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A Abuse of Dominance

This is a widely known term and has been explicitly incorporated in competition legislation of various countries. It refers to an anticompetitive business practice in which a dominant firm may engage in order to maintain or strengthen its position in the market. Such business practices by the firm may be considered restricting competition in the market. The different types of business practices that are considered as being abusive vary across countries as well as on a case by case basis. The business practices which have been contested in actual cases in different countries, not always with legal success, have included the following but not limited to: charging unreasonable or excess prices, price discrimination, predatory pricing, price squeezing by integrated firms, refusal to deal/sell, tied selling or product bundling and pre-emption of facilities.

As part of liberalization and on recommendation of high powered Raghvan Committee, the Competition Act, 2002 was enacted in India. Before the commencement of the 2002 Act, this phrase was not relevant in Indian context. Now, abuse of dominance is covered under section 4 of the Competition Act, 2002. in India, which has come into force from May 20, 2009. Abuse of dominance in Indian law has similar meaning as in other competition legislations. The said provision is applicable to all enterprises including public sector enterprises and Government. The said Act vests power in Competition Commission of India to investigate and inquire into instances of abuse of dominance and correct/penalize enterprise behaviour and help establish a competitive market. Commission has started receiving many cases relating to various aspects of abuse of dominance.

Abuse is stated to occur when an enterprise or a group of enterprises uses its dominant position (As per Competition Act 2002, dominant position is position of strength enjoyed by an enterprise in a relevant market, which enables it to operate independently of competitive forces prevailing in the relevant market; or affect its competitors or consumers or the relevant market in its favour) in the relevant market in an exclusionary or/and an exploitative manner. Such practices shall constitute abuse only when adopted by an enterprise enjoying dominant position in the relevant market in India.

Agricultural Census

Agricultural Census, which is conducted every five years in India. It is the largest countrywide statistical operation undertaken by Ministry of Agriculture, for collection of data on structure of operational holdings by different size classes and social groups. Primary ( fresh data) and secondary (already published) data on structure of Indian agriculture are collected under this operation with the help of State Governments. The first Agricultural Census in the country was conducted with reference year 1970-71.

Agricultural Census is carried out as a Central Sector Scheme under which 100% financial assistance is provided to States/Union Territoriess. Agricultural Census operation is carried out in three phases.

During Phase-I, a list of all holdings with data on area, gender and social group of the holder is prepared with the help of listing schedule. During Phase-II detailed data on tenancy, land use, irrigation status, area under different crops (irrigated and un-irrigated) are collected in holding schedule. Phase-III, which is called as Input Survey, relates to collection of data of input use across various crops, States and size groups of holdings,

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in addition to data on agriculture credit, implements and machinery, livestock and seeds.

Eighth Agricultural Census with reference year 2005-06 and seventh Input Survey 2006-07 have been undertaken in the country. The results of Agricultural Census 1995-96 & 2000-01, Input Survey 1996-97 & 2001-02 and various reports of Census are available at http://agcensus.nic.in. Data base for Agricultural Censuses from 1995-96 to 2005-06 may be accessed athttp://agcensus.dacnet.nic.in/nationalholdingtype.aspx.

Agricultural Labourers

A person who works on another person's land for wages in money or kind or share is regarded as an agricultural labourer. She or he has no risk in the cultivation, but merely works on another person's land for wages. An agricultural labourer has no right of lease or contract on land on which she/he works.

Agricultural Marketing Information Network (AGMARKNET)

Agricultural Marketing Information Network (AGMARKNET) was launched in March 2000 by the Union Ministry of Agriculture. The Directorate of Marketing and Inspection (DMI), under the Ministry, links around 7,000 agricultural wholesale markets in India with the State Agricultural Marketing Boards and Directorates for effective information exchange. This e-governance portal AGMARKNET, implemented by National Informatics Centre (NIC), facilitates generation and transmission of prices, commodity arrival information from agricultural produce markets, and web-based dissemination to producers, consumers, traders, and policy makers transparently and quickly.

The AGMARKNET website (http://www.agmarknet.nic.in) is a G2C e-governance portal that caters to the needs of various stakeholders such as farmers, industry, policy makers and academic institutions by providing agricultural marketing related information from a single window. The portal has helped to reach farmers who do not have sufficient resources to get adequate market information. It facilitates web- based information flow, of the daily arrivals and prices of commodities in the agricultural produce markets spread across the country. The data transmitted from all the markets is available on the AGMARKNET portal in 8 regional languages and English. It displays Commodity-wise, Variety-wise daily prices and arrivals information from all wholesale markets. Various types of reports can be viewed including trend reports for prices and arrivals for important commodities. Currently, about 1,800 markets are connected and work is in progress for another 700 markets. The AGMARKNET portal now has a database of about 300 commodities and 2,000 varieties.

Directorate of Marketing and Inspection (DMI) has liaison with the State Agricultural Marketing Boards and Directorates for Agricultural Marketing Development in the country. Agricultural Produce Market Committee (APMC) displays the prices prevailing in the market on the notice boards and broadcasts this information through All India Radio etc. This information is also supplied to State & Central Government from important markets. The statistics of arrival, sales, prices etc. are generally maintained by APMCs.

Future development involves linking all the agricultural wholesale markets in the country and establishing strategic alliances with government and non-government organisations to disseminate information to the farmers

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who operate in these markets. The database developed under AGMARKNET would also be linked to other agricultural databases, for instance, on area, production, yield of crops, land use, cost of cultivation, agriculture exports and imports, and so on, to evolve a data warehouse. This would provide a sound base for planning demand-driven agriculture production. AGMARKNET is also expected to play a crucial role in enabling e-commerce in agricultural marketing.

The information being disseminated through the AGMARKNET portal includes:

Prices and Arrivals (Daily Max, Min, Modal, MSP; Weekly/ monthly prices/arrivals trends; Future prices from 3 National commodity exchanges)

Grades and Standards

Commodity Profiles (Paddy/Rice, Bengal Gram, Mustard-Rapeseed, Red Gram, Soybean, Wheat, Groundnut, Sunflower, Black Gram, Sesame, Green Gram, Potato, Maize, Jowar, Cotton, Grapes, Chilies, Mandarin Orange etc)

Market Profiles (Contact details, rail/road connectivity, market charges, infrastructure facilities, revenue etc.)

Other Reports (Best Marketing Practices, Market Directory, Scheme Guidelines, DPRs of Terminal Markets etc.)

Research Studies

Companies involved in Contract Farming

Schemes of DMI for strengthening Agricultural Marketing Infrastructure

This portal helps in reducing the information asymmetry in agricultural prices and thus is of immense use to stakeholders.

Agricultural Regions of India

There are five agricultural regions in the country viz ;

Rice region: This extends from the eastern part to include a very large part o the north-eastern and south-eastern India with another strip along the western coast.

Wheat region: This extends to most of the northern, western and central India.

Millet-Sorghum region: This covers Rajasthan, Madhya Pradesh and the Deccan Plateau in the centre of the Indian peninsula.

Temperate Himalayan Region: This region is spread over Kashmir, Himachal Pradesh, Uttarakhand and some adjoining areas. Here potatoes are as important as a cereal crops (which are mainly maize and rice) and the tree-fruits form a large part of agricultural production.

Plantation crops region: In Assam and the hills of Southern India tea is produced. Coffee is produced in the hills of the western peninsular India. Rubber is grown in Kerala and some of the North-Eastern States like Tripura. Spices grown in Kerala, parts of Karnataka and Tamil Nadu.

Alternative Investment Funds (AIFs)

Anything alternate to traditional form of investments gets categorized as alternative investments. Now, what is considered as traditional may vary

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from country to country. Generally, investments in stocks or bonds or fixed deposits or real estates are considered as traditional investments. However, even with respect to investments in stocks, if the investments are in the stocks of small and medium scale enterprises (SMEs), it gets categorized as alternative investments in many jurisdictions (For instance, the SME exchange is called as Alternative Investment Market (AIM) in UK). Generally, the term AIF refers to private equity and hedge funds.

In India, alternative investment funds (AIFs) are defined in Regulation 2(1)(b) of Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012. It refers to any privately pooled investment fund, (whether from Indian or foreign sources), in the form of a trust or a company or a body corporate or a Limited Liability Partnership(LLP) which are not presently covered by any Regulation of SEBI governing fund management (like, Regulations governing Mutual Fund or Collective Investment Scheme)nor coming under the direct regulation of any other sectoral regulators in India-IRDA, PFRDA, RBI. Hence, in India, AIFs are private funds which are otherwise not coming under the jurisdiction of any regulatory agency in India.

Thus, the definition of AIFs includes venture Capital Fund, hedge funds, private equity funds, commodity funds, Debt Funds, infrastructure funds, etc.,while, it excludes Mutual funds or collective investment Schemes, family trusts, Employee Stock Option / purchase Schemes, employee welfare trusts or gratuity trusts, ‘holding companies’ within the meaning of Section 4 of the Companies Act, 1956, securitization trusts regulated under a specific regulatory framework,and funds managed by securitization company or reconstruction company which is registered with the RBI under Section 3 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.

One AIF can float several schemes. Investors in these funds are large lyinstitutional, high net worth individuals and corporates.

Types of AIFs

AIFs are categorized into the following three categories, based on their impact on the economy and the regulatory regime intended for them:

Category I AIF are those AIFs with positive spillover effects on the economy, for which certain incentives or concessions might be considered by SEBI or Government of India; Such funds generally invests in start-ups or early stage ventures or social ventures or SMEs or infrastructure or other sectors or areas which the government or regulators consider as socially or economically desirable. They cannot engage in any leverage except for meeting temporary funding requirements for not more than thirty days, on not more than four occasions in a year and not more than ten percent of the corpus.eg. Venture Capital Funds, SME Funds, Social Venture Funds and Infrastructure Funds. Giving effect to the announcement by Union Finance Minister on angel investor pools in the Union Budget 2013-14, SEBI in June 2013 has approved a framework for registration and regulation of angel pools under a sub- category called 'Angel Funds' under Category I- Venture Capital Funds.

Category II AIF are those AIFs for which no specific incentives or concessions are given. Theydo not undertake leverage or borrowing other than to meet the permitted day to day

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operational requirements, as is specified for Category I AIFs. eg. Private Equity or debt fund.

Category III AIF are funds that are considered to have some potential negative externalities in certain situations and which undertake leverage to a great extent; These funds trade with a view to make short term returns. These funds are allowed to invest in CateogyI and II AIFsalso. They receive no specific incentives or concessions from the government or any other Regulator.eg. Hedge Funds (which employs diverse or complex trading strategies and invests and trades in securities having diverse risks or complex products including listed and unlisted derivatives).

Fund raising and investment restrictions for AIFs

AIFsraise funds through private placement and they cannot accept from an investor an investment of value less than Rs. 1 Cr. The fund or any scheme of the fund cannot have more than 1000 investors and each Scheme should have a corpus of Rs. 20 Crore.The manager or sponsor/ promoterof the AIF should have a continuing interest in the AIF of not less than 2.5% of the initial corpus or Rs.5 crore whichever is lower.

AIFs of Category I and II are not permitted to invest more than 25% of the investible funds in one Investee Company while it is 10% for Category III AIFs.

Units of close ended AIFs are allowed to be listed on a stock exchange (but only after final close of the fund or scheme) subject to a minimum tradable lot of 1Crore rupees.

All AIFs are required to comply with the reporting norms to SEBI on a quarterly basis (for Category I, II AIFs and for those Category III AIFs which do not employ leverage) or on a monthly basis (for Category III AIFs which employ leverage). The reporting formats and the method of reporting is specified in the circular dated July 29, 2013.

Category III AIFs also have to additionally comply with norms pertaining to risk management, compliance, redemption and leverage as specified in the circular. The leverage for a Category III AIF is specified not to exceed 2 times i.e. the gross exposure after offsetting for hedging and portfolio rebalancing transactions should not exceed 2 times the NAV of the fund.

Norms in case of application for change in category of the AIF were specified by SEBI vide circular dated August 7, 2013.

Statistics

Details of registered AIFs with SEBI may be seen here. As on 27 August 2013, around 73 AIFs have been registered with SEBI. Procedure for registering with SEBI may be seen here.

Global Regulation for AIFs

Regulation of private pools of capital assumed significance with the financial crisis of 2008. The G ‐ 30  Report in 2009 recommended that ―”Managers of private pools of capital that employ substantial borrowed funds should be required to register with an appropriate national regulator” .In the IOSCO Consultation Report on Hedge Funds Oversight (June 2009), the IOSCO Task Force suggested that progress towards a consistent and equivalent approach of regulators to hedge fund managers should be a high priority. The Task Force recommended that regulatory oversight for hedge funds should be risk‐based, focused particularly on the systemically important and/or higher risk hedge fund managers. Accordingly, IOSCO included effective oversight of hedge funds in its list of

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objectives and principles of regulations to be complied by Member Countries.

On 8 June 2011, the European Parliament and Council came out with a definition for AIFs under Article 4(1)(a) ofits Directive 2011/61/EU. As per their definition, in a slight contrast to its definition in India, AIFs can mean collective investment undertakings, including investment compartments thereof, which

raise capital from a number of investors, with a view to invest it in accordance with a defined investment policy for the benefit of those investors; and

do not require authorization pursuant to Article 5 of Directive 2009/65/EC that applies to undertakings for collective investment in transferable securities (UCITS), (refers to those which invest in exchange traded / liquid financial assets [eg mutual funds]);

On 19 December 2012,EU issued its additional Directive on Alternative Investment Fund Managers (AIFM) such as Hedge Funds, Private Equity Managers, etc for imposing certain restrictions on the dealings of banks etc with them.

Under the Private Fund Investment Advisers Registration Act of 2010, enacted as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, 2010, the regulatory purview over hedge funds and private equity fund advisers was enhanced by the Securities and Exchange Commission in USA. The term used here for AIF is ‘private fund’ which means an issuer that would be an investment company, as defined in section 3 of the Investment Company Act of 1940 (15 U.S.C. 80a–3), but for section 3(c)(1) or 3(c)(7) of that Act.

History of AIF Regulationin India

SEBI (Venture Capital Funds) Regulations (“VCF Regulations”) were framed in 1996 to encourage funding by entrepreneurs’ early-stage companies in India. However, over the years, the Venture Capital Funds (VCF) route was being used by several other funds including Private Equity (PE) funds, Real Estate funds, etc. This made it difficult to target concessions and incentives specific to VCFs without enabling other funds to avail of such incentives or concessions. Further, the investment restrictions placed on VCFs were not suitable for such funds. Hence, on one hand, there were a set of funds like VCF which required incentives and concessions and were comfortable with consequent restrictions attached and on the other hand, there were another set of funds like PE funds which did not require incentives and concessions but required investment flexibility.

Further, since registration of VCF was not mandatory under VCF Regulations, all players in the alternative funds industry were not registered with SEBI. Hence, there was a regulatory gap which needed to be addressed.

The SEBI Board, in its meeting held on July 28, 2011, while considering the agenda on “Plan of Actions for Compliance To Eight New IOSCO Objectives and Principles of Securities Regulation”, approved the proposal for a clear regulatory framework for private pools of capital which may, inter-alia, provide for a mechanism to monitor and assess systemic risks and risks to financial market stability posed by the activities of such funds.

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Taking into consideration the above, SEBI proposed a Regulatory framework for Alternative Investment Funds on August 1, 2011 through the concept paper placed on SEBI website along with the draft AIF Regulationswhich was kept open for public comments till August 30, 2011. Through this concept paper, SEBI proposed to regulate all funds established in India which are private pooled investment vehicles raising funds from Indian or foreign investors, excluding Mutual Funds and Collective Investment Schemes registered with SEBI. Further, any such pool of funds which is regulated by any other regulator in India like banks, pension funds, etc. was also proposed to be excluded from the purview of the proposed Regulations.

Based on the public comments, the revised Regulations were submitted for the approval of the SEBI Board in its meeting held on 2ndApril 2012. The final Regulations were issued on 21 May 2012.

The AIF Regulations is an attempt to extend the perimeter of regulation to hitherto unregulated funds, so as to ensure systemic stability, increase market efficiency, encourage formation of new capital and provide investor protection.

Annual Financial Statement

Annual Financial Statement is a document presented to the Parliament every year under Article 112 of the Constitution of India, showing estimated receipts and expenditures of the Government of India for the coming year in relation to revised estimates for the previous year as also the actual amounts for the year prior to it.

The receipts and disbursements are shown under three parts in which Government Accounts are to be kept viz.,(i) Consolidated Fund, (ii) Contingency Fund and (iii) Public Account.

Under the Constitution, Annual Financial Statement has to distinguish expenditure on revenue account from other expenditure. Government Budget, therefore, comprises of Revenue Budget andCapital Budget.

The estimates of receipts and expenditure included in the Annual Financial Statement are for the expenditure net of refunds and recoveries, as will be reflected in the accounts.

The estimates of receipts and disbursements in the Annual Financial Statement are shown according to the accounting classification prescribed by Comptroller and Auditor General of India under Article 150 of the Constitution, which enables Parliament and the public to make a meaningful analysis of allocation of resources and purposes of Government expenditure.

Annual Financial Statements for the various years may be seen here.

Annual Financial Statement is essentially the Budget of the Government. In case of the Central Government, the Budget is presented in two parts, viz., the Railway Budget pertaining to Railway Finance and the General Budget (or what is commonly known as Union Budget) relating to the financial position of the Government of India, excluding Railways. The Railway Budget is presented by the Railway Minister sometime in the third week of February. By convention, the General Budget is presented to Lok Sabha by the Finance Minister on the last working day of February of each year. A copy of the respective Budgets is simultaneously laid on the Table of Rajya Sabha.

However, these days, the term Union Budget includes not just the Annual Financial Statement but also the policy documents associated with it like, Budget Speech, Finance Bill, Appropriation Bill,Demand for grants,

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documents submitted under Fiscal Responsibility and Budget Management Act like, macro economic framework statement, medium term fiscal policy statement etc.

Appraisal of Plan Schemes (Union Government)

The Union Government has constituted a mechanism of appraisal of public investment projects before they are approved by the Cabinet or the designated competent authority. Schemes involving public expenditure, which have been included in the Annual Plan of a Ministry are detailed in a project report (DPR) based on the guidelines laid down by the Department of Expenditure, Ministry of Finance. (http://finmin.nic.in/the_ministry/dept_expenditure/plan_finance2/guideline_formulation_app_approv_01042010.pdf )

When the project or scheme is complex, Ministries employ technical consultants to prepare the DPRs in consultation with the concerned Ministry. The DPR justifies the need for the project/scheme, considers all alternative approaches that can be used, and proposes the best possible way to achieve the targets, while at the same time ensuring value for money in public expenditure.

The Project Appraisal and Management Division (PAMD) of Planning Commission scrutinizes this DPR to see whether the scheme is financially viable. Inputs on the technical feasibility of the scheme are provided by the concerned technical divisions in Planning Commission. Concurrently and independently, the Plan Finance II Division in Department of Expenditure also appraises the technical feasibility and financial viability of the scheme. Care is taken to ensure that the design of the scheme is robust by studying the level of preparedness of the implementing agency to execute the scheme within the proposed timeframe, the break-up and basis of the cost estimates made, the sources of financing considered, the phasing of investment required and the rate of return expected on this investment. Both these appraisal agencies do a sensitivity analysis on the critical parameters of the scheme to ascertain the degree of risk involved.

The Union Government has delegated financial powers to Ministries to appraise and approve relatively smaller scaled projects. However larger and more complex projects or those which involve setting up of an autonomous body are appraised either in the Public Investment Board (PIB) or the Expenditure Finance Commission (EFC) where Secretary, Expenditure chairs a meeting of all stakeholder Ministries. In this meeting the appraisal reports of PAMD and Plan Finance II are discussed and a final view is taken on whether the project/scheme may be recommended (with or without conditions) to the Cabinet for consideration and approval.

The PIB and EFC have a similar function viz. appraisal of plan projects/schemes involving public expenditure. However, in PIB, cases ( mostly from Public Sector Undertakings) which have a healthy financial return (where the Financial Internal Rate of Return is above a threshold level of at least 12 per cent) are considered while the EFC considers cases, where the financial return may not be high but where the projects/schemes have considerable social welfare benefits and the Economic Internal Rate of Return (EIRR) is very high.

Public investment projects of the Railways are appraised by the Expanded Board of Railways, under the Chairman, Railway Board. Scientific Ministries

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have also been delegated the power to appraise their schemes under the chairmanship of the concerned Secretary of the Ministry. Planning Commission and Department of Expenditure are also represented during the appraisal process. Profitable Public sector undertakings/enterprises (Navratnas and Mini ratnas) also have greater flexibility in their investment decisions but if they require budgetary support, they will have to go through the PIB process.

