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Economy News
RBI Amends India’s Inflation-forecasting Model
- The Reserve Bank of India (RBI) has revised its inflation-forecasting model to better capture how fiscal and monetary policy, interact with real-economy elements.
- The adjustments incorporate fiscal-monetary dynamics, India’s unique and often chaotic fuel pricing regime, and exchange-rate fluctuations and their impact on balance of payments.
The new model is broken into three blocks:
- Fiscal Block: The first, or fiscal block, decomposes the government’s primary deficit into structural and cyclical components. A shock to the former impacts inflation through aggregate demand and country risk premia; for instance, a structural increase in the deficit would create a positive output gap and the higher debt makes borrowings costlier and depreciates the currency, leading to higher inflation. A cyclical shock is negligible.
- Fuel Block: The second, or fuel block, takes into account India’s complex system of pricing. Items like petrol and diesel are priced on the basis of international oil prices, exchange rates, and local taxes, while liquefied petroleum gas and kerosene prices are market-determined but with lagged pass-through. Electricity costs are administered by state governments. Headline inflation goes up by 25 basis points in response to a fuel tax increase of 10 rupees per liter and inflation expectations edge higher and remains entrenched if tax reversals do not happen.
- Balance of Payments Block: The balance of payments block recognizes the costs associated with spurts in volatility in the exchange rate. In case of a capital outflow shock of 1% of GDP, and assuming the RBI intervenes and sterilizes 70% of this outflow, reserves will deplete by 0.7% of GDP and the exchange rate will depreciate, inducing inflationary pressure.
DFI Will Be Set Up For Long-term Infra Funds
- The Union Cabinet has approved a bill to set up Development Finance Institution (DFI) with an initial capital infusion of 20 thousand crore rupees.
- The bill will be tabled in Parliament during the current Budget Session.
First Export Consignments Of ‘Red Rice’ From Assam To The USA
- In a major boost to India’s rice exports potential, the first consignment of ‘red rice’ was flagged off on 4th March 2021 to the USA.
- Iron rich ‘red rice’ is grown in Brahmaputra valley of Assam, without the use of any chemical fertilizer.
- The rice variety is referred as ‘Bao-dhaan’, which is an integral part of the Assamese food.
- APEDA is promoting rice exports through collaborations with various stakeholders in the value chains. The government had set up the Rice Export Promotion Forum (REPF), under the aegis of the APEDA.
Fishery Sector In Budget 2021-22
- Finance Minister has allocated an amount of Rs. 1220.84 crores for the Department of Fisheries, which is the highest ever annual budgetary support for the Department. This marks a 34% increase over the budget of FY 2020-21. Further, this includes an allocation of Rs. 1000 crores for the flagship scheme of the Department, Pradhan Mantri Matsya Sampada Yojana (PMMSY) scheme for FY 2021-21, enhanced by 43% from FY 2020-21.
- Substantial investments will be done for the development of modern fishing harbours and fish landing centres. To start with, 5 major fishing harbours – Kochi, Chennai, Visakhapatnam, Paradip, and Petuaghat – will be developed as hubs of economic activity.
- Further, inland fishing harbours and fish-landing centres will also be developed along the banks of rivers and waterways. Finance Minister has laid emphasis on the development of Inland Fisheries and for the first time in the history of the Fisheries sector, riverine harbours and fish landing centres will be constructed along the banks of rivers and waterways. The riverine fishing harbours and landing centres besides providing the aforementioned benefits will also provide the required thrust towards the organization of the inland fisheries sector which has hitherto been unorganized.
- Technologically advanced deep-sea fishing vessels with modern supporting facilities will also be rolled out for optimally harnessing the potential of EEZ and High Seas, thereby doubling incomes of fishermen and other stakeholders.
- This will also facilitate collectivization and registration of fishermen, fish workers and fish vendors associated with the fishing harbours and landing centres into Fish Farmer Producer Organisations (FFPOs).
- Also, a Multipurpose Seaweed Park will be established in Tamil Nadu. India with a 2.2 million sq. km EEZ area and 0.53 sq km continental shelf has enormous scope for seaweed cultivation and development of indigenous seaweed-based industries comprising of value-added products, nutraceuticals, biofuels, bioplastics, etc. which can substantially contribute to the global markets.
Budget Introduces Agriculture Infrastructure And Development Cess (AIDC)
Agriculture Infrastructure & Development Cess (AIDC), has been introduced in the Budget 2021-22 to aid the agri sector.
The cess is not uniform and varies from product to product.
Need for the Cess
There is an immediate need to improve agricultural infrastructure to produce more, while also conserving and processing agricultural output efficiently. This will ensure enhanced remuneration for our farmers.
