;">
<li>The strong fiscal support the government had given to their citizens was also helpful.</li>
</ul>
</li>
</ul>
</li>
<li><strong>Emerging Economies:</strong> The developing countries have not been able to perform as good because the pandemic has affected the labour intensive jobs (prevalent in developing countries) more than the capital intensive jobs.
<ul style="list-style-type: circle;">
<li>No developing country other than India has a growth rate projected in double digit figures.</li>
</ul>
</li>
<li><strong>Export-Oriented Economies:</strong> The european countries had a huge demographic crisis therefore the consumption rate was very low.
<ul style="list-style-type: circle;">
<li>In countries like Germany, which is an export-oriented economy, when the pandemic hit, their economy due to lockdowns and import/export restrictions was affected severely.</li>
<li>Export oriented economies which were exporting primary products have also suffered a lot.</li>
</ul>
</li>
</ul>
<h3>India&rsquo;s Economic Growth</h3>
<ul style="list-style-type: square;">
<li><strong>Factors that Increased the Growth Projection:</strong> For India, a good run in the agriculture sector plus no stagnation in the railways, freight revenue, power sectors have led to an increased 1% projection.
<ul style="list-style-type: circle;">
<li>Moreover, the <strong>GST collection for FY 2020-21 was record high</strong> at the value of ₹1.24 lac crore (₹1.24 trillion).</li>
<li>The <strong>exports figures have also seen a huge jump</strong> standing at 31 billion dollar.
<ul style="list-style-type: disc;">
<li>It is a huge increment for the exports which have witnessed a decline for 7 months.</li>
</ul>
</li>
<li>The <strong>Ozone concentration levels, power consumption or labour participation rates have so far remained resilient</strong> to the decline in growth.</li>
<li><strong>Hindrance in Growth due to Pandemic:</strong> The economic growth rate of India (and other countries) is contingent on the rise in covid infection rate and consequent lockdown.</li>
<li>Undoubtedly the growth will be there but the covid is a potential barrier in this growth; the possible challenges posed by Covid 19 cannot be undermined.</li>
</ul>
</li>
<li><strong>Sectors Obstructing the Growth:</strong> The report also shows some warning signals that could hinder the economic growth of the country.
<ul style="list-style-type: circle;">
<li>These indicators include <strong>decline in the retail sector.</strong></li>
<li>Sectors related to<strong> hospitality and transportation are also hit</strong> badly which roughly account for 6% of overall GDP.</li>
<li>In vehicle registration, around 60,000 vehicles were registered on a daily basis in the months of feb-march 2021 which has now come down to 55,000 on a daily basis.</li>
<li>The growth recovery is obvious to be impacted by the rapidly increasing covid-19 disease due to the consequent partial and complete lockdowns and curfews.</li>
</ul>
</li>
</ul>
<div class="border-bg">
<p><strong>Nomura Index Business Resumption Index</strong></p>
<ul style="list-style-type: square;">
<li>The<a href="/daily-updates/daily-news-analysis/growth-in-manufacturing-pmi-and-nibri" target="_blank" rel="noopener"><strong> Nomura India Business Assumption Index (NIBRI)</strong></a> is the Japanese brokerage&rsquo;s weekly tracker of the pace of normalisation of economic activity.
<ul style="list-style-type: circle;">
<li>It captures and tracks demand indicators such as the demand for power, labour force participation etc.</li>
</ul>
</li>
<li>The index reached 99 points in February, 2021 but slipped down to 90 in the month of April which indicates a slowdown in the economic recovery.
<ul style="list-style-type: circle;">
<li>The reason for the slowdown is mainly the second wave of covid-19.</li>
</ul>
</li>
</ul>
</div>
<ul style="list-style-type: square;">
<li><strong>Government Policies:</strong> India has handled the covid-19 situation better than many of the countries with its step by step approach of tackling the situation introducing various economic reforms, the vaccination drive etc.</li>
</ul>
<h3>Way Forward</h3>
<ul style="list-style-type: square;">
<li><strong>Vaccination and Covid-Appropriate Behaviour: <a href="/loksabha-rajyasabha-discussions/the-big-picture-india-and-the-vaccination-drive" target="_blank" rel="noopener">India&rsquo;s vaccination programme</a></strong> is also going on, it is vaccinating nearly 3-4 million people on a daily basis but that is not enough. The need is to build up more capacity and vaccinate more and more people at a faster rate.
<ul style="list-style-type: circle;">
<li>Even after vaccination, no leniency shall be there in following the basic covid appropriate behaviour of wearing a mask, performing social distancing and following hygiene protocols.</li>
<li>Only healthy citizens can utilise up to their full potential and contribute to the overall growth of a country.</li>
</ul>
</li>
<li><strong>Investment-Centered Approach:</strong> The<a href="/daily-updates/daily-news-analysis/restructuring-of-indian-statistical-system" target="_blank" rel="noopener"> NSO</a> has given the investment rate in the economy for FY 2020-21 at only 31% of GDP which is a very low rate of investment for any economy as large as India, therefore investment is the right way forward.
<ul style="list-style-type: circle;">
<li>The FY 2021-22 should be the year of beefing up, strengthening and stepping up the pace of investment in infrastructure and many other projects where India is in the deficit stage.</li>
</ul>
</li>
<li><strong>Reforming the Vaccine Criteria:</strong> The criteria of vaccinating only those people above the age of 45 shall be done away with specially in the covid hotspot areas like Mumbai, Pune and Delhi.
<ul style="list-style-type: circle;">
<li>The working class people in such cities who commute on a daily basis shall be vaccinated at a faster rate and regardless of age.</li>
</ul>
</li>
<li><strong>Managing the Elevated Inflation Levels:</strong> India is at the risk of inflation, it is at an elevated level which is why the RBI has been conservative; it has projected the growth rate at 10.5% only.
<ul style="list-style-type: circle;">
<li>India has to walk on a very fine line balancing the growth imperatives and inflation concerns.</li>
<li>The RBI has also adopted a policy to support economic growth. It has increased the limit of ways and means advances to the states and has allowed them to borrow more amounts from the RBI.</li>
</ul>
</li>
<li><strong>Role of Government Policies:</strong> The growth projection also depends upon policies adopted by the government, specially the fiscal policy and monetary policies.
<ul style="list-style-type: circle;">
<li>So far India has proved to adopt such policies more wisely as compared to other countries.
<ul style="list-style-type: disc;">
<li>India implemented massive economic reforms in the year 2020 when the pandemic was at its peak.</li>
</ul>
</li>
<li>Also, India has freed up a lot of sectors from the over regulation by the government interference which will be fruitful in better and faster economic growth.</li>
</ul>
</li>
</ul>
<h3>Conclusion</h3>
<ul style="list-style-type: square;">
<li>India as the fifth largest economy in the world has to focus on growth recovery that is more sustainable and by just drawing satisfaction from just the growth numbers would not do much.</li>
<li>India is slowly but surely on the path to economic recovery and investment is the way to sustain this growth momentum.</li>
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		'article_id' => (int) 8112,
		'category_id' => (int) 21,
		'title' => 'Monetary Policy Report: RBI',
		'description' => '<h3>Why in News</h3>
<p>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> has released the <a href="/daily-updates/daily-news-analysis/monetary-policy-report-rbi" target="_blank" rel="noopener"><strong>Monetary Policy Report</strong></a> for the month of April 2021.</p>
<h3>Key Points</h3>
<ul style="list-style-type: square;">
<li><strong>Unchanged Policy Rates:</strong><br />
<ul style="list-style-type: circle;">
<li><strong>Repo Rate</strong> - 4%.</li>
<li><strong>Reverse Repo Rate</strong> - 3.35%.</li>
<li><strong>Marginal Standing Facility (MSF)</strong> - 4.25%.</li>
<li><strong>Bank Rate-</strong> 4.25%.</li>
</ul>
</li>
<li><strong>GDP Projection:</strong><br />
<ul style="list-style-type: circle;">
<li>Real <a href="/daily-updates/daily-news-analysis/gdp-decreases-to-11-year-low" target="_blank" rel="noopener"><strong>Gross Domestic Product (GDP)</strong></a> growth for 2021-22 has been retained at <strong>10.5%.</strong></li>
</ul>
</li>
<li><strong>Inflation:</strong><br />
<ul style="list-style-type: circle;">
<li>RBI has revised the projection for <a href="/daily-updates/daily-news-analysis/data-on-retail-inflation-and-factory-output#:~:text=Measured%20by%20the%20Consumer%20Price,)%20upper%20margin%20of%206%25." target="_blank" rel="noopener"><strong>Consumer Price Index (CPI)</strong></a> inflation to:<br />
<ul style="list-style-type: disc;">
<li>5.0% in <strong>Quarter 4</strong> of 2020-21.</li>
<li>5.2% in <strong>Quarter 1</strong> of 2021-22.</li>
<li>5.2% in <strong>Quarter 2</strong> of 2021-22.</li>
<li>4.4% in <strong>Quarter 3</strong> of 2021-22.</li>
<li>5.1% in <strong>Quarter 4</strong> of 2021-22.</li>
</ul>
</li>
</ul>
</li>
<li><strong>Accommodative Stance:</strong><br />
<ul style="list-style-type: circle;">
<li>The RBI decided to<strong> continue with the <a href="/daily-updates/daily-news-analysis/monetary-policy-rbi#:~:text=Accommodative%20Stance%3A,Covid%2D19%20on%20the%20economy." target="_blank" rel="noopener">accommodative stance</a></strong> as long as necessary to sustain growth on a durable basis and continue to mitigate the impact of <a href="/daily-updates/daily-news-analysis/impact-of-covid-19-outbreak" target="_blank" rel="noopener"><strong>Covid-19</strong></a> on the economy, while ensuring that <a href="/daily-updates/daily-news-analysis/inflation-data-august-2020#:~:text=Inflation%20measures%20the%20average%20price,a%20deceleration%20in%20economic%20growth." target="_blank" rel="noopener"><strong>inflation</strong></a> remains within the target going forward.<br />
<ul style="list-style-type: disc;">
<li>An <strong>accommodative stance</strong> means a <strong>central bank will cut rates to inject money</strong> into the financial system <strong>whenever needed.</strong></li>
</ul>
</li>
</ul>
</li>
<li><strong>Support to Financial Institutions:</strong><br />
<ul style="list-style-type: circle;">
<li>RBI would extend fresh support of <strong>Rs. 50,000 crore</strong> to the <strong>All India Financial Institutions</strong> for new lending in <a href="/current-affairs-news-analysis-editorials/news-analysis/03-02-2021" target="_blank" rel="noopener"><strong>Financial Year (FY)</strong></a> 2021-22.<br />
<ul style="list-style-type: disc;">
<li><a href="/important-institutions/drishti-specials-important-institutions-national-institutions/national-bank-for-agriculture-and-rural-development-nabard" target="_blank" rel="noopener"><strong>National Bank for Agriculture and Rural Development (NABARD)</strong> </a>will be provided a<strong> Special Liquidity Facility (SLF)</strong> of <strong>Rs. 25,000</strong> crore for one year to support agriculture and allied activities, the rural non-farm sector and <a href="/daily-updates/daily-news-analysis/4-tier-structure-for-regulation-of-nbfcs#:~:text=A%20Non%2DBanking%20Financial%20Company,leasing%2C%20hire%2Dpurchase%2C%20insurance" target="_blank" rel="noopener"><strong>Non-Banking Financial Companies (NBFCs)</strong></a> - <a href="/daily-updates/daily-news-analysis/guidelines-for-licencing-of-small-finance-banks" target="_blank" rel="noopener"><strong>Micro-Finance Institutions (MFIs).</strong></a></li>
<li>An SLF of <strong>Rs. 10,000 crore</strong> will be extended to the <a href="/current-affairs-news-analysis-editorials/news-analysis/18-04-2020" target="_blank" rel="noopener"><strong>National Housing Bank</strong></a> for one year to support the housing sector.</li>
<li><a href="/daily-updates/daily-news-analysis/parliamentary-committee-report-on-startups" target="_blank" rel="noopener"><strong>Small Industries Development Bank of India (SIDBI)</strong></a> will be provided Rs.15,000 crore under this facility for up to one year for funding of <a href="/daily-updates/daily-news-editorials/going-beyond-the-credit-requirements-of-msmes" target="_blank" rel="noopener"><strong>Micro, Small and Medium enterprises (MSMEs)</strong></a>.</li>
</ul>
</li>
<li>All three facilities will be available at the <strong>prevailing policy repo rate.</strong></li>
</ul>
</li>
<li><strong>Review Committee for ARC&rsquo;s:</strong><br />
<ul style="list-style-type: circle;">
<li>Signalling the importance of <a href="/daily-updates/daily-news-analysis/asset-reconstruction-company#:~:text=Key%20Points,clean%20up%20their%20balance%20sheets." target="_blank" rel="noopener"><strong>Asset Reconstruction Companies (ARCs)</strong> </a>to deal with bad loans, the RBI would <strong>constitute a committee to undertake a comprehensive review</strong> of the working of ARCs in the financial sector ecosystem.</li>
<li>The committee will <strong>recommend suitable measures</strong> for enabling such entities to meet the growing requirements of the financial sector.</li>
</ul>
</li>
<li><strong>Extension of Priority Sector Lending:</strong><br />
<ul style="list-style-type: circle;">
<li>A six-month extension to September 30,2021 for <a href="/daily-updates/daily-news-analysis/revised-priority-sector-lending-guidelines" target="_blank" rel="noopener"><strong>Priority Sector Lending (PSL)</strong></a> classification for lending by banks to NBFCs for<strong> &lsquo;on-lending&rsquo;</strong> to sectors that contribute significantly to the economy in terms of export and employment &mdash; has been approved.<br />
<ul style="list-style-type: disc;">
<li><strong>On-lending</strong> means to lend (borrowed money) to a <strong>third party.</strong></li>
</ul>
</li>
<li>This would<strong> provide an impetus to NBFCs</strong> providing credit at the bottom of the pyramid.</li>
</ul>
</li>
<li><strong>Government Securities Acquisition Programme (G-SAP) 1.0:</strong><br />
<ul style="list-style-type: circle;">
<li><strong>About:</strong><br />
<ul style="list-style-type: disc;">
<li>The RBI, for the year 2021-22, has decided to put in place a secondary market <strong><a href="/daily-updates/daily-news-analysis/direct-access-to-g-sec-market-for-retail-investors-rbi#:~:text=A%20G%2DSec%20is%20a,acknowledges%20the%20Government's%20debt%20obligation.&amp;text=Gilt%2Dedged%20securities%20are%20high,a%20means%20of%20borrowing%20funds." target="_blank" rel="noopener">Government Security (G-sec)</a> Acquisition Programme or G-SAP 1.0.</strong><br />
<ul style="list-style-type: disc;">
<li>It is part of RBIs <a href="/daily-updates/daily-news-analysis/open-market-operations" target="_blank" rel="noopener"><strong>Open Market Operations.</strong></a></li>
</ul>
</li>
<li>Under the programme, the <strong>RBI will commit upfront to a specific amount of Open Market Purchases of government securities.</strong></li>
<li>The<strong> first purchase</strong> of government securities for an aggregate amount of <strong>Rs. 25,000 crore</strong> under G-SAP 1.0 will be conducted on <strong>15<sup>th</sup> April, 2021.</strong></li>
</ul>
</li>
<li><strong>Objective:</strong><br />
<ul style="list-style-type: disc;">
<li>To<strong> avoid volatility in the G-sec market</strong> in view of its central role in the pricing of other financial market instruments across the term structure and issuers, both in the public and private sectors</li>
</ul>
</li>
<li><strong>Significance:</strong><br />
<ul style="list-style-type: disc;">
<li>It will <strong>provide certainty to the bond market participants</strong> with regard to RBI&rsquo;s commitment of support to the bond market in FY22.</li>
<li>The announcement of this structured programme will<strong> help reduce the difference between the repo rate and the 10-year government bond yield.</strong> That, in turn, will help to<strong> reduce the aggregate cost of borrowing</strong> for the Centre and states in FY 2021-22.</li>
<li>It will enable a stable and <strong>orderly evolution of the yield curve amidst comfortable liquidity conditions.</strong><br />
<ul style="list-style-type: disc;">
<li>A yield curve is a line that <strong>plots yields (interest rates) of bonds</strong> having equal credit quality but differing maturity dates.</li>
<li>The<strong> slope of the yield curve gives an idea of future interest rate</strong> changes and economic activity.</li>
</ul>
</li>
</ul>
</li>
</ul>
</li>
</ul>
<div class="border-bg">
<p><strong>Key Terms</strong></p>
<ul style="list-style-type: square;">
<li><strong>Repo and Reverse Repo Rate:</strong><br />
<ul style="list-style-type: circle;">
<li>Repo rate is the <strong>rate at which the central bank of a country (Reserve Bank of India in case of India) lends money to commercial banks in the event of any shortfall of funds.</strong> Here, the central bank purchases the security.</li>
<li>Reverse repo rate is <strong>the rate at which the RBI borrows money from commercial banks within the country.</strong></li>
</ul>
</li>
<li><strong>Bank Rate:</strong><br />
<ul style="list-style-type: circle;">
<li>It is the<strong> rate charged by the RBI for lending funds to commercial banks.</strong></li>
</ul>
</li>
<li><strong>Marginal Standing Facility (MSF):</strong><br />
<ul style="list-style-type: circle;">
<li>MSF is a <strong>window for scheduled banks to borrow overnight from the RBI</strong> in an emergency situation when interbank liquidity dries up completely.</li>
<li>Under interbank lending, banks lend funds to one another for a specified term.</li>
</ul>
</li>
<li><strong>Open Market Operations:</strong><br />
<ul style="list-style-type: circle;">
<li>These are <strong>market operations conducted by RBI by way of sale/purchase of government securities to/from the market with an objective to adjust the rupee liquidity conditions</strong> in the market on a durable basis.</li>
<li><strong>If there is excess liquidity,</strong> RBI resorts to sale of securities and sucks out the rupee liquidity.</li>
<li>Similarly,<strong> when the liquidity conditions are tight,</strong> RBI buys securities from the market, thereby releasing liquidity into the market.</li>