PIB/EFC also examine prior approved cases where cost estimates have escalated considerably during the project implementation. In such cases, the revised cost estimates are appraised for obtaining approval from the competent authority.

Appropriation

According to Article 114 of the Indian constitution, no money can be withdrawn from the Consolidated Fund of India to meet specified expenditure except under an appropriation made by Law. Similarly, State (sub-national) Governments can also draw from their Consolidated Funds only after an appropriation act is passed. Every year, after budgetary estimates are approved, an Appropriation Bill is passed by the Parliament/state legislature and then it is presented to the President/Governor. After the assent by the President/governor to the bill, it becomes an Act. However, if during the course of the financial year, the funds so appropriated are found to be insufficient, the Constitution provides for seeking approval from the Parliament or State Legislature for supplementary grants.

Appropriation Accounts present the total amount of funds (original and supplementary) authorised by the Parliament/State legislature in the budget vis-a-vis the actual expenditure incurred against each head of expenditure. The Office of the Comptroller and Auditor General of India reports to the Union and State Legislatures any discrepancies that occur between the amounts appropriated for a particular head of expenditure and what was actually spent at the end of the financial year. These reports provide an indication of unrealistic budget estimates made by various departments. Any expenditure in excess of what was approved requires regularization by the Parliament/State Legislature.

Some expenditure of Government (e.g. public debt repayments, expenditure incurred on the Judiciary etc.) is not voted by the Legislature and such expenditure is ‘Charged’ on Consolidated Fund under Article 112 (3) of the Constitution and is called Charged Appropriation.

All other expenditure is required under Article 113 (2) of the Constitution to be voted by the Legislature and is called voted grant.

ASHA (Accredited Social Health Activist)ASHA is a woman grass root level health volunteer, who links households with health facilities. As per norms, there should be one ASHA for every 1000 population.

She disseminates health related information and assists households to gain access to health care facilities. She is paid on the basis of performance (incentive) for the task she undertakes.

Assigned RevenueThe term is used to refer to various tax/duty/cess/surcharge/levy etc., proceeds of which are (traditionally) collected by State Government (on behalf of) local bodies viz., Panchayat/Municipality and (subsequently)

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adjusted with/assigned to them. Collection of such revenue is governed by relevant Act(s) administered by Panchayat/Municipality.

Typical examples of assigned revenue include entertainment tax, surcharge on stamp duty, local cess/surcharge on land revenue, lease amount of mines and minerals, sale proceeds of social forestry plantations etc. State Finance Commissions recommend devolution of assigned revenue to local bodies on objective criteria, which may be specified by them in specific context.

Association of State Road Transport Undertakings (ASRTU)

Association of State Road Transport Undertakings (ASRTU) came into existence on 13th August, 1965 with the objective of providing a forum for exchange of ideas on best practices of State Road Transport Undertakings (SRTUs). With 58 members, approximately 1, 15,000 buses and serving 65 million passengers a day, ASRTU constitutes the backbone of mobility for the urban and rural population across India. ASRTU plays an important role in promoting affordable mode of public transport for socio-economic development of country. Public SRTUs are backbone of country and thus ASRTU is committed to provide all necessary help to them in their production, quality monitoring and to address to their common problems. Recently, ASRTU conferred Productivity Award for Year 2008-09 to the State Express Transport Corporation (Tamil Nadu) for highest performance in Vehicle Productivity.

Atal Pension Yojana (APY)

Atal Pension Yojana is a pension scheme for the unorganised sector that provides a defined pension, depending on the contribution and the period of contribution. Government contributes 50% of the beneficiaries’ premium limited to Rs.1,000 each year, for five years, in the new accounts opened before 31st December 2015.

The Scheme focuses on the unorganized sector where nearly 400 million employees representing more than 80 per cent of all employees are engaged. Atal Pension Yojana would provide a fixed minimum pension Rs.1000 to Rs.5000 per month starting from the age of 60. The amount of pension will depend on the monthly contribution by the employee and the age at which the employee subscribes to the scheme. In any case, the individual will have to subscribe under Atal Pension Yojana for a minimum of 20 years.

The scheme is aimed at those who are not members of any statutory social security scheme and who are not Income Tax payers.

The pension would also be available to the spouse on the death of the subscriber and thereafter, the pension corpus would be returned to the nominee. The minimum age of joining APY is 18 years and maximum age is 40 years. The benefit of fixed minimum pension would be guaranteed by the Government.

The scheme was launched in simultaneous functions held at 115 venues across the country on 9 May 2015. The most significant part of this Scheme is co-contribution by government of Rs.1000/- per annum or 50% of the total contribution whichever is lower, for the first 5 years if one joins the scheme before the end of the first year of its launch, that is 31 December, 2015.

AYUSH

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AYUSH signifies a combination of alternative system of Medicine, which was earlier known as Indian System of Medicine. AYUSH includes Ayurveda, Yoga and Naturopathy, Unani, Siddha and Homeopathy. The objective of AYUSH is to promote medical pluralism and to introduce strategies for mainstreaming the indigenous systems of medicine. In India, at the Union Government level, AYUSH activities are coordinated by Department of AYUSH under Ministry of Health & Family Welfare. Most of these medical practices originated in India and outside, but got adopted in India in the course of time.

Ayurveda is more prevalent in the states of Kerala, Maharashtra, Himachal Pradesh, Gujarat, Karnataka, Madhya Pradesh, Rajasthan, Uttar Pradesh, Delhi, Haryana, Punjab, Uttarkhand, Goa and Orissa.

The practice of Unani System could be seen in some parts of Andhra Pradesh, Karnataka, Jammu & Kashmir, Bihar, Maharashtra, Madhya Pradesh, Uttar Pradesh, Delhi and Rajasthan.

Homoeopathy is widely practiced in Uttar Pradesh, Kerala, West Bengal, Orissa, Andhra Pradesh, Maharashtra, Punjab, Tamil Nadu, Bihar, Gujarat and the North Eastern States and the Siddha system is practiced in the areas of Tamil Nadu, Pondicherry and Kerala.

In September 2009 Sowa Rigpa system of medicine was also recognized as a traditional system of medicine. Sowa Rigpa, commonly known as ‘Amchi’ is one of the oldest surviving system of medicine in the world, popular in the Himalayan region of India. In India this system is practiced in Sikkim, Arunachal Pradesh, Darjeeling (West Bengal), Lahoul and Spiti (Himachal Pradesh) and Ladakh region of Jammu & Kashmir.

Most of the foreign countries including USA, Australia, European countries etc. have not recognized Ayurveda, Siddha and Unani, as systems of medicine, therefore practice of these systems and marketing of their products as medicines faces problems. The medicines of these systems are generally manufactured in India as per the standards and Good Manufacturing Practices in accordance with the Drugs and Cosmetics Act, 1940 and Rules thereunder but are often exported by the industry to such countries as food supplements or dietary supplements because of non-fulfillment of the regulatory requirements of the importing countries. However, the efficacy and safety of drugs and therapies for various remedies is scientifically established through clinical validation carried out by the 5 Research Councils under the Ministry of AYUSH namely Central Council for Research in Ayurvedic Sciences (CCRAS), Central Council for Research in Yoga & Naturopathy (CCRYN), Central Council for Research in Unani Medicine (CCRUM), Central Council for Research in Siddha (CCRS) and Central Council for Research in Homoeopathy (CCRH).

The Department of Ayurveda, Yoga & Naturopathy, Unani, Siddha and Homoeopathy (AYUSH), Ministry of Health and Family Welfare has been accorded the status of a Ministry with effect from 09.11.2014 by the Cabinet Secretariat.

National AYUSH Mission (NAM) launched on 15 September 2014 as part of 12th Plan envisages better access to AYUSH services through increase in number of AYUSH Hospitals and Dispensaries, ensuring availability of AYUSH drugs and trained manpower.

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B ‘Back-to-Back’ LoansState Governments in India cannot access external sources of finance directly. The 12th Finance Commission recommended the transfer of external assistance to State Governments in India by the Union Government on a ‘Back-to-Back’ basis. This recommendation was accepted by the Government of India for general category states and the arrangement came into effect from April 1, 2005. For special category states ( Northeastern states, Uttarakhand, Himachal and J&K), external borrowings are in the form of 90 per cent grant and 10 per cent loan from the Union Government.

Passing loans on ‘Back-to-Back’ basis to State Governments implies that States would face identical terms and conditions (including concessional interest rates, grace period and maturity profile, commitment charges and amortization schedules) on account of their access to finance from bilateral and multilateral sources, as is faced by the Union Government.

This arrangement entails exposure of States to uncertain movements in international rates of interest (as multilateral agencies viz. IBRD benchmark their interest rates to a reference rate viz. the LIBOR) and currency exchange rates. As per the ‘Back-to-Back’ loan transfer arrangement, states would have to face currency risk since principal repayments and interest payments on such loans to external agencies are designated in foreign currencies. In case of adverse exchange rate movement(s) larger rupee provisions may be required to meet debt service obligations that may negatively impact the fiscal health of the state concerned.

Thus, direct exposure to interest risk and currency risk carry implications for debt service burden and therefore for the fiscal status of sub national Governments in India. Capacity building in finance departments of State Governments is required to ensure that debt is prudently managed.

BackwardnessAs a consequence of amalgamation of regions at varying levels of socio- economic development & different political and administrative structures, the modern state has inherited regional imbalances that still persist. The backwardness of states is measured to understand the extent of these regional imbalances. Some of the attempts to define or measure backwardness in India are mentioned below:

Measuring backwardness of taluks in the state of Karnataka - 2000

Considering the resentment in North Karnataka over growing disparities, the state government of Karnataka had appointed a High Powered Committee for Redressal of Regional Imbalances (HPCRRI) in October 2000. Committee studied the disparities & presented its report in June 2002 wherein all the taluks in the State were categorized in the order of backwardness. The study followed a two-fold approach

overall level of backwardness of taluk was determined by evolving Comprehensive Composite Development Index (CCDI) using 35 indicators

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taluks were classified as Most Backward, More Backward and Backward Taluks

The 35 indicators considered by this study pertained to 5 main sectors: Agriculture - % of Total cropped area to net area sown, % Area under food

grains, % of Area under Horticultural crops to total Cropped Area, % Area under Commercial crops to total Cropped Area, % net area irrigated to net area sown, Fertilizer(NPK) Consumption in Kg per Hec, No. of Tractors per 000 hectares, Live Stock Units per lakh rural population, Bank Credit to Agriculture

Industry, Trade & Finance - No. of Industrial units per lakh population, % Industrial Workers to Total Main Workers, Bank Advances per lakh population, No. of Bank Branches per lakh population, No. of Enterprises engaged in trade, hotels & transport

Economic Infrastructure - No. of Post Offices per lakh population, No. of Telephones per lakh population, Road length, No. of Villages having access to all weather Roads, Railway line length, No. of Motor Vehicles per lakh population, No. of Co-operative credit Societies per lakh population, Proportion of electrified villages including Hamlets, Regulated Markets & Sub Markets per lakh population

Social Infrastructure - No. of Doctors per 10000 population, No. of Beds per 10000 population, Literacy Rate, Pupil-Teacher Rate (I to X std), Children Out of School in the 6-14 age group, No. of Students enrolled in Aided & Degree Colleges, No. of Habitations having drinking water facility of 40 or more LPCD.

Population Characteristics - Sex Ratio, Urban Population to total Population, SC & ST Population, No. of Non Agricultural Workers, Agricultural labourers to Total Main Workers

The Committee had also calculated the resource allocation among the four divisions of the state i.e., Gulbarga, Belgaum, Bangalore and Mysore Division, based on the Cumulative Deprivation Index (1-CCDI).Measuring backwardness of Districts at the national level - 2003-04Concept of Backwardness also came up in the context of a scheme for backward districts, called Backward Districts Initiative – Rashtriya Sam Vikas Yojana (RSVY) – (A Tenth Plan Initiative). The Rashtriya Sam Vikas Yojana (RSVY) was being implemented in 147 districts since 2003-04. The list of districts covered under the RSVY may be seen here. The Scheme was aimed at focused development programmes for backward areas which would help reduce imbalances and speed up development. The identification of backward districts within a State was made on the basis of an index of backwardness comprising three parameters with equal weights to each:

value of output per agricultural worker; agriculture wage rate; and

percentage of SC/ST population of the districts.

This Scheme later (2006-07) got subsumed in the Backward Regions Grant Fund program, the guidelines of which may be seen here. BRGF consists of two components - (a) Districts Component covering 270 districts, and (b) State Component-which covers special plan for West Bengal, Bihar and the KalahandiBolangir-Koraput (KBK) Region of Odisha and Bundelkhand packages for

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UP & MP. The implementing Ministry for the BRGF districts component is the Ministry of Panchayati Raj. This Scheme was also proposed for closure from December 2009 as most of the districts have claimed their total allocation of Rs.45 crore each. As such there is no proposal under consideration of the Government to extend RSVY to other districts of the country. However, a special development package of Rs. 850.00 crore has been provided to the state of Andhra Pradesh from BRGF (State component) during 2014-15.Pursuant to the recommendations of 14th Finance Commission for higher untied tax devolution to states, the scheme followed a natural death since 2015-16. Hence, the ongoing projects under BRGF for addressing Intra-State inequality may be supported by the States out of their own funds, including received under the recommendations of 14th Finance Commission.

However, the Parliamentary Standing Committee on Finance in its report in April 2015 (on the Demand for Grants of Ministry of Finance) had disagreed with this view in their report and were of the view that such subsuming of specific schemes designed with a special purpose / focus to uplift living standards in backward and under-developed areas / regions with chronic poverty is not desirable. According to the Committee, Central budgetary support and an element of hand-holding by way of special central assistance is therefore still required to bring about social and economic development in such areas, which are lagging far behind in socioeconomic indices and which also face extraordinary challenges.In this regard the Committee desired that the recommendations of Raghuram Rajan's Report on backwardness of States (Committee for Evolving a Composite Development Index of States) may be considered and appropriately implemented.

Measuring backwardness of states - 2013

Government in May 2013, decided to constitute an Expert Committee under the chairmanship of Dr. Raghuram Rajan to measure backwardness of the Indian States by evolving a Composite Development Index of States for guiding devolution of funds from central government to such backward states. The committee submitted its report in September 2013.

The Committee proposed a general method for allocating funds from the Centre to the states based both on a state’s development needs as well as its development performance. Towards this, committee created a multi-dimensional index based on certain measures which correspond to the multi dimensional approach to defining poverty outlined in the Twelfth Plan. Need is based on a simple index of (under) development computed as an average of the following ten sub-components:

monthly per capita consumption expenditure education

health

household amenities

poverty rate

female literacy

percent of SC-ST population

urbanization rate

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financial inclusion

connectivityImprovements to a state’s development index over time (that is, a fall in underdevelopment) is taken as the measure of performance. Less developed states rank higher on the index, and would get larger allocations based on the need criteria, with allocations increasing more than linearly to the most underdeveloped states.

The Committee recommended that States that score 0.6 and above on the Index may be classified as “Least Developed”; States that score below 0.6 and above 0.4 may be classified as “Less Developed”; and States that score below 0.4 may be classified as “Relatively Developed”. The “Least Developed” states effectively subsume what is now “special category” state.

Committee recommended that each State may get a fixed basic allocation of 0.3 percent of overall funds, to which will be added its share stemming from need and performance to get its overall share. Of the funds remaining after the allocation of 0.3%, around 3/4th will be allocated based on need and 1/4th based on performance.

Using the index, the Committee has identified the “Least Developed” states as Arunachal Pradesh, Assam, Bihar, Chhattisgarh, Jharkhand, Madhya Pradesh, Meghalaya, Odisha, Rajasthan and Uttar Pradesh. Government as on date has not taken any decision on the recommendations of the Committee.

Banking Correspondent (BC)

Banking Correspondents (BCs) are individuals/entities engaged by a bank in India (commercial banks, Regional Rural Banks (RRBs) and Local Area Banks (LABs)) for providing banking services in unbanked / under-banked geographical territories. A banking correspondent works as an agent of the bank and substitutes for the brick and mortar branch of the bank.

BCs engage in

identification of borrowers; collection and preliminary processing of loan applications including

verification of primary information/data;

creating awareness about savings and other products and education and advice on managing money and debt counselling;

processing and submission of applications to banks;

promoting, nurturing and monitoring of Self Help Groups/ Joint Liability Groups/Credit Groups/others;

post-sanction monitoring;

follow-up for recovery,

disbursal of small value credit,

recovery of principal / collection of interest

collection of small value deposits

sale of micro insurance/ mutual fund products/ pension products/ other third

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party products and

receipt and delivery of small value remittances/ other payment instruments.

The banks in India may engage the following individuals/entities as BCs.

Individuals like retired bank employees, retired teachers, retired government employees and ex-servicemen, individual owners of kirana (small shops) / medical /Fair Price shops, individual Public Call Office (PCO) operators, agents of Small Savings schemes of Government of India/Insurance Companies, individuals who own petrol pumps, authorized functionaries of well-run Self Help Groups (SHGs) which are linked to banks, any other individual including those operating Common Service Centres (CSCs);

NGOs/ Micro Finance Institutions set up under Societies/ Trust Acts or as Section 25 Companies ;

Cooperative Societies registered under Mutually Aided Cooperative Societies Acts/ Cooperative Societies Acts of States/Multi State Cooperative Societies Act;

Post Offices;

Companies registered under the Indian Companies Act, 2013 with large and widespread retail outlets

Non-banking Finance Companies (NBFCs) were not allowed to be appointed as Business Correspondents (BCs) by banks. However, since June 2014 banks have been permitted to engage non-deposit taking NBFCs (NBFCs-ND) as BCs, subject to certain conditions:

While a BC can be a BC for more than one bank, at the point of customer interface, a retail outlet or a sub-agent of a BC shall represent and provide banking services of only one bank.

Banking correspondents were allowed by RBI vide a circular dated 25 January 2006. The concept of Banking Correspondent stemmed from a report of Shri. H R Khan, Dy Governor of RBI. Committee on Financial Inclusion Chaired by Dr. C. Rangarajan which submitted its report on 5 February 2008 had also recommended for the expansion of the BC model.

Guidelines on managing risks and code of conduct in outsourcing of financial services by banks were issued by RBI on November 3, 2006. The banks will be fully responsible for the actions of the BCs and their retail outlets / sub agents.

Banking Correspondent in India, in all sense of the term, is equivalent to what is known as "Correspondent Banking" in Brazil (Generally, the term correspondent bank refers to a bank which functions as an agent of another bank in a foreign jurisdiction. However, Brazil uses this term for domestic agency services by individuals / entities). In some countries BC model is known as "Agent Banking".

Base Effect

The base effect refers to the impact of the rise in price level (i.e. last year’s inflation) in the previous year over the corresponding rise in price levels in the current year (i.e., current

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inflation): if the price index had risen at a high rate in the corresponding period of the previous year leading to a high inflation rate, some of the potential rise is already factored in, therefore a similar absolute increase in the Price index in the current year will lead to a relatively lower inflation rates. On the other hand, if the inflation rate was too low in the corresponding period of the previous year, even a relatively smaller rise in the Price Index will arithmetically give a high rate of current inflation. For example:

Price Index Inflation2007 2008 2009 2010 2008 2009 2010

Jan 100 120 140 160 20 16.67 14.29

The index has increased by 20 points in all the three years – 2008, 2009, 2010. However, the inflation rate (calculated on year-on-year basis) tends to decline over the three years from 20% in 2008 to 14.29% in 2010. This is because the absolute increase of 20 points in the price index in each year increases the base year price index by an equivalent amount, while the absolute increase in price index remains the same. Remember, year-on-year inflation is calculated as:

(Current Price Index – Last year’s Price Index)Current Inflation Rate = --------------------------------------------------- * 100

Last year’s Price Index

Base Rate

The base rate, introduced with effect from 1st July 2011 by the Reserve Bank of India, is the new benchmark rate for lending operations of banks. It is a tool which will help in bringing more transparency in lending operations of banks.

Base rate is defined as the minimum interest rate of a bank below which it is not viable to lend.It replaces the benchmark prime lending rate (BPLR) ,the interest rate which commercial banks charged their most credit worthy customer. A working group was constituted under the chairmanship of Shri Deepak Mohanty to review the benchmark prime lending rate. It was observed that the benchmark prime lending rate, which was introduced in 2003, had failed in its objective. The banks were lending below BPLR rates due to competitive pressures. Hence a need was felt for transition to a more transparent and effective interest rate mechanism.