Modified Scheme To Enhance Ethanol Distillation Capacity
- To achieve 20% blending by 2025 as well as to meet out the requirement of ethanol production capacity in the country, the Department of Food & Public Distribution has modified earlier scheme & notified the modified scheme for extending financial assistance to project proponents for enhancement of their ethanol distillation capacity or to set up distilleries for producing 1st Generation (1G) ethanol from feed stocks such as cereals (rice, wheat, barley, corn & sorghum), sugarcane, sugar beet etc. or converting molasses based distilleries to dual feedstock.
- Under the scheme , Government would bear interest subvention for five years including one year moratorium against the loan availed by project proponents from banks @ 6% per annum or 50% of the rate of interest charged by banks whichever is lower for setting up of new distilleries or expansion of existing distilleries or converting molasses based distilleries to dual feedstock.
Objective of this Scheme
- To boost agricultural economy
- To reduce dependence on imported fossil fuel
- To save foreign exchange on account of crude oil import bill
- To reduce the air pollution
Benefits of Grain based Distilleries
- Sugarcane and ethanol is produced mainly in three states viz. Uttar Pradesh, Maharashtra and Karnataka. Transporting ethanol to far flung States from these three states involves huge transportation cost.
- By bringing new grain based distilleries in the entire country would result in distributed production of ethanol and would save a lot of transportation cost and thus prevent delays in meeting the blending target & would benefit the farmers across the country.
Targets (Now & Then)
- The Government had fixed target of 10% blending of fuel grade ethanol with petrol by 2022 & 20% blending by 2030.
- Now it has been proposed to prepone the 20% blending of ethanol with petrol by 2025.
RBI Fully Operationalizes ‘College Of Supervisors’
The Reserve Bank of India (RBI) is now fully operationalising a College of Supervisors (CoS) to further strengthen supervision over regulated entities.
Objective of CoS
- To augment and reinforce supervisory skills among its regulatory and supervisory staff both at entry level and on a continuous basis.
- To facilitate the development of unified and focused supervision by providing training and other developmental inputs to the concerned staff.
Composition of the CoS
- The CoS will be headed by former deputy governor of RBI, N S Viswanathan and will have five other members.
- The CoS will have a full-time Director supported by an Academic Advisory Council (AAC).Rabi Narayan Mishra, former Executive Director, RBI, has been appointed as the Director of CoS.
Function of AAC
- The AAC will identify areas where skill building/up-skilling is required, plan and develop curricula of all programmes, benchmark the programmes with international standards/best practices, develop appropriate teaching methods, etc.
RBI Introduces Legal Entity Identifier
The Reserve Bank of India on December 5, 2021 introduced the Legal Entity Identifier (LEI) for large value transactions over Rs 50 Crore in Centralised Payment Systems, which will be effective from April 1, 2021.
- The 20-digit LEI number is used to uniquely identify parties to financial transactions worldwide while improving the quality and accuracy of financial data systems for better risk management post the global financial crisis.
- Those seeking to obtain an LEI can reach out to any Local Operating Units (LOUs) accredited by the Global Legal Entity Identifier Foundation (GLEIF). In India, RBI has given the permit to Legal Entity Identifier India Ltd. (LEIL) to issue LEI under the Payment and Settlement Systems Act, 2007.
Reserve Bank Of India Introduces The RBI-Digital Payments Index
The Reserve Bank of India has constructed a composite Digital Payments Index (DPI) to capture the extent of digitisation of payments across the country.
The RBI-DPI comprises of 5 broad parameters that enable measurement of deepening and penetration of digital payments in the country over different time periods:
- Payment Enablers (weight 25%)
- Payment Infrastructure – Demand-side factors (10%)
- Payment Infrastructure – Supply-side factors (15%)
- Payment Performance (45%)
- Consumer Centricity (5%)
- Each of these parameters have sub-parameters which, in turn, consist of various measurable indicators. The major sub-parameters under each parameter are available here.
- The RBI-DPI has been constructed with March 2018 as the base period, i.e. DPI score for March 2018 is set at 100.
- The DPI for March 2019 and March 2020 work out to 153.47 and 207.84 respectively, indicating appreciable growth.
- Going forward, RBI-DPI shall be published on RBI’s website on a semi-annual basis from March 2021 onwards with a lag of 4 months.
Initiatives Towards Controlling GST Frauds
- Various measures have been taken by the GST Council Secretariat towards the rising menace of GST fake invoice frauds.
- oMandatory Physical Verification:The government has introduced mandatory in-person physical verification of business premises for the purposes of obtaining GST registration.
- oBiometric-Based Aadhaar Authentication: In case an applicant opts for Aadhaar authentication, he will undergo biometric-based Aadhaar authentication at one of the facilitation Centres notified by the Commissioner.