<li>It is one of the <a href="/daily-updates/daily-news-analysis/rbi-keeps-policy-rates-unchanged" target="_blank" rel="noopener"><strong>quantitative (to regulate or control the total volume of money) monetary policy tools</strong></a> which is employed by the central bank of a country to control the money supply in the economy.</li>
</ul>
</li>
<li><strong>Government Security:</strong><br />
<ul style="list-style-type: circle;">
<li>A G-Sec is a<strong> tradable instrument issued by the Central Government</strong> or the State Governments.</li>
<li>It <strong>acknowledges the Government&rsquo;s debt obligation.</strong> Such securities are <strong>short term</strong> (usually called treasury bills, with original maturities of less than one year- presently issued in three tenors, namely, 91 day, 182 day and 364 day) or long term (usually called Government bonds or dated securities with original maturity of one year or more).</li>
</ul>
</li>
<li><strong>Inflation:</strong><br />
<ul style="list-style-type: circle;">
<li>Inflation<strong> refers to the rise in the prices of most goods and services of daily or common use,</strong> such as food, clothing, housing, recreation, transport, consumer staples, etc.</li>
<li>Inflation <strong>measures the average price change in a basket of commodities and services over time.</strong></li>
<li>Inflation is <strong>indicative of the decrease in the purchasing power</strong> of a unit of a country&rsquo;s currency. This could ultimately lead to a deceleration in economic growth.</li>
</ul>
</li>
<li><strong>Consumer Price Index:</strong><br />
<ul style="list-style-type: circle;">
<li>It <strong>measures price changes from the perspective of a retail buyer.</strong> It is released by the <a href="/daily-updates/daily-news-analysis/restructuring-of-indian-statistical-system" target="_blank" rel="noopener"><strong>National Statistical Office (NSO).</strong></a></li>
<li>The CPI <strong>calculates the difference in the price of commodities and services</strong> such as food, medical care, education, electronics etc, which Indian consumers buy for use.</li>
</ul>
</li>
</ul>
</div>
<p><a href="https://indianexpress.com/article/explained/explained-why-rbis-monetary-policy-committee-kept-rates-unchanged-7262345/" target="_blank" rel="noopener"><strong>Source:IE</strong></a></p>',
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	(int) 7 => object(Cake\ORM\Entity) {

		'article_id' => (int) 8052,
		'category_id' => (int) 21,
		'title' => '4% Inflation Target Retained by Government',
		'description' => '<h3>Why in News</h3>
<p>The Government of India has decided to retain the<strong> inflation target of 4%,</strong> with a <strong>tolerance band of +/- 2 percentage points</strong> for the <a href="/daily-updates/daily-news-analysis/monetary-policy-report-rbi" target="_blank" rel="noopener"><strong>Monetary Policy Committee</strong></a> of 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) for the coming five years.</p>
<ul style="list-style-type: square;">
<li>Earlier, the RBI in its <a href="/daily-updates/daily-news-analysis/flexible-inflation-target" target="_blank" rel="noopener"><strong>Currency and Finance (RCF) report</strong> </a>for the year 2020-21 also recommended the inflation target to be kept same as 4% +/-2% for next 5 years.</li>
</ul>
<h3>Key Points</h3>
<ul style="list-style-type: square;">
<li><strong>About:</strong><br />
<ul style="list-style-type: circle;">
<li>To control the price rise, <strong>the Centre in 2016 gave a mandate to the RBI to keep the retail inflation at 4% with a margin of 2% on either side</strong> for a five-year period <strong>ending 31<sup>st</sup> March, 2021.</strong> <br />
<ul style="list-style-type: disc;">
<li>The<a href="/daily-updates/daily-news-analysis/inflation-data-august-2020" target="_blank" rel="noopener"><strong> Consumer Price Index (CPI)</strong></a> tracks the change in retail prices of goods and services which households purchase for their daily consumption.</li>
</ul>
</li>
<li>The<strong> inflation target for the period 1<sup>st</sup> April, 2021 to 31<sup>st</sup> March, 2026</strong> under the Reserve Bank of India Act 1934 has been <strong>kept at the same level</strong> as was for previous 5 years.</li>
</ul>
</li>
<li><strong>Background:<a href="http://www.drishtiias.com/images/uploads/1617273847_unnamed.png" target="_blank" rel="noopener"><img class="content-img" src="http://www.drishtiias.com/images/uploads/1617273847_unnamed.png" style="float: right;" caption="false" width="254" height="499" /></a></strong><br />
<ul style="list-style-type: circle;">
<li>The <strong>central bank and the government agreed in 2015 on a policy framework</strong> that stipulated a primary objective of ensuring price stability while keeping in mind the objective of growth.</li>
<li>The <strong>Flexible Inflation Target (FIT) was adopted in 2016.</strong> The <strong>Reserve Bank of India Act, 1934 was amended</strong> to provide a statutory basis for a FTI framework.</li>
<li>The amended Act <strong>provides for the inflation target to be set by the Government, in consultation with the RBI, once every five years.</strong></li>
</ul>
</li>
<li><strong>Inflation Targeting:</strong> <br />
<ul style="list-style-type: circle;">
<li>It is <strong>a central banking policy</strong> that revolves around adjusting monetary policy to achieve a specified annual rate of inflation.</li>
<li>Inflation targeting is known to <strong>bring more stability, predictability, and transparency</strong> in deciding monetary policy.</li>
<li><strong>Strict Inflation Targeting:</strong> <br />
<ul style="list-style-type: disc;">
<li>It is adopted when the central bank is only concerned about <strong>keeping inflation as close to a given inflation target as possible,</strong> and nothing else.</li>
</ul>
</li>
<li><strong>Flexible Inflation Targeting:</strong> <br />
<ul style="list-style-type: disc;">
<li>It is adopted<strong> when the central bank is to some extent also concerned about other things,</strong> for instance, the stability of interest rates, exchange rates, output and employment.</li>
</ul>
</li>
</ul>
</li>
</ul>
<div class="border-bg">
<p><strong>Monetary Policy</strong></p>
<ul style="list-style-type: square;">
<li>It is the macroeconomic policy laid down by the central bank. It <strong>involves management of money supply and interest rate and is the demand side economic policy</strong> used by the government of a country to achieve macroeconomic objectives like inflation, consumption, growth and liquidity.</li>
<li>In India, monetary policy of the Reserve Bank of India is<strong> aimed at managing the quantity of money in order to meet the requirements of different sectors</strong> of the economy and to increase the pace of economic growth.</li>
<li>The RBI implements the monetary policy through <strong>open market operations, bank rate policy, reserve system, credit control policy, moral persuasion</strong> and through many other instruments.</li>
</ul>
<p><strong>Monetary Policy Committee</strong></p>
<ul style="list-style-type: square;">
<li>It is a <strong>statutory and institutionalized framework</strong> under the<strong> Reserve Bank of India Act, 1934,</strong> for maintaining price stability, while keeping in mind the objective of growth.<br />
<ul style="list-style-type: circle;">
<li>The <strong>Governor of RBI is ex-officio Chairman</strong> of the committee.</li>
</ul>
</li>
<li>The MPC <strong>determines the policy interest rate (<a href="/daily-updates/daily-news-analysis/monetary-policy-report-rbi#:~:text=Key%20Points,lends%20money%20to%20commercial%20banks." target="_blank" rel="noopener">repo rate</a>)</strong> required to achieve the inflation target (4%).</li>
<li>An RBI-appointed committee led by the then deputy governor Urjit Patel in 2014 recommended the establishment of the Monetary Policy Committee.</li>
</ul>
</div>
<p><a href="https://www.thehindu.com/business/Economy/govt-retains-4-inflation-target-for-rbis-rate-panel-for-2021-26/article34209262.ece" target="_blank" rel="noopener"><strong>Source: TH</strong></a></p>',
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	(int) 8 => object(Cake\ORM\Entity) {

		'article_id' => (int) 7975,
		'category_id' => (int) 21,
		'title' => 'Open Market Operations by RBI',
		'description' => '<h3>Why in News</h3>
<p>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 conduct <strong>simultaneous purchase and sale of government securities (G-Sec)</strong> under <strong>Open Market Operations (OMOs)</strong> for an amount of Rs. 10,000 crore each.</p>
<h3>Key Points</h3>
<ul style="list-style-type: square;">
<li><strong>About:</strong><br />
<ul style="list-style-type: circle;">
<li>Simultaneous purchase and sale of government securities under OMOs, popularly known as <a href="/daily-updates/daily-news-analysis/operation-twist" target="_blank" rel="noopener"><strong>operation twist</strong></a>, involves purchasing G-Sec of longer maturities and selling equal amounts of G-Sec of shorter maturities.</li>
</ul>
</li>
<li><strong>Open Market Operations:</strong><br />
<ul style="list-style-type: circle;">
<li><strong>Meaning:</strong> Open Market Operations <strong>refers to buying and selling of bonds issued by the Government</strong> in the open market.</li>
<li><strong>One of the Quantitative Tools:</strong> OMO is one of the quantitative tools that RBI uses to smoothen the liquidity conditions through the year and minimise its impact on the interest rate and inflation rate levels.<br />
<ul style="list-style-type: disc;">
<li>Quantitative tools control the extent of money supply by changing the Cash Reserve Ratio (CRR), or bank rate or open market operations.</li>
<li><strong>Qualitative tools</strong> include persuasion by the Central bank in order to make commercial banks discourage or encourage lending which is done through moral suasion, margin requirement, etc.</li>
</ul>
</li>
<li><strong>Impact on Money Supply:</strong> <br />
<ul style="list-style-type: disc;">
<li>When <strong>RBI buys a Government bond</strong> in the open market, it pays for it by giving a cheque. This cheque increases the total amount of reserves in the economy and thus <strong>increases the money supply. </strong></li>
<li><strong>Selling of a bond by RBI</strong> (to private individuals or institutions)<strong> leads to reduction in quantity of reserves and hence the money supply. </strong></li>
</ul>
</li>
<li><strong>Two Types of OMOs:</strong> Outright and Repo. <br />
<ul style="list-style-type: disc;">
<li><strong>Outright OMOs are permanent in nature:</strong> when the central bank buys these securities (thus injecting money into the system), it is <strong>without any promise to sell them later.</strong> Similarly, when the central bank sells these securities (thus withdrawing money from the system), it is without any promise to buy them.</li>
<li><strong>Repo:</strong> <br />
<ul style="list-style-type: disc;">
<li>This is a type of operation in which when the central bank buys the security, the <strong>agreement of purchase also has specification about date and price of resale of this security.</strong> This type of agreement is called a <strong>repurchase agreement or repo.</strong> The interest rate at which the money is lent in this way is called the <strong>repo rate.</strong></li>
<li>Similarly, instead of outright sale of securities the <strong>central bank may sell the securities through an agreement</strong> which has a specification about the date and price at which it will be repurchased. This type of agreement is called <strong>a reverse repurchase agreement or reverse repo.</strong> The rate at which the money is withdrawn in this manner is called the<strong> reverse repo rate.</strong></li>
<li>The Reserve Bank of India <strong>conducts repo and reverse repo operations</strong> at various maturities: overnight, 7-day, 14- day, etc. These types of operations have now become the <strong>main tool of monetary policy of the Reserve Bank of India.</strong></li>
</ul>
</li>
</ul>
</li>
</ul>
</li>
</ul>
<div class="border-bg">
<p><strong>Government Securities</strong></p>
<ul style="list-style-type: square;">
<li>A G-Sec is<strong> a tradable instrument</strong> issued by the central government or state governments. It <strong>acknowledges the Government&rsquo;s debt obligation.</strong></li>
<li><strong>Short term securities</strong> (with original maturities of less than one year) are usually called <strong>Treasury Bills.</strong></li>
<li><strong>Long term securities</strong> (with original maturities of more than one year or more) are usually <strong>called Government Bonds or Dated Securities.</strong></li>
<li>In India, the <strong>Central Government issues both treasury bills and bonds or dated securities</strong> while the <strong>State Governments issue only bonds or dated securities,</strong> which are called the State Development Loans (SDLs).</li>
<li>G-Secs carry practically no risk of default and, hence, are <strong>called risk-free gilt-edged instruments.</strong><br />
<ul style="list-style-type: circle;">
<li>Gilt-edged securities are high-grade investment bonds offered by governments and large corporations as a means of borrowing funds.</li>
</ul>
</li>
<li>Recently, the <strong>Reserve Bank of India has proposed to allow retail investors to open</strong> <a href="/daily-updates/daily-news-analysis/direct-access-to-g-sec-market-for-retail-investors-rbi" target="_blank" rel="noopener"><strong>gilt accounts</strong> </a>with the central bank<strong> to invest in Government securities (G-secs) directly</strong> and without the help of intermediaries.</li>
</ul>
</div>
<p><a href="https://www.thehindu.com/business/rbi-to-buy-sell-20000-cr-g-secs/article34102969.ece/amp/" target="_blank" rel="noopener"><strong>Source: TH</strong></a></p>',
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	(int) 9 => object(Cake\ORM\Entity) {

		'article_id' => (int) 7944,
		'category_id' => (int) 21,
		'title' => 'Inflation Data: February 2021',
		'description' => '<h3>Why in News</h3>
<p>Recently, the Office of the Economic Adviser, Department for Promotion of Industry and Internal Trade has released the <a href="/daily-updates/daily-news-analysis/inflation-data-august-2020#:~:text=Wholesale%20Inflation%3A,%25%20and%20July%20(%2D)%200.58%25." target="_blank" rel="noopener"><strong>Wholesale Price Index (WPI)</strong></a> for the month of February, 2021.</p>
<h3>Key Points</h3>
<ul style="list-style-type: square;">
<li><strong>Wholesale Price-Inflation:</strong><br />
<ul style="list-style-type: circle;">
<li>It increased for the second consecutive month to<strong> 4.17%.</strong><br />
<ul style="list-style-type: disc;">
<li>This is the highest since November 2018, when wholesale inflation was at <strong>4.47%.</strong></li>
<li>The WPI inflation was<strong> 2.03% in January 2021</strong> and <strong>2.26% in February</strong> 2020.</li>
</ul>
</li>
</ul>
</li>
<li><strong>Reason:</strong><br />
<ul style="list-style-type: circle;">
<li>Increase in <strong>inflation in food articles, fuel &amp; power</strong> has led to this surge.<br />
<ul style="list-style-type: disc;">
<li><strong>Food Inflation:</strong> The food articles in February saw <strong>1.36%</strong> inflation which in January stood at (-) 2.80%.</li>
<li><strong>Retail inflation:</strong> Based on the <a href="/daily-updates/daily-news-analysis/cpi-iw-base-year-revised-to-2016" target="_blank" rel="noopener"><strong>Consumer Price Index</strong></a> (CPI), it was at <strong>5.03%</strong> in February.</li>
</ul>
</li>
</ul>
</li>
</ul>
<h3>Wholesale Price Index</h3>
<ul style="list-style-type: square;">
<li>It <strong>measures the changes in the prices of goods sold and traded in bulk</strong> by wholesale businesses to other businesses.</li>
<li>Published by the<strong> Office of Economic Adviser,</strong> Ministry of Commerce and Industry.</li>
<li>It is the <strong>most widely used inflation indicator</strong> in India.</li>
<li>Major criticism for this index is that the general public does not buy products at wholesale price.</li>
<li>The <strong>base year of All-India WPI</strong> has been revised from 2004-05 to 2011-12 in 2017.</li>
</ul>
<h3>Consumer Price Index</h3>
<ul style="list-style-type: square;">
<li>It <strong>measures price changes from the perspective of a retail buyer.</strong> It is released by the <a href="/daily-updates/daily-news-analysis/restructuring-of-indian-statistical-system" target="_blank" rel="noopener"><strong>National Statistical Office (NSO).</strong></a></li>
<li>The CPI <strong>calculates the difference in the price of commodities and services</strong> such as food, medical care, education, electronics etc, which Indian consumers buy for use.</li>
<li>The CPI has several <strong>sub-groups</strong> including food and beverages, fuel and light, housing and clothing, bedding and footwear.</li>
<li>Four <strong>types of CPI</strong> are as follows:<br />
<ul style="list-style-type: circle;">
<li>CPI for <strong>Industrial Workers</strong> (IW).</li>
<li>CPI for <strong>Agricultural Labourer</strong> (AL).</li>
<li>CPI for <strong>Rural Labourer</strong> (RL).</li>
<li>CPI (Rural/Urban/Combined).</li>
<li>Of these, the first three are compiled by the <strong>Labour Bureau</strong> in the Ministry of Labour and Employment. Fourth is compiled by the NSO in the Ministry of Statistics and Programme Implementation.</li>
</ul>
</li>
<li><strong>Base Year</strong> for CPI is 2012.</li>
<li><a href="/daily-updates/daily-news-analysis/repo-rate-unchanged-1" target="_blank" rel="noopener"><strong>The Monetary Policy Committee (MPC)</strong> </a>uses CPI data to control inflation. In April 2014, 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> had adopted the CPI as its key measure of inflation.</li>
</ul>
<h3>CPI vs. WPI</h3>
<ul style="list-style-type: square;">
<li>WPI, tracks inflation at the producer level and CPI captures changes in prices levels at the consumer level.</li>
<li><strong>WPI does not capture changes in the prices of services,</strong> which CPI does.</li>
</ul>
<div class="border-bg">
<p><strong>Inflation</strong></p>
<ul style="list-style-type: square;">
<li>Inflation refers to the<strong> rise in the prices of most goods and services of daily or common use,</strong> such as food, clothing, housing, recreation, transport, consumer staples, etc.</li>