Base rate includes all those elements of the lending rates that are common across all categories of borrowers. An illustrative methodology of calculation of base rate has been provided in the RBI guidelines. As per the methodology, base rate is arrived at by adding the following

1. The cost of deposits ,which is the interest rate on total deposits2. Adjustment for the negative carry in respect of Cash Reserve Ratio(CRR) and

Statutory Liquidity Ratio (SLR); The negative carry on CRR and SLR arises because the return on CRR balances is nil and the return on SLR balances is lower than the cost of deposits. Negative carry cost on CRR and SLR is calculated as difference between effective cost and cost of deposits, where

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1. the effective cost is the ratio of cost of deposits( adjusted for return on SLR investments) and deployable deposits(total deposits less the deposits locked as CRR and SLR balances)

2. cost of deposits is the interest rate on total deposits

3. Unallocatable overhead cost for banks which would comprise a minimum set of overhead cost elements, which includes components like legal and premises expenses, depreciation, cost of printing and stationery, expenses incurred on communication and advertising etc.

4. Average return on net worth, which is the amount of net income returned as a percentage of shareholder’s equity. It is an indicator on profitability and return on shareholder’s funds.

Banks are free to choose any benchmark to arrive at the base rate. The interest on all categories of loans is determined with respect to the base rate except the following loans; (a) DRI advances ( that is Differential rate of interest scheme whereby banks offer financial assistance at concessional rates) (b) loans to banks’ own employees (c) loans to banks’ depositors against their own deposits. Base rate is to be reviewed at least once in a quarter and has to be disclosed to the public. Each bank arrives at its base rate separately. Banks are free to choose any methodology to arrive at the base rate which is consistent , appropriate and transparent.

Basic Road Statistics of India (BRSI)

The Basic Road Statistics of India is a premier publication on the road sector providing comprehensive information on different categories of road in the country, at the National, State and Local (municipalities and panchayat) levels. It is brought out regularly every year by Transport Research Wing (TRW) of the Ministry of Road Transport & Highways. It is vital to have comprehensive data on road infrastructure to assist in policy planning and investment decision. The latest publication ‘Basic Road Statistics of India’ provides detailed data spread over 11 Sections comprising of a Section each on Road Length (Total and Surfaced) All India and State-wise, National Highways, State Highways, Other Public Works Department Roads, Zilla Parishad Roads, Village Panchayat Roads, CD/Panchayat Samiti Roads, Urban Roads, Project Roads, Plan Outlay and Expenditure on Roads and Miscellaneous information on National Highways & PMGSY. Annexed tables list out major terms and definitions relevant to the road sector.

Basic Port Statistics of India (BPSI)

The Basic Port Statistics of India is a premier publication which is brought out every year by Transport Research Wing. It intends to provide comprehensive and analytical descriptions of the different facets of the maritime transport activity. It highlights the volume and composition of seaborne trade across the major ports (12) and minor ports (199) of India in the backdrop of global and domestic macro developments. The major ports in India are administered by the central shipping ministry while minor ports are administered by relevant department or ministries of the coastal states.

The latest publication of ‘Basic Port Statistics of India, 2008-09’ provides detailed data spread over three sections, comprising section-I pertaining to Macro Economic Development & Performance of Indian Ports and the section-II deals with Tables on vital port statistics, current port statistics, time series statistics, international port

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statistics and general statistics and section-III consist of Appendices.

The contents of the latest publication highlighted that India has a coast-line of around 7,517 kms with 12 major ports which handle about 71% of the maritime cargo traffic of the country in 2008-09. Amongst the major ports, Kandla Port accounted for the highest share of 13.6% in the total cargo traffic at all major ports during 2008-09. According to the commodity composition of the total traffic at Indian ports, POL and its product form the single largest commodity, constituting 36.6% of the total seaborne traffic followed by ore (17.3%) and coal (13.2%) in 2008-09.

Begging

The most often quoted definition of Begging lies in theBombay Prevention of Begging Act, 1959 though there can be some minor variants to this definition in other concerned state laws. As per Section 2(1) of the Act, “Begging” means-

a. Soliciting or receiving alms, in a public place whether or not under any pretence such as singing, dancing, fortune telling, performing or offering any article for sale;

b. entering on any private premises for the purpose of soliciting or receiving alms;

c. exposing or exhibiting any sore, wound injury, deformity of diseases whether of a human being or animal, for extorting alms;

d. allowing oneself to be used as an exhibit for the purpose of soliciting or receiving alms;

e. having no visible means of subsistence and wandering about or remaining in any public place in such condition or manner, which makes it likely that the person doing so exist for soliciting or receiving alms;

The definition however, does not include soliciting or receiving money or food for a purpose authorized by any law or by any competent authorities. The Bombay Act gives powers to enforcement agencies, to arrest without warrant, those persons found begging, and put them in any certified institutions for a period of 1-3 years. If any person, who was detained in a Certified Institution, is found begging again, he shall on conviction for the first time can be ordered by the Court to be detained for not more than three years and on conviction for the second time, for a period of ten years. Further whoever employs or causes any person or child to resort to begging can be punished with imprisonment for a term of 1-3 years.

Presently, there is no Scheme of the Central Government on Beggary nor there is a central law on the matter. The States are responsible for taking necessary preventive and rehabilitative steps. Around 22 States / Union Territories have enacted their own anti-beggary legislation or adopted legislation enacted by other States/UTs. Existing State Anti Beggary Laws

Sl.No. States/Union Territories States

Legislation in Force

1. Andhra Pradesh The Andhra Pradesh Prevention of Beggary Act, 1977

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2. Assam The Assam Prevention of Begging Act, 1964

3. Bihar The Bihar Prevention of Begging Act, 1951

4. Chhattisgarh Adopted the Madhya Pradesh Bikshavirty Nivaran Adhiniyam, 1973

5. Goa The Goa, Daman & Diu Prevention of Begging Act, 1972

6. Gujarat Adopted the Bombay Prevention of Begging Act, 1959

7. Haryana The Haryana Prevention of Begging Act, 1971

8. Himachal Pradesh The Himachal Pradesh Prevention of Begging Act, 1979

9. Jammu & Kashmir The J&K Prevention of Begging Act, 1960

10. Jharkhand Adopted the Bihar Prevention of Begging Act, 1951

11. Karnataka The Karnataka Prevention of Begging Act, 1975

12. Kerala The Madras Prevention of Begging Act, 1945, the Travancore Prevention of Begging Act, 1120 and the Cochin Vagrancy Act, 1120 are in force in different areas of the State.

13. Madhya Pradesh The Madhya Pradesh Bikshavirty Nivaran Adhiniyam, 1973

14. Maharashtra The Bombay Prevention of Begging Act, 1959

15. Punjab The Punjab Prevention of Begging Act, 1971

16. Sikkim The Sikkim Prohibition of Beggary Act, 2004

17. Tamil Nadu The Madras Prevention of Begging Act, 1945

18. Uttar Pradesh The Uttar Pradesh Prohibition of Begging Act, 1972

19. Uttarakhand Adopted the Uttar Pradesh Prohibition of Begging Act, 1972

20. West Bengal The West Bengal Vagrancy Act, 194321. Daman & Diu The Goa, Daman & Diu Prevention of

Begging Act, 197222. Delhi Adopted the Bombay Prevention of

Begging Act, 1959State laws can be seen from the site of lawsofindia run by PRS.

Most of these legislations have provisions for punishment of persons who employ or cause persons to beg or use them for the purpose of begging.

Even though there are no specific central laws, Section 24(1) of the Juvenile Justice (Care and Protection of Children) Act, 2000 provides that whoever employs or uses any juvenile or the child for the purpose of begging or causes any juvenile to beg can be imprisoned upto three years and shall also be liable to fine. Those who abets begging are also liable for the same punishment. Section 363A of Indian Penal Code

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(IPC) provides for punishment of a person who kidnaps or maims a minor for purposes of begging. Unauthorized vending/hawking and begging in trains and Railway premises is an offence under the provisions of Section 144 of the Railways Act, 1989.

Child beggars are treated as children in need of care and protection under the "Integrated Child Protection Scheme (ICPS)" being implemented by the Ministry of Women and child Development. Further there are many government schemes for destitute men and women so that they do not take to streets. (For instance, under the Indira Gandhi National Old Age Pension Scheme (IGNOAPS) central assistance is also provided to States for giving pension to persons above 65 years, living below the poverty line, @ Rs. 200/- per month, which is meant to be supplemented by at least an equal contribution by the States.)

There is currently a thinking that any anti-begging legislation should stress more on prevention and rehabilitation of beggars and should curb the evil of what is called as 'organized begging racket' especially in cities, places of religious importance, etc.

Statistics Persons like beggars, pensioners, etc., who receives income without doing any work are regarded as "non-workers" as per census of India and a state wise estimate of such non-workers are generated. As per the Census 2011, the number of Beggars, Vagrants etc. in India is as follows:

Age group Persons Males FemalesTotal 372217 197725 1744920-4 6549 3363 31865-14 34736 18747 1598915-19 13973 8256 571720-24 14742 8746 599625-29 16880 10064 681630-34 17979 10615 736435-39 20769 12391 837840-49 48068 28173 1989550-59 53146 28169 2497760-69 75455 35368 4008770-79 48907 23227 2568080+ 19181 9528 9653

Age not stated 1832 1078 75415-59 185557 106414 7914360+ 143543 68123 75420

However, these figures may be an underestimate of the number of beggars in India. For instance, Census 2011 states that there are 2073 beggars in Delhi. When the Government of Delhi had sponsored a survey of beggars in Delhi, in 2006 it reported the estimated (projected) number of beggars at 58,570. (However, out of surveyed beggars, 6 were found to be graduates and 4 were post graduates. As per the report, 22 beggars earned between Rs. 200/- to Rs. 500/- per day.) To take a cue from another related statistics, during the year 2006, around 1,17,779 number of unauthorized vendors etc. have been arrested and prosecuted under section 144 of the Railways Act, 1989.

Bid RiggingBid rigging is a widely known term across the world. Bidding, as a practice, is

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intended to enable the procurement of goods or services on the most favourable terms and conditions. Invitation of bids is resorted to both by Government (and Government entities) and private bodies (companies, corporations, etc.). But the objective of securing the most favourable prices and conditions may be negated if the prospective bidders collude or act in concert. Such collusive bidding called “bid rigging” contravenes the very purpose of inviting tenders and is inherently anticompetitive. If bid rigging takes place in Government tenders, it is likely to have severe adverse effects on its purchases and on cost effectiveness of public spending and wastes public resources. It is therefore important that the procurement process is highly competitive and not affected by practices such as collusion, bid rigging, fraud and corruption. All over the world, bid rigging or collusive bidding is treated with severity in the law as reflected by the presumptive approach.

Collusive bidding or bid rigging may occur in various ways by which firms coordinate their bids on procurement or project contracts. Origin of bid rigging is as old as system of procurement. However, an apt codification on the same may be the Sherman Act, 1890 of the United States, which is considered the first codified law to look into agreements leading to bid rigging. Governments are most often the target of bid rigging. Bid rigging is one of the most widely prosecuted forms of collusion. Bid rigging may take various forms such as bid suppression, complimentary bidding, bid rotation, and sub contracting etc.

In India, the Competition Act, 2002 specifically prohibits collusive bidding (direct or indirect) under Section 3 (3) d. It is one of the four horizontal agreements that shall to be presumed to have appreciable adverse effect on competition (AAEC). The explanation to sub-section (3) of Section 3, of the Competition Act, 2002 defines “bid rigging” as “any agreement, between enterprises or persons referred to in sub-section (3) engaged in identical or similar production or trading of goods or provision of services, which has the effect of eliminating or reducing competition for bids or adversely affecting or manipulating the process for bidding.”

Reducing collusion in public procurement requires strict enforcement of competition laws and the education of public procurement agencies at all levels of government to help them design efficient procurement processes and detect collusion.

Bio-fuels

Bio-fuels are environment friendly fuels derived from renewable bio-mass resources. In India, a definition of bio-fuels is provided in the National Bio-fuel Policy of 2009. As per that definition, ‘biofuels’ are those liquid or gaseous fuels produced from biomass resources and used in place of, or in addition to, diesel, petrol or other fossil fuels for transport, stationary, portable and other applications. In this context, 'biomass resources' refer to the biodegradable fraction of products, wastes and residues from agriculture, forestry and related industries as well as the biodegradable fraction of industrial and municipal wastes.

Three broad categories of bio-fuels are identified in India:

1. ‘bio-ethanol’: ethanol produced from biomass such as sugar containing materials, like sugar cane, sugar beet, sweet sorghum, etc.; starch containing materials such as corn, cassava, algae etc.; and, cellulosic materials such as bagasse, wood waste, agricultural and forestry residues etc.;

2. ‘biodiesel’: a methyl or ethyl ester of fatty acids produced from vegetable oils, both

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edible and non-edible, or animal fat of diesel quality; and

3. other biofuels: biomethanol, biosynthetic fuels etc.

Bio-fuels provide a strategic advantage to promote sustainable development and to supplement conventional energy sources in meeting the rapidly increasing requirements associated with high economic growth for transportation fuels.

The Indian approach to bio-fuels is somewhat different from the current international approaches since it is based solely on non-food feedstocks to be raised on degraded or wastelands that are not suited to agriculture, thus avoiding a possible conflict of fuel vs. food security.

An indicative target of 20% blending of bio-fuels, both for bio-diesel and bio-ethanol, by 2017 is proposed in the National Bio Fuel Policy announced on 24 December 2009 apart from various other initiatives for encouraging the production and usage of bio-fuels.It is also proposed to blend 5 per cent Bio-diesel to diesel to be used on diesel locomotives only on Indian Railways. Also see Ethanol Blending Programme in India.

Black MoneyIn common parlance, Black money is a term used to refer to money that is not fully legitimate in the hands of the owner. The term "black money" is not defined per se in the tax laws. However, a definition of black money was adopted in the White Paper issued on Black Money by Government of India in May 2012.As per the above report, ‘black money’ is defined as assets or resources that have neither been reported to the public authorities at the time of their generation nor disclosed at any point of time during their possession. Black money could arise broadly due to two possible reasons. The first is that the money may have been generated through illegitimate activities not permissible under the law, like crime, drug trade, terrorism, and corruption, all of which are punishable under the legal framework of the state. Some of these offences are included in the schedule of the Prevention of Money Laundering Act, 2002. Money laundering, as defined by Financial Action Task Force (FATF), is the processing of these criminal proceeds to disguise their illegal origin.

The second and perhaps more likely reason is that the wealth may have been generated and accumulated by failing to pay the dues to the public exchequer in one form or other. In this case, the activities undertaken by the perpetrator could be legitimate and otherwise permissible under the law of the land but s/he has failed to report the income so generated, or comply with the tax requirements, or pay the dues to the public exchequer, thereby converting such income into black money.

Thus, in addition to wealth earned through illegal means, the term black money would also include legal income that is concealed from public authorities

to evade payment of taxes (income tax, excise duty, sales tax, stamp duty, etc); to evade payment of other statutory contributions;

to evade compliance with the provisions of industrial laws such as the Industrial Dispute Act 1947, Minimum Wages Act 1948, Payment of Bonus Act 1936, Factories Act 1948, and Contract Labour (Regulation and Abolition) Act 1970; and / or to evade compliance with other laws and administrative procedures.

The definition of black money used in the White Paper is in consonance with the

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definition used by the National Institute of Public Finance and Policy (NIPFP)in its 1985 report on Aspects of Black Economy, wherein it defined ‘black income’ as ‘the aggregates of incomes which are taxable but not reported to the tax authorities’.

Because of deliberate, false reporting of incomes/output/ transactions national income and output of the country gets underestimated and hence, decisions based on such calculations tend to be faulty.

Black money lying abroad in foreign jurisdictions

The Finance Minister, in his budget speech of 2015-16, had conveyed the decision of the Government to enact a comprehensive new law on black money to specifically deal with black money stashed away abroad. In the Undisclosed Foreign Income and Assets (Imposition of Tax) Bill, 2015 later introduced in the Parliament on 20.03.2015, the words corresponding to black money is "undisclosed income and assets".

As per the Bill, “undisclosed asset located outside India” means an asset (including financial interest in any entity) located outside India, held by the tax assessee in his name or in respect of which he is a beneficial owner, regarding which he has no explanation about the source of investment in such asset or the explanation given by him is unsatisfactory in the opinion of the Assessing Officer; Further, “undisclosed foreign income and asset” means the total amount of undisclosed income of an assessee from a source located outside India and the value of an undisclosed asset located outside India, and computed in the manner as laid down in the said Bill. These definitions stands for black money lying abroad.

The Bill provides for separate taxation of any undisclosed income in relation to foreign income and assets. Such income will henceforth not be taxed under the Income-tax Act but under the stringent provisions of the proposed new legislation. Undisclosed foreign income or assets will be taxed at the flat rate of 30 percent. No exemption or deduction or set off of any carried forward losses which may be admissible under the existing Income-tax Act, 1961, will be allowed. The penalty for non-disclosure of income or an asset located outside India will be equal to three times the amount of tax payable thereon, i.e., 90 percent of the undisclosed income or the value of the undisclosed asset. This is in addition to tax payable at 30%. Failure to furnish return in respect of foreign income or assets shall attract a penalty of Rs.10 lakh. The same amount of penalty is prescribed for cases where although the assessee has filed a return of income, but he has not disclosed the foreign income and asset or has furnished inaccurate particulars of the same. Abetment or inducement of another person to make a false return or a false account or statement or declaration under the Act will be punishable with rigorous imprisonment from six months to seven years. This provision will also apply to banks and financial institutions aiding in concealment of foreign income or assets of resident Indians or falsification of documents.

The Bill received Presidential assent and became law on 26th May, 2015

Body Corporate

Body corporate broadly means a corporate entity which has a legal existence.

The term "body corporate" is defined in Section 2(11) of the Companies Act, 2013.

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This includes a private company, public company, one personal company, small company, Limited Liability Partnerships, foreign company etc.

“body corporate” or “corporation” also includes a company incorporated outside India.

However, body corporate does not include—

(i) a co-operative society registered under any law relating to co-operative societies; and

(ii) any other body corporate (not being a company as defined in the Companies Act 2013), which the Central Government may, by notification, specify in this behalf;

The above definition is different from the provisions existed in the erstwhile companies Act 1956, which had excluded a “corporation sole” also from the definition of body corporate which was, however, not defined in the Act of 1956.

Broad Based Fund

Broad based fund means a fund established or incorporated outside India, which has at least 20 investors with no single individual investor holding more than 49 percent of the shares or units of the fund. If the broad based fund has institutional investor(s), then it is not necessary for the fund to have 20 investors. Further, if the broad based fund has an institutional investor who holds more than 49 percent of the shares or units in the fund, then the institutional investor must itself be a broad based fund.

In India, the following entities proposing to invest on behalf of broad based funds, are eligible to be registered as FIIs:

(1).Asset Management Companies (2).Investment Manager/Advisor (3).Institutional Portfolio Managers (4).Trustee of a Trust and (5).Bank

Budget Making Exercise in a Federal Set up

Within the Five-Year Plan for each year an Annual Plan is drawn up detailing the plan of action during the year. Around October-November every year Planning Commission circulates a detailed proforma to the Central Ministries and State Governments requesting for information on the progress made in implementing plan schemes and the allocation proposed for implementing the schemes in the ensuing plan year. On receipt of the information the Central Ministries are invited to the Planning Commission to discuss their proposals after which the head of the subject division in the Planning Commission and the nodal officer representing the Ministry sign a statement showing the plan outlay for the year. Once this exercise is completed the consolidated Statement of Plan outlays of all Central Ministries is forwarded to the Ministry of Finance which earmarks the planned allocation for the respective Ministries at the time of announcement of the Union Budget in February every year. There may only be minor variations in the approved outlay of Planning Commission and the financial allocation made by the Ministry of Finance.

As regards the State Governments, the consolidated proforma forwarded by the

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Planning Commission is filled in and forwarded to the Planning Commission. The State Plan Division in Planning Commission circulates the proposals to the respective Subject Divisions for comments on the State Plan proposals. This is followed by Working Group meetings between the Subject Division Head and the officers implementing the scheme/subject in the State after which the Subject division head recommends the outlay proposed for a respective subject say, agriculture, social welfare etc to the State Plan Division. The Working Group meetings are followed by Wrap-Up meeting chaired by the Member in charge of a State with the State Government officers either on the same day or the next day to finalise the outlays. Once the plan proposals of the State are discussed then the Briefing meeting is held between the Deputy Chairman of Planning Commission and the Chief Minister of the concerned State wherein the Annual Plan outlay for the State is announced.

C Cabinet Committee on Investments (CCI)

The Cabinet Committee on Investments (CCI) is a Cabinet Committee notified on 2 January 2013 to expedite decisions on approvals/clearances for implementation of major infrastructure projects. This is expected to improve the investment environment in the country by bringing transparency, efficiency and accountability in accordance of various approvals and sanctions.