- o‘Pay 1% in Cash’: Separately, a new rule has been introduced by the Central Board of Indirect Taxes and Customs that mandates businesses with monthly turnover of over Rs. 50 lakh to pay at least 1% of their GST liability in cash instead of using input tax credits to discharge their entire liability.
- oChanges in Validity of e-Way Bills: The validity of e-way bills has also been tweaked, doubling the distance to be covered for each day of validity, effective January 1. Till now, an e-way bill for transporting goods under GST allowed transporters to cover 100 km in one day. Now, that distance for each day of validity has been increased to 200 km. While four days were granted in terms of e-way bill validity to cover 400 km, going forward, only two days will be granted for the same distance.
First ‘International Day Of Banks’
- The United Nations (UN) celebrated the first ever International Day of Banks across the globe on 4th December 2020.
- The United Nations General Assembly (UNGA) adopted the resolution on 19th December 2019.
- The day is observed to recognise the important potential of multilateral development banks and other international development banks in financing sustainable development.
- This reaffirms the importance of achieving the targets of Sustainable Development Goals (SDG) by 2030.
PLI Scheme To 10 Key Sectors
The Union Cabinet has given its approval to introduce the Production-Linked Incentive (PLI) Scheme in the 10 key sectors for enhancing India’s manufacturing capabilities and exports.
The PLI scheme across these 10 key specific sectors will make Indian manufacturers globally competitive, attract investment in the areas of core competency and cutting-edge technology; ensure efficiencies; create economies of scale; enhance exports and make India an integral part of the global supply chain.
- Advance Chemistry Cell (ACC) Battery: ACC battery manufacturing represents one of the largest economic opportunities of the twenty-first century for several global growth sectors, such as consumer electronics, electric vehicles, and renewable energy. The PLI scheme for ACC battery will incentivize large domestic and international players in establishing a competitive ACC battery set-up in the country.
- Electronic/Technology Products: India is expected to have a USD 1 trillion digital economy by 2025. Additionally, the Government's push for data localization, Internet of Things market in India, projects such as Smart City and Digital India are expected to increase the demand for electronic products. The PLI scheme will boost the production of electronic products in India.
- Automobiles & Auto Components: The automotive industry is a major economic contributor in India. The PLI scheme will make the Indian automotive Industry more competitive and will enhance globalization of the Indian automotive sector.
- Pharmaceuticals Drugs: The Indian pharmaceutical industry is the third largest in the world by volume and 14th largest in terms of value. It contributes 3.5% of the total drugs and medicines exported globally. India possesses the complete ecosystem for development and manufacturing of pharmaceuticals and a robust ecosystem of allied industries. The PLI scheme will incentivize the global and domestic players to engage in high value production.
- Telecom & Networking Products: Telecom equipment forms a critical and strategic element of building a secured telecom infrastructure and India aspires to become a major original equipment manufacturer of telecom and networking products. The PLI scheme is expected to attract large investments from global players and help domestic companies seize the emerging opportunities and become big players in the export market.
- Textile Products: MMF Segment and Technical Textiles: The Indian textile industry is one of the largest in the world and has a share of ~5% of global exports in textiles and apparel. But India's share in the manmade fibre (MMF) segment is low in contrast to the global consumptionpattern, which is majorly in this segment. The PLI scheme will attract large investment in the sector to further boost domestic manufacturing, especially in the MMF segment and technical textiles.
- Food Products: The growth of the processed food industry leads to better price for farmers and reduces high levels of wastage. Specific product lines having high growth potential and capabilities to generate medium- to large-scale employment have been identified for providing support through PLI scheme.
- High Efficiency Solar PV Modules: Large imports of solar PV panels pose risks in supply-chain resilience and have strategic security challenges considering the electronic (hackable) nature of the value chain. A focused PLI scheme for solar PV modules will incentivize domestic and global players to build large-scale solar PV capacity in India and help India leapfrog in capturing the global value chains for solar PV manufacturing.
- White Goods (ACs & LED): White goods (air conditioners and LEDs) have very high potential of domestic value addition and making these products globally competitive. A PLI scheme for the sector will lead to more domestic manufacturing, generation of jobs and increased exports.
- Speciality Steel: Steel is a strategically important industry and India is the world's second largest steel producer in the world. It is a net exporter of finished steel and has the potential to become a champion in certain grades of steel. A PLI scheme in Specialty Steel will help in enhancing manufacturing capabilities for value added steel leading to increase in total exports.
The above will be in addition to the already notified PLI schemes in the following sectors:
- Mobile Manufacturing and Specified Electronic Components
- Critical Key Starting materials/Drug Intermediaries and Active Pharmaceutical Ingredients
- Manufacturing of Medical Devices.