<li>Inflation measures the <strong>average price change in a basket of commodities and services over time.</strong></li>
<li>Inflation is<strong> indicative of the decrease in the purchasing power</strong> of a unit of a country&rsquo;s currency. <br />
<ul style="list-style-type: circle;">
<li>This could ultimately lead to a <strong>deceleration in economic growth.</strong></li>
</ul>
</li>
<li>However, <strong>a moderate level of inflation is required in the economy</strong> to ensure that production is promoted.</li>
<li>In India, inflation is primarily measured by<strong> two main indices &mdash;WPI &amp; CPI</strong> which measure wholesale and retail-level price changes, respectively.</li>
</ul>
</div>
<p><a href="https://www.thehindu.com/business/Economy/wpi-inflation-rises-to-417-in-feb-on-costlier-food-fuel/article34072369.ece" target="_blank" rel="noopener"><strong>Source:TH</strong></a></p>',
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	(int) 10 => object(Cake\ORM\Entity) {

		'article_id' => (int) 7802,
		'category_id' => (int) 21,
		'title' => 'Flexible Inflation Target',
		'description' => '<h3>Why in News</h3>
<p>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> in its <strong>Currency and Finance (RCF) report</strong> for the year 2020-21 has said that the <strong>current inflation target band (4% +/-2%) is appropriate for next 5 years.</strong></p>
<h3>Key Points</h3>
<ul style="list-style-type: square;">
<li><strong>Inflation Targeting:</strong><br />
<ul style="list-style-type: circle;">
<li><strong>Meaning:</strong> <br />
<ul style="list-style-type: disc;">
<li>It is <strong>a central banking policy</strong> that revolves around <strong>adjusting monetary policy to achieve a specified annual rate of inflation.</strong></li>
<li>The principle of inflation targeting is <strong>based on the belief that long-term economic growth is best achieved by maintaining price stability,</strong> and price stability is achieved by controlling inflation.</li>
</ul>
</li>
<li><strong>Strict inflation targeting</strong> is adopted when the central bank is only concerned about keeping inflation as close to a given inflation target as possible, and nothing else.</li>
<li><strong>Flexible inflation targeting</strong> is adopted when the central bank is to some extent also concerned about other things, for instance, the stability of interest rates, exchange rates, output and employment.</li>
</ul>
</li>
<li><strong>India&rsquo;s Flexible Inflation Target Framework:</strong><br />
<ul style="list-style-type: circle;">
<li><strong>Background:</strong><br />
<ul style="list-style-type: disc;">
<li>The central bank and the government <strong>agreed in 2015 on a policy framework</strong> that stipulated a primary objective of ensuring price stability while keeping in mind the objective of growth.</li>
<li>The<strong> Flexible Inflation Target (FIT) was adopted in 2016.</strong> This has <strong>put India on par with other nations in terms of flexible inflation targeting.</strong></li>
<li>The<strong> Reserve Bank of India Act, 1934 was amended to provide a statutory basis</strong> for a FTI framework.</li>
<li>The amended Act <strong>provides for the inflation target to be set</strong> by the Government, in consultation with the RBI, <strong>once every five years.</strong></li>
</ul>
</li>
<li><strong>The FIT Framework:</strong> <br />
<ul style="list-style-type: disc;">
<li>India <strong>adopted a flexible inflation targeting mandate of 4 (+/-2) percent</strong> and headline <a href="/daily-updates/daily-news-analysis/contraction-in-index-of-industrial-production" target="_blank" rel="noopener"><strong>consumer price inflation</strong></a> was chosen as a <strong>key indicator.</strong></li>
</ul>
</li>
<li><strong>Purpose:</strong> Inflation targeting is known to bring more stability, predictability, and transparency in deciding monetary policy. <br />
<ul style="list-style-type: disc;">
<li>This is because of the argument that rising prices create uncertainties and adversely affect savings and investments.</li>
</ul>
</li>
<li><strong>Fixed Accountability:</strong> The framework made the RBI more accountable to explain to the government if it fails to meet the inflation targets. <br />
<ul style="list-style-type: disc;">
<li>The flip side of this is such targets will restrain the RBI from taking any tight or accommodating monetary policy stance.</li>
</ul>
</li>
</ul>
</li>
<li><strong>RBI&rsquo;s Stand (Findings of the RCF Report):</strong><br />
<ul style="list-style-type: circle;">
<li>The <strong>trend <a href="/daily-updates/daily-news-editorials/return-of-inflation" target="_blank" rel="noopener">inflation</a> has fallen from above 9% before FIT to a range of 3.8-4.3 % during FIT,</strong> indicating that <strong>4% is the appropriate level of the inflation target</strong> for the country.</li>
<li>An <strong>inflation rate of 6% is the appropriate upper tolerance limit</strong> for the inflation target.<br />
<ul style="list-style-type: disc;">
<li>On the other hand, <strong>a lower bound above 2% can lead to actual inflation frequently dipping below the tolerance band.</strong></li>
<li>While, <strong>a lower bound below 2% will hamper growth,</strong> indicating that an<strong> inflation rate of 2% is the appropriate lower tolerance bound.</strong></li>
</ul>
</li>
<li>During the FIT period, <strong>monetary transmission has been full and reasonably swift</strong> across the money market (trading in very short-term debt instruments) but less than complete in the <a href="/daily-updates/daily-news-analysis/special-zero-coupon-recapitalisation-bonds" target="_blank" rel="noopener"><strong>bond markets.</strong></a><br />
<ul style="list-style-type: disc;">
<li>While there has been an improvement in transmission to lending and deposit rates of banks, <a href="/daily-updates/daily-news-analysis/external-benchmark-rates" target="_blank" rel="noopener"><strong>external benchmarks</strong></a> across all categories of loans and deposits could improve transmission.</li>
</ul>
</li>
</ul>
</li>
</ul>
<div class="border-bg">
<p><strong>Monetary Policy</strong></p>
<ul style="list-style-type: square;">
<li>It is the macroeconomic policy laid down by the central bank. It involves <strong>management of money supply and interest rate</strong> and is the demand side economic policy used by the government of a country to achieve macroeconomic objectives like inflation, consumption, growth and liquidity.</li>
<li>In India, monetary policy of the Reserve Bank of India is<strong> aimed at managing the quantity of money in order to meet the requirements of different sectors</strong> of the economy and to increase the pace of economic growth.</li>
<li>The RBI implements the monetary policy through <strong>open market operations, bank rate policy, reserve system, credit control policy, moral persuasion</strong> and through many other instruments.</li>
</ul>
<p><strong>Accommodative and Tight Monetary Policy</strong></p>
<ul style="list-style-type: square;">
<li>To avoid inflation, most central banks alternate between the accommodative monetary policy and the tight monetary policy in varying degrees to encourage growth while keeping inflation under control. <br />
<ul style="list-style-type: circle;">
<li><strong>Accommodative monetary policy</strong> is adopted when central banks expand the money supply to boost the economy. <br />
<ul style="list-style-type: disc;">
<li>These measures are meant to make money less expensive to borrow and encourage more spending.</li>
</ul>
</li>
<li>A<strong> tight monetary policy</strong> is implemented to contract economic growth. <br />
<ul style="list-style-type: disc;">
<li>Converse to accommodative monetary policy, a tight monetary policy involves increasing interest rates to constrain borrowing and to stimulate savings.</li>
</ul>
</li>
</ul>
</li>
</ul>
<p><strong>Monetary Policy Committee</strong></p>
<ul style="list-style-type: square;">
<li>It is <strong>a statutory and institutionalized framework under the Reserve Bank of India Act, 1934,</strong> for maintaining price stability, while keeping in mind the objective of growth.<br />
<ul style="list-style-type: circle;">
<li>The <strong>Governor of RBI is ex-officio Chairman</strong> of the committee.</li>
</ul>
</li>
<li>The MPC<strong> determines the policy interest rate (<a href="/daily-updates/daily-news-analysis/monetary-policy-report-rbi#:~:text=Key%20Points,lends%20money%20to%20commercial%20banks." target="_blank" rel="noopener">repo rate</a>)</strong> required to achieve the <strong>inflation target (4%).</strong><br />
<ul style="list-style-type: circle;">
<li>An RBI-appointed committee led by the<strong> then deputy governor Urjit Patel in 2014 recommended</strong> the establishment of the Monetary Policy Committee.</li>
</ul>
</li>
</ul>
</div>
<h3>Way Forward</h3>
<ul style="list-style-type: square;">
<li>In the conduct of monetary policy in an open economy setting, <a href="/daily-updates/daily-news-analysis/forex-reserves-2" target="_blank" rel="noopener"><strong>foreign exchange reserves</strong> </a>and associated liquidity management are key, there is a need to enhance the RBI&rsquo;s sterilisation capacity to deal with surges in capital flows.</li>
<li>The primary focus of FIT on price stability augurs well for further liberalisation of the capital account and eventual internationalisation of the Indian rupees.</li>
</ul>
<p><a href="https://www.thehindu.com/business/Economy/current-inflation-target-band-appropriate-for-next-5-years-rbi-report/article33942481.ece" target="_blank" rel="noopener"><strong>Source: TH</strong></a></p>',
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	(int) 11 => object(Cake\ORM\Entity) {

		'article_id' => (int) 7635,
		'category_id' => (int) 21,
		'title' => 'RBI Monetary Policy 2021',
		'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 (RBI)</strong> </a>has forecasted that real <a href="/daily-updates/daily-news-analysis/gdp-decreases-to-11-year-low" target="_blank" rel="noopener"><strong>Gross Domestic Product (GDP)</strong></a>, hit by the <a href="/daily-updates/daily-news-editorials/comprehensive-action-plan-for-covid-19" target="_blank" rel="noopener"><strong>Covid pandemic</strong></a> in 2020-21, is expected to grow by <strong>10.5% in 2021-22.</strong></p>
<ul style="list-style-type: square;">
<li>RBI had previously introduced a number of measures in its <a href="/daily-updates/daily-news-analysis/monetary-policy-report-rbi" target="_blank" rel="noopener"><strong>Monetary Policy Report</strong> </a>for dealing with the <strong>Covid-19 induced economic setback.</strong></li>
</ul>
<h3>Key Points</h3>
<ul style="list-style-type: square;">
<li><strong>GDP Forecast:</strong><br />
<ul style="list-style-type: circle;">
<li>The<strong> 10.5% real GDP growth in 2021-22</strong> forecasted by RBI will move in the range of 26.2 to 8.3% in the first half and 6% in the third quarter of 2021. <br />
<ul style="list-style-type: disc;">
<li>Hit by <a href="/daily-updates/daily-news-editorials/covid-19-and-lockdown#:~:text=The%20Government%20of%20India%20has,every%20country%20across%20the%20globe." target="_blank" rel="noopener"><strong>lockdown</strong> </a>and closures of industries, GDP had contracted by<a href="/daily-updates/daily-news-analysis/gdp-contracted-by-23-9-in-first-quarter" target="_blank" rel="noopener"><strong> 23.9% in the June quarter of 2020-21</strong> </a>and<strong> fell by 7.5% in the September quarter of 2020-21.</strong></li>
<li><strong>Real GDP</strong> is a measurement of economic output that accounts for the effects of inflation or deflation.<br />
<ul style="list-style-type: disc;">
<li>The<strong> difference between nominal GDP and real GDP</strong> is the adjustment for inflation. Since nominal GDP is calculated using current prices, it does not require any adjustments for inflation.</li>
</ul>
</li>
</ul>
</li>
</ul>
</li>
<li><strong>Reasons for a Positive Outlook:</strong><br />
<ul style="list-style-type: circle;">
<li><strong>Rural demand is likely to remain resilient</strong> on good prospects of agriculture.</li>
<li><strong>Urban demand</strong> and demand for contact-intensive services is<strong> expected to strengthen with the substantial fall in Covid-19 cases and the spread of vaccination.</strong></li>
<li>Consumer <strong>confidence is reviving,</strong> and business expectations of manufacturing, services and infrastructure remain upbeat.</li>
<li>The fiscal stimulus under <a href="/daily-updates/daily-news-analysis/measures-on-atmanirbhar-bharat-3-0" target="_blank" rel="noopener"><strong>AtmaNirbhar 2.0 and 3.0 schemes</strong></a> of the government will likely accelerate public investment.</li>
<li>The<a href="/daily-updates/daily-news-analysis/budget-2021-highlights-health-and-wellbeing" target="_blank" rel="noopener"><strong> Union Budget 2021-22</strong></a>, with its thrust on sectors such as health and well-being, infrastructure, innovation and research, etc. should help accelerate the growth momentum.</li>
</ul>
</li>
<li><strong>Unchanged Policy Rates:</strong><br />
<ul style="list-style-type: circle;">
<li>The RBI has kept the <a href="/daily-updates/daily-news-analysis/rbi-cuts-repo-rate" target="_blank" rel="noopener"><strong>repo rate</strong></a> under the <a href="/daily-updates/daily-news-analysis/liquidity-measures-extended-for-banks#:~:text=Liquidity%20Adjustment%20Facility%20(LAF)%20is,RBI%20through%20reverse%20repo%20agreements." target="_blank" rel="noopener"><strong>Liquidity Adjustment Facility (LAF)</strong></a> unchanged at 4%.</li>
<li>The <strong>reverse repo rate under the LAF remains unchanged at 3.35%</strong> and the <strong>Marginal Standing Facility (MSF)</strong> rate and the <strong>Bank Rate at 4.25%.</strong></li>
</ul>
</li>
<li><strong>Other Decisions: </strong><br />
<ul style="list-style-type: circle;">
<li><strong>Cash Reserve Ratio (CRR):</strong><br />
<ul style="list-style-type: disc;">
<li>The RBI has decided to restore the <a href="/daily-updates/daily-news-analysis/monetary-policy-report#:~:text=Cash%20Reserve%20Ratio%3A%20Banks%20are,is%20known%20as%20the%20CRR." target="_blank" rel="noopener"><strong>CRR</strong></a> in a non-disruptive manner from 3% to 4% in two stages by May 2021.</li>
</ul>
</li>
<li><strong>Direct Retail Investment in Government Securities (G-Sec):</strong><br />
<ul style="list-style-type: disc;">
<li>The RBI has proposed to<a href="/daily-updates/daily-news-analysis/direct-access-to-g-sec-market-for-retail-investors-rbi" target="_blank" rel="noopener"><strong> allow small investors direct access to the G-Sec platform.</strong></a><br />
<ul style="list-style-type: disc;">
<li>A <strong>G-Sec</strong> is a <strong>tradable instrument</strong> issued by the Central Government or the State Governments and is considered to be the <strong>safest form of investment.</strong></li>
</ul>
</li>
</ul>
</li>
</ul>
</li>
<li><strong>Accommodative Stance:</strong><br />
<ul style="list-style-type: circle;">
<li>The <a href="/daily-updates/daily-news-analysis/gdp-revival-forecast-rbi#:~:text=Real%20gross%20domestic%20product%20(GDP,FY21%20will%20fall%20by%209.5%25.&amp;text=The%20real%20GDP%20growth%20in,the%20Q1%20of%202021%2D22." target="_blank" rel="noopener"><strong>Monetary Policy Committee (MPC)</strong> </a>of the RBI also decided to continue with the <a href="/daily-updates/daily-news-analysis/monetary-policy-rbi#:~:text=Accommodative%20Stance%3A,Covid%2D19%20on%20the%20economy." target="_blank" rel="noopener"><strong>accommodative stance</strong> </a>as long as necessary to revive growth on a durable basis and mitigate the impact of Covid-19 on the economy, while ensuring that inflation remains within the target going forward.</li>
<li>These decisions are in consonance with the objective of achieving the medium-term target for <a href="/daily-updates/daily-news-analysis/inflation-data-august-2020#:~:text=Consumer%20Price%20Index,-It%20measures%20price&amp;text=The%20CPI%20calculates%20the%20difference,and%20clothing%2C%20bedding%20and%20footwear." target="_blank" rel="noopener"><strong>Consumer Price Index (CPI)</strong></a> inflation of 4% within a band of +/- 2 %, while supporting growth.<br />
<ul style="list-style-type: disc;">
<li>The CPI<strong> calculates the difference in the price of commodities and services</strong> such as food, medical care, education, electronics etc, <strong>which Indian consumers buy for use.</strong></li>
<li>The <strong>CPI has several sub-groups</strong> including food and beverages, fuel and light, housing and clothing, bedding and footwear.</li>
</ul>
</li>
</ul>
</li>
</ul>
<div class="border-bg">
<p><strong>Monetary Policy Committee</strong></p>
<ul style="list-style-type: square;">
<li><strong>About:</strong><br />
<ul style="list-style-type: circle;">
<li>The Monetary Policy Committee is a <strong>statutory and institutionalized framework under the Reserve Bank of India Act, 1934,</strong> for maintaining price stability, while keeping in mind the objective of growth.</li>
</ul>
</li>
<li><strong>Formation:</strong><br />
<ul style="list-style-type: circle;">
<li>An RBI-appointed committee led by the then deputy governor <strong>Urjit Patel</strong> in 2014 recommended the establishment of the Monetary Policy Committee.</li>
</ul>
</li>
<li><strong>Chairman:</strong><br />
<ul style="list-style-type: circle;">
<li>The <strong>Governor</strong> of RBI is <strong>ex-officio Chairman of the committee.</strong></li>
</ul>
</li>
<li><strong>Members:</strong><br />
<ul style="list-style-type: circle;">
<li>The <strong>committee comprises six members</strong> (including the Chairman) -<strong> three officials of the RBI and three external members nominated by the Government of India.</strong></li>
</ul>
</li>
<li><strong>Decisions :</strong><br />
<ul style="list-style-type: circle;">
<li>Decisions are taken by majority with the Governor having the casting vote in case of a tie.</li>
</ul>
</li>
<li><strong>Function:</strong><br />
<ul style="list-style-type: circle;">
<li>The MPC determines the policy interest rate (repo rate) required to achieve the <a href="/daily-updates/daily-news-analysis/inflation-in-india" target="_blank" rel="noopener"><strong>inflation</strong></a> target (4%).</li>
</ul>
</li>
</ul>
<p><strong>Key Terms</strong></p>
<ul style="list-style-type: square;">
<li><strong>Repo and Reverse Repo Rate:</strong><br />
<ul style="list-style-type: circle;">