Prime Minister is the Chairman of the Committee with 15 other Cabinet Ministers as Members and 4 other as special invitees. Details may be seen here.

CCI aims to identify key projects required to be implemented on a time-bound basis, involving investments of Rs. 1000 crore or more, or any other critical projects (as may be specified by the Committee), in sectors such as infrastructure, manufacturing, etc. It can prescribe time limits for issue of requisite approvals and clearances by the Ministries/Departments concerned in respect of projects in identified sectors. CCI also monitors the progress and implementation of such identified projects.

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CCI is empowered to review the procedures followed by Ministries/Departments to grant/refuse approvals and clearances and can take decisions regarding grant/refusal of approval/clearance of specific projects that are unduly delayed, if deemed necessary.

Cabinet Committee

In a parliamentary democracy, a Cabinet Minister with the title of Prime Minister is the Executive head of the Government, while the Head of State is a largely ceremonial monarch or president. The Executive branch of the Government has sole authority and responsibility for the daily administration of the State bureaucracy.The Prime Minister selects the team of Ministers in the Cabinet and allocates portfolio. In most cases, the Prime Minister sets up different Cabinet Committees with select members of the Cabinet and assigns specific functions to such Cabinet Committees for smooth and convenient functioning of the Government.A Cabinet Committee can be either set up with a broad mandate or with a specific mandate. Many a times, when an activity/agenda of the Government acquires prominence or requires special thrust, a Cabinet Committee may be set up for focussed attention. In all areas delegated to the Cabinet Committees, normally the decision of the Cabinet Committee in question is the decision of the Government of the day. However, it is up to the Prime Minister to decide if any issue decided by a Cabinet Committee should be re-opened or discussed in the full Cabinet.The Parliament of India (Sansad / सं�संद) is the federal and supreme legislative body of India. It consists of two houses – the Lower House – House of the People called Lok Sabha ( लो�क संभा� )and the Upper House- Council of States called Rajya Sabha.( रा�ज्य संभा�).Though the political party /coalition that have the absolute majority ( i.e at least one seat more than 50 percent of total seats contested and decided) in Lok Sabha forms the Government, the Prime Minister and the members of the Cabinet can be from either House of Parliament. In 1961, the Government of India Transaction of Business Rules (TBR), 1961 were framed, which inter-alia prescribed the procedure in which the Executive arm of the Government would conduct its business in a convenient and streamlined manner.

In terms of the TBR, 1961, inter-alia, there shall be “Standing Committees of the Cabinet” as set out in the First Schedule to the TBR, 1961, with the functions specified therein. The Prime Minister may, from time to time, amend the Schedule by adding to or reducing the numbers of such Committees or by modifying the functions assigned to them. Every Standing Committee shall consist of such Ministers as the Prime Minister may from time to time specify. Conventionally, while Ministers with Cabinet rank are named as ‘members’ of the Standing Committees of the Cabinet, Ministers of State, irrespective of their status of having ‘Independent Charge’ of a Ministry/Department, and others ‘with rank of’ a Cabinet Minister or Minister of State are named as ‘special invitees’.

The Second Schedule to TBR 1961, lists the items of Government business where the full Cabinet, and not any Standing Committee of the Cabinet should take a decision. However, to the extent there is a commonality between the cases enumerated in the Second Schedule and the cases set out in the First Schedule, the Standing Committees of the Cabinet shall be competent to take a final decision in the matter, except in cases where the relevant entries in the respective Schedules themselves preclude the Committees from taking such decisions. Also, any decision taken by a Standing Committee may be reviewed by the Cabinet.

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Existing Cabinet Committees

As on 20th March 2013 there are 10 (ten) Standing Committees of the Cabinet. These are the Appointments Committee of the Cabinet (ACC), the Cabinet Committee on Accommodation(CCA), the Cabinet Committee on Economic Affairs (CCEA) , the Cabinet Committee on Parliamentary Affairs, the Cabinet Committee on Political Affairs (CCPA), the Cabinet Committee on Prices (CCP), the Cabinet Committee on Security (CCS), the Cabinet Committee on World Trade Organisation Matters (CCWTO), the Cabinet Committee on Investment (CCI), and the Cabinet Committee on Unique Identification Authority of India related issues (CCUID).

While three of the Cabinet Committees, the ACC, CCA and the Cabinet Committee on Parliamentary Affairs deal with internal housekeeping and functioning of the Government, three Cabinet Committees have very limited mandates, i.e, CCP is for regulating prices of essential commodities, CCWTO is for matters relating to WTO, and CCUID is for matters relating to UID.

Prominent Cabinet Committees whose functioning is of general interest are the Cabinet Committee on Economic Affairs (CCEA), the Cabinet Committee on Investment (CCI), the Cabinet Committee on Political Affairs (CCPA), and the Cabinet Committee on Security (CCS).

The latest Cabinet Committee is that on investment. On 2 January 2013, the Government has set up the Cabinet Committee on Investments (CCI) with the Prime Minister as the Chairman to expedite decisions on approvals/clearances for implementation of projects. This is expected to improve the investment environment by bringing transparency, efficiency and accountability in accordance of various approvals and sanctions.

Reconstitution of Cabinet Committees in June 2014

On 10th June 2014, the new Government headed by Prime Minister Shri Narendra Modi decided to discontinue the following four Standing Committees of the Cabinet:

1. Cabinet Committee on Management of Natural Calamities: The functions of this Committee will be handled by the Committee under the Cabinet Secretary whenever natural calamities occur.

2. Cabinet Committee on Prices: The functions of this Committee will be handled by the Cabinet Committee on Economic Affairs.

3. Cabinet Committee on World Trade Organisation Matters: The functions of this Committee will be handled by the Cabinet Committee on Economic Affairs and, whenever necessary, by the full Cabinet.

4. Cabinet Committee on Unique Identification Authority of India related issues: Major decisions in this area have already been taken and the remaining issues will be brought to the Cabinet Committee on Economic Affairs.

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On 19th June 2014 the Government reconstituted six Committees of the Cabinet i.e. Appointments Committee of the Cabinet, Cabinet Committee on Accommodation, Cabinet Committee on Economic Affairs, Cabinet Committee on Parliamentary Affairs, Cabinet Committee on Political Affairs and Cabinet Committee on Security.

Details of various cabinet committees can be obtained from the website of Cabinet Secretariat of India.

Cabinet Committee on Economic Affairs (CCEA)

CCEA has a mandate to review economic trends on a continuous basis, as also the problems and prospects, with a view to evolving a consistent and integrated economic policy framework for the country. It also directs and coordinates all policies and activities in the economic field including foreign investment that require policy decisions at the highest level.

Matters regarding fixation of prices of agricultural products as well as reviewing progress of activities related to rural development including those concerning small and marginal farmers are in CCEA’s competence.

Price controls of industrial raw materials and products, industrial licensing policies including industrial licensing cases for establishment of Joint Sector Undertakings, reviewing performance of Public Sector Undertakings including their structural and financial restructuring are also within the purview of CCEA, as are all matters relating to disinvestment including cases of strategic sale, and pricing of Government shares in Public Sector Undertakings (except to the extent entrusted to an Empowered Group of Ministers).

The CCEA also lays down priorities for public sector investment and considers specific proposals for investment of not less than specific levels (Rs. 3 Billion at present) as revised from time to time. It is important to note that the increase in the prices of essential commodities or bulk goods under any form of formal or informal control is decided by the CCEA, even as the CCP monitors the price behaviour of essential commodities, takes decision on supply, imports and exports of essential commodities and prices for articles sold through the public distribution system.

CCEA facilitates finalization of factual reports on the accomplishments of the Ministries, Agencies and Public Sector Undertakings involved in implementation of prioritized schemes or projects for evaluation by the Prime Minister. The CCEA also considers cases of increase in the firmed up cost estimates/revised cost estimates for projects etc. in respect of the business allocated to the CCEA.

On 2 January 2013, Cabinet Committee on Infrastructure was merged with CCEA.

On 10 June 2014, the Cabinet Committee on Prices, Cabinet Committee on Unique Identification Authority of India related issues and Cabinet Committee on World Trade Organization Matters were merged with CCEA, subject to condition that whenever necessary, full cabinet will take decision on the WTO related matters.

On 19 June 2014, CCEA was also reconstituted.

Cabinet Committee on Infrastructure (CCI)

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CCI is one of the new Standing Committee of the Cabinet for focussed and speedy decisions for infrastructure. Prior to setting up of the CCI, infrastructure development was conventionally, and by implication included in the general mandate of CCEA/ Cabinet. CCI considers and takes decisions in respect of all infrastructure related proposals costing more than specified levels (Rs. 3 Billion at present) specifically those concerning Energy, Railways, Roads, and National Highways, Ports, Airports, Telecommunications, Information Technology, Irrigation, Housing and Urban Development with particular emphasis on rural housing and augmentation of facilities in urban slums.

The CCI also considers and decides fiscal, financial, institutional and legal measures that are required to enhance investment in the infrastructure sector, including grant of requisite approvals to facilitate private sector investment in specific projects.

The CCI both lays down parameters and targets for performance for all infrastructural sectors and reviews the progress of infrastructural projects. CCI considers cases of increase in the firmed up cost estimates/revised cost estimates for projects etc. in respect of the business allocated to CCI as well.

Cabinet Committee on Political Affairs (CCPA)

CCPA primarily deals with problems relating to Centre-State relations in the context of the Federal structure of the country and Constitutional provisions.

However, CCPA also considers economic and political issues that have to be judged “with a wider perspective”. It is in this background that economic issues with political implications sometimes get discussed in the CCPA and not in the CCEA.

CCPA is enjoined to deal with policy matters concerning foreign affairs that do not have external or internal security implications, as matters with such implications are required to be dealt with by the CCS.

Capital BudgetUnder Article 112 of the Constitution of India, the Annual Financial Statement has to distinguish expenditure of the Government on revenue account from other expenditures. Government Budget, therefore, comprises of Revenue Budget and Capital Budget.

Capital Budget consists of capital receipts and capital payments.

The capital receipts are loans raised by Government from public, called market loans, borrowings by Government from Reserve Bank and other parties through sale of Treasury Bills, loans received from foreign Governments and bodies, disinvestment receipts and recoveries of loans from State and Union Territory Governments and other parties.

Capital payments consist of capital expenditure on acquisition of assets like land, buildings, machinery, equipment, as also investments in shares, etc., and loans and advances granted by Central Government to State and Union Territory Governments, Government companies, Corporations and other parties.

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Carriage by Road Act, 2007

The Carriage by Road Act, 2007 is an Act of the Parliament of India which provides for the regulation of common carriers of goods by roads. The Act was published on 29th September 2007.

The Act states that no person shall engage in the business of common carrier, after the commencement of the Act, unless a certificate of registration has been granted to him. Persons engaged in the business of common carrier before the commencement of the Act, were required to either apply for a registration within 90 days from the date of commencement of the Act or cease to engage in such business on the expiry of 180 days from the date of commencement of the Act.

The Act defines a “common carrier” as a person engaged in the business of collecting, storing, forwarding or distributing goods to be carried by goods carriages under a goods receipt or transporting for hire of goods from place to place by motorized transport on road. It also includes a goods booking company, contractor, agent, broker and courier agency engaged in the door-to-door transportation of documents, goods or articles utilizing the services of a person, either directly or indirectly, to carry or accompany such documents, goods or articles.

The Act mandates that every consignor shall execute a goods forwarding note (GFN) which would include a declaration about the value of the consignment and goods of dangerous and hazardous nature. Every common carrier is liable to the consignor for the loss or damage to any consignment in accordance with GFN.

In exercise of the powers conferred by the Act, the Central Government of India made the Carriage by Road Rules 2011.

Carriage by Road Rules, 2011In exercise of the powers conferred by the Carriage by Road Act, 2007, the Central Government of India made the Carriage by Road Rules, 2011. These Rules relate to the regulation of common carriers of goods by roads. The Rules came into force on 28th February 2011.

Conditions for grant of registration

A person applying for registration under Carriage by Road rules shall comply with the following conditions:

1. The applicant should produce registration certificates of two commercial vehicles registered in his name or in the name of an Organisation or in the name of a partner or proprietor or director, or a contract letter or work

order for carrying out functions as a common carrier, from a registered company;

1. The applicant should have net worth of minimum rupees five lakhs of his own or of any of the proprietor or partner or director. In case of applications for certificate of registration for providing service at a higher risk, the net worth of the applicant or of any of its proprietor or partner or director shall be minimum rupees twenty lakhs.

2. In case common carriers are proprietorship firms or partnership firms, the

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proprietors or partners should not have been blacklisted or deregistered earlier.

Grant or renewal of certificate of registration

The registering authority shall grant or renew the certificate of registration within a period of 30 days after

1. Receiving the application2. Receiving the fees specified

3. Satisfying that the applicant has complied with all the conditions required for grant of registration.

Every holder of a certificate of registration needs to maintain a record of the transactions in a register, updated on a quarterly basis. The summary of the entries are to be submitted to the registering authority. Every consignor needs to execute a goods forwarding note (GFN), carrying details of the goods, at the time of booking his goods. On receipt of GFN from the consignor for booking of goods to be transported, every common carrier shall issue a goods receipt.

Liability for loss of or damage to any consignment

Liability of the common carrier is limited to ten times the freight paid or payable, provided that the amount so calculated does not exceed the value of the goods as declared in GFN. In case of partial damage to the goods, the evaluation of damage may be done by an independent Government approved valuer or surveyor selected by the consignor out of the list notified by the common carrier and the cost of such evaluation is to be borne by the common carrier.The liability for loss of documents sent along with the consignment order should not exceed rupees five hundred. In case of perishable goods, the consignor or the consignee should select the Government approved valuer or surveyor within a period of 24 hours from the time of report of the loss or deterioration of the goods, failing which the common carrier shall be free to select the said valuer or surveyor. The delivery of the consignment by the common carrier is treated as prima facie evidence of delivery of the goods as described in the GFN unless notice of the general nature of loss of, or damage to, the goods is given in writing, by the consignee to the common carrier at the time of handing over of the goods to the consignee. The responsibility of the common carrier is limited to the transit period, from the date of taking over the goods in his or her charge from the consignor to the date of arrival at the destination point plus three calendar days. The date of arrival of the consignment is taken as the day on which the goods physically arrive at the destination or the day when the consignee or consignor is informed of the arrival of the goods at the destination, whichever is later. The liability of the common carrier is to be calculated on the actual freight collected or due or ninety per cent of total charges excluding the taxes shown on goods receipt, whichever is higher.

Cash based Accounting System Versus Accrual Accounting System

The Indian Government accounts are prepared on a cash based accounting system. This system recognizes a transaction when cash is paid or received. However it does not give a realistic account of government's financial position because it lacks an adequate framework for accounting for assets and liabilities, and depicting consumption of resources. Moreover capital expenditure (expenditure on the creation of new assets) under the cash system is brought to account only in the year in which a

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purchase or disposal of an asset is made. This is not an effective way to track assets created out of public money. The present system does not reflect accrued liabilities arising from the gap between commitments and transactions of government on the one hand and payments made. The Twelfth Finance Commission recommended introduction of accrual accounting in Government. Government has accepted the recommendation in principle and asked Government Accounting Standards Advisory Board (GASAB) in the office of the Comptroller and Auditor General of India to draw a roadmap for transition from cash to accrual accounting system and to prepare an operational framework for its implementation. So far twenty one State Governments have agreed in principle to introduce accrual accounting.

Cash Reserve Ratio (CRR)

Cash Reserve Ratio refers to the fraction of the total Net Demand and Time Liabilities (NDTL) of a Scheduled Commercial Bank held in India, that it has to maintain as cash deposit with the Reserve Bank of India (RBI). The requirement applies uniformly to all banks in the country irrespective of an individual bank’s financial situation or size. In contrast, certain countries e.g. China stipulates separate reserve requirements for ‘large’ and ‘small’ banks.

As per the RBI Act 1934, all Scheduled Commercial Banks (that includes public and private sector banks, foreign banks, regional rural banks and co-operative banks) are required to maintain a cash balance on average with the RBI on a fortnightly basis to cater to the CRR requirement. With effect from December 28, 2002 all banks are required to maintain a minimum of 70 per cent of the required average daily CRR on all days of the fortnight. Non Bank Financial Corporations (NBFCs) are outside the purview of this reserve requirement.Traditionally, the amount held to cater to the CRR requirement was stipulated to be no lower than 3 percent and no higher than 20 percent of the total NDTL held in India. However, the RBI (amendment) Act, 2006 provides for removal of the floor and ceiling with respect to setting the CRR and authorizes the RBI to set the ratio in keeping with the broad objective of maintaining monetary stability in the economy.

Presently, banks are not paid any interest on behalf of the RBI for parking the required cash. If a bank fails to meet its required reserve requirements, the RBI is empowered to impose a penalty by charging a penal interest rate.

Historically, the CRR was mooted as a regulatory tool. However, over the years and especially after the liberalization of the Indian economy in the early 1990s, with the economy experiencing substantial inflows of capital exerting stress on the leverage of the central bank to manipulate liquidity conditions in the domestic money market, the CRR assumed importance as one of the important quantitative tools aiding in liquidity management. In contrast to the Liquidity Adjustment Facility (LAF), which aids liquidity management on a daily basis via changes in repo and reverse-repo rates, changes in the CRR is aimed at the same in the medium term.

The CRR was reduced from a level of 8.5 percent in August 2008 to 6 percent in September, 2008 to ease liquidity in domestic markets on the face of the global financial crisis. The cut continued through 2008 reaching a level of 5 percent in January 2009. The CRR was maintained at this level throughout 2009 and eventually raised to 6 percent in April, 2010.

A country that uses the CRR aggressively to control domestic liquidity and target the monetary roots of inflation is China. In the recent past the People’s Bank of China has

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frequently raised the reserve requirement for its banks primarily to rein in rising inflation. In the latest policy move, the Bank raised the required reserve ratio by 50 basis points, to 21.5 percent for large banks and19.5 percent for smaller ones, effective from June 20, 2011.

The RBI website (www.rbi.org.in) carries information on the prevailing policy rates including CRR. Presently the CRR stands at 6 percent. Various publications by the RBI, including monthly bulletins, discuss and analyze rationale behind changes and expected effects of CRR changes as and when the need arises.

Central Plan Assistance

Financial assistance provided by Government of India to support State’s Five Year/intervening annual plans is called Central Plan Assistance (CPA) or Central Assistance (CA).

CPA or CA primarily comprises of the following:

(a) Normal Central Assistance (NCA): The distribution of the NCA is formula based (see Gadgil-Mukherjee Formula) and is untied. Gadgil Formula of determining the Central Assistance to the State is being adopted from the fourth five year plan and revised subsequently. Planning Commission makes the allocation and Ministry of Finance, release the funds in 12 Monthly Installments. From 01.04.2015 onwards, there is no allocation under NCA. This is because the 14th Finance Commission (FFC) has substantially enhanced the share of the States in the Central divisible pool from the current 32 % to 42 %, which is the biggest ever increase in vertical tax devolution. FFC recommendations factor in both Plan and Non-plan revenue expenditure of the States and tax devolution is untied. The last two Finance Commissions i.e. 12th FC (2005-10) and 13th FC (2010-15) had recommended increase of 1% and 1.5% respectively. Besides share of central taxes, FFC has recommended grant – in –aid amounting to Rs.5.4 lakh crore over its award period to cover Revenue Deficit of States, local body grants (both to rural and urban local bodies) and grants for augmenting the State’s Disaster Response Fund (SDRF). Seen over the Finance Commission’s award period, there is an increase of about Rs. 25 lakh crore in tax devolution and Rs.2.7 lakh crore in grant-in-aid recommended by the FFC as compared to the 13th Finance Commission. During 2015-16 alone, increase in transfer to States over 2014-15 (both from tax devolution and FFC grants together), is estimated to be about Rs. 2.1 lakh crores.Since NCA was an untied assistance, higher transfer of untied devolution of taxes is expected to take care of no allocation under NCA. From 2015-16 onwards, the allocations under NCA are subsumed in the increased rate of tax devolution.

(b) Additional Central Assistance (ACA):This is provided for implementation of externally aided projects (EAPs), and for which presently there is no ceiling. Unlike NCA, this is Scheme based. The details of such schemes are given in the Statement 16 of the Expenditure Budget Vol. I. There can be One time ACA and advance ACA. One time ACA are assistance given by Planning Commission to particular States for undertaking important State specific programmes and schemes. These are one time assistance and thus not recurring. These assistances are discretionary in nature. Advance ACA are advances given to special category states in times of financial stress and recoverable in ten years.

(c) Special Central Assistance (SCA), which is provided for special

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projects/programmes e.g., Western Ghats Development Programme (WGDP), Border Areas Development Programme etc. (In exceptional situations, Advance Central Assistance, may also be provided.) This special plan assistance is given only to special category states to bridge the gap between their Planning needs and resources. In other words, SPAs are ACA to special category States. Special Plan Assistance (SPA) is provided to the Special Category States for funding of projects identified by the States that are not covered by any Central scheme and for non-recurrent expenditure of a developmental nature, based on the recommendation of the Planning Commission. From 01.04.2015 onwards, there is no allocation under SPA and SCA (untied).

CPA is provided, as per scheme of financing applicable for specific purposes, approved by Planning Commission. It is released in the form of grants and/or loans in varying combinations, as per terms & conditions defined by Ministry of Finance, Department of Expenditure.

Central Assistance in the form of ACA is provided also for various Centrally Sponsored Schemes viz., Accelerated Irrigation Benefits Programme, Rashtriya Krishi Vikas Yojana etc. and SCA is extended to states and UTs as additive to Special Component Plan (renamed Scheduled Castes Sub Plan) and Tribal Sub Plan. Funds provided to States under Member of Parliament Local Area Development Scheme @ Rs.5 crore per annum per MP also count as CA.

The term Plan Grants generally comprise of 'Block Grants’ which consists of Normal Central Assistance (NCA), Backward Regions Grant Fund (BRGF)- Scheme (State Component), Additional Central Assistance (ACA) for Externally Aided Projects (EAPs), Special Central Assistance (SCA), Special Plan Assistance (SPA), etc.

Since 2015-16, pursuing the recommendations of the 14th Finance Commission, Some of the schemes like NCA, SCA (untied), SPA, Additional Central Assistance for Other Projects (ACAOP), Other ACA, SCA for Hill Areas Development Programme (HADP/WGDP), SCA under Backward Regions Grant Fund (BRGF), National e-governance Plan (Mission mode project) and ACA for Left wing Extremism (LWE) Affected Districts have been discontinued or subsumed under higher devolution of taxes.

Central Road Research Institute (CRRI)

The Central Road Research Institute (CRRI) is a premier national research institute founded in 1948 with the objective of carrying out research and development project on design, construction and maintenance of roads and runways economically. It provides technical and consultancy services to various user organisations in India and abroad. it is registered with the World Bank and Asian Development Bank to provide consultancy service and to meet the specialised training for the highway. The institute has also professional linkage with World Road Association, International Road Federation (IRF) and Transport Research Laboratory (TRL), U.K for research and consultancy services. It imparts a popular training course on Road Development Planning and Management (RDP).

Central Sector and Centrally Sponsored Schemes

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In India’s developmental plan exercise we have two types of schemes viz; central sector and centrally sponsored scheme. The nomenclature is derived from the pattern of funding and the modality for implementation.

Under Central sector schemes, it is 100% funded by the Union government and implemented by the Central Government machinery. Central sector schemes are mainly formulated on subjects from the Union List.In addition, the Central Ministries also implement some schemes directly in States/UTs which are called Central Sector Schemes but resources under these Schemes are not generally transferred to States.

Under Centrally Sponsored Scheme (CSS) a certain percentage of the funding is borne by the States in the ratio of 50:50, 70:30, 75:25 or 90:10 and the implementation is by the State Governments. Centrally Sponsored Schemes are formulated in subjects from the State List to encourage States to prioritise in areas that require more attention.Funds are routed either through consolidated fund of States and or are transferred directly to State/ District Level Autonomous Bodies/Implementing Agencies. As per the Baijal Committee Report, April, 1987, CSS have been defined as the schemes which are funded directly by Central Ministries/Departments and implemented by States or their agencies, irrespective of their pattern of financing, unless they fall under the Centre's sphere of responsibility i.e., the Union List.

Conceptually both CSS and Additional Central Assistance (ACA) Schemes have been passed by the Central Government to the State governments. The difference between the two has arisen because of the historical evolution and the way these are being budgeted and controlled and release of funds takes place. In case of CSS, the budgets are allocated under ministries concerned themselves and the entire process of release is also done by them.

States have however been raising concerns at various forums about lack of flexibility in CSS schemes, adverse implication of counterpart funding requirement of CSS on State finances and questionable utility of operating large number of CSS with thinly spread resources at the field level. To consider the concerns of all stakeholders, Planning Commission constituted a Sub-Committee in March 2011 for suggesting restructuring of CSS to enhance its flexibility and efficiency. The Committee submitted its report in September 2011. The National Development Council (NDC), while approving the 12th plan in its meeting held in December 2012 had also recommended building flexibility in the schemes to suit the requirements of the State Governments. Accordingly, the Finance Minister in his budget speech on February 28, 2013 had stated that Government is concerned about the proliferation of CSS and Additional Central Assistance (ACA) schemes and that each scheme would be reviewed and restructured.

In the Budget estimates of 2013-14, budgetary provisions were made for 137 CSS and 5 Scheme based Additional Central Assistance (ACA), excluding block grants. On 20 June 2013, Union Cabinet decided to restructure the existing Centrally Sponsored Scheme (CSS)/ Additional Central Assistance (ACA) schemes in the Twelfth Five Year Plan into 66 schemes, including 17 Flagship programmes. To suit the requirements of the States, the Cabinet also approved that a scheme may have state specific guidelines which may be recommended by an Inter-Ministerial Committee constituted for this purpose. Besides, the financial assistance to the States in these schemes would be provided through the Consolidated Funds of the states. Further, to

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bring in desired flexibility, the Cabinet approved that 10% of the outlay of the Schemes be kept as flexi-funds. For each new CSS/ACA/Flagship scheme, at least 25 per cent of funds may be contributed by the General Category States and 10 percent of funds by the Special Category States including J&K, Himachal Pradesh and Uttarakhand. These arrangements were to come into force for the remaining years of the Twelfth Five Year Plan so as to help in optimum utilisation of resources.

Subsequently, the 14th Finance Commission (FFC) substantially enhanced the share of the States in the Central divisible pool from the current 32 % to 42 %, which is the biggest ever increase in vertical tax devolution. Such tax devolution is untied and can be spent as desired by the States. Consequent to this substantially higher devolution and resultant reduced fiscal space for the Center, the Finance Minister, Shri Arun Jaitley, while presenting the Union Budget 2015-16, said that many schemes on the State subjects were to be delinked from Central support. However, he said that Centre decided to continue to contribute to such schemes representing national priorities, especially those targeted at poverty alleviation. Further, the schemes mandated by legal obligations and those backed by Cess collection would be fully provided for by the Central Government. Thus, Union Budget 2015-16 changed the contours of the central sector and centrally sponsored schemes as follows:

As per the Budget 2015-16, centre has decided to support fully those schemes which are targeted to the benefits of socially disadvantaged group.

In case of some Centrally Sponsored Schemes, the Centre-State funding pattern will undergo a change with States to contribute higher share. Details of changes in sharing pattern will have to be worked out by administrative Ministry/Department.

In the Union Budget 2015-16, there are 31 Schemes to be fully sponsored by the Union Government, 8 Schemes have been delinked from support of the Centre and 24 Schemes will now be run with the changed sharing pattern. The details of these Schemes may be seen in the press release dated 28 February 2015.

Charged Expenditure

In India's democratic system, the government cannot spend from the Consolidated Fund unless the expenditure is voted in the lower house of Parliament or State Assemblies. However according to Article 112 (3) and Article 202 (3) of the Constitution of India, the following expenditure does not require a vote and is charged to the Consolidated Fund. They include salary, allowances and pension for the President as well as Governors of States, Speaker and Deputy Speaker of the House of People, the Comptroller General of India and Judges of the Supreme and High Courts. They also include interest and other debt related charges of the Government and any sums required to satisfy any court judgment pertaining to the Government.

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Chit Funds / Chitty / Kuri/ Miscellaneous Non-banking Company

Chit funds are essentially saving institutions. They are of various forms and lack any standardised form. Chit funds have regular members who make periodical subscriptions to the fund. The periodic collection is given to some member of the chit funds selected on the basis of previously agreed criterion. The beneficiary is selected usually on the basis of bids or by draw of lots or in some cases by auction or by tender. In any case, each member of the chit fund is assured of his turn before the second round starts and any member becomes entitled to get periodic collection again.

Chit funds are the Indian versions of Rotating Savings and Credit Associations found across the globe.

Regulatory framework

Chit fund business is regulated under the Central Act of Chit Funds Act, 1982 and the Rules framed under this Act by the various State Governments for this purpose. Central Government has not framed any Rules of operation for them. Thus,Registration and Regulation of Chit funds are carried out by State Governments under the Rules framed by them.

Functionally, Chit funds are included in the definition of Non- Banking Financial Companies by RBI under the sub-head miscellaneous non-banking company(MNBC). But RBI has not laid out any separate regulatory framework for them.

Cheating by Chit Fund company through fraudulent schemes is an offence under the Prize Chits and Money Circulation Schemes (Banning) Act, 1978. The power to investigate and prosecute lies with the State Governments.

For better identification of Chit Fund Companies, Rule 8(2)(b)(iii) of Companies (Incorporation) Rules, 2014 framed under the Companies Act, 2013, provides that if the company’s main business is that of a chit fund, its incorporation will not be allowed unless its name is indicative of that financial activity, viz., Chit Fund

Official Definition

As per Section 2 (b) of the Chit Funds Act 1982, chit means “a transaction whether called chit, chit fund, chitty, kuri or by any other name by or under which a person enters into an agreement with a specified number of persons that every one of them shall subscribe a certain sum of money (or a certain quantity of grain instead) by way of periodical installments over a definite period and that each such subscriber shall, in his turn, as determined by lot or by auction or by tender or in such other manner as may be specified in the chit agreement, be entitled to the prize amount.A transaction is not a chit within the meaning of this clause, if in such transaction, -

some alone, but not all, of the subscribers get the prize amount without any liability to pay future subscriptions; or

all the subscribers get the chit amount by turns with a liability to pay future subscriptions;

Statistics

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List of Chit fund companies may be seen here.As at the end of March 2012, there are around 4256 Chit funds in India.http://www.mca.gov.in/Ministry/nidhi.htmlhttp://www.mca.gov.in/MCA21/dca/RegulatoryRep/pdf/Chit_Fund_Companies.pdf

The list of registered NBFCs may be seen athttp://www.rbi.org.in/commonman/English/Scripts/NBFCs.aspxhttp://www.rbi.org.in/scripts/bs_nbfclist.aspx

The quantum of deposits mobilized by these entities may be seen at http://dbie.rbi.org.in/DBIE/dbie.rbi?site=statistics (under the tab “financial sector”)

Cities and Towns

In India, the words “cities” and “towns” are defined in the Census of India – which provides statistical information on different characteristics of the people of India. The responsibility of conducting the decennial Census rests with the Office of the Registrar General and Census Commissioner, India under Ministry of Home Affairs, Government of India. (The 2011 census report may be seen here.)

Cities and Towns are part of urban settlements.

All places with a municipality, corporation, cantonment board or notified town area committee, etc. so declared by a state law are called statutory towns.

Places which satisfy the following criteria are called census towns:

1. A minimum population of 5,000;2. At least 75 per cent of the male main working population engaged in non-

agricultural pursuits; and

3. A density of population of at least 400 persons per sq. km. (i.e. 1000 per sq. Mile)

Towns are further classified into different classes based on the size of population: Class I: 100,000 and above; Class II: 50,000 to 99,999; Class III: 20,000 to 49,999;Class IV: 10,000 to 19,999;Class V: 5,000 to 9,999 and Towns with population of 1,00,000 and above are called cities.

An urban agglomeration (UA) is a continuous urban spread constituting a town and its adjoining outgrowths (OGs) which have come up near a statutory town outside its statutory limits but within the revenue limits of a village or villages contiguous to the town.

The UAs/Towns are grouped into the following categories on the basis their population in Census.

Class I UAs/Towns: The UAs/Towns which have at least 1,00,000 persons as population are categorized as Class I UA/Town. At the Census 2011, there are 468 suchUAs/Towns. The corresponding number in Census 2001 was

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394.Around 70% of the total urban population lives in theseClass I UAs/Towns.

Million Plus UAs/Towns: UAs/Towns which have a population of one million (10 Lakh) or above each are known as Million Plus UAs/Cities. Out of 468 UAs/Towns belonging to Class I category, 53UAs/Towns are MillionPlus UAs/Cities in the country. 160.7 millionpersons (or 42.6% of the urban population) live in these Million Plus UAs/Cities as per Census 2011.

Metro Cities: UAs/Towns which have a population of four million (40 Lakh) or above each are known as Metro Cities. 74th Constitutional Amendment Act, 1992 has inserted a definition of “Metropolitan area" as an area having a population of ten lakhs or more, comprised in one or more districts and consisting of two or more Municipalities or Panchayats or other contiguous areas, specified by the Governor by public notification to be a Metropolitan area;

MegaCities: UAs with more than 10 million (100 lakh or 1 crore) persons are known as Mega Cities. Among the Million Plus UAs/Cities, there are three very large UAs withmore than 10 million persons in the country, known as Mega Cities. These areGreater Mumbai UA (18.4 million), Delhi UA (16.3 million) and Kolkata UA (14.1million).

The growth in population in the Mega Cities has slowed down considerablyduring the last decade. Greater Mumbai UA, which had witnessed 30.47% growth inpopulation during 1991-2001 has recorded 12.05% during 2001-2011. Similarly DelhiUA (from 52.24% to 26.69% in 2001-2011) and Kolkata UA (from 19.60% to 6.87% in2001-2011) have also slowed down considerably.

Clean Development Mechanism (CDM)

The Clean Development Mechanism (CDM) refers to a market mechanism for achieving greenhouse gas emissions reduction and is defined in Article 12 of the Kyoto Protocol - an international treaty for emissions reductions. CDM allows an industrialized/developed country with an emission-reduction or emission-limitation commitment under the Kyoto Protocol (called as Annex I Party or Annex B Party of the original Kyoto Protocol signed in 1997) to implement an emission-reduction project in any of those developing countries (which may otherwise be not financially capable of undertaking such projects), thereby earning them tradable Certified Emission Reduction (CER) credits, each equivalent to one tonne of CO2. The saleable CERs earned from such projects can be counted towards meeting the prescribed Kyoto targets.

CDM is one of the three market-based mechanisms set up under Kyoto Protocol, the other two being - Joint Implementation and emissions trading or commonly called as carbon trading [which provides for trading of (a) spare emission units available with any entity (savings from the assigned or permissible emission levels), (b) CERs created from CDM activities, (c) an emission reduction unit (ERU) generated by a Joint Implementation project and (d) removal units (RMU) created on the basis of land use, land-use change and forestry (LULUCF) activities such as reforestation]

The mechanism of Joint implementation (JI) is similar to CDM but with the difference that the emission reduction projects are undertaken by an Annex I country in another

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Annex I country and not in a developing country. The mechanism of “joint implementation” is defined in Article 6 of the Kyoto Protocol. The JI allows a country with an emission reduction or limitation commitment under the Kyoto Protocol (Annex B Party) to earn emission reduction units (ERUs), each equivalent to one tonne of CO2, from an emission-reduction or emission removal project in another Annex B Party. ERUs are also counted towards meeting Kyoto targets.

CDM helps developing countries to achieve development without compromising on sustainable aspects while it gives developed countries a flexible mechanism for achieving emissions reductions. On the other hand, JI helps developed countries to refashion their development strategies through technology transfer.

Background Climate change and issues related to it have become matters of heated debate among countries, scholars and the general public in the recent times. Environmental issues started gaining international attention with the Stockholm Conference held in 1972. As a result of the conference, the United Nations Environmental Programme (UNEP) was set up with the task of research on environmental impacts and for providing advice to governments and other agencies. The 1992 UN Earth Summit in Rio de Janeiro, discussed a host of environmental issues with a major focus on climate change. An agreement called UN Framework Convention on Climate Change (UNFCCC) was introduced in the 1992 Rio Summit and was signed by 166 countries. In 1997, 160 countries negotiated the Kyoto Protocol to the Framework Convention. Under the Protocol, the countries in the Annex-I of the Convention, which includes the developed nations and economies in transition, accepted binding commitments of emissions reduction targets. They agreed to reduce their emission levels of four green-house gases (CO2, Methane, Nitrous Oxide and Sulfur Hexafluoride) by 5.2% of their 1990 levels. Specific targets of reduction by 5.2 percent of their 1990 emission levels were given for 38 industrialized (Annex I) countries over the commitment period 2008-2012. The targets apply to six classes of greenhouse gases: carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride. Developing countries took no obligations under Kyoto. The Kyoto Protocol also provided options to the Annex-I countries to achieve their commitments in a cost-efficient manner by authorizing three different types of emissions trading schemes.

Economic theory tells that emission abatement should take place where the marginal cost of abatement is the least. One would expect that this would be the case in the developing countries. However, the developing countries lack both the financial resources as well as the technological capability to undertake major emission reductions. Add to this is the fact that the historical responsibility of the current stock of emissions lies with the developed countries.

Article 12 of the Kyoto Protocol which defines the mechanism of CDM allows certified emission reduction (CER) (each equivalent to one tonne of CO2) generated from emission reduction projects undertaken in non-Annex-I countries to be used to meet a part of their emissions reduction commitments. Thus, the mechanism allowed the countries with the responsibility to achieve emission reductions to do so in countries where the cost to do so was the least. The mechanism was expected to support sustainable development in the developing countries while allowing the

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industrialized countries to achieve their targets at a lower cost.

The Project Cycle in CDM

Every CDM project has to go through a cycle before it is registered and CERs are issued to the project. There are seven steps in the project cycle:

1) Project design: the first step is the preparation of a project design document by the project participant detailing the project, the baseline and methodology and other details relevant to the project;

2) National Approval: the second step is securing the letter of approval from the Designated National Entity of the host party;

3) Validation: the project is independently evaluated by a designated operating entity on whether it meets the requirements of CDM.

4) Registration: validated projects are submitted to the CDM executive board for formal approval, which is called registration;

5) Monitoring: Measurement of actual emissions is done by the project participant according to the approved methodology;

6) Verification: Is the independent review of the emission reductions claimed by the project participant by a designated operating entity.

7) CER issuance: Once the verification of the claimed emission reduction is done, the designated operating entity submits the verification report to the CDM board for the issuance of CERs.

Trends in CDM projects

As of 28th February, 2015, there were a total of 7598 registered CDM projects globally, with China and India dominating the scene since the inception of the mechanism. Around 50 per cent of the registered projects are in China and India hosts 20 per cent of all projects (Figure 1). A total of 1,542,018,787 CERs have been issued so far.

Data source: UNFCCC-CDM website

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Between 2004 and 2012, there was a steady increase in the number of registered CDM projects after which there has been a drastic decline. This could be a result of the crash in CER prices in the recent times. The price of CER, which was around $ 20 a tonne in 2008, fell to below $ 5 a tonne in 2012. This may be attributed to the lack of demand from the European Union (EU), which was the major market for CERs. Due to the industrial slowdown in EU as a result of Euro crisis as well as over-allocation of carbon quotas in EU’s Emission Trading System there was slack demand for CERs.

Most of the CDM projects in India are concentrated in a few sectors, namely, those related to the renewable energy sector (Figure 2). The maximum number is in the wind energy sector. This sector accounts for 42 per cent of all CDM projects in India. Biomass energy projects come second with 15 per cent.

Data source: UNEP-Risoe CDM Pipeline database

One thing to be noted here is that the sectors where the CDM projects are concentrated in India are the ones where there are maximum co-benefits from the projects. For example, the renewable energy projects have the co-benefit of revenue generated from the sale of electricity generated from the project. Thus, questions have been raised about the ‘additionality’ of many CDM projects. However, there is no doubt that the CDM has provided many firms in developing countries with strong incentives to choose a greener path. Future global action is expected to develop new market mechanisms with elements taken from the CDM.

Clean Energy Cess - Carbon Tax of India

Clean Energy Cess is a kind of carbon tax and is levied in India as a duty of Excise under section 83 (3) of the Finance Act, 2010 at the rate of Rs.100 per tonne on Coal, Lignite and Peat (goods specified in the Tenth Schedule to the Finance Act, 2010) in order to finance and promote clean environment initiatives, funding research in the area of clean environment or for any such related purposes.

This was introduced, with effect from 1 July 2010, though the Union Budget 2010-11, on coal produced in India or imported to India. This is in line with the principle of

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"polluter pays", which is the basic guiding criteria for pollution management.