<li><strong>Repo rate</strong> is the rate at which the central bank of a country (Reserve Bank of India in case of India) lends money to commercial banks in the event of any shortfall of funds. Here, the <strong>central bank purchases the security.</strong></li>
<li><strong>Reverse repo rate</strong> is the rate at which the RBI borrows money from commercial banks within the country.</li>
</ul>
</li>
<li><strong>Liquidity Adjustment Facility (LAF):</strong><br />
<ul style="list-style-type: circle;">
<li>It is a tool used in monetary policy by the RBI, that allows banks to borrow money through repurchase agreements (repos) or for banks to make loans to the RBI through reverse repo agreements.</li>
</ul>
</li>
<li><strong>Bank Rate:</strong><br />
<ul style="list-style-type: circle;">
<li>It is the<strong> rate charged by the RBI for lending funds to commercial banks.</strong></li>
</ul>
</li>
<li><strong>Marginal Standing Facility (MSF):</strong><br />
<ul style="list-style-type: circle;">
<li><strong>MSF</strong> is a window for scheduled banks to borrow overnight from the RBI in an emergency situation when interbank liquidity dries up completely.<br />
<ul style="list-style-type: disc;">
<li>Under interbank lending, banks lend funds to one another for a specified term.</li>
</ul>
</li>
</ul>
</li>
<li><strong>Cash Reserve Ratio (CRR):</strong><br />
<ul style="list-style-type: circle;">
<li>Banks are required to hold a certain proportion of their deposits in the form of cash. This minimum ratio (that is the part of the total deposits to be held as cash) is stipulated by the RBI and is known as the CRR.</li>
</ul>
</li>
</ul>
</div>
<p><a href="https://indianexpress.com/article/business/banking-and-finance/rbi-cash-reserve-ratio-2021-7176606/" target="_blank" rel="noopener"><strong>Source:IE</strong></a></p>',
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	(int) 12 => object(Cake\ORM\Entity) {

		'article_id' => (int) 7612,
		'category_id' => (int) 21,
		'title' => 'Asset Reconstruction Company',
		'description' => '<h3>Why in News</h3>
<p>In the <a href="https://www.google.com/search?q=Budget+2021-22+drishti&amp;oq=Budget+2021-22+drishti&amp;aqs=chrome..69i57.7240j0j7&amp;sourceid=chrome&amp;ie=UTF-8" target="_blank" rel="noopener"><strong>Budget 2021-22</strong></a>, <strong>Asset Reconstruction Company (ARC)</strong> have been proposed to be set up<strong> by state-owned and private sector banks,</strong> and there will be <strong>no equity contribution from the government.</strong></p>
<ul style="list-style-type: square;">
<li>The ARC, which will have an <strong>Asset Management Company (AMC)</strong> to manage and sell bad assets, will look to resolve stressed assets of Rs. 2-2.5 lakh crore that remain unresolved in around 70 large accounts.</li>
<li>This is being considered as the<strong> government's version of a <a href="/daily-updates/daily-news-analysis/bad-bank-1" target="_blank" rel="noopener">bad bank</a>.</strong></li>
</ul>
<h3>Key Points</h3>
<ul style="list-style-type: square;">
<li><strong>About the Asset Reconstruction Company (ARC):</strong><br />
<ul style="list-style-type: circle;">
<li><strong>Objective:</strong> <br />
<ul style="list-style-type: disc;">
<li>It is a <strong>specialized financial institution</strong> that buys the <a href="/daily-updates/daily-news-editorials/lessons-from-npa-crisis" target="_blank" rel="noopener"><strong>Non Performing Assets (NPAs)</strong> </a>from banks and financial institutions so that they can clean up their balance sheets.</li>
<li>This <strong>helps banks to concentrate in normal banking activities.</strong> Banks rather than going after the defaulters by wasting their time and effort, can sell the bad assets to the ARCs at a mutually agreed value.</li>
</ul>
</li>
<li><strong>Legal Basis:</strong> <br />
<ul style="list-style-type: disc;">
<li>The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest <a href="/daily-updates/daily-news-analysis/co-operative-banks-under-sarfaesi-act#:~:text=The%20Sarfaesi%20Act%20is%20effective,can%20enforce%20the%20underlying%20security.&amp;text=Enforces%20the%20security%20interest%20without,enforce%20the%20recovery%20of%20debt." target="_blank" rel="noopener"><strong>(SARFAESI) Act, 2002</strong> </a>provides the legal basis for the setting up of ARCs in India.</li>
<li>The SARFAESI Act helps reconstruction of bad assets without the intervention of courts. Since then, a large number of ARCs were formed and were registered with 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> which has got the power to regulate the ARCs.</li>
</ul>
</li>
<li><strong>Capital Needs for ARCs:</strong><br />
<ul style="list-style-type: disc;">
<li>As per amendment made in the SARFAESI Act in 2016, an ARC should have a minimum net owned fund of Rs. 2 crore.</li>
<li><strong>The RBI raised this amount to Rs. 100 crore in 2017.</strong> The ARCs also have to maintain a <a href="/to-the-points/paper3/basel-norms#:~:text=Capital%3A%20The%20capital%20adequacy%20ratio,capital%20conservation%20buffer%20of%202.5%25." target="_blank" rel="noopener"><strong>capital adequacy ratio</strong></a> of 15% of its<strong> risk weighted assets.</strong><br />
<ul style="list-style-type: disc;">
<li><strong>Risk-weighted assets</strong> are used to determine the minimum amount of capital that must be held by banks and other financial institutions in order to reduce the risk of insolvency.</li>
</ul>
</li>
</ul>
</li>
</ul>
</li>
<li><strong>About the new ARC:</strong><br />
<ul style="list-style-type: circle;">
<li><strong>Need:</strong><br />
<ul style="list-style-type: disc;">
<li>Of the existing ARCs, <strong>only 3-4 are adequately capitalised,</strong> while the more-than-dozen remaining are thinly capitalised &mdash; necessitating the need to set up a new structure to resolve stressed assets urgently.</li>
<li>In a report released by Reserve Bank of India (RBI), it was said that <strong>banks' gross non-performing assets may rise to 13.5% by September 2021,</strong> from 7.5% in September 2020 under the baseline scenario.</li>
</ul>
</li>
<li><strong>Functioning:</strong><br />
<ul style="list-style-type: disc;">
<li>The transfer of <strong>stressed assets to the ARC will happen at net book value,</strong> which is the value of assets minus provisioning done by banks against these assets. This could enable the banks to alleviate its losses from NPAs - a part of stressed assets.</li>
<li><strong>The bank will get 15% cash and 85% security receipts</strong> against bad debt that will be sold to the ARC.<br />
<ul style="list-style-type: disc;">
<li><strong>Security Receipts (SR)</strong> are issued by ARCs, when Non-Performing Assets (NPAs) of commercial banks (CB) or financial institutions (FI) are acquired by the ARCs for the purpose of recovery.</li>
<li>As per extant instructions, investment in SRs is restricted to the<strong> Qualified Institutional Buyers (QIBs),</strong> as defined by SARFAESI Act 2002.</li>
</ul>
</li>
</ul>
</li>
<li><strong>Support by Central Government:</strong> <br />
<ul style="list-style-type: disc;">
<li>While the <strong>government will not provide any direct equity support</strong> to the ARC, it <strong>may provide sovereign guarantee</strong> that could be needed to meet regulatory requirements.</li>
</ul>
</li>
</ul>
</li>
<li><strong>Expected Benefits:</strong> <br />
<ul style="list-style-type: circle;">
<li>This structure will reduce the load of stressed assets on the bank balance sheet and look to <strong>resolve these bad debt in a market-led way.</strong></li>
<li>With most banks expected to be on board this company, the resolution is expected to be faster.</li>
</ul>
</li>
<li><strong>Other Proposed Reforms:</strong><br />
<ul style="list-style-type: circle;">
<li><strong>Development Financial Institution:</strong> <br />
<ul style="list-style-type: disc;">
<li>The government could subsume<strong> India Infrastructure Finance Company Limited (IIFCL)</strong> into the proposed<a href="/daily-updates/daily-news-analysis/development-finance-institution-to-fund-infrastructure" target="_blank" rel="noopener"><strong> Development Financial institution (DFI)</strong></a>, which is being set up to enable long-term infra funding worth Rs. 5 lakh crore in 3 years.</li>
<li><strong>The National Bank for Financing Infrastructure and Development (NaBFID),</strong> the proposed DFI, will anchor the <a href="/daily-updates/daily-news-analysis/final-report-on-national-infrastructure-pipeline" target="_blank" rel="noopener"><strong>National Infrastructure Pipeline (NIP).</strong></a></li>
<li>The <strong>Reserve Bank of India</strong> will regulate the proposed DFI, which will be fully owned by the government in initial years.</li>
</ul>
</li>
<li><strong>Privatisation:</strong><br />
<ul style="list-style-type: disc;">
<li>With regard to the privatisation of <strong>two state-owned banks and one insurer,</strong> the companies will be identified by a government-defined process.</li>
<li><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> will do the first round for selecting, then it will go to the core group of secretaries on disinvestment and, thereafter, it will be examined by the alternate mechanism.</li>
</ul>
</li>
</ul>
</li>
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	(int) 13 => object(Cake\ORM\Entity) {

		'article_id' => (int) 7585,
		'category_id' => (int) 21,
		'title' => 'Highlights of Economic Survey 2021',
		'description' => '<h3>Why in News</h3>
<p>Recently, the Union Minister of Finance presented the <a href="/gist-of-economic-survey/gist-of-economic-survey-2019-20" target="_blank" rel="noopener"><strong>Economic Survey</strong></a> that details the state of the economy ahead of the government's budget for the fiscal year beginning 1<sup>st</sup> April, 2021.</p>
<ul style="list-style-type: square;">
<li>The foundational theme of the survey is <strong>"Saving Lives and Livelihoods".</strong></li>
</ul>
<p><a href="http://www.drishtiias.com/images/uploads/1612167407_image7.png" target="_blank" rel="noopener"><strong><img class="content-img" src="http://www.drishtiias.com/images/uploads/1612167407_image7.png" style="display: block; margin-left: auto; margin-right: auto;" width="600" caption="false" /></strong></a></p>
<div class="border-bg">
<p><strong>Economic Survey</strong></p>
<ul style="list-style-type: square;">
<li>The Economic Survey of India is an <strong>annual document released by the Ministry of Finance,</strong> Government of India.</li>
<li>It contains the<strong> most authoritative and updated source of data on India&rsquo;s economy.</strong> <br />
<ul style="list-style-type: circle;">
<li>It is a report that the government presents on the <strong>state of the economy in the past one year,</strong> the key challenges it anticipates, and their possible solutions.</li>
</ul>
</li>
<li>The Economic Survey document is <strong>prepared by the Economics Division of the Department of Economic Affairs (DEA)</strong> under the guidance of the <strong>Chief Economic Advisor.</strong></li>
<li>It is usually <strong>presented a day before the Union <a href="/daily-updates/daily-news-analysis/union-budget-2020-21-economy" target="_blank" rel="noopener">Budget</a> is presented</strong> in the <strong><a href="/daily-updates/daily-news-analysis/parliament-sessions" target="_blank" rel="noopener">Parliament</a>.</strong><br />
<ul style="list-style-type: circle;">
<li>The<strong> first Economic Survey in India</strong> was presented in the<strong> year 1950-51.</strong> Up to 1964, it was <strong>presented along with the Union Budget. From 1964</strong> onwards, it has been delinked from the Budget.</li>
</ul>
</li>
</ul>
</div>
<h3>Key Points</h3>
<ul style="list-style-type: square;">
<li><strong>Indian Economy and Covid:</strong><br />
<ul style="list-style-type: circle;">
<li><strong>Strategy to face the pandemic:</strong><br />
<ul style="list-style-type: disc;">
<li>Response stemmed from the humane principle that:<br />
<ul style="list-style-type: disc;">
<li>Human lives lost cannot be brought back.</li>
<li><strong>Gross Domestic Product (GDP)</strong> growth will recover from the temporary shock caused by the <a href="/daily-updates/daily-news-editorials/comprehensive-action-plan-for-covid-19" target="_blank" rel="noopener"><strong>Covid-19 pandemic</strong></a>.</li>
</ul>
</li>
<li>India&rsquo;s policy response also derived from extensive research on epidemiology, especially that looked at <a href="/daily-updates/daily-news-analysis/spanish-flu#:~:text=Key%20Points,partly%20responsible%20for%20it%27s%20spread.&amp;text=As%20a%20result%2C%20people%20falsely,name%20%22Spanish%20flu%22%20stuck." target="_blank" rel="noopener"><strong>Spanish Flu of 1918.</strong></a> <br />
<ul style="list-style-type: disc;">
<li>One of the key insights was that pandemic spreads faster in higher and denser population and intensity of lockdown matters most at the beginning of the pandemic.</li>
</ul>
</li>
</ul>
</li>
<li><strong>Four Pillar Strategy:</strong><br />
<ul style="list-style-type: disc;">
<li>India adopted a unique <strong>four-pillar strategy of containment, fiscal, financial, and long-term structural reforms. </strong></li>
<li><strong>Calibrated fiscal and monetary support</strong> was provided given the evolving economic situation.<br />
<ul style="list-style-type: disc;">
<li>A<strong> favorable <a href="/daily-updates/daily-news-analysis/monetary-policy-rbi" target="_blank" rel="noopener">monetary policy</a></strong> ensured abundant liquidity and immediate relief to debtors via temporary moratoria, while facilitating monetary policy transmission.</li>
</ul>
</li>
<li><strong>Cushioning the vulnerable</strong> in the lockdown and<strong> boosting consumption and investment</strong> while unlocking, mindful of fiscal repercussions and entailing debt sustainability.</li>
</ul>
</li>
<li><strong>Covid pandemic affected both demand and supply:</strong><br />
<ul style="list-style-type: disc;">
<li>India was the<strong> only country to announce structural reforms</strong> to expand supply in the medium-long term and avoid long-term damage to productive capacities.<br />
<ul style="list-style-type: disc;">
<li>The <strong>Rs. 1.46-lakh crore <a href="/daily-updates/daily-news-analysis/pli-scheme-for-ten-more-sectors" target="_blank" rel="noopener">Production Linked Incentive (PLI) scheme</a></strong> is expected to make India an integral part of the global supply chain and create huge employment opportunities</li>
</ul>
</li>
<li><strong>Demand-side measures</strong> have been announced in a calibrated manner. <br />
<ul style="list-style-type: disc;">
<li>A public investment programme centered around the <a href="/daily-updates/daily-news-analysis/national-infrastructure-pipeline-1" target="_blank" rel="noopener"><strong>National Infrastructure Pipeline</strong></a> to accelerate the demand push and further the recovery.</li>
</ul>
</li>
</ul>
</li>
</ul>
</li>
<li><strong>Economic Recovery:</strong><br />
<ul style="list-style-type: circle;">
<li><strong>V-shaped Economic Recovery after Lockdown:<a href="http://www.drishtiias.com/images/uploads/1612167464_image5.png" target="_blank" rel="noopener"><img class="content-img" src="http://www.drishtiias.com/images/uploads/1612167464_image5.png" style="float: right;" width="300" caption="false" /></a></strong> <br />
<ul style="list-style-type: disc;">
<li>Starting July 2020, a resilient V-shaped recovery is underway.</li>
<li><a href="/daily-updates/daily-news-analysis/shapes-of-economic-recovery" target="_blank" rel="noopener"><strong>V-shaped recovery</strong></a> is a type of economic recession and recovery that resembles a "V" shape in charting.</li>
<li>Specifically, a V-shaped recovery <strong>represents the shape of a chart of economic measures</strong> economists create when examining recessions and recoveries.</li>
<li>A V-shaped recovery is <strong>characterized by a quick and sustained recovery in measures of economic performance</strong> after a sharp economic decline.</li>
<li><strong>Reasons:</strong> <br />
<ul style="list-style-type: disc;">
<li>It is supported by the initiation of a<a href="/daily-updates/daily-news-editorials/covid-19-vaccine-distribution" target="_blank" rel="noopener"><strong> mega vaccination drive</strong></a> with hopes of a robust recovery in the services sector and prospects for robust growth in consumption and investment.</li>
<li>V-shaped recovery is due to resurgence in high frequency indicators such as <strong>power demand, rail freight, <a href="/daily-updates/daily-news-analysis/e-way-bills-during-lockdown" target="_blank" rel="noopener">E-Way bills</a>, <a href="/to-the-points/paper3/goods-and-services-tax-gst-1" target="_blank" rel="noopener">Goods and Services Tax (GST) collection</a>, steel consumption,</strong> etc.</li>
<li>The fundamentals of the economy remain strong as gradual <strong>scaling back of <a href="/daily-updates/daily-news-editorials/covid-19-and-lockdown" target="_blank" rel="noopener">lockdowns</a></strong> along with the support of<a href="/daily-updates/daily-news-analysis/atmanirbhar-bharat-and-economic-stimulus" target="_blank" rel="noopener"><strong> Aatmanirbhar Bharat Mission</strong> </a>have placed the economy firmly on the path of revival.</li>
</ul>
</li>
<li><strong>Significance:</strong> <br />
<ul style="list-style-type: disc;">
<li>This path would entail a growth in real <a href="/daily-updates/daily-news-analysis/gdp-decreases-to-11-year-low" target="_blank" rel="noopener"><strong>Gross Domestic Product (GDP)</strong></a> by 2.4% over the absolute level of 2019-20 - implying that the<strong> economy would take two years to reach and go past the pre-pandemic level. </strong></li>
</ul>
</li>
</ul>
</li>
<li><strong>GDP&rsquo;s Estimation:</strong> <br />
<ul style="list-style-type: disc;">
<li>India&rsquo;s <strong>real GDP</strong> to record a growth of <strong>11% in 2021-22 and nominal GDP</strong> by 15.4% - the highest since independence. <br />
<ul style="list-style-type: disc;">
<li>These projections are in line with <a href="/daily-updates/daily-news-analysis/world-economic-outlook-imf-1#:~:text=FY%202020%2D21%3A%20For%20the,projection%20made%20in%20October%2C%202020." target="_blank" rel="noopener"><strong>International Monetary Fund estimates</strong></a>.</li>
</ul>
</li>
<li>India&rsquo;s GDP is estimated to <strong>contract by 7.7%</strong> in the <a href="/to-the-points/paper3/government-budgeting" target="_blank" rel="noopener"><strong>Financial Year (FY)</strong></a> 2020-21, composed of a sharp 15.7% decline in the first half and a modest 0.1% fall in the second half.</li>