In many countries carbon taxes are levied also on other fossil fuels like petroleum, natural gas etc. However, in India this is applied only on coal and its variants - lignite and peat. In any case, subsequent to the global financial crisis of 2008, many countries have either abolished or reduced or postponed their decisions on such carbon taxes.

The Tenth Schedule to the Finance Act, 2010 prescribes a statutory cess rate of Rs.100 per tonne for all three categories, namely, coal, lignite and peat. However, the effective rate of cess was Rs.50 per tonne, as has been prescribed through Notification dated 22.06.2010, and such goods (i.e to which the clean energy cess applies) are exempt from education cess and higher education cess which are otherwise applicable. In the Union Budget 2014-15, the rate of cess was increased to Rs. 100/tonne from Rs. 50/tonne, with effect from July 2014. When imposed, Clean Energy Cess was levied for the purposes of financing and promoting clean energy initiatives and funding research in the area of clean energy. In the Union Budget 2014-15, the scope was also expanded to include financing and promoting clean environment initiatives and funding research in the area of clean environment. In the Union Budget of 2015-16 cess was raised further to Rs. 200/ metric tonne.

Clean Energy Cess Rules, 2010 was notified on 22.06.2010 to prescribe a procedure for the levy and collection of the cess.

The cess would apply to the gross quantity of raw coal, lignite or peat raised and dispatched from a coal mine. No deduction from this quantity is be allowed for loss, if any, on account of washing of coal or its conversion into any other product/form prior to its dispatch from the mine. At the same time, cess would not be chargeable on washed coal or any other form provided the appropriate cess has been paid at the raw stage. Thus, if appropriate cess has not been paid at the raw stage, then the products would attract clean energy cess.

Since Clean Energy Cess is being levied as a duty of excise, it would also apply to imported coal, including washed coal by virtue of Section 3(1) of the Customs Tariff Act in the form of additional duty of customs. Since imported coal would not satisfy the condition regarding payment of appropriate cess at the raw stage, Clean Energy Cess would apply to all forms of imported coal.

In the State of Meghalaya, coal is mined under traditional and customary rights vested on the local tribes. The mines operated by these tribes are not subjected to the provisions of laws that regulate the operation of coal mines. Hence, full exemption from Clean Energy Cess is being provided to coal produced in the State of Meghalaya under such rights.

Usage of the fund raised through Clean energy cess

The fund raised through the cess is being used for the National Clean Energy Fund for funding research and innovative projects in clean energy technologies or renewable energy sources to reduce dependence on fossil fuels. Thus, projects aiming at reduction of emissions with innovative technologies from different sectors get considered under this funding mechanism.

The details of cess collected for each year is available in the Receipt Budget Document issued alongside Union Budget under the Budget head 5.07.04 (under

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excise duty).

The amount of Clean Energy Cess collection/accrued in the last few years are given in the table below:-

Financial Year

Amount of Clean Energy Cess levied/billed on sales

2011-12 Rs. 2579.55 crore

2012-13 Rs. 3053.19 crore

2013-14 Rs. 3527.75 crore

2014-15 Rs. 6857.50 crore (Provisional)*

* Source: reply to a parliament question in Lok Sabha (Qn. No. 4314) on 18 December 2014

Climate Change and Climate Variability “Climate Change” is defined by the United Nations Framework Convention on Climate Change (UNFCCC), which is the multilateral treaty for international coordinated action to address climate change, in its Article 1, as “a change of climate which is attributed directly or indirectly to human activity that alters the composition of the global atmosphere and which is in addition to natural climate variability observed over comparable time periods”.

On the contrary, ‘Climate change’ is defined by the Intergovernmental Panel on Climate Change (IPCC) [1] as a change in the state of the climate that can be identified by changes in the mean (and/or the variability), and that persists for an extended period, typically decades or longer. Climate variability refers to variations in the mean state and other statistics (such as standard deviations, the occurrence of extremes, etc.) of the climate on all temporal and spatial scales beyond that of individual weather events. Variability may be due to natural internal processes within the climate system (internal variability), or to variations in natural or anthropogenic external forcing (external variability).

The UNFCCC thus makes a distinction between climate change attributable to human activities altering the atmospheric composition and climate variability attributable to natural causes.

Global GHG emissions due to human activities have grown since pre-industrial times, with an increase of 70% between 1970 and 2004 (IPCC). Hence, primarily, the multilateral deliberations and negotiations and subsequent actions to address climate change by various countries revolves around the concept of climate change attributable to human activities.

Importance of Climate Change

Climate Change has now emerged as an important environmental problem and is attracting attention at the highest levels both domestically and internationally. The issue is no longer an academic debate or a scientific curiosity. According to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change (IPCC), over the century, atmospheric concentrations of carbon dioxide increased from a pre-

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industrial value of 278 parts per million to 379 parts per million in 2005, and the average global temperature rose by 0.740C. Thus, the message isthat climate change is for real and humans are very likely to be causing it. The projections further indicate that global warming will continue and accelerate. As such, climate change represents additional stress on ecological and socio-economic systems that are already facing tremendous pressure due to rapid economic development.

Increasing levels of fossil fuel burning and land use changes have emitted, and are continuing to emit, greenhouse gases (GHG) (mainly carbon dioxide [CO2], methane, and nitrous oxide) into the earth’s atmosphere. This increasing level of emissions of greenhouse gases has caused a rise in the amount of heat from the sun trapped in the earth’s atmosphere, heat that would normally be radiated back into space. This has led to the greenhouse effect, resulting in climate change.

The major characteristics of climate change are rise in average global temperature, ice cap melting, changes in precipitation, and increase in ocean temperature.

With climate change, the type, frequency, and intensity of extreme events, floods, and droughts are expected to increase. Climate change is very likely to have a major impact on human and natural systems throughout the world including for India. Hence addressing climate change is a major challenge in terms of policies and resources needed to address it at domestic and international levels. The efforts needed to address the climate change problem include mitigation of greenhouse gas emissions on the one hand and adaptation, i.e. building of capacities to cope with the adverse impacts of climate change on various sectors of the society and economy on the other.

Climate Change and India

The worldwide emissions of GHGs have increased in the last 200 years or so, with the largest increases coming from industrialized nations. The scientists attribute the global problem of climate change not to the current GHG emissions but to the stock of historical GHG emissions. Most of the countries, particularly the industrialized countries, having large current emissions, are also the largest historic emitters and the principal contributors to climate change. A relatively small number of such countries are responsible for the largest chunk of the stock of global GHG emissions.

As far as India is concerned, its per capita emissions are much lower compared to those of the developed countries. India’s per capita CO2 emissions were 1.7 tons in 2009 compared to 18.4 in Australia, 17.3 in USA, 8.6 in Japan, 7.7 in U.K and 5.8 in China(Source: World Bank data base).

Various studies (the prominent being the National Communication by the Ministry of Environment & Forests, Government of India) reveal that India, with its delicate ecosystem, diverse terrain, rich biodiversity, and long coastlines is extremely vulnerable to climatic variations. Several studies indicate that India may suffer from long-term adverse impacts of climate change. India’s huge mass of poor people, with few means to weather the possible climate change impacts, exacerbates its vulnerability. It puts additional stress on its socio-economic fabric, making adaptation strategies important for this country. However, India is not entirely lacking in efforts to put in place climate and weather induced adaptation strategies. Given her extreme climate sub-zones and volatile weather, these have been embedded into the plan and

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policy matrix for decades.

Government of India has also proposed to set up the National Institute for Climate Change Studies and Actions (NICCSA) under Climate Change Action Programme (CCAP) of the Ministry of Environment and Forests with a view to carry out analytical studies of scientific, environmental, economic development and technological issues related to climate change.

Established in 1988 by the World Meteorological Organization and the UN Environment Programme, the IPCC surveys world-wide scientific and technical literature and publishes assessment reports that are widely recognized as the most credible existing sources of information on climate change. The IPCC also works on methodologies and responds to specific requests from the UNFCCC's subsidiary bodies. The IPCC is independent of the UNFCCC.

Collective Investment Scheme (CIS)

A Collective Investment Scheme (CIS), as its name suggests, is an investment scheme wherein several individuals come together to pool their money for investing in a particular asset(s) and for sharing the returns arising from that investment as per the agreement reached between them prior to pooling in the money. The term has broader connotations and includes even mutual funds. For instance, in UK, the unit trust scheme is a collective investment scheme. However, in India, as in US, the definition of CIS excludes mutual funds or unit trust schemes etc and is given a strict definition in Section 11AA of the SEBI Act, 1992. CISs are regulated by the securities market regulator – SEBI - under SEBI (Collective Investment Scheme) Regulations, 1999.

According to Section 11AA of the SEBI Act, CIS is any scheme or arrangement, which satisfies the following conditions:

i. the contributions, or payments made by the investors, by whatever name called, are pooled and utilized solely for the purposes of the scheme or arrangement;

ii. the contributions or payments are made to such scheme or arrangement by the investors with a view to receive profits, income, produce or property, whether movable or immovable, from such scheme or arrangement;

iii. the property, contribution or investment forming part of scheme or arrangement, whether identifiable or not, is managed on behalf of the investors;

iv. the investors do not have day to day control over the management and operation of the scheme or arrangement.

Through the SEBI ordinance dated 18th July 2013, which subsequently became an Act of Parliament in 2014 - The Securities Laws (Amendment) Act, 2014- any pooling of funds under any scheme or arrangement, which is not registered with SEBI, involving a corpus amount of one hundred crore rupees or more shall be deemed to be a collective investment scheme.

However, as per the SEBI Act, the following activities have been exempted from the

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CIS Regulations. Any scheme or arrangement:

i. made or offered by a co-operative societyii. under which deposits are accepted by non-banking financial companies

iii. being a contract of insurance

iv. providing for any scheme, Pension Scheme or the Insurance Scheme framed under the Employees Provident Fund

v. under which deposits are accepted under section 58A of the Companies Act, 1956

vi. under which deposits are accepted by a company declared as a Nidhi or a mutual benefit society

vii. falling within the meaning of Chit business as defined in clause (d) of section 2 of the Chit Fund Act, 1982(40 of 1982);

viii. under which contributions made are in the nature of subscription to a mutual fund;

A registered Collective Investment Management Company is eligible to raise funds from the public for a particular Scheme and in turn issues them what are called “units” (which are essentially shares of that Scheme given in proportion to the contribution made by the investor). These units, by law, have to be compulsorily listed on the stock exchange platform.

The FAQs on CIS may be seen at http://www.sebi.gov.in/faq/cis_faq.html

Even though SEBI had received complaints against over 660 entities, only one entity is formally registered as a CIS with SEBI; however no scheme has been known to be launched by this entity till date. In view of the same, SEBI has taken initiatives (Ordinance of 2013) to prune the definition of CIS accordingly.

The SEBI website reflects the status of the CIS cases. Such status includes name of accused (directors/ promoters), court case no., court name, date of filing of court case for these entities. This information is available at the link:

http://www.sebi.gov.in/sebiweb/home/document_detail.jsp?link=http://www.sebi.gov.in/cms/sebi_data/docfiles/21678_t.html

In addition to this, the court judgment details (along with a copy of the final court orders) are also available on the SEBI website. This information is available at the link:

http://www.sebi.gov.in/cms/sebi_data/attachdocs/1315992946034.pdf

History of CIS in India

In 1990s there were various instances of collection of money by numerous agro-based

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and plantation companies, which eventually failed to provide any return on the investments (despite promising around 18-30% returns) including the repayment of principal amount. In this context, the Government of India, vide its press release dated November 18, 1997, decided that an appropriate regulatory framework for regulating entities which issue instruments like agro bonds, plantation bonds etc., will be put in place. The government decided that the schemes through which such instruments are issued would be treated as "Collective Investment Schemes" (CIS) coming under the provisions of the SEBI Act.

Accordingly, SEBI vide its press release dated November 26, 1997 and December 18, 1997, prohibited collective investment schemes from sponsoring any new scheme till the CIS regulations are notified. The press releases further stated that instruments such as agro bonds, plantation bonds would be treated as CIS coming under the SEBI Act, 1992. All the companies having such activities were required to file information with SEBI. Moreover, general public was also informed that no person can sponsor or cause to be sponsored any new collective investment scheme and thereafter raise further funds.

Meanwhile, a committee was formed under Dr. S.A. Dave to examine and finalize the draft regulations for CISs. The committee submitted its report on 5th April 1999.

Subsequently, the notification of SEBI (Collective Investment Schemes) Regulations 1999 was issued on October 15, 1999. As per the CIS regulations, any person who has been operating a Collective Investment Scheme at the time of commencement of the CIS Regulations was required to make an application to SEBI for the grant of registration under the provisions of the Regulation, within a period of two months from the date of the notification. In case, such an application is rejected, the entity was required to wind up its existing schemes in the manner as specified in the Regulations. No entity was / is allowed to run a CIS scheme without obtaining the Certificate of Registration from SEBI.

In 2013, in the backdrop of Sahara / Sharada scams, SEBI modified the definition of CIS to include any scheme / arrangment floated by any person (instead of a company as was defined earlier); and any such scheme with corpus of more than Rs. 100 Crore shall also be deemed to be a CIS by SEBI.

Commodities Transaction Tax (CTT)

Commodities transaction tax (CTT) is a tax similar to Securities Transaction Tax (STT), levied in India, on transactions done on the domestic commodity derivatives exchanges.

Globally, commodity derivatives are also considered as financial contracts. Hence CTT can also be considered as a type of financial transaction tax.

The concept of CTT was first introduced in the Union Budget 2008-09 (para 179 of the Budget Speech).The Government had then proposed to impose a commodities transaction tax (CTT) of 0.017% (equivalent to the rate of equity futures at that point of time). However, it was withdrawn subsequently as the market was nascent then and any imposition of transaction tax might have adversely affected the growth of organised commodities derivatives markets in India. This has helped Indian

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commodity exchanges to grow to global standards(MCX is the world’s number 3 commodity exchange; Globally, MCX is No. 1 in Gold and Silver, No. 2 in Natural gas and No. 3 in Crude Oil)

In the Union Budget 2013-14(para 149 of the Budget Speech) CTT has been re-introduced, however, only for non-agricultural commodity futures at the rate of 0.01% (which is equivalent to the rate of equity futures). Alongwith this, transactions in commodity derivatives have been declared to be made non-speculative;and hence for traders in the commodity derivative segment, any losses arising from such transactions can be set off against income from any other source (similar provisions are applicable for the securities market transactions).

A separate provision for CTT has been made in the Finance Act, 2013 (Chapter VII).

The CTT rules were notified by Department of Revenue, Ministry of Finance on 19 June 2013 (Notification No. 46 of 2013; S.O. 1769 (E)), with effect from 1 July 2013. As per the notification, only 23 agricultural commodities were exempted from CTT. However, in February 2015 a revised list of 61 commodities was notified including certain commodities where trading is currently not taking place. Like STT, the commodity exchanges have been entrusted to collect CTT on behalf of Government of India.

Like all financial transaction taxes, CTT aims at discouraging excessive speculation, which is detrimental to the market andto bring parity between securities market and commodities market such that there is no tax / regulatory arbitrage. (Futures contracts are financial instruments and provide for price risk management and price discovery of the underlying asset (commodity / currency/ stocks / interest). It is therefore essential that the policy framework governing is uniform across all the contracts irrespective of the underlying to minimize the chances of regulatory arbitrage.) The proposal of CTT also appears to have stemmed from the general policy of the Government to widen the tax base.

Compensatory Afforestation

Compensatory Afforestation (CA) refers to afforestation and regeneration activities carried out as a way of compensating for forest land diverted to non-forest purposes. Here "non-forest purpose" means the breaking up or clearing of any forest land or a portion thereof for-

the cultivation of tea, coffee, spices, rubber, palms, oil-bearing plants, horticultural crops or medicinal plants;

any purpose other than reafforestation;

but does not include any work relating or ancillary to conservation, development and management of forests and wildlife, namely, the establishment of check-posts, fire lines, wireless communications and construction of fencing, bridges and culverts, dams, waterholes, trench marks, boundary marks, pipelines or other like purposes.

CA is one of the most important conditions stipulated by the Central Government while approving proposals for de-reservation or diversion of forest land for non-forest use. The compensatory afforestation is an additional plantation activity and not a

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diversion of part of the annual plantation programme.

Elements of Schemes for Compensatory Afforestation

The scheme for compensatory afforestation should contain the following details:-

Details of equivalent non-forest or degraded forest land identified for raising compensatory afforestation.

Delineation of proposed area on a suitable map.

Agency responsible for afforestation.

Details of work schedule proposed for compensatory afforestation.

Cost structure of plantation, provision of funds and the mechanism to ensure that the funds will be utilised for raising afforestation.

Details of proposed monitoring mechanism.

Existing Legal Provisions

As per the Forest (Conservation) Act 1980, and the Rules and Guidelines made thereunder, whenever a forest land is to be diverted for non-forestry purposes, the equivalent non forest land has to be identified for compensatory afforestation and funds for raising compensatory afforestation are to be imposed. (For certain activities additional conditions are imposed. For eg. in case of conversion for mining purposes, additional conditions like maintaining a safety zone area, fencing and regeneration etc. are stipulated and for major and medium irrigation projects, catchment area treatment plans are suggested.) Any project proponent, government or private must apply for forest clearance from Ministry of Environment and Forests (MoEF), before the conversion of land take place. This proposal is to be submitted through the concerned forest department of the state government. The comprehensive proposal is to include the details of non-forest/ degraded forest area identified for compensatory afforestation including its area map, year wise phased forestry operations, details of species to be planted and a suitability certificate from afforestation/ management point of view, along with the cost structure of various operations. If clearance is given, then compensation for the lost forest land is also to be decided by the ministry and the regulators.

Identification of Compensatory non-forest land for afforestation

As per the Forest (Conservation) Act 1980 and the Rules and Guidelines thereunder, the non-forest land for Compensatory Afforestation (CA) are to be identified contiguous to or in the proximity of Reserved Forest or Protected Forest, as far as possible. In case, non-forest land for CA is not available in the same district, non-forest land for CA is to be identified anywhere else in the State/Union Territory. If non forest land is unavailable in the entire State/ UT, funds for raising CA in double the area in extent of the forest land diverted need to be provided by the user agency. The non-availability of suitable non-forest land for CA in the State / Union Territory would be accepted by the Central Government only on the Certificate of the Chief Secretary to the State/Union Territory Government to that effect. However, in case of central government/ central undertaking projects, extraction of minor mineral from the river beds above 500 hectare, construction of link road, small water works, minor irrigation works, laying of transmission line upto 220 KVA etc, CA fund is to be

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raised on degraded forest land twice the forest area being diverted, without insisting for the certificate of Chief Secretary regarding non-availability of non-forest land.

The CA funds are to be used towards the development, maintenance and protection of forest and wildlife management. The funds for CA are to be recovered from the user agencies on the basis of the rates fixed by the State Forest Department which are site specific and varies according to the species, type of forest and site. The money received for Compensatory Afforestation is to be used as per site specific schemes submitted by the State along with the approved proposals for diversion of forest land. After receipt of the money, State Forest Department is to accomplish the afforestation for which money is deposited in the Compensatory Afforestation Fund within a period of one year or two growing seasons.

To compensate for the loss of tangible as well as intangible benefits from the forest lands which has been diverted for non forest use, the net present value of the land is to be recovered from the user agencies to adequately compensate for the loss of natural forests. Such funds were to be used for natural assisted regeneration, forest management and protection, infrastructure development, wildlife protection and management, supply of wood and other forest produce saving devices and other allied activities.

Issues in implementation

Between 1980 and May 2004 about 9.21 lakh hectare of forest land had been diverted for non forestry uses[1] and forest land aggregating up to 2.19 lakh hectare had been diverted after the formation of Ad-hoc Compensatory Afforestation Fund Management and Planning Authority (CAMPA) till March 2015[2].However, much of the money collected for CA remained idle as the states and the Centre disagreed over the utilisation of such amount. Further, many states failed to collect the CA funds from the user agencies. Appropriation of such funds for CA also involved delay. Given such discrepancies in the implementation of compensatory afforestation, some NGOs had approached the Hon’ble Supreme Court for relief. The Supreme Court in its order dated 3 April 2000, fixed the responsibility of ensuring the proper carrying out of compensatory afforestation on Ministry of Environment and Forests and said that it was for the Ministry to monitor the conditions stipulated at the time of grant of forest clearance.

The Supreme Court of India in October 2002 directed the creation of a ‘Compensatory Afforestation Fund’ in which all the monies received from the user agencies towards compensatory afforestation, additional compensatory afforestation, penal compensatory afforestation (means afforestation work to be undertaken over and above the prescribed compensatory afforestation under the Forest (Conservation) Act, 1980, in lieu of the extent of area over which nonforestry activities have been carried out without obtaining prior approval of the competent authority under the Forest (Conservation) Act, 1980) net present value (NPV) of forest land, Catchment Area Treatment Plan Funds, etc. were to be deposited.

Compensatory Afforestation Fund Management and Planning Authority (CAMPA) was thus notified by the Ministry of Environment and Forests on 23 April 2004 at the

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behest of Supreme Court. The Supreme Court of India constituted Ad-hoc-CAMPA on 5 May 2006 since CAMPA could not be established with the proper legal backing by then.

Further, the Hon’ble Supreme Court on 10th July 2009 issued orders that Compensatory Afforestation Fund Management and Planning Authority (CAMPA) will have a National Advisory Council under the chairmanship of the Union Minister of Environment & Forests for monitoring, technical assistance and evaluation of compensatory afforestation activities.

The details of forests land converted and the compensatory projects undertaken are given on the website of CAMPA

The 2015 bill on Compensatory Afforestation

A bill was passed by Lok Sabha in 2008 for providing a proper institutional mechanism for compensatory afforestation matters, but lapsed due to dissolution of Lok Sabha. Meanwhile, the Ad-hoc CAMPA used to carry out the CA related matters. The accumulated unspent amounts available with the ad hoc Compensatory Afforestation Fund Management and Planning Authority (CAMPA), as on April 2015, are of the order of Rs. 38,000 crore. The fresh accrual of compensatory levies and interest on accumulated unspent balance, are of the order of approximately Rs. 6,000 crore per annum [3].

To accelerate the CA activities, the Union Cabinet on 29 April 2015 gave its approval for introduction of the Compensatory Afforestation Fund Bill, 2015 in Parliament. The proposed legislation seeks to provide an appropriate institutional mechanism, both at the Centre and in each State and Union Territory, to ensure expeditious utilization, in an efficient and transparent manner, of the amounts realised in lieu of forest land diverted for non-forest purpose. It also seeks to provide safety, security and, transparency in utilization of these amounts, which currently are being kept in Nationalised Banks and are being managed by an ad-hoc body. These amounts would be brought within broader focus of both Parliament and State Legislatures and in greater public view, by transferring them to non-lapsable interest bearing funds, to be created under public accounts of the Union of India and each State.

The Bill provides for among other things:-

Establishment of the National Compensatory Afforestation Fund (CAF) and the State CAFs to credit amounts collected by State Governments and Union Territory Administrations to compensate loss of forest land diverted for non-forest purpose.

Constitution of a National Authority to manage and utilise amounts credited to the National CAF.

Constitution of a State Authority in each State and Union Territory to manage and utilise the amounts credited to the State CAFs.

Establishment of a Monitoring Group to assist the National Authority in monitoring and evaluation of activities undertaken from amounts released from the National CAF and State CAFs.

Expenditure of the National CAMPA is proposed to be met from the funds to be

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retained in the National Compensatory Afforestation Fund (CAF) from the accumulated funds transferred to it by the ad-hoc CAMPA, and the funds to be transferred, on yearly basis, to the National CAF from a part of the funds credited by user agencies directly into State CAFs.

Competition Commission of India

A competition regulator is generally a statutory authority with the mandate to enforce competition law (also called antitrust law in some countries such as USA) and may sometimes also enforce consumer protection laws. Competition regulators may regulate anti-competitive agreements including cartels as well as abuse of dominant position in the markets. They also regulate certain aspects of mergers and acquisitions of business and often undertake advocacy also to promote competition culture. There are more than hundred such regulators in the world with USA and European Commission being two major jurisdictions, among others.

Competition Act, 2002 was passed in January 2003. Competition Commission of India (CCI) was set up in October 2003 to implement this law. However, legal challenge prevented full constitution and enforcement and only advocacy function was notified. CCI was duly established on 1.3.2009 as an autonomous independent body comprising Chairperson and six members. An appellate body called Competition Appellate Tribunal was also set up on 20.5.2009 with final appeal to Supreme Court of India. CCI is thus, a fully empowered body today and Indian Competition Law has fully come into force.

It is the duty of the Commission to eliminate practices having adverse effect on competition, promote and sustain competition, protect the interests of consumers and ensure freedom of trade in the markets of India. The Commission is also required to give opinion on competition issues on a reference received from a statutory authority established under any law and to undertake competition advocacy, create public awareness and impart training on competition issues.

Competition Law in India

Competition law is a specific law which has the objective of promoting/ maintaining competition in the markets by regulating anti-competitive conduct. It is also known as antitrust law in the United States. The history of competition law reaches back to the Roman Empire. Since the 20th century, competition law has become global. Now, more than hundred countries have adopted competition law as a natural corollary to embracing economic reforms and market economies.

India’s earlier Competition related law - Monopolies and Restrictive Practices Act, 1969 became outdated after liberalization of economy in 1991. Competition Act, 2002 was passed in January 2003 with the objective of preventing practices having adverse effect on competition, promoting and sustaining competition in markets, protecting the interests of consumers and ensuring freedom of trade carried on market participant. Competition Commission of India (CCI) was set up in October 2003 to implement the law. However, legal challenge prevented full constitution and enforcement and only advocacy function was notified. Law was amended in 2007. Law is being implemented by Competition Commission of India (CCI), which was constituted in 2009 as an autonomous independent body comprising Chairperson and six members. Appeal lies to Competition Appellate Tribunal also set up in 2009 with final appeal to Supreme Court of India. Section 3 & 4 relating to anti- competitive agreements and abuse of dominance notified w.e.f 20.5.52009 while Sections 5 & 6 relating to

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Mergers and Acquisitions notified w.e.f 1.6.2011. Thus, Indian Competition Law has fully come into force. The Competition Act, 2002 (as amended), [the Act] aims at protecting Indian markets against anti-competitive practices by enterprises. The Act prohibits anti-competitive agreements, abuse of dominant position by enterprises, and regulates entering into combinations (consisting of mergers, amalgamations and acquisitions) with a view to ensure that there is no adverse effect on competition in India.

Concession Agreement

In India, the term concession agreement is often used in the context of public private partnership projects (PPP).

The contractual arrangement entered between a public entity and a private entity in a PPP project, whereby the obligations of both the parties are clearly specified, is called a concession agreement.

Also seemodel concession agreements.

Concessionaire

The term “Concessionaire” denotes someone who holds or operates a concession. In a public private partnership project, which is a contractual arrangement entered between a public entity and a private entity, the private entity which is the holder of a concession is defined as the concessionaire.

In India, typically a company incorporated under the provisions of the Companies Act, 1956 is the concessionaire for most of the public private partnership projects in infrastructure. The selection of the concessionaire is mostly through open competitive bidding.

Consolidated Fund of India

This term derives its origin from the Constitution of India.

Under Article 266 (1) of the Constitution of India, all revenues ( example tax revenue from personal income tax, corporate income tax, customs and excise duties as well as non-tax revenue such as licence fees, dividends and profits from public sector undertakings etc. ) received by the Union government as well as all loans raised by issue of treasury bills, internal and external loans and all moneys received by the Union Government in repayment of loans shall form a consolidated fund entitled the 'Consolidated Fund of India' for the Union Government.

Similarly, under Article 266 (1) of the Constitution of India, a Consolidated Fund Of State ( a separate fund for each state) has been established where all revenues ( both tax revenues such as Sales tax/VAT, stamp duty etc..and non-tax revenues such as user charges levied by State governments ) received by the State government as well as all loans raised by issue of treasury bills, internal and external loans and all moneys received by the State Government in repayment of loans shall form part of the fund.

The Comptroller and Auditor General of India audits these Funds and reports to the Union/State legislatures when proper accounting procedures have not been followed.

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Consumer Price Index

Consumer Price Index is a measure of change in retail prices of goods and services consumed by defined population group in a given area with reference to a base year. This basket of goods and services represents the level of living or the utility derived by the consumers at given levels of their income, prices and tastes. The consumer price index number measures changes only in one of the factors; prices. This index is an important economic indicator and is widely considered as a barometer of inflation, a tool for monitoring price stability and as a deflator in national accounts. Consumer price index is used as a measure of inflation in around 157 countries. The dearness allowance of Government employees and wage contracts between labour and employer is based on this index. The formula for calculating Consumer Price Index is Laspeyre’s index which is measured as follows;

[Total cost of a fixed basket of goods and services in the current period * 100] divided by Total cost of the same basket in the base period

The origin of Consumer Price Index can be traced to the period after first world war when there was a sharp rise in prices and cost of living. The erosion in the real wages of the workers led to a demand by the workers for compensation. This led to the conduct of socio-economic surveys among the working classes as a preliminary to the measurement of cost of living. Consumer price index numbers were known as “ Cost of Living Index Numbers” prior to July 1955. The Sixth International Conference of Labour Statisticians recommended the change in nomenclature from Cost of Living Index to Consumer Price index. The Cost of living index is a more broader term which includes not only changes in prices but several other factors like change in consumption habits and standard of living.

Presently the consumer price indices compiled in India are for Industrial workers CPI(IW), CPI for Agricultural Labourers CPI(AL) and; Rural Labourers CPI(RL) and (Urban) and CPI(Rural). Consumer Price Index for Urban Non Manual Employees was earlier computed by Central Statistical Organisation. However this index has been discontinued since April 2008.The CPI(IW) and CPI(AL& RL) compiled are occupation specific and centre specific and are compiled by Labour Bureau. This means that these index numbers measure changes in the retail price of the basket of goods and services consumed by the specific occupational groups in the specific centres. CPI(Urban) and CPI(Rural) are new indices in the group of Consumer price index and has a wider coverage of population. This index compiled by Central Statistical Organisation tries to encompass the entire population and is likely to replace all the other indices presently compiled.

Consumer Price Index(Urban) and Consumer Price Index(Rural)

The CPI(IW) and CPI(Al & RL) pertain to specific segment of population. Since these indices do not cover all segments of population, it is difficult to ascertain the true variations in the price level . To overcome this problem, a new index with a wider coverage is now being computed, CPI(Urban) and CPI(Rural) by Central Statistics Office under Ministry of Statistics and Programme Implementation.

This series of CPI has two components, one a representative of the entire urban population, viz. CPI (Urban), and another for the entire rural population, viz. CPI (Rural) These indices reflect the changes in the price levels of various goods and

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services consumed by the urban and rural population respectively. The indices are compiled at State/UT and all-India levels and are based on 2010 as base year. CPI (urban) covers 310 towns while the span of CPI(rural) is 1181 villages. Index Numbers for both rural and urban areas and also combined have been started from January 2011 index onwards. Provisional indices based on the data available are first released with the time lag of 30 days. Revised and final numbers with complete data for all India and also for all the States/UTs will be released with a time lag of two months.

Consumer Price Index for Agricultural Labourers and Rural Labourers (CPI(AL) & CPI(RL))

Labour Bureau has been compiling CPI Numbers for Agricultural Labourers since September, 1964.The base of CPI(AL) was 1960-61=100. This series of CPI Numbers was then replaced by CPI for (i) Agricultural and (ii) Rural Labourers with base 1986-87=100 from November, 1995 onwards . CPI for Agricultural and Rural labourers on base 1986-87=100 is a weighted average of 20 constituent state indices and it measures the extent of change in the retail prices of goods and services consumed by the agricultural and rural labourers as compared with the base period viz 86-87. This index is released on the 20th of the succeeding month. CPI-AL is basically used for revising minimum wages for agricultural labour in different States.

Consumer Price Index for Industrial Workers CPI(IW)

This index is the oldest among the CPI indices as its dissemination started as early as in 1946. The history of compilation and maintenance of Consumer Price Index for Industrial workers owes its origin to the deteriorating economic condition of the workers post first world war which resulted in sharp increase in prices. As a consequence of rise in prices and cost of living, the provincial governments started compiling Consumer Price Index. The estimates were however not satisfactory. In pursuance of the recommendation of Rau Court of enquiry, the work of compilation and maintenance was taken over by government in 1943. Since 1958-59, the compilation of CPI(IW) has been started by Labour Bureau ,an attached office under Ministry of Labour & Employment.

Consumer Price Index Numbers for Industrial workers measure a change over time in prices of a fixed basket of goods and services consumed by Industrial Workers. The target group is an average working class family belonging to any of the seven sectors of the economy- factories, mines, plantation, motor transport, port, railways and electricity generation and distribution . CPI (IW) is currently calculated at base 2001=100 for 78 centres and prices are collected from 289 markets across these 78 centres. The previous base periods of the index have been 1944,1949,1960 and 1982=100. The 2001 index is a more representative index than 1982 series CPI(IW) as its coverage of centres, markets and sample size for coverage of working class family income & expenditure survey is much more wider.. The index has a time lag of one month and is released on the last working day of the month. It is used for wage indexation and fixation of dearness allowance for government employees.

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Consumer Price Index for Urban Non Manual Employees (CPI(UNME))

The need for an all Indian middle class cost of living index was felt on several occasions in connection with the fixation and adjustments of emoluments of Central Government employees. The Central Statistical Organisation carried out a family living survey of urban middle class population during 1958-59 to facilitate construction of middle class cost of living indices. On the basis of this survey data, a cost of living index number named as CPI(UNME) on base1960=100 was compiled and published since 1961.

This index depicts the changes in the level of average retail prices of goods and services consumed by the urban segment of the population. The target group of this index was urban families who derived major portion of their income from non manual occupations in the non-agricultural sector.This index had a limited use as it was used for determining dearness allowances of employees of some foreign companies working in India in service sectors such as airlines, communications, banking, insurance and other financial services. Release of Centre-wise monthly CPI (UNME) on the basis of 1984-85 =100 has been discontinued since April 2008 as per the recommendation of National Statistical Commission because of outdated base year and also deployment of field investigators for collection of price data for a broad based CPI (Urban) index. The Commission also decided that release of all-India linked CPI (UNME) would continue till CPI (Urban) is brought out. The monthly linked all India CPI (UNME) was being compiled by linking to CPI (IW) with base 2001=100 and taking CPI (UNME) as weights. This index was released with a time lag of two moths, usually during the third week of the month. The release of all-India linked CPI(UNME) has been discontinued with effect from January 2011.

Contingency Fund of India

This term derives its origin from the Constitution of India.

The Contingency Fund of India established under Article 267 (1) of the Constitution is in the nature of an imprest (money maintained for a specific purpose) which is placed at the disposal of the President to enable him/her to make advances to meet urgent unforeseen expenditure, pending authorization by the Parliament. Approval of the legislature for such expenditure and for withdrawal of an equivalent amount from the Consolidated Fund is subsequently obtained to ensure that the corpus of the Contingency Fund remains intact. The corpus for Union Government at present is Rs 500 crore (Rs 5 billion) and is enhanced from time to time by the Union Legislature. The Ministry of Finance operates this Fund on behalf of the President of India.

Similarly, Contingency Fund of each State Government is established under Article 267(2) of the Constitution – this is in the nature of an imprest placed at the disposal of the Governor to enable him/her to make advances to meet urgent unforeseen expenditure, pending authorization by the State Legislature. Approval of the Legislature for such expenditure and for withdrawal of an equivalent amount from the Consolidated Fund is subsequently obtained, whereupon the advances from the Contingency Fund are recouped to the Fund. The corpus varies across states and the quantum is decided by the State legislatures.

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Contingent Asset

Government Accounting Standards Advisory Board (GASAB) constituted by Comptroller and Auditor General of India (CAG) has issued Indian Government Financial Reporting Standard (IGFRS) -5 on Contingent Liabilities (other than guarantees) and Contingent Assets. This Standardprovide for disclosure requirements of contingent liabilities (other than guarantees) and contingent assets of Union and State Governments in their financial statements. The standards also define a contingent liability and asset. As per IGFRS 5, Contingent asset is ‘a possible asset that arises from past events and whose existence will be confirmed only by the occurrence of one or more uncertain future events not wholly within the control of the entity’. Thus it is a potential future asset for the Government and not a present asset. It arises from some past events and its existence will be confirmed only by the occurrence of some future events. Its time of payment, or the quantum of payment, or both, are uncertain.eg. tax arrears, which are under litigation, may or may not flow to government depending upon the final verdict by Courts. Similarly, ownership of land acquired, but under litigation, may or may not come to government.

Contingent Liabilities

Contingent Liabilities of the Government are like insurance obligations, which are contingent or conditional upon the occurrence of certain events, requiring payments by the Government, who had promised or agreed in the past to make good such liabilities, regardless of its financial health. It is a possible obligation and not a present obligation. It arises from some past events and its existence will be confirmed only by the occurrence of some future events. Its time of payment or the quantum of payment or both are uncertain. Contingent liabilities arise mainly because of sovereign guarantees. However, it goes beyond that.Types of Contingent LiabilitiesA contingent liability may arise due to either explicit legal obligation or an implicit constructive obligation.A legal obligation relates to specific government obligation defined by law or contract, e.g., guarantees given against third party, crop insurance, tax refunds under litigation, indemnities, etc.

A constructive or implicit obligation is an obligation that may arise when a government indicates to other parties that it accepts certain responsibilities and has created certain valid expectation on the part of those parties that it will discharge the responsibilities. eg. Letter of comfort issued by governments (Union and States), bailing out public sector insurance, banking and other entities, etc. This also represents a moral obligation or expected burden for the government not in the legal sense, but based on public expectations and political pressures. These liabilities arise out of the fact that Government is always perceived as the "last resort".

On the basis of the provisions made for meeting such contingent liabilities, it can be classified as either funded or unfunded liabilities. eg. the liability is funded in case of sovereign guarantees (guarantee is given in return for a fee and the collected fee is kept in a guarantee redemption fund). An unfunded Contingent Liability can arise due to some natural / manmade calamity say Bhopal Tragedy related payments, obligations on account of legislative changes with retrospective effect etc.

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Need for Management of Contingent Liability

Report of the Internal Working Group on Debt Management (October 2008), chaired by Shri. Jahangir Aziz and the report of the Financial Sector Legislative Reforms Commission (FSLRC) (2013) which studied the issue of public debt management had highlighted the importance of managing contingent liabilities in India. This is because, there are close interconnections between contingent liabilities and debt issuance. For instance, the invoking of guarantees can have a substantial impact on the risk assessment of the public debt structure of the Central Government.

The Internal Working Group of Ministry of Finance for setting up an independent debt management office, chaired by Shri. Jahangir Aziz, in its Report (October 2008) had highlighted the following issues of contingent liabilities.

Explicit contingent liabilities are a cost-effective manner for states to incentivise the private provision of public goods. However, proper pricing and valuation of these guarantees is very important for efficient risk management by the State. There could be significant negative fiscal repercussions for the State if contingent liabilities mature in large numbers at the same point in time.

By their very nature, contingent liabilities are most likely to be called in during an economic downturn. These fiscal payments are counter-cyclical in nature. But, this is also the time when the state is least able to afford to fulfil such obligations due to reduced revenue collection. Hence, risk management of these liabilities would allow states to lessen the risk of default on these liabilities.

Making the nature and volume of these liabilities public will increase both transparency and accountability in budgetary transactions.

Further, guarantee-risk is conceptually the same as the risk taken in borrowing and on-lending funds, which is a risk that a debt management office will have to deal with on a day-to-day basis.

Hence the Aziz Committee had suggested the creation of a "National Treasury Management Agency" to deal with such contingency liability management issues.

Following up on these recommendations, the Financial Sector Legislative Reforms Commission (FSLRC) which submitted its report in 2013 suggested creating a Public Debt Management Agency (PDMA) and was of the view that PDMA must manage and execute implicit and explicit contingent liabilities of the Government. Further, PDMA must evaluate the potential risk of these contingent liabilities and advise the Central Government on charging appropriate fees. In addition, FSLRC advised that the Government should be required to seek the public debt management agency’s advice before issuing any fresh guarantees since this has implications for the overall stability of the public debt portfolio. Given this, FSLRC felt that the PDMA should advise the Central Government on making provisions for contingent credit lines with bilateral and multi-lateral agreements and establish similar credit lines with international agencies. FSLRC felt that the management of contingent liabilities is a specialised function that involves undertaking the risk assessment of clients. Therefore, it felt that the public debt management agency should be allowed to contract out in part or in entirety the management of contingent liabilities to outside agencies if it so chooses.

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In short, Contingent liabilities management include:

Assessing and pricing credit risk. Implementing policies and guidelines for the issue of Government guarantees

and on-lending of borrowed funds.

Advise on recapitalization of public sector enterprises given a risk management policy framework.

Record and report government guarantees and other contingent liabilities.

The RBI Group to Assess Fiscal Risk of State Government Guarantees (2002) had also analysed fiscal exposure of States to guarantees and made similar recommendations regarding monitoring and pricing of guarantees.