<li>Sector-wise, <strong>agriculture has remained the silver lining</strong> while<strong> contact-based services, manufacturing, construction were hit hardest,</strong> and have been recovering steadily.</li>
<li>The <strong>external sector provided an effective cushion to growth</strong> with India recording a <strong><a href="/daily-updates/daily-news-analysis/strong-balance-of-payments" target="_blank" rel="noopener">Current Account</a> Surplus of 3.1% of GDP</strong> in the first half of FY 2020-21.</li>
</ul>
</li>
<li><strong>Foreign Investment:</strong><br />
<ul style="list-style-type: disc;">
<li>Net <a href="/daily-updates/daily-news-analysis/fdi-inflow" target="_blank" rel="noopener"><strong>Foreign Direct Investment (FDI)</strong> </a>inflows of USD 27.5 billion during April-October, 2020 - <strong>14.8% higher</strong> as compared to the first seven months of FY 2019-20.</li>
<li>Net <strong>Foreign Portfolio Investment (FPI)</strong> Inflows recorded an all-time monthly high of 9.8 Billion Dollars in November 2020.</li>
</ul>
</li>
<li><strong>Debt Sustainability and Growth:</strong><br />
<ul style="list-style-type: disc;">
<li><strong>Growth leads to debt sustainability</strong> in the Indian context but not necessarily vice-versa.</li>
<li>Debt sustainability <strong>depends on the &lsquo;Interest Rate Growth Rate Differential&rsquo; (IRGD),</strong> i.e., the difference between the interest rate and the growth rate.</li>
<li><strong>Negative IRGD in India</strong> &ndash; not due to lower interest rates but much higher growth rates &ndash; prompts a debate on fiscal policy, especially during growth slowdowns and economic crises.</li>
<li>Fiscal policy that provides an impetus to growth will lead to <strong>lower debt-to-GDP ratio.</strong></li>
<li>Given India&rsquo;s growth potential, <strong>debt sustainability is unlikely to be a problem</strong> even in the worst scenarios.</li>
<li>Desirable to use <strong>counter-cyclical fiscal policy</strong> to enable growth during economic downturns.<br />
<ul style="list-style-type: disc;">
<li>Counter-cyclical fiscal policy refers to the<strong> steps taken by the government that go against the direction of the economic or business cycle.</strong></li>
<li>Thus, in a recession or slowdown, the government increases expenditure and reduces taxes to create a demand that can drive an economic boom.</li>
</ul>
</li>
</ul>
</li>
</ul>
</li>
<li><strong>Services Sector:</strong><br />
<ul style="list-style-type: circle;">
<li><strong>About:</strong><br />
<ul style="list-style-type: disc;">
<li>The services sector <strong>accounts for over 54% of India&rsquo;s Gross Value Added (GVA)</strong> and nearly four-fifths of total <a href="/daily-updates/daily-news-analysis/fdi-inflow" target="_blank" rel="noopener"><strong>Foreign Direct Investments (FDI)</strong></a> inflow into India.</li>
<li>Services sector accounts for 48% of total exports, outperforming goods exports in recent years.</li>
<li>Key indicators such as <a href="/daily-updates/daily-news-analysis/fall-in-service-purchasing-managers-index" target="_blank" rel="noopener"><strong>Services Purchasing Managers&rsquo; Index</strong></a>, rail freight traffic, and port traffic, are all displaying a V-shaped recovery after a sharp decline during the lockdown.</li>
</ul>
</li>
<li><strong>Start Up:</strong> The Indian <strong><a href="/daily-updates/daily-news-editorials/startups-in-india-1" target="_blank" rel="noopener">start-up ecosystem</a> has been progressing</strong> well amidst the Covid-19 pandemic, being home to 38 unicorns - adding a record number of 12 start-ups to the unicorn list last year.</li>
<li><strong>Space Sector:</strong> India&rsquo;s <a href="/daily-updates/daily-news-analysis/private-sector-participation-in-space" target="_blank" rel="noopener"><strong>space sector</strong></a> has grown exponentially in the past six decades. Space ecosystem is undergoing several policy reforms to engage private players and attract innovation and investment.</li>
</ul>
</li>
<li><strong>Agriculture:</strong><br />
<ul style="list-style-type: circle;">
<li><strong>Growth:</strong><br />
<ul style="list-style-type: disc;">
<li>The Agriculture and Allied activities clocked a growth of <strong>3.4%.</strong></li>
<li>As per the Provisional Estimates of <a href="/daily-updates/daily-news-analysis/wages-for-housework" target="_blank" rel="noopener"><strong>National Income</strong></a> released by<strong> Central Statistical Organization</strong> in May, 2020, the share of Agriculture and Allied Sectors in <a href="/daily-updates/daily-news-analysis/back-series-gdp-data#:~:text=Gross%20Value%20Added%20(GVA)%20is,of%20those%20goods%20and%20services." target="_blank" rel="noopener"><strong>Gross Value Added (GVA)</strong></a> of the country at current prices is <strong>17.8% for the year 2019-20.</strong></li>
</ul>
</li>
<li><strong>Export:</strong><br />
<ul style="list-style-type: disc;">
<li>In 2019-20, the major agricultural and allied export destinations were the <strong>USA, Saudi Arabia, Iran, Nepal and Bangladesh.</strong></li>
<li>The top agriculture and related products exported from India were <strong>marine products, basmati rice, buffalo meat, spices, non-basmati rice, cotton raw, oil meals, sugar, castor oil and tea.</strong></li>
</ul>
</li>
<li><strong>Livestock:</strong><br />
<ul style="list-style-type: disc;">
<li>The contribution of <a href="/daily-updates/daily-news-analysis/20th-livestock-census" target="_blank" rel="noopener"><strong>Livestock</strong></a> in total agriculture and allied sector GVA (at Constant Prices) has increased from 24.32% (2014-15) to 28.63% (2018-19).</li>
</ul>
</li>
<li><strong>Food Processing Industries (FPI):</strong><br />
<ul style="list-style-type: disc;">
<li>During the last 5 years ending 2018-19,<a href="/to-the-points/paper3/food-processing-in-india" target="_blank" rel="noopener"><strong> FPI</strong></a> sector has been growing at an Average Annual Growth Rate (AAGR) of around 9.99% as compared to around 3.12% in Agriculture and 8.25% in Manufacturing at 2011-12 prices.</li>
</ul>
</li>
<li><strong>Farm Laws:</strong><br />
<ul style="list-style-type: disc;">
<li>It <strong>strongly defended new <a href="/to-the-points/paper3/agricultural-reforms" target="_blank" rel="noopener">farm laws</a></strong>, saying they herald a new era of market freedom which can go a long way in improving lives of small and marginal farmers in India.</li>
<li>These legislations were <strong>designed "primarily" for the benefit of "small and marginal farmers", which constitute around 85%</strong> of the total number of farmers and are the biggest sufferer of the "regressive" <a href="/daily-updates/daily-news-editorials/agriculture-produce-to-agriculture-marketing" target="_blank" rel="noopener"><strong>Agricultural Produce Market Committee (APMC)</strong></a> -regulated market regime.</li>
</ul>
</li>
</ul>
</li>
<li><strong>Regulatory Forbearance:</strong><br />
<ul style="list-style-type: circle;">
<li>Regulatory forbearance for banks after the Global Financial Crisis involved <strong>relaxing the norms for restructuring assets, where restructured assets were no longer required to be classified as <a href="/daily-updates/daily-news-editorials/lessons-from-npa-crisis" target="_blank" rel="noopener">Non-Performing Assets</a> (NPAs henceforth)</strong> and therefore did not require the levels of provisioning that NPAs attract.</li>
<li>However, the survey points out that regulatory forbearance is an emergency medicine, not staple diet and suggests :<br />
<ul style="list-style-type: disc;">
<li>Instead of continuing regulatory forbearance for years, <strong>policymakers should lay out thresholds of economic recovery</strong> at which such measures will be withdrawn.</li>
<li>An <strong>Asset Quality Review exercise</strong> must be conducted by banks immediately after the forbearance is withdrawn.</li>
<li><strong>Legal infrastructure for the recovery of loans</strong> needs to be strengthened de facto.<a href="http://www.drishtiias.com/images/uploads/1612167520_image2.png" target="_blank" rel="noopener"><img class="content-img" src="http://www.drishtiias.com/images/uploads/1612167520_image2.png" style="float: right;" width="350" caption="false" /></a></li>
<li>To<strong> promote judgement amidst uncertainty,</strong> ex-post inquests must recognize the role of hindsight bias and not equate unfavourable outcomes to bad judgement or malafide intent.</li>
</ul>
</li>
</ul>
</li>
<li><strong>India and Innovation:</strong><br />
<ul style="list-style-type: circle;">
<li>India <strong>entered the top-50 innovating countries for the first time in 2020</strong> since the inception of the <a href="/daily-updates/daily-news-analysis/global-innovation-index-2020" target="_blank" rel="noopener"><strong>Global Innovation Index</strong></a> in 2007, ranking first in Central and South Asia, and third amongst lower middle-income group economies</li>
<li>India&rsquo;s <strong>Gross Domestic Expenditure on Research and Development (GERD) </strong>is<strong> lowest amongst top ten economies.</strong></li>
<li>India&rsquo;s aspiration must be to compete on innovation with the top ten economies.</li>
</ul>
</li>
<li><strong>Process Reforms:</strong><br />
<ul style="list-style-type: circle;">
<li>The survey highlighted <strong>excessive regulation in the country.</strong></li>
<li>India<strong> over-regulates the economy</strong> resulting in regulations being ineffective even with relatively good compliance with process.</li>
<li>The root cause of the problem of <strong>overregulation is an approach that attempts to account for every possible outcome.</strong> Increase in complexity of regulations, intended to reduce discretion, results in even more non-transparent discretion.<a href="http://www.drishtiias.com/images/uploads/1612167541_image1.jpg" target="_blank" rel="noopener"><img class="content-img" src="http://www.drishtiias.com/images/uploads/1612167541_image1.jpg" style="float: right;" width="350" caption="false" /></a></li>
<li>The solution is to<strong> simplify regulations</strong> and invest in greater supervision which, by definition, implies greater discretion.</li>
</ul>
</li>
<li><strong>India and Sovereign Credit Ratings:</strong> <br />
<ul style="list-style-type: circle;">
<li>India's <strong><a href="/daily-updates/daily-news-analysis/india-s-rating-downgraded#:~:text=A%20sovereign%20credit%20rating%20is,country%2C%20including%20any%20political%20risk." target="_blank" rel="noopener">sovereign credit ratings</a> do not reflect the economy's fundamentals</strong> and the <strong>global agencies should become more transparent and less subjective</strong> in their ratings.</li>
</ul>
</li>
<li><strong>Defence Sector:</strong><br />
<ul style="list-style-type: circle;">
<li>The <strong>allocated capital budget for defence has been fully utilised since 2016-17,</strong> reversing the previous trends of surrender of funds.</li>
</ul>
</li>
<li><strong>Healthcare:</strong><br />
<ul style="list-style-type: circle;">
<li><strong>Pradhan Mantri Jan Arogya Yojana (PM-JAY):<a href="http://www.drishtiias.com/images/uploads/1612167568_image4.jpg" target="_blank" rel="noopener"><img class="content-img" src="http://www.drishtiias.com/images/uploads/1612167568_image4.jpg" style="float: right;" width="350" caption="false" /></a></strong><br />
<ul style="list-style-type: circle;">
<li><a href="/daily-updates/daily-news-analysis/ayushman-bharat-pm-jay-sehat-jk" target="_blank" rel="noopener"><strong>PM-JAY</strong></a> contributed to improvement in many health outcomes in States that implemented the ambitious programme the Centre had launched more than two years ago to provide healthcare access to most vulnerable sections.</li>
</ul>
</li>
<li><strong>National Health Mission (NHM):</strong><br />
<ul style="list-style-type: disc;">
<li><a href="/daily-updates/daily-news-analysis/national-health-mission-and-janani-suraksha-yojana" target="_blank" rel="noopener"><strong>NHM</strong></a> played a critical role in mitigating inequity as the access of the poorest to pre-natal/post-natal care and institutional deliveries increased significantly.</li>
<li>The scheme should be given prominence under <a href="/daily-updates/daily-news-editorials/ayushmanbharat" target="_blank" rel="noopener"><strong>Ayushman Bharat</strong></a>.</li>
</ul>
</li>
<li><strong>Government Spending:</strong><br />
<ul style="list-style-type: disc;">
<li>An increase in government spending on the healthcare sector &ndash; from the current 1% to 2.5-3% of GDP &ndash; as envisaged in the<a href="/daily-updates/daily-news-editorials/public-health-system-in-india" target="_blank" rel="noopener"><strong> National Health Policy 2017</strong></a> could reduce out-of-pocket expenditures.</li>
</ul>
</li>
</ul>
</li>
<li><strong>Education:</strong><br />
<ul style="list-style-type: circle;">
<li><strong>Literacy:</strong><br />
<ul style="list-style-type: disc;">
<li>India has attained <strong>a literacy level of almost 96% at the elementary school level.</strong></li>
<li>As per <a href="/daily-updates/daily-news-analysis/restructuring-of-indian-statistical-system" target="_blank" rel="noopener"><strong>National Sample Survey (NSS)</strong></a>, the <strong>literacy rate of persons of age 7 years and above at the All India level stood at 77.7%</strong> but the<strong> differences in literacy rate attainment among social-religious groups, as well as gender</strong> still persists.</li>
<li>Female literacy remained below the national average among social groups of SC, ST, OBC, including religious groups of Hinduism and Islam.</li>
</ul>
</li>
<li><strong>Rural Enrolment:</strong><br />
<ul style="list-style-type: disc;">
<li>The<strong> percentage of enrolled children</strong> from government and private schools owning a smartphone increased enormously from <strong>36.5% in 2018 to 61.8% in 2020 in rural India.</strong></li>
</ul>
</li>
<li><strong>PM eVIDYA:</strong><br />
<ul style="list-style-type: disc;">
<li><a href="/current-affairs-news-analysis-editorials/news-analysis/18-05-2020#:~:text=Government%20will%20launch%20PM%20eVIDYA,one%20nation%2C%20one%20digital%20platform)" target="_blank" rel="noopener"><strong>PM eVIDYA</strong></a> is a comprehensive initiative to unify all efforts related to digital/online/on-air education to enable multi-mode and equitable access to education for students and teachers.</li>
<li>Around 92 courses have started and 1.5 crore students are enrolled under <a href="/daily-updates/daily-news-analysis/swayam-and-swayam-prabha" target="_blank" rel="noopener"><strong>Swayam Massive Open Online Courses (MOOCs)</strong></a> which are online courses relating to the <strong>National Institute of Open Schooling.</strong></li>
</ul>
</li>
<li><strong>PRAGYATA:</strong><br />
<ul style="list-style-type: disc;">
<li><a href="/daily-updates/daily-news-analysis/pragyata-guidelines-on-digital-education" target="_blank" rel="noopener"><strong>PRAGYATA</strong> </a>guidelines on digital education have been developed with a focus on online/blended/digital education for students who are presently at home due to closure of schools.</li>
</ul>
</li>
<li><strong>MANODARPAN:</strong><br />
<ul style="list-style-type: disc;">
<li>The <a href="/daily-updates/daily-news-analysis/manodarpan-mental-health-initiative" target="_blank" rel="noopener"><strong>MANODARPAN</strong></a> initiative for psychological support has been included in Atmanirbhar Bharat Abhiyan.</li>
</ul>
</li>
</ul>
</li>
<li><strong>Vocational Courses and Skill Development:</strong><br />
<ul style="list-style-type: circle;">
<li>Vocational courses will be introduced phase-wise in schools for classes 9 to 12 to expose students to skill development avenues, as part of the Centre's flagship skilling scheme <a href="/daily-updates/daily-news-analysis/pradhan-mantri-kaushal-vikas-yojana-3-0" target="_blank" rel="noopener"><strong>Pradhan Mantri Kaushal Vikas Yojana 3.0.</strong></a><br />
<ul style="list-style-type: disc;">
<li>Merely <strong>2.4% of India's workforce in the age group of 15-59 years have received formal vocational</strong> or technical training, while another 8.9% obtained training through informal sources.</li>
<li>Out of the 8.9% workforce who received non-formal training, the largest chunk is contributed by<strong> on-the-job training</strong> (3.3%), followed by <strong>self-learning (2.5%) and hereditary sources (2.1%)</strong> and other sources (1%).</li>
<li>Among those who received formal training, the <strong>most opted training course</strong> is IT-ITeS among both males and females.</li>
<li>The Unified Skill Regulator- <a href="/daily-updates/daily-news-analysis/establishment-of-national-council-for-vocational-education-and-training#:~:text=The%20Union%20Cabinet%20has%20approved,Education%20and%20Training%20(NCVET)." target="_blank" rel="noopener"><strong>National Council for Vocational Education and Training (NCVET)</strong></a> was operationalized recently.</li>
</ul>
</li>
</ul>
</li>
<li><strong>Bare Necessities:</strong><br />
<ul style="list-style-type: circle;">
<li><strong>Bare Necessities Index (BNI) : </strong><br />
<ul style="list-style-type: disc;">
<li><strong>Bare Necessities Index (BNI)</strong> based on the large annual household survey data can be constructed using suitable indicators and methodology at district level for all/targeted districts to assess the progress on access to bare necessities.<br />
<ul style="list-style-type: disc;">
<li>The BNI summarises 26 indicators on<strong> five dimensions</strong> viz., water, sanitation, housing, micro-environment, and other facilities.</li>
</ul>
</li>
</ul>
</li>
<li><strong>Improvement in Bare Necessities:</strong><br />
<ul style="list-style-type: disc;">
<li>Bare necessities have improved across all States in the country in 2018 as compared to 2012.</li>
<li>Increase in equity is noteworthy as the rich can access private options for public goods.</li>
</ul>
</li>
</ul>
</li>
<li><strong>Sustainable Development and Climate Change:</strong><br />
<ul style="list-style-type: circle;">
<li>India has taken several proactive steps to mainstream the<a href="/to-the-points/paper3/sustainable-development-3" target="_blank" rel="noopener"><strong> Sustainable Development Goals</strong></a> (SDGs) into the policies, schemes and programmes.
<ul style="list-style-type: disc;">
<li><strong>Voluntary National Review (VNR)</strong> presented to the <a href="/important-institutions/drishti-specials-important-institutions-international-institution/united-nations-1" target="_blank" rel="noopener"><strong>United Nations</strong></a> High-Level Political Forum (HLPF) on Sustainable Development.</li>
<li><strong>Localisation of SDGs</strong> is crucial to any strategy aimed at achieving the goals under the 2030 Agenda.</li>
<li><strong>Sustainable development remains core</strong> to the development strategy despite the unprecedented Covid-19 pandemic crisis.</li>
<li><strong>Eight National Missions under the <a href="/to-the-points/Paper2/national-action-plan-on-climate-change" target="_blank" rel="noopener">National Action Plan on Climate Change (NAPCC)</a></strong> focussed on the objectives of adaptation, mitigation and preparedness on climate risks.</li>
<li><strong><a href="/current-affairs-news-analysis-editorials/news-editorials/11-07-2019" target="_blank" rel="noopener">Nationally Determined Contributions</a> (NDC)</strong> states that finance is a critical enabler of climate change action.</li>
<li><strong>The<a href="/daily-updates/daily-news-analysis/world-solar-technology-summit-isa" target="_blank" rel="noopener"> International Solar Alliance (ISA)</a></strong> launched two new initiatives &ndash; <strong>&lsquo;World Solar Bank&rsquo;</strong> and<strong> &lsquo;One Sun One World One Grid Initiative&rsquo; &ndash;</strong> poised to bring about a solar energy revolution globally.</li>
</ul>
</li>
</ul>
</li>
<li><strong>Social Infrastructure, Employment and Human Development:</strong><br />
<ul style="list-style-type: circle;">
<li>The <strong>combined (Centre and States) social sector expenditure as % of GDP has increased in 2020-21</strong> compared to last year.</li>
<li>India&rsquo;s<strong> rank in <a href="/daily-updates/daily-news-analysis/human-development-index-undp" target="_blank" rel="noopener">Human development Index (HDI)</a> 2019 was recorded at 131,</strong> out of a total 189 countries.</li>
<li>Government&rsquo;s incentive to boost employment through <a href="/daily-updates/daily-news-analysis/measures-on-atmanirbhar-bharat-3-0" target="_blank" rel="noopener"><strong>Aatmanirbhar Bharat Rozgar Yojana</strong></a> and rationalization and<strong> simplification of existing labour codes into <a href="/daily-updates/daily-news-editorials/right-code-for-labour" target="_blank" rel="noopener">4 codes.</a></strong></li>
<li><strong>Low level of female Labour Force Participation Rate (LFPR) in India:</strong><br />
<ul style="list-style-type: disc;">
<li>Females spending disproportionately <strong>more time on unpaid domestic and caregiving services</strong> to household members as compared to their male counterparts (Time Use Survey, 2019).</li>
<li><strong>Need to promote non-discriminatory practices at the workplace</strong> like pay and career progression, improve work incentives, including other medical and social security benefits for female workers.</li>
</ul>
</li>
</ul>
</li>
<li><strong>Inequality and Growth:</strong><br />
<ul style="list-style-type: circle;">
<li>Both<strong> inequality and per-capita income (growth) have similar relationships with socio-economic indicators</strong> in India, unlike in advanced economies.</li>
<li><strong>Economic growth has a greater impact on poverty alleviation than inequality.</strong></li>
<li>India <strong>must continue to focus on economic growth</strong> to lift the poor out of poverty. <strong>Redistribution in a developing economy is feasible</strong> only if the size of the economic pie grows.</li>
</ul>
</li>
</ul>
<p><a href="https://pib.gov.in/PressReleasePage.aspx?PRID=1693231" target="_blank" rel="noopener"><strong>Source:PIB</strong></a></p>',
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		'article_id' => (int) 7447,
		'category_id' => (int) 21,
		'title' => 'Data on Retail Inflation and Factory Output',
		'description' => '<h3>Why in News</h3>
<p>Separate data on<strong> retail <a href="/daily-updates/daily-news-editorials/return-of-inflation" target="_blank" rel="noopener">inflation</a> and factory output</strong> have been recently released by the<strong> Ministry of Statistics &amp; Programme Implementation</strong> (MoSPI).</p>
<h3>Key Points</h3>
<ul style="list-style-type: square;">
<li><strong>Retail Inflation:</strong><br />
<ul style="list-style-type: circle;">
<li>Measured by the <a href="/daily-updates/daily-news-analysis/cpi-iw-base-year-revised-to-2016" target="_blank" rel="noopener"><strong>Consumer Price Index</strong></a> (CPI),<strong> eased to 4.59%</strong> in the month of December 2020.</li>
<li>The retail inflation for the <strong>month of November</strong> was 6.93%.</li>
<li>The December CPI data has come within the <a href="/important-institutions/drishti-specials-important-institutions-national-institutions/important-institutions-national-institution-reserve-bank-of-indiahttps://www.drishtiias.com/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&rsquo;s</strong></a> (RBI) upper margin of 6%. <br />
<ul style="list-style-type: disc;">
<li>The government has <strong>mandated the central bank</strong> to keep retail inflation within the<strong> range of 4% with a margin of 2% on either side as per its <a href="/current-affairs-news-analysis-editorials/news-editorials/29-06-2019#:~:text=Inflation%20targeting%20involves%20using%20monetary,close%20to%20the%20agreed%20target.&amp;text=As%20per%20terms%20of%20the,mind%20the%20objective%20of%20growth." target="_blank" rel="noopener">inflation targeting.</a></strong></li>
<li>CPI inflation has been above RBI&rsquo;s upper bound inflation target of 4 +/-2% for more than 11 months.</li>
</ul>
</li>
<li>RBI primarily factors in retail inflation while making its <strong>bi-monthly monetary policy.</strong><br />
<ul style="list-style-type: disc;">
<li>In its <a href="/daily-updates/daily-news-analysis/monetary-policy-rbi" target="_blank" rel="noopener"><strong>bi-monthly monetary policy</strong></a> meeting in<strong> December 2020,</strong> the Indian central bank had kept its key interest rates unchanged (repo and reverse repo rates) and decided to maintain an<strong> &lsquo;accommodative stance&rsquo;</strong> as long as necessary at least through the current financial year.</li>
</ul>
</li>
<li><strong>Causes of decline:</strong><br />
<ul style="list-style-type: disc;">
<li><strong>Decline in food prices:</strong> Inflation in the food basket eased to 3.41% in the month of December, down from 9.50% in November.</li>
</ul>
</li>
</ul>
</li>
<li><strong>Factory Output:</strong><br />
<ul style="list-style-type: circle;">
<li>India&rsquo;s factory output, which is measured in terms of<strong> Index of Industrial Production</strong> (IIP), witnessed a contraction of <strong>-1.9%</strong> during the <strong>month of November</strong> 2020.</li>
<li>The industrial growth so far in the fiscal year 2020-21 (April-November) has contracted <strong>-15.5%,</strong> compared to a <strong>0.3%</strong> rise in the corresponding period in 2019.</li>
<li><strong>Causes of Contraction:</strong><br />
<ul style="list-style-type: disc;">
<li><strong>Mining and Manufacturing sectors.</strong><br />
<ul style="list-style-type: disc;">
<li>The<strong> mining sector</strong> saw a decline of -7.3% in November, while the <strong>manufacturing sector</strong> witnessed a fall of -1.7%.</li>
<li>However, the <strong>electricity sector grew</strong> 3.5%.</li>
<li>In <strong>November 2019,</strong> the <strong>manufacturing sector</strong> had witnessed a <strong>growth of 3.0%.</strong> During the same period, the <strong>mining sector had risen 1.9%,</strong> while the <strong>electricity sector</strong> had witnessed a<strong> fall</strong> of<strong> -5.0%.</strong></li>
</ul>
</li>
</ul>
</li>
</ul>
</li>
</ul>
<div class="border-bg">
<p><strong>Consumer Price Index</strong></p>
<ul style="list-style-type: square;">
<li>It measures <strong>price changes from the perspective of a retail buyer.</strong> It is released by the <strong>National Statistical Office</strong> (NSO).</li>
<li>The CPI calculates the difference in the price of commodities and services such as food, medical care, education, electronics etc, which Indian consumers buy for use.</li>
<li>The CPI<strong> has several sub-groups</strong> including food and beverages, fuel and light, housing and clothing, bedding and footwear.</li>
<li>At present, India has <strong>five consumer price indexes</strong> (CPIs), <strong>three</strong> of which are <strong>working-class specific.</strong> These are:<br />
<ul style="list-style-type: circle;">
<li>CPI for Industrial Workers (IW).</li>
<li>CPI for Agricultural Labourer (AL).</li>
<li>CPI for Rural Labourer (RL).</li>
<li>These three indexes are compiled by the <strong>Labour Bureau</strong> in the <strong>Ministry of Labour and Employment.</strong></li>
<li><strong>CPIs AL and RL</strong> are <strong>used to fix minimum wages of agricultural labourers and rural unskilled employees.</strong></li>
<li>The <strong>CPI-IW</strong> is mainly used for<strong> determining dearness allowance</strong> (DA) paid to central/state government employees and workers in the industrial sectors besides measuring inflation in retail prices, fixation and revision of minimum wages in scheduled employments.<br />
<ul style="list-style-type: disc;">
<li>The Base Year for CPI-IW has <strong>recently</strong> been <strong>changed to 2016</strong> from <strong>previous 2001.</strong></li>
</ul>
</li>
<li>The Labour Bureau is also expected to bring out the new series of the CPI- AL/RL, which currently has the base year of <strong>1986-87</strong> by August 2021.</li>
</ul>
</li>
<li>The other two are <strong>CPI-Urban and CPI Rural.</strong> These two indexes are compiled by the <strong>National Statistical Office (NSO) in the Ministry of Statistics and Programme Implementation.</strong><br />
<ul style="list-style-type: circle;">
<li>The combined rise in retail prices is captured by CPI Combined.</li>
</ul>
</li>
</ul>
<p><strong>Index of Industrial Production</strong></p>
<ul style="list-style-type: square;">
<li>The Index of Industrial Production (IIP) is an index that <strong>shows the growth rates in different industry groups</strong> of the economy in a <strong>fixed period of time.</strong></li>
<li>It is compiled and published monthly by the <a href="/daily-updates/daily-news-analysis/restructuring-of-indian-statistical-system" target="_blank" rel="noopener"><strong>National Statistical Office</strong></a> (NSO), Ministry of Statistics and Programme Implementation.</li>
<li>IIP is a composite indicator that measures the <strong>growth rate of industry groups</strong> classified under:<br />
<ul style="list-style-type: circle;">
<li><strong>Broad Sectors:</strong><br />
<ul style="list-style-type: disc;">
<li>Mining, Manufacturing, and Electricity.</li>
</ul>
</li>
<li><strong>Use-based sectors:</strong><br />
<ul style="list-style-type: disc;">
<li>Basic Goods, Capital Goods, and Intermediate Goods.</li>
</ul>
</li>
</ul>
</li>
<li>The eight core sector industries represent about <strong>40%</strong> of the<strong> weight of items that are included in the IIP.</strong><br />
<ul style="list-style-type: circle;">
<li>The eight core industries in decreasing order of their weightage: Refinery Products (28.04 %)&gt; Electricity (19.85 %)&gt; Steel (17.92 %) &gt; Coal (10.33 %)&gt; Crude Oil (8.98 %)&gt; Natural Gas (6.88 %)&gt; Cement (5.37 %)&gt; Fertilizers (2.63 %).</li>
</ul>
</li>
<li><strong>Base Year</strong> for IIP calculation is <strong>2011-2012.</strong></li>
</ul>
</div>
<p><a href="https://indianexpress.com/article/business/economy/india-cpi-retail-inflation-december-2020-iip-factory-output-november-2020-data-7143378/" target="_blank" rel="noopener"><strong>Source:IE</strong></a></p>',
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		'article_id' => (int) 7141,
		'category_id' => (int) 21,
		'title' => 'Monetary Policy: RBI',
		'description' => '<h3>Why in News</h3>
<p>Recently, the <a href="/daily-updates/daily-news-analysis/repo-rate-unchanged-1" target="_blank" rel="noopener"><strong>Monetary Policy Committee</strong></a> (MPC) of 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 left the<a href="/daily-updates/daily-news-analysis/repo-rate-unchanged-1" target="_blank" rel="noopener"><strong> repo rate unchanged</strong></a> and <strong>maintained an <a href="/daily-updates/daily-news-analysis/rbi-monetary-policy-1" target="_blank" rel="noopener">accommodative policy stance</a></strong> as it prioritised support for the economy's recovery over inflation amid the <a href="/daily-updates/daily-news-analysis/covid-19-now-pandemic-who" target="_blank" rel="noopener"><strong>Covid-19 pandemic.</strong></a></p>
<ul style="list-style-type: square;">
<li>It has also announced various other <a href="/daily-updates/daily-news-analysis/liquidity-measures-extended-for-banks" target="_blank" rel="noopener"><strong>liquidity management measures</strong></a> and steps to <strong>improve<a href="/daily-updates/daily-news-analysis/fraud-oversight-wing" target="_blank" rel="noopener"> regulatory oversight</a></strong> of the financial system.</li>
<li>The MPC is a <strong>statutory and institutionalized framework</strong> under the <strong>RBI Act 1934,</strong> for maintaining price stability, while keeping in mind the objective of growth. It <strong>determines the policy interest rate</strong> (repo rate)<strong> required to achieve the inflation target</strong> (4%).</li>
</ul>
<h3>Key Points</h3>
<ul style="list-style-type: square;">
<li><strong>Repo Rate:</strong><br />
<ul style="list-style-type: circle;">
<li>The MPC has kept the RBI&rsquo;s key lending rate, the <strong>repo rate, steady at 4%</strong> and <strong>reverse repo rate </strong>at<strong> 3.35%.</strong><br />
<ul style="list-style-type: disc;">
<li>The <strong>repo rate,</strong> also known as the <strong>policy rate,</strong> is the interest rate at which the RBI provides loans to banks.</li>
<li>The <strong>reverse repo</strong> is the rate at which commercial banks park their money with the central bank.</li>
</ul>
</li>
<li>It has left key policy rates <strong>unchanged for the third time in a row</strong> in the wake of persistently high retail inflation, even as it pointed to the economy, which contracted in the last two quarters, showing signs of early recovery.</li>
<li>The central bank has <strong>slashed the repo rate by 115 basis points</strong> (bps) <strong>since late March</strong> to cushion the economy from the fallout of the Covid-19 and the resultant <a href="/daily-updates/daily-news-editorials/covid-19-and-lockdown" target="_blank" rel="noopener"><strong>lockdowns.</strong></a><br />
<ul style="list-style-type: disc;">
<li>Generally, <strong>a low repo rate translates into low cost loans</strong> for the general masses.</li>
</ul>
</li>
</ul>
</li>
<li><strong>GDP Projections:</strong><br />
<ul style="list-style-type: circle;">
<li>The real <strong><a href="/daily-updates/daily-news-analysis/gdp-decreases-to-11-year-low" target="_blank" rel="noopener">Gross Domestic Product</a></strong>&nbsp;(GDP) for FY 2020-21 has been projected at <strong>-7.5%.</strong><br />
<ul style="list-style-type: disc;">
<li><strong>Real GDP</strong> is an <strong>inflation-adjusted measure</strong> that reflects the value of all goods and services produced by an economy in a given year.</li>
</ul>
</li>
<li>However, with the country gradually opening up after the lockdown and the improvement in activity in the second quarter, GDP is expected to<strong> expand by 0.1% in the December quarter</strong> and<strong> 0.7% in the March quarter.</strong><br />
<ul style="list-style-type: disc;">
<li><a href="/daily-updates/daily-news-analysis/gdp-contracted-by-23-9-in-first-quarter" target="_blank" rel="noopener"><strong>GDP growth contracted by 23.9%</strong></a> in the Q1 of 2020 compared to the same period (April-June) in 2019.</li>
</ul>
</li>
</ul>
</li>
<li><strong>Inflation:</strong><br />
<ul style="list-style-type: circle;">
<li><a href="/daily-updates/daily-news-editorials/return-of-inflation#:~:text=Inflation%20refers%20to%20the%20rise,transport%2C%20consumer%20staples%2C%20etc.&amp;text=Inflation%20is%20indicative%20of%20the,unit%20of%20a%20country's%20currency." target="_blank" rel="noopener"><strong>Inflation</strong></a> still remains a concern for policymakers as the <a href="/daily-updates/daily-news-editorials/india-s-food-processing-industry-1" target="_blank" rel="noopener"><strong>supply-side bottlenecks</strong></a> <strong>had fuelled inflation and large margins were being charged</strong> to the consumer.</li>
<li><strong>Cost push pressure or cost push inflation</strong> continue to impinge on core inflation, which has not changed much and could firm up as economic activity normalises and demand picks up.<br />
<ul style="list-style-type: disc;">
<li><strong>Cost-push Inflation:</strong> Spurt in production prices of certain commodities also causes inflation as the price of the final product increases.</li>
<li><strong>Core Inflation:</strong> It <strong>excludes volatile goods</strong> from the basket of commodities tracking <strong>Headline Inflation.</strong> These volatile commodities mainly comprise<strong> food and beverages</strong> (including vegetables) and <strong>fuel and light (crude oil).</strong></li>
</ul>
</li>
<li>RBI <strong>projected retail inflation to average 6.8% in Q3,</strong> before moderating to 5.8% in Q4 and 5.2% to 4.6% in the first half of the fiscal year 2021-22, with risks broadly balanced.</li>
<li>This <strong>constrains monetary policy at the current juncture from using the space available to act in support of growth.</strong> At the same time, the signs of recovery are far from being broad-based and are dependent on sustained policy support.</li>
<li><a href="/daily-updates/daily-news-analysis/inflation-data-august-2020" target="_blank" rel="noopener"><strong>Consumer Price Inflation</strong></a> (CPI) at a<strong> six-year high of 7.6% in October,</strong> which is well above its medium target level of 4% within a band of plus/minus 2%.</li>
</ul>
</li>
<li><strong>Accommodative Stance:</strong><br />
<ul style="list-style-type: circle;">
<li>The MPC had decided to <strong>continue with the accommodative stance</strong> as long as necessary, at least during the current financial year and into the next financial year, to <strong>revive growth on a durable basis and mitigate the impact of Covid-19</strong> on the economy.</li>
</ul>
</li>
<li><strong>Risk-based Internal Audit Norms:</strong><br />
<ul style="list-style-type: circle;">
<li>RBI has announced the introduction of <strong>risk-based internal audit norms</strong> for large <a href="/daily-updates/daily-news-analysis/urban-co-operative-banks" target="_blank" rel="noopener"><strong>Urban Cooperative Banks</strong></a> (UCBs) and <a href="/daily-updates/daily-news-analysis/liquidity-boost-to-nbfcs" target="_blank" rel="noopener"><strong>Non-Banking Financial Companies</strong></a> (NBFCs), as part of measures aimed at <strong>improving governance and assurance functions</strong> at supervised entities.</li>
<li>The RBI also moved to harmonise the guidelines on the <strong>appointment of statutory auditors</strong> for commercial banks, UCBs and NBFCs in order <strong>to improve the quality of financial reporting.</strong></li>
<li>It had been decided <strong>to put in place transparent criteria for the declaration of dividends by different categories</strong> of NBFCs.</li>
<li>With a view to deepening financial markets,<a href="/daily-updates/daily-news-analysis/recapitalisation-of-rrbs" target="_blank" rel="noopener"><strong> regional rural banks</strong></a> would be allowed to access the <strong>Liquidity Adjustment Facility</strong> (LAF) and <strong>Marginal Standing Facility</strong> (MSF) of the RBI, as also the call/notice money market.<br />
<ul style="list-style-type: disc;">
<li><strong>LAF</strong> is a tool used in monetary policy by the RBI, that allows banks to borrow money through repurchase agreements (repos) or for banks to make loans to the RBI through reverse repo agreements.</li>
<li><strong>MSF</strong> is a window for scheduled banks to borrow overnight from the RBI in an emergency situation when interbank liquidity dries up completely. Under interbank lending, banks lend funds to one another for a specified term.</li>
</ul>
</li>
</ul>
</li>
<li><strong>Digital Payment Security Controls Directions:</strong><br />
<ul style="list-style-type: circle;">
<li>To significantly improve the ecosystem of digital payment channels with robust security and convenience for users, the RBI has <strong>proposed to issue <a href="/summary-of-important-reports/niti-aayog-digital-payments-trends-issues-and-opportunities" target="_blank" rel="noopener">Digital Payment</a> Security Controls directions for the regulated entities.</strong></li>
<li>These directions will <strong>contain requirements for robust governance, implementation and monitoring of certain minimum standards</strong> on common security controls for channels like Internet and mobile banking and card payments.</li>
</ul>
</li>
<li><strong>Targeted Long-Term Repo Operations:</strong><br />
<ul style="list-style-type: circle;">
<li>RBI has decided to<strong> bring the 26 stressed sectors identified by the<a href="/daily-updates/daily-news-analysis/k-v-kamath-committee-on-restructuring-of-loans" target="_blank" rel="noopener"> Kamath Committee</a> within the ambit of sectors eligible under on tap Targeted <a href="/daily-updates/daily-news-analysis/long-term-reverse-repo-operation#:~:text=Long%20Term%20Reverse%20Repo%20Operation%20(LTRO)%20is%20a%20mechanism%20to,of%20credit%20to%20the%20economy.&amp;text=Funds%20through%20LTRO%20are%20provided,rate%20of%20one%20day%20repo." target="_blank" rel="noopener">Long-Term Repo Operations</a></strong> (TLTRO), providing <strong>more liquidity</strong> to the slowdown-hit economy.<br />
<ul style="list-style-type: disc;">
<li>The RBI had announced the TLTRO on Tap scheme in <strong>October 2020,</strong> which will be available up to <strong>31<sup>st</sup> March 2021.</strong></li>
<li>Accordingly, it was decided to conduct on tap TLTRO with <strong>tenors of up to three years for a total amount of up to Rs. 1 lakh crore</strong> at a floating rate linked to the policy repo rate with flexibility to enhance the amount and period after a review of the response to the scheme.</li>
</ul>
</li>
<li>Under TLTRO, banks can<strong> invest in specific sectors through debt instruments</strong> like <strong>corporate bonds, commercial papers and non-convertible debentures</strong> (NCDs) to push the credit flow in the economy.</li>
<li>As part of the <a href="/daily-updates/daily-news-analysis/measures-on-atmanirbhar-bharat-3-0" target="_blank" rel="noopener"><strong>Aatmanirbhar Bharat Package 3.0</strong></a>, the Centre launched the <a href="/daily-updates/daily-news-analysis/emergency-credit-line-guarantee-scheme-1" target="_blank" rel="noopener"><strong>Emergency Credit Line Guarantee Scheme 2.0</strong></a> (ECLGS 2.0).<br />
<ul style="list-style-type: disc;">
<li>Under it, the corpus of Rs. 3 lakh crore of existing ECLGS 1.0 was extended to provide 100% guaranteed collateral-free additional credit to entities in 26 stressed sectors identified by the Kamath panel.</li>
</ul>
</li>
<li>According to the RBI,<strong> banks are encouraged to synergise the two schemes by availing funds from RBI under on tap TLTRO and seek guarantee under ECLGS 2.0</strong> to provide credit support to stressed sectors.</li>
</ul>
</li>
</ul>
<p><a href="https://www.thehindu.com/business/Economy/rbi-keeps-key-rates-unchanged/article33246372.ece#:~:text=The%20RBI%20also%20brightened%20its,it%20had%20forecast%20in%20October." target="_blank" rel="noopener"><strong>Source: TH</strong></a></p>',
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	(int) 16 => object(Cake\ORM\Entity) {

		'article_id' => (int) 7007,
		'category_id' => (int) 21,
		'title' => 'Inflation Data: October 2020',
		'description' => '<h3>Why in News</h3>
<p>Recently, the wholesale price inflation data for the month of october 2020 was released.</p>
<ul style="list-style-type: square;">
<li>The wholesale price-based inflation is measured by <a href="/daily-updates/daily-news-analysis/inflation-data-august-2020#:~:text=Wholesale%20Inflation%3A,and%20manufactured%20products%20turned%20costlier." target="_blank" rel="noopener"><strong>Wholesale Price Index (WPI)</strong></a>.</li>
</ul>
<h3>Key Points</h3>
<ul style="list-style-type: square;">
<li><strong>Wholesale Inflation:</strong><br />
<ul style="list-style-type: circle;">
<li><strong>Wholesale price inflation</strong> increased to the highest level in eight months, reaching <strong>1.48% in October 2020,</strong> compared with <strong>0% in October 2019</strong> and <strong>1.32% in September 2020</strong>.<br />
<ul style="list-style-type: disc;">
<li>It was driven by manufactured items as per the data released by the <strong>commerce and industry ministry</strong>.</li>
</ul>
</li>
<li>The <strong>manufactured product group inflation</strong> hit a 19-month high of <strong>2.1%</strong>, and <strong>core inflation</strong> accelerated to the highest level in 18 months at <strong>1.7%</strong>.</li>
<li>Core Inflation excludes volatile goods from the basket of commodities tracking Headline Inflation. These volatile commodities mainly comprise food and beverages (including vegetables) and fuel and light (crude oil).<br />
<ul style="list-style-type: disc;">
<li><strong>Core inflation</strong> = Headline inflation &ndash; (Food and Fuel) inflation</li>
</ul>
</li>
</ul>
</li>
<li><strong>Implication:</strong><br />
<ul style="list-style-type: circle;">
<li>Increase in core inflation suggests improvement in demand conditions, which have improved after the Covid-19 related lockdown was lifted.</li>
<li>As a large part of this is due to festival related demand, it will be too early to term this as a general recovery.</li>
</ul>
</li>
</ul>
<div class="border-bg">
<p><strong>Inflation</strong></p>
<ul style="list-style-type: square;">
<li>Inflation refers to the rise <strong>in the prices of most goods and services</strong> of daily or common use, such as food, clothing, housing, recreation, transport, consumer staples, etc.</li>
<li>Inflation measures the average price change in a basket of commodities and services over time.</li>
<li>Inflation is indicative of the <strong>decrease in the purchasing power</strong> of a unit of a country&rsquo;s currency. This could ultimately lead to a deceleration in economic growth.</li>
<li>However, a <strong>moderate level of inflation is required in the economy</strong> to ensure that production is promoted.</li>
<li>In India, inflation is primarily measured by two main indices &mdash; <strong>WPI (Wholesale Price Index) and CPI (Consumer Price Index)</strong> which measure wholesale and retail-level price changes, respectively.</li>
</ul>
<p><strong>Wholesale Price Index</strong></p>
<ul style="list-style-type: square;">
<li>It measures the changes in the prices of goods sold and traded in bulk by wholesale businesses to other businesses.</li>
<li>Published by the <strong>Office of Economic Adviser, Ministry of Commerce and Industry</strong>.</li>
<li>It is the most widely used inflation indicator in India.</li>
<li>Major <strong>criticism</strong> for this index is that the general public does not buy products at wholesale price.</li>
<li>The <strong>base year</strong> of All-India WPI has been revised from 2004-05 to 2011-12 in 2017.</li>
</ul>
</div>
<p><a href="https://www.thehindu.com/business/Economy/wpi-inflation-at-8-month-high-of-148-in-oct-on-costlier-manufactured-items/article33106555.ece#:~:text=India's%20wholesale%20price%20inflation%20quickened,1.32%25%20in%20September%20this%20year.&amp;text=Inflation%20in%20potato%20prices%20touched,registered%208.5%25%20inflation%20in%20October." target="_blank" rel="noopener"><strong>Source: TH</strong></a></p>',
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	(int) 17 => object(Cake\ORM\Entity) {

		'article_id' => (int) 6701,
		'category_id' => (int) 21,
		'title' => 'GDP Revival Forecast: RBI',
		'description' => '<h3>Why in News</h3>
<p>The<strong> Monetary Policy Committee</strong> of 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> has announced the <a href="/daily-updates/daily-news-analysis/rbi-s-covid-19-economic-relief-package" target="_blank" rel="noopener"><strong>extension of its accommodative policy stance</strong></a> for the rest of this year as well as 2021-22 and forecasted a GDP revival in coming months.</p>
<ul style="list-style-type: square;">
<li>RBI had previously introduced a number of measures in its <a href="/daily-updates/daily-news-analysis/monetary-policy-report-rbi" target="_blank" rel="noopener"><strong>Monetary Policy Report</strong> </a>for dealing with the Covid-19 induced economic setback.</li>
</ul>
<h3>Key Points</h3>
<ul style="list-style-type: square;">
<li><strong>Decisions:</strong> <br />
<ul style="list-style-type: circle;">
<li>RBI has kept <strong>key policy rates unchanged to revive growth</strong> of the economy and mitigate the economic impact of Covid-19 pandemic.<br />
<ul style="list-style-type: disc;">
<li>The<strong> Repo and reverse repo rate unchanged</strong> at 4% and 3.35% respectively because of <a href="/daily-updates/daily-news-analysis/inflation-data-august-2020" target="_blank" rel="noopener"><strong>high inflation.</strong></a></li>
</ul>
</li>
<li><strong>Risk weights,</strong> i,e, the capital required to be set aside on individual home loans, have been relaxed and the <strong>loan limit</strong> for retail and small business borrowers have been raised.<br />
<ul style="list-style-type: disc;">
<li>This would give a boost to the <strong>job-intensive real estate sector</strong> that has been suffering in the pandemic.</li>
</ul>
</li>
<li><strong>Real-Time Gross Settlement (RTGS)</strong> will be available round the clock.</li>
<li><strong>Targeted <a href="/daily-updates/daily-news-analysis/open-market-operations" target="_blank" rel="noopener">Long Term Repo Operations</a> (TLTRO)</strong> of Rs 1,00,000 crore for the revival of specific sectors, and <a href="/daily-updates/daily-news-analysis/special-open-market-operations-by-rbi" target="_blank" rel="noopener"><strong>Open Market Operations</strong></a> <strong>(OMOs)</strong> for <strong>State Development Loans (SDLs)</strong> have been announced.<br />
<ul style="list-style-type: disc;">
<li>This will assure market participants of <strong>access to liquidity and easy finance conditions.</strong></li>
<li>Long Term Reverse Repo Operation (LTRO) is a mechanism to<strong> facilitate the transmission of monetary policy</strong> actions and the flow of credit to the economy. This helps in<strong> injecting liquidity in the banking system.</strong></li>
<li>Open Market Operations (OMO) is one of the <strong>quantitative</strong> monetary policy tools which is <strong>employed by the central bank of a country to control the money supply in the economy.</strong></li>
<li>OMOs are conducted by the RBI by way of <strong>sale or purchase of government securities (g-secs)</strong> to adjust money supply conditions.</li>
<li>The central bank sells g-secs to commercial banks to remove liquidity from the system and buys back g-secs to infuse liquidity into the system.</li>
</ul>
</li>
</ul>
</li>
</ul>
<p style="text-align: center;"><a href="http://www.drishtiias.com/images/uploads/1602327462_image3.png" target="_blank" rel="noopener"><img class="content-img" src="http://www.drishtiias.com/images/uploads/1602327462_image3.png" width="776" caption="false" height="262" /></a></p>
<ul style="list-style-type: square;">
<li><strong>Forecasts:</strong> <br />
<ul style="list-style-type: circle;">
<li><strong>GDP Revival</strong><br />
<ul style="list-style-type: disc;">
<li><a href="/daily-updates/daily-news-analysis/gdp-decreases-to-11-year-low" target="_blank" rel="noopener"><strong>Real gross domestic product (GDP)</strong></a> in FY21 will fall by 9.5%.</li>
<li>GDP growth may break out of contraction and <strong>enter a positive zone by Q4</strong> of the current fiscal year (2020-21)</li>
<li>Starting from a modest recovery the economic activity is expected to gain traction in Q3.</li>
<li>The real GDP growth in 2020-21 is expected to be negative at -9.8% in Q2 of 2020-21,-5.6% in Q3 and 0.5% in Q4.</li>
<li>Real GDP is likely to grow by 20.6% in the Q1 of 2021-22.</li>
</ul>
</li>
<li><strong>Decline in Inflation:</strong><br />
<ul style="list-style-type: disc;">
<li>Inflation is expected to decline in the next 3 months and is likely to ease to the projected target of around 4% (within a band of +/- 2%) by Q4 of FY&rsquo;21.</li>
<li>Supply chain disruptions is the major factor driving up inflation. As supply chains are restored, the inflation would come down.</li>
<li>The <a href="/daily-updates/daily-news-analysis/inflation-data-august-2020" target="_blank" rel="noopener"><strong>retail inflation growth was 6.69%</strong></a>, as of<strong> August 2020.</strong></li>
</ul>
</li>
<li><strong>Restart of Economy</strong><br />
<ul style="list-style-type: disc;">
<li>The economy is likely to witness a three-speed recovery i.e. individual sectors showing varying paces with <strong>fastest, modest and slowest</strong> recovery rates.</li>
<li>Apart from agriculture, sectors such as fast-moving consumer goods, automobiles, pharma and power would revive first.</li>
</ul>
</li>
</ul>
</li>
</ul>
<div class="border-bg">
<p><strong>Monetary Policy Committee</strong></p>
<ul style="list-style-type: square;">
<li>The Monetary Policy Committee is a<strong> statutory</strong> and institutionalized framework under the <strong>Reserve Bank of India Act, 1934,</strong> for maintaining price stability, while keeping in mind the objective of growth.</li>
<li>The <strong>Governor of RBI</strong> is <strong>ex-officio Chairman</strong> of the committee.</li>
<li>The committee comprises<strong> six members (including the Chairman)</strong> - three officials of the RBI and three external members nominated by the Government of India.</li>
<li>Decisions are taken by majority with the Governor having the <strong>casting vote in case of a tie.</strong></li>
<li>The MPC determines the policy interest rate (repo rate) required to achieve the inflation target (4%).</li>
<li>An RBI-appointed committee led by the then deputy governor Urjit Patel in 2014 recommended the establishment of the Monetary Policy Committee.</li>
</ul>
<p><strong>Repo Rate and Reverse Report Rate</strong></p>
<ul style="list-style-type: square;">
<li>It is the <strong>rate at which the central bank of a country (Reserve Bank of India in case of India) lends money to commercial banks</strong> in the event of any shortfall of funds.</li>
<li>It is used by monetary authorities to<strong> control inflation.</strong><br />
<ul style="list-style-type: circle;">
<li>In the event of inflation, central banks increase the repo rate as this acts as a disincentive for banks to borrow from the central bank. This ultimately reduces the money supply in the economy and thus helps in arresting inflation.</li>
<li>The central bank takes the contrary position in the event of a fall in inflationary pressures.</li>
</ul>
</li>
<li>Ideally, a low repo rate <strong>should translate into low-cost loans for the general masses.</strong> When the RBI slashes its repo rate, it expects the banks to lower their interest rates charged on loans.</li>
<li><strong>Reverse repo rate</strong> is the rate at which the RBI borrows money from commercial banks within the country.</li>
</ul>
</div>
<p><a href="https://www.thehindu.com/business/Economy/rbi-keeps-lending-rates-unchanged/article32810230.ece" target="_blank" rel="noopener"><strong>Source: TH</strong></a></p>',
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		'article_id' => (int) 6483,
		'category_id' => (int) 21,
		'title' => 'Inflation Data: August 2020',
		'description' => '<h3>Why in News</h3>
<p>Recently, the <strong><a href="/daily-updates/daily-news-analysis/inflation-in-india" target="_blank" rel="noopener">inflation</a> data</strong> for the month of August 2020 was released. The inflation data includes <a href="/daily-updates/daily-news-analysis/retail-inflation-growth-at-6-09" target="_blank" rel="noopener"><strong>retail inflation</strong></a> and <strong>wholesale inflation</strong> data.</p>
<ul style="list-style-type: square;">
<li>The retail inflation is measured by the <strong>Consumer Price Index (CPI).</strong></li>
<li>The wholesale price-based inflation is measured by <strong>Wholesale Price Index (WPI).</strong></li>
</ul>
<h3>Key Points</h3>
<ul style="list-style-type: square;">
<li><strong>Retail Inflation:</strong><br />
<ul style="list-style-type: circle;">
<li>The retail inflation growth dipped to 6.69% in the month of August. It was at 6.73% in July 2020.</li>
<li>However, the retail inflation continued to grow beyond 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&rsquo;s (RBI)</strong></a> upper margin of 6%.<br />
<ul style="list-style-type: disc;">
<li>The Central government has mandated the RBI to keep inflation within the <strong>range</strong> of <strong>4&plusmn;2%.</strong></li>
<li>This inflation range (4% within a band of +/- 2%) was <strong>recommended by the committee headed by Urjit Patel</strong> in 2014.</li>
</ul>
</li>
<li>The growth in retail inflation was<strong> primarily due</strong> to a rise in meat and fish prices that saw a 16.50% on-year rise in August.</li>
<li>The <strong>Consumer Food Price Index (CFPI)</strong> or the inflation in the food basket eased to 9.05% in the month of August. It was at 9.27% in July 2020.</li>
</ul>
</li>
<li><strong>Wholesale Inflation:</strong><br />
<ul style="list-style-type: circle;">
<li>The wholesale price-based inflation <strong>rose to 0.16%</strong> in August as food items and manufactured products turned costlier.<br />
<ul style="list-style-type: disc;">
<li>The <strong>WPI inflation was in the negative territory for four straight months &mdash;</strong> April (-) 1.57%, May (-) 3.37%, June (-) 1.81% and July (-) 0.58%.</li>
</ul>
</li>
<li>Inflation in food articles during August stood at 3.84%. However, <strong>fuel and power inflation fell 9.68%</strong> in August.</li>
</ul>
</li>
<li><strong>Implication:</strong> The <strong>difference between WPI (food) and CPI (food)</strong> shows the <strong>supply side issues</strong> due to several lockdowns at regional level.</li>
</ul>
<div class="border-bg">
<p><strong>Inflation</strong></p>
<ul style="list-style-type: square;">
<li>Inflation refers to the rise <strong>in the prices of most goods and services</strong> of daily or common use, such as food, clothing, housing, recreation, transport, consumer staples, etc.</li>
<li>Inflation measures the average price change in a basket of commodities and services over time.</li>
<li>Inflation is indicative of the <strong>decrease in the purchasing power</strong> of a unit of a country&rsquo;s currency. This could ultimately lead to a deceleration in economic growth.</li>
<li>However, a <strong>moderate level of inflation is required in the economy</strong> to ensure that production is promoted.</li>
<li>In India, inflation is primarily measured by two main indices &mdash; <strong>WPI (Wholesale Price Index) and CPI (Consumer Price Index)</strong> which measure wholesale and retail-level price changes, respectively.</li>
</ul>
</div>
<h3>Consumer Price Index</h3>
<ul style="list-style-type: square;">
<li>It measures price changes from the <strong>perspective of a retail buyer.</strong> It is released by the <strong>National Statistical Office (NSO).</strong></li>
<li>The CPI calculates the difference in the price of commodities and services such as food, medical care, education, electronics etc, which Indian consumers buy for use.</li>
<li>The CPI has several sub-groups including food and beverages, fuel and light, housing and clothing, bedding and footwear.</li>
<li>Four types of CPI are as follows:<br />
<ul style="list-style-type: circle;">
<li><strong>CPI for Industrial Workers (IW).</strong></li>
<li><strong>CPI for Agricultural Labourer (AL).</strong></li>
<li><strong>CPI for Rural Labourer (RL).</strong></li>
<li><strong>CPI (Rural/Urban/Combined).</strong></li>
<li>Of these, the first three are compiled by the Labour Bureau in the<strong> Ministry of Labour and Employment.</strong> Fourth is compiled by the National Statistical Office (NSO) in the Ministry of Statistics and Programme Implementation.</li>
</ul>
</li>
<li><strong>Base Year</strong> for CPI is <strong>2012.</strong></li>
<li>The <a href="/daily-updates/daily-news-analysis/repo-rate-unchanged-1" target="_blank" rel="noopener"><strong>Monetary Policy Committee (MPC)</strong></a> uses CPI data to control inflation.</li>
</ul>
<h3>Wholesale Price Index</h3>
<ul style="list-style-type: square;">
<li>It measures the changes in the prices of goods sold and traded in bulk by wholesale businesses to other businesses.</li>
<li>Published by the <strong>Office of Economic Adviser, Ministry of Commerce and Industry.</strong></li>
<li>It is the most widely used inflation indicator in India.</li>
<li>Major<strong> criticism</strong> for this index is that the general public does not buy products at wholesale price.</li>
<li>The <strong>base year</strong> of All-India WPI has been revised from 2004-05 to 2011-12 in 2017.</li>
</ul>
<h3>CPI vs. WPI</h3>
<ul style="list-style-type: square;">
<li>WPI, tracks inflation at the producer level and CPI captures changes in prices levels at the consumer level.</li>
<li>WPI does not capture changes in the prices of services, which CPI does.</li>
<li>In April 2014, the RBI had adopted the CPI as its key measure of inflation.</li>
</ul>
<p><a href="https://indianexpress.com/article/business/economy/india-august-2020-cpi-consumer-price-index-retail-inflation-6595777/" target="_blank" rel="noopener"><strong>Source: IE</strong></a></p>',
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		'article_id' => (int) 6460,
		'category_id' => (int) 21,
		'title' => 'Financing the Fiscal Deficit',
		'description' => '<h3>Why in News</h3>
<p>India, being one the hardest hit major economy due to <a href="/daily-updates/daily-news-editorials/covid-19-and-india-1" target="_blank" rel="noopener"><strong>Covid-19</strong></a>, faces the challenge of managing its fiscal deficit.</p>
<ul style="list-style-type: square;">
<li><strong>Borrowing more and monetizing the deficit</strong> are the options being considered by the government and <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> to finance the fiscal deficit.</li>
</ul>
<h3>Key Points</h3>
<ul style="list-style-type: square;">
<li><strong>State of Indian Economy:</strong><br />
<ul style="list-style-type: circle;">
<li>As per the official data, the<a href="/daily-updates/daily-news-analysis/increased-fiscal-deficit" target="_blank" rel="noopener"><strong> Centre&rsquo;s fiscal deficit</strong> </a>for the first three months of fiscal 2020-21 (April-June) was Rs. 6.62 lakh crore, which is 83% of the budgeted target for the whole year.<br />
<ul style="list-style-type: disc;">
<li>As per the economists, the fiscal deficit may end up as high as 8% of the Gross Domestic Product (GDP), far exceeding the budget&rsquo;s goal of 3.5%.</li>
</ul>
</li>
<li>The <a href="/daily-updates/daily-news-analysis/gdp-contracted-by-23-9-in-first-quarter" target="_blank" rel="noopener"><strong>GDP contracted by 23.9% in the first</strong></a> (April-June) quarter of 2020 compared to the same period (April-June) in 2019.</li>
<li>The <a href="/daily-updates/daily-news-analysis/contraction-in-manufacturing-pmi" target="_blank" rel="noopener"><strong>manufacturing sector is also contracting,</strong></a> as per the recent IHS Markit India Manufacturing <a href="/daily-updates/daily-news-analysis/purchasing-manager-s-index" target="_blank" rel="noopener"><strong>Purchasing Managers&rsquo; Index (PMI).</strong></a></li>
<li>The <a href="/daily-updates/daily-news-analysis/contraction-in-core-sector-industries" target="_blank" rel="noopener"><strong>output of eight core industries</strong> </a>contracted for the <strong>fourth consecutive month - shrinking by 15%</strong> in June 2020.</li>
<li>The <a href="/daily-updates/daily-news-analysis/financial-stability-report-rbi-2" target="_blank" rel="noopener"><strong>Financial Stability Report</strong></a> from RBI also shows an increase in bad loans and Non-Performing Assets (NPA).</li>
</ul>
</li>
</ul>
<h3>Methods of Bridging the Fiscal Deficit</h3>
<ul style="list-style-type: square;">
<li><strong>Borrowing from the market:</strong><br />
<ul style="list-style-type: circle;">
<li>The government has already raised its gross market borrowing target for the current financial year by<strong> more than 50%,</strong> owing to the pandemic.</li>
<li><strong>Disadvantage: </strong>
<ul style="list-style-type: disc;">
<li><strong>High Debt:</strong> An increased <strong>borrowing</strong> programme means that the public <strong>debt</strong> will go up.</li>
<li><strong>Higher Interest Rates:</strong> Higher borrowing can <strong>push up interest rates</strong> because markets are nervous about the government's ability to repay.</li>
<li><strong>Increase in Taxes:</strong> It may also necessitate an increase in taxes. This may burden the common people and also lead to less spending and saving by the public, leading to a stalled market.</li>
<li><strong>Crowding out:</strong> When the government borrows from the private sector by selling bonds, the private sector is left with less money to spend and invest. Therefore, although government spending increases, private sector spending falls.</li>
</ul>
</li>
</ul>
</li>
<li><strong>Monetisation of the Deficit:</strong><br />
<ul style="list-style-type: circle;">
<li>Monetising deficit means RBI purchases government bonds in the primary market and <strong>prints more money to finance the debt.</strong></li>
<li>This is resorted to only when the government <strong>cannot borrow from the market</strong> (Banks and other Financial Institutions like LIC).</li>
<li>The money printed by the RBI is called <strong>high powered money or reserve money or monetary base.</strong></li>
<li>RBI also conducts <strong>indirect monetization of deficit</strong> through <a href="/daily-updates/daily-news-analysis/operation-twist" target="_blank" rel="noopener"><strong>Open Market Operations (OMOs).</strong></a><br />
<ul style="list-style-type: disc;">
<li>OMOs are market operations conducted by RBI by way of <strong>sale/purchase of government securities to/from the market</strong> with an objective to <strong>adjust the rupee liquidity conditions</strong> in the market on a durable basis.</li>
<li>Recently, RBI <a href="/daily-updates/daily-news-analysis/open-market-operations" target="_blank" rel="noopener"><strong>decided to infuse Rs. 10,000 crore liquidity in the banking system</strong></a> by buying government securities through OMOs.</li>
<li>Purchase of Government securities by the RBI helps in increasing the supply of the money in the market and with banks. It helps to stabilize the market economy and generates credibility in the investors.</li>
<li>It is different from monetization as it is controlled by RBI instead of the government as it is not as inflationary as deficit monetization.</li>
</ul>
</li>
<li><strong>Advantages:</strong> <br />
<ul style="list-style-type: disc;">
<li>It has <strong>helped in the economic development</strong> of India as our domestic savings were less than 9% of GDP and the capacity to raise loans was also limited during the early 1950s, constraining the welfare activities of the government.</li>
</ul>
</li>
<li><strong>Disadvantages:</strong> <br />
<ul style="list-style-type: disc;">
<li>Deficit financing is <strong>inflationary</strong> and is bad for the health of the central bank.</li>
<li>It may<strong> push up interest rates</strong> and thus make it even more difficult for the government to service the loan.</li>
<li>It also poses threat to the<strong> financial stability</strong> of the economy.</li>
</ul>
</li>
</ul>
</li>
</ul>
<div class="border-bg">
<p><strong>FRBM and Monetizing Deficits</strong></p>
<ul style="list-style-type: square;">
<li>Monetisation of deficit was in practice in India till 1997, whereby the central bank automatically monetised government deficit through the issuance of ad-hoc<strong> treasury bills.</strong></li>
<li><strong>Two agreements were signed between the government and RBI in 1994 and 1997</strong> to completely phase out funding through ad-hoc treasury bills.</li>
<li>With the enactment of <strong><a href="/to-the-points/paper3/government-budgeting" target="_blank" rel="noopener">Fiscal Responsibility and Budget Management</a> (FRBM) Act, 2003,</strong> it was totally barred.</li>
<li>However, the FRBM Act Amendment, 2018 contains an escape clause which permits monetisation of the deficit under special circumstances. <br />
<ul style="list-style-type: circle;">
<li><strong>Escape clause</strong> generally refers to a contract provision that specifies the conditions under which a party can be freed from an obligation.</li>
<li>Escape clauses provide <strong>flexibility to governments to overshoot fiscal deficit targets</strong> in times of need, enabling them to respond to economic shocks.</li>
<li>The escape clause under the FRBM Act details a set of events in which the Central government can deviate from fiscal deficit targets. These include:<br />
<ul style="list-style-type: disc;">
<li>Overriding considerations of national security, acts of war, and calamities of national proportion and collapse of agriculture severely affecting farm output and incomes.</li>
<li>Far-reaching structural reforms in the economy with unanticipated fiscal implications.</li>
<li>A sharp decline in real output growth of at least 3% points below the average for the previous four quarters.</li>
</ul>
</li>
</ul>
</li>
</ul>
</div>
<h3>Way Forward</h3>
<ul style="list-style-type: square;">
<li>Since the RBI has already taken up Open Market Operations and adopted a <a href="/daily-updates/daily-news-analysis/monetary-policy-report-rbi" target="_blank" rel="noopener"><strong>monetary policy framework</strong></a> to insert liquidity into the market, monetizing the deficit will only cost the government the credibility of the market and put inflationary pressure.</li>
<li>Given the inflation-prone nature of Indian economy, monetization of deficit should only be considered as a last resort. Even if it is adopted, the primary challenge will be to communicate and ensure that this is a one-off pandemic-induced arrangement and not a recurrent financing line.</li>
</ul>
<p><a href="https://www.thehindu.com/business/Economy/pandemic-may-force-govt-to-borrow-more/article32575961.ece" target="_blank" rel="noopener"><strong>Source: TH</strong></a></p>',
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