Operational management of Contingent Liabilities in India

The FRBM Act 2003 mandates the Central Government to specify the annual target for assuming contingent liabilities which are in the form of guarantees. Accordingly, the FRBM Rules prescribe a cap of 0.5% of GDP in any financial year on the quantum of guarantees that the Central Government can assume in the particular financial year. In order to ensure greater transparency in its fiscal operation in public interest, the FRBM rules require the Central Government, at the time of presenting the annual financial statement and demand for grants, to make certain disclosure statements of receivables and payables as detailed below:

Tax Revenues raised but not realised Arrears of Non Tax Revenue

Guarantees given by the government

Further, Government Accounting Standards Advisory Board (GASAB) constituted by Comptroller and Auditor General of India (CAG) has issued Indian Government Financial Reporting Standard (IGFRS) -5 on Contingent Liabilities (other than guarantees) and Contingent Assets. This Standardprovide for disclosure requirements of contingent liabilities (other than guarantees) and contingent assets of Union and State Governments in their financial statements.

Based on the recommendations of FSLRC and Jahangir Aziz Committee, Union Budget 2015-16 has announced the creation of a Public Debt Management Agency which amongst other things would also manage Contingent liabilities of the Central Government including developing ways for its measurement, reduction in quantum and cost of such liabilities. PDMA would also be advising central Government on its contingent liabilities

Coordinated Action on Skill Development (CASD)

Skill development is a dynamic process requiring continuous upgradation of skills for existing as well as new entrants in the workforce to remain relevant and employable. Government of India and State Governments have been implementing number of policies / programmes for skill development. To give impetus to the efforts and harmonization of skill initiatives of different players Government of India initiated a

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Coordinated Action on Skill Development in 2008. The action aims at creation of pool of skilled manpower with adequate skills to take advantage of the demographic dividend which India enjoys vis-à-vis other ageing economies. The Coordinated Action has three tier institutional structure viz. Prime Minister’s National Council on Skill Development as an apex body assisted by National Skill Development Coordination Board in Planning Commission and National Skill Development Corporation under the Ministry of Finance. While PM’s National Council is mandated to lay down policies, core governing and operating principles for skill development, the Board is entrusted with the task of coordinating skill efforts of Central Ministries / Departments to bring synergy and avoid duplication of efforts and the Corporation is facilitating private sector participation in the task of skill development. This coordinated action is expected to ensure access to skill development opportunities to all irrespective of any divide and achieve the target of creating 500 million skilled manpower by 2022.

Independent Evaluation Office (IEO)

Independent Evaluation Office (IEO)has been set up to assess independently the impact of Government’s Flagship Programmes.

The Hon'ble President Of India, Shrimati Pratibha Devi singh Patil, in her address to the joint session of the parliament in June 2009 announced setting up of an Independent Evaluation Office(IEO) at an arm's distance from the government with the objective of strengthening public accountability of flagship programmes. The Union Cabinet in November 2010 approved the establishment of the same. IEO was finally launched in February 2014.

The IEO is catalysed by the Planning Commission. It is felt that the government programmes can benefit enormously from concurrent independent evaluation. At present concurrent evaluation is done by the Ministry concerned as an on-going parallel process. Expert evaluation of programmes that have been in operation is done by the Programme Evaluation Organisation (PEO) of the Planning Commission. (The reports of PEO may be seen here.)The IEO is expected to strengthen this evaluation process. The reports of IEO would be in the public domain.

The new IEO would be an important instrument in evaluating some of the important programmes which account for huge plan resources and would come up with recommendations highlighting the need for reforms of programmes for better implementation and outcome. It would work on a network model by collaborating with leading social science research organizations.

IEO would be headed by a Director General who is in the rank of Minister of State. The first Director General is Dr. Ajay Chibber.

IEO in India is conceived on the lines of Independent Evaluation Office (IEO) of IMF.

Core inflation

Core Inflation is also known as underlying inflation, is a measure of inflation which excludes items that face volatile price movement, notably food and energy. In other words, Core Inflation is nothing but Headline Inflation minus inflation that is contributed by food and energy commodities. To understand the concept in a better way we can say that food and fuel prices may go up in the short run due to some

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disturbance in the agriculture sector or oil economy. However, over the long term they tend to revert back to their normal trend growth. On the other hand, prices of other commodities do not fluctuate as regularly as food and fuel – as such increase in their prices could be taken relatively to be much more of a permanent nature. If this is so, then it follows logically for Central Banks to target only core inflation, as it reflects the demand side pressure in the economy. In practice too, the Reserve Bank of India (RBI) and Central Banks around the World always keep an eye on the core inflation. Whenever core inflation rises, Central Banks increase their key policy rates to suck excess liquidity from the market and vice versa. It is, therefore, a preferred tool for framing long-term policy.

Here it needs to be mentioned that, unlike core inflation, headline inflation also takes into account changes in the price of food and energy. Since food and energy prices are highly volatile, headline inflation may not give an accurate picture of how an economy is behaving. Responding to headline inflation might therefore sometimes be inappropriate as it generates excessive variability in the unemployment rate – variability that would be much more subdued when policy responds to core inflation.

This is because, it is important to distinguish between temporary (like seasonal variation in fruits and vegetable prices) and permanent changes in prices. While temporary changes would reverse and might not warrant attention, permanent changes would require standard remedies involving monetary and fiscal policies. Research has shown that headline inflation tends to revert strongly towards core inflation once the temporary fluctuation in food and energy sector stabilizes.

Corporate Social Responsibility (CSR)

Corporate Social Responsibility (CSR) is generally understood in a broader sense, as a self-regulatory mechanism, whereby a business entity monitors and ensures its active compliance with the spirit of the law, ethical standards and international norms.

United Nation's Industrial Development Organization(UNIDO) defines CSR in terms of the responsiveness of businesses to stakeholders’ legal, ethical, social and environmental expectations. According to them, Corporate Social Responsibility is a management concept whereby companies integrate social and environmental concerns in their business operations and interactions with their stakeholders. CSR is the way through which a company achieves a balance of economic, environmental and social imperatives (“Triple-Bottom-Line- Approach”), while at the same time addressing the expectations of shareholders and stakeholders. In this sense, UNIDO draws a distinction between CSR, which is a strategic business management concept, and charity, sponsorships or philanthropy. Even though the latter can also make a valuable contribution to society and directly enhance the reputation and brand image of the company, the concept of CSR goes beyond that, according to UNIDO.

However, in India, CSR is defined to mean those philanthropic and social welfare enhancing activities specified in Schedule VII to the Companies Act, 2013, undertaken by the consistently well off companies incorporated in India under the Companies Act.

Thus, in India, CSR is more in the style of charity sponsorship or philanthropy. The magnitude of CSR is measured in terms of the expenditure incurred thereon on the specified set of activities, excluding activities undertaken in pursuance of normal

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course of business of a company.

Legal backing for CSR

Unlike many other countries wherein CSR activities are voluntary, the same is mandated by law in India.

Section 135 and Schedule VII of the Companies Act, 2013, relates to CSR related spending by companies. Companies (Corporate Social Responsibility Policy) Rules, 2014 was notified on 27th February 2014 and came into force from 01.04.2014. These Rules provide for the manner in which CSR activities shall be formulated, undertaken, reported and monitored.

Who all are covered by CSR norms?

As per Section 135 of Companies Act 2013, every company having net worth of Rs. 500 crore or more, or turnover of Rs. 1000 crore or more or a net profit of Rs. 5 crore or more during any financial year shall constitute a Corporate Social Responsibility Committee and shall spend in every financial year, at least 2% of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy (as framed by the CSR committee and decided by the Company).

Thus, CSR funding becomes mandatory if either of the three qualifying criteria (turnover, net profit or networth) comes out to be true for the company in any financial year, provided it had a positive average net profit for the past three years preceding that financial year wherein it was found to be coming under CSR spending provisions.

Thus, CSR funding excludes infant companies and kicks in, if everything goes well, in the fourth year of operation after clocking positive and substantial profits.

Actual calculation of “profit” for CSR purpose may vary from the notion of Profit After Tax or PAT, generally reported by the companies for accounting purposes. For instance, in the CSR arrangement, profit generated from the global arms (whether as a separate company or branch) and dividends received from those other companies incorporated in India, which are coming under CSR provisions, are excluded from the calculation of net profit.

CSR norms are applicable only to companies (including foreign companies) registered under the Companies Act, 2013 and not to other forms of body corporate like limited liability partnerships.

CSR Rules are applicable to all companies including central public sector enterprises (CPSEs). In case of public sector enterprises, Department of Public Enterprise (DPE) had issued the first Guidelines on CSR in April 2010 which were revised effective from April 2013. However, the above DPE guidelines have ceased to exist after CSR Rules notified by Ministry of Corporate Affairs (MCA) came into effect on 1 April, 2014. Several CPSEs have known to have demanded that DPE should also issue guidelines on CSR & Sustainability within the overall mandate of the Companies Act, 2013. The draft guidelines of DPE for CPSEs to supplement CSR Rules are presently under consideration of MCA.

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What are CSR eligible activities?

CSR fund can be utilized by companies only in India and not abroad. Activities which are related to normal course of business are excluded from the purview of CSR activities.

Schedule VII of the Companies Act specifies the list of items on which CSR fund can be used and the same are given below (as substituted, vide Notification dated 27 February 2014, for the original provisions in the Companies Act, 2013):

Activities relating to:—

eradicating hunger, poverty and malnutrition, promoting health care including preventive healthcare and sanitation and making available safe drinking water:

promoting education, including special education and employment enhancing vocation skills especially among children, women, elderly, and the differently abled and livelihood enhancement projects;

promoting gender equality, empowering women, setting up homes and hostels for women and orphans; setting up old age homes, day care centres and such other facilities for senior citizens and measures for reducing inequalities faced by socially and economically backward groups;

ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agro-forestry, conservation of natural resources and maintaining quality of soil, air and water;

protection of national heritage, alt and culture including restoration of buildings and sites of historical importance and works of art; setting up public libraries; promotion and development of traditional arts and handicrafts:

measures for the benefit of armed forces veterans, war widows and their dependents;

training to promote rural sports, nationally recognized sports, Paralympics sports and Olympic sports;

contribution to the Prime Minister's National Relief Fund or any other fund set up by the Central Government for socio-economic development and relief and welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women;

contributions or funds provided to technology incubators located within academic institutions which are approved by the Central Government

rural development projects.

With effect from 6 August 2014, slum area development was added to the CSR eligible list.

“Swachh Bharat Abhiyan” and “Clean Ganga Mission” have also been included as CSR activities under Schedule VII of the Companies Act, 2013 with effect from 24

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October, 2014.

Contributions to political parties are not considered as an eligible CSR spending.

How to do CSR?

The CSR activities can be undertaken by the company as projects or programs or activities (either new or ongoing), excluding activities undertaken in pursuance of its normal course of business. It cannot be a project or program or activity that benefit only the employees of the company and/or their families.

The Board of a company may decide to undertake its CSR activities approved by the CSR Committee, through a registered trust or a society or through a company established by it or its holding or subsidiary or associate company under section 8 of the Act (earlier known as Section 25 companies or charitable or non-profit oriented companies). The activities can also be undertaken through a registered trust or a society or a Section 8 company if the same has three years of established track record and is undertaken as per the company's specified norms on outcomes, monitoring etc. A company can also collaborate with other companies for implementing CSR activities provided there is neat separation of expenditures for reporting purposes.

CSR expenses are to be disclosed in annual reports of the companies and the CSR policy and activities are to be published in their website.

Cropping seasons of India- Kharif & Rabi

The agricultural crop year in India is from July to June. The Indian cropping season is classified into two main seasons-(i) Kharif and (ii) Rabi based on the monsoon. The kharif cropping season is from July –October during the south-west monsoon and the Rabi cropping season is from October-March (winter). The crops grown between March and June are summer crops. Pakistan and Bangladesh are two other countries that are using the term ‘kharif’ and ‘rabi’ to describe about their cropping patterns. The terms ‘kharif’ and ‘rabi’ originate from Arabic language where Kharif means autumn and Rabi means spring.

The kharif crops include rice, maize, sorghum, pearl millet/bajra, finger millet/ragi (cereals), arhar (pulses), soyabean, groundnut (oilseeds), cotton etc. The rabi crops include wheat, barley, oats (cereals), chickpea/gram (pulses), linseed, mustard (oilseeds) etc.

Cultivators

If the Main worker is engaged in cultivation of land owned or held from Government or held from private persons or institutions for payment in money, kind or share. Cultivation includes effective supervision or direction in cultivation. A person working on another person's land for wages in cash or kind or a combination of both (agricultural labourer) is not treated as cultivator. Cultivation involves ploughing, sowing, harvesting and production of cereals and millet crops such as wheat, paddy, jowar, bajra, ragi, etc., and other crops such as sugarcane, tobacco, ground-nuts, tapioca, etc., and pulses, raw jute and kindred fibre crop, cotton, cinchona and other medicinal plants, fruit growing, vegetable growing or keeping orchards or groves, etc. and does not include the plantation crops like tea, coffee, rubber, coconut and betel-nuts (areca).

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Current Daily Status (CDS) Unemployment

The current daily status approach to measuring unemployment seeks to ascertain the activity status of an individual for each day of the reference week. It reports time disposition of an individual on each day of the reference week. This means that in addition to recording the activity being pursued, time intensity is also recorded in quantitative terms for each day of the reference week.

Following is the criteria used in assigning time intensities and determining activity status:

For recording time disposition of activities pursued by a person, an intensity of 1.0 is given if activity is done for ‘full day’ and 0.5 is given if an activity is undertaken for ‘half day’.

A person is classified as employed for the ‘full day’ if he has worked for 4 hours or more during the day.

If a person is engaged in two or more activities for more than 4 hours a day, then he is assigned two economic activities on which he spent relatively longer time and intensity of 0.5 is given to each of them.

If a person works for more than 1 hour but less than 4 hours h/she is classified as ‘working’(employed) for ‘half day’ and ‘seeking/available for work’ (unemployed) or ‘neither seeking nor available for work’(outside the labour force) for the other half of the day depending on whether he was ‘seeking/available for work’ or not.

If a person is not engaged in any work even for 1 hour during the day but was ‘seeking/available for work’ for more than 4 hours a day, then h/she is classified as ‘unemployed’ for ‘full day’. However if the person is reported ‘seeking/available for work’ for more than 1 hour but less than 4 hours, then h/she is classified as ‘unemployed’ for ‘half day’ and not in labour force for other half of the day.

If a person is neither ‘working’ nor ‘seeking/available for work’ even for half a day is classified as being outside the labour force for the entire day.

As can be seen from above, this approach is associated with persons-days and not to persons. The person-days in employment for each day of the reference week is aggregated to arrive at person-days of employment and unemployment (daily status) in the economy.

The person-day unemployment rate is calculated as the ratio of person-days in unemployment to the person-days in the labour force (i.e. person-days in employment plus person days in unemployment).

Current Weekly Status (CWS) Unemployment

The Current Weekly Status (CWS) approach to measuring unemployment uses seven days preceding the date of survey as the reference period.

A person is considered to be employed if he or she pursues any one or more of the gainful activities for at least one-hour on any day of the reference week. On the other hand, if a person does not pursue any gainful activity, but has been seeking or available for work, the

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person is considered as unemployed.

For classification of the population under current weekly status approach, a priority-cum-major time rule has been adopted. According to the criteria, status of ‘working’ gets priority over status of ‘not working’ or ‘being available for work’. Status of ‘seeking or being available for work’ in turn gets priority over non-gainful activities pursued. When a person is found to be possessing more than one gainful activity, the unique activity is decided as that activity on which relatively more time has been spent.

An individual is classified as being in the labour force if he reports as ‘working’ (employed) at least for an hour on at least one day in the week preceding the survey and/or h/she reports as having ‘seeking/available for work’ (unemployed) during the reference period.

If the person reports as neither working nor seeking/available for work during the seven day reference period, then he is considered as outside the labour force.

The usual status approach to measuring unemployment fails to capture the short term fluctuations in employment and unemployment caused due to seasonality in labour markets. However, CWS measures these short term fluctuations very well owing to its shorter reference period of a week.

Debt Consolidation and Relief Facility (DCRF)

The Twelfth Finance Commission (TFC) had recommended a Debt Consolidation and Relief Facility (DCRF) during its award period (01.04.2005 to 31.03.2010) to States.

This facility provided for (i) Consolidation of central loans from Ministry of Finance contracted till 31.3.2004 and outstanding as on 31.3.2005 for a fresh tenure of twenty years at an interest rate of 7.5% per annum and (ii) Debt waiver to states based on their fiscal performance. The facility is subject to the condition that states enact their Fiscal Responsibility and Budgetary Management (FRBM) Acts as recommended by the Commission. Under the scheme, twenty-six states out of twenty eight states (except Sikkim and West Bengal), which had enacted their Fiscal Responsibility and Budget Management Acts, had availed of the facility of consolidation of their loans. Those states which had improved their fiscal performance could also get their eligible debt waived.

The Thirteenth Finance Commission (FC-XIII) has extended the DCRF, limited to consolidation of their loans only, to the states of Sikkim and West Bengal during 2010-15, provided these states put in place their FRBM Acts as stipulated by FC-XIII. Sikkim and West Bengal have now enacted their Fiscal Responsibility Legislations.

Decentralization and Rural Governments in India

Decentralization can be defined as transfer or dispersal of decision making powers, accompanied by delegation of required authority to individuals or units at all levels of organization even if they are located far away from the power centre.

In the context of the present discussion, decentralization signifies the devolution of powers and authority of governance of the Union Government and State Governments to the sub-state level organizations i.e. Panchayats in India.

History and EvolutionHistory of decentralization in India is, as a matter of fact, the history of evolution of

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Panchayati Raj System in the country.During the period of British domination of India there was no particular urge for economic and social development except only those activities necessary for safeguarding the rule. Naturally, the issue of decentralization was not in the agenda of the rulers, though local government institutions in the form of Union Boards, District Boards etc. were established as per law.

In the course of the freedom movement it became clear that after independence India’s nationhood would evolve within a democratic political and institutional setting. Some leaders believed that it should be a representative democracy much in the mould of western countries. But Mahatma Gandhi’s development discourse hinged on a village based participatory democracy embedded in his vision of the Panchayati Raj. Gandhi advocated for a democratic polity that would have its foundation in thousands of self-governing village communities. Gandhi felt that real development of India can take place only through its political system of Gram Swaraj in which the State Government would only exercise such powers which are not within the scope and competence of the lower tiers of participatory governance institutions.

Rural local governments, in the form of Panchayats, were included in the chapter on Directive Principles of the State Policy (Article 40). It stated that the states shall take steps to organize village Panchayats and endow them with such powers and authority as may be necessary to enable them to function as units of self government.

Immediately after independence and especially after the launch of the first 5-year plan, the then Government of India launched massive development projects on one hand and Community Development (CD) Programmes and National Expansion Services for rural development, on the other. Mechanics of workings of Panchayats and their significance in local governance received serious boost with the setting up of the Balwant Rai Mehta Committee (constituted to study the impact of CD Programme and National Extension Service) in 1957. The committee observed that the country’s development cannot progress without the co-location of responsibility and power at even the lower tiers of Government. Community development objectives can materialize only when the Community understands its problems, realizes its responsibilities, exercises necessary powers through chosen representatives and maintains a constant and intelligent vigil on the local administration. The committee further observed that the character of the development programmes should change from “Government’s programme with people’s participation to people’s programme with Governments participation.”

Journey towards political and administrative decentralization started with the recommendations of the Mehta Committee. All the states enacted Panchayat Acts and by 1960 Panchayats were established throughout India. But these steps could hardly change ground realities as laws were weak and inexplicit. Local administrations resisted devolution of functions and powers, regular elections to Panchayati institutions were not held.The country experienced significant political changes during mid-1970s, with which the process of resurrection and strengthening of Panchayati Raj System regained momentum. Many State Governments delegated authorities and schematic funds to the Panchayats for implementing various development programmes. But in the absence of appropriate statutes defining the role, functions, duties, authorities and powers, the Panchayats were not successful enough to ensure de facto involvement of

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people in development programmes. In most cases, Panchayats came about to be nothing more than the State Government’s agency for implementation of a few programmes, and delivery of a few services.Under-performance with regard to poverty alleviation, development and even social assistance programmes to reach and benefit target groups (i.e. the rural poor) disconcerted decision makers both within and outside Government. Demands for suitable empowerment of Panchayats in order to mould them into effective self governments started to gain momentum. It was argued that provisions of Article 40 were not enough to ensure development of village Panchayats the way it was desired. Instead of leaving the issue entirely at their discretion, the states had to be bound by some constitutional mandate.This led to the 73rd amendment of the Constitution in 1992, given effect from April 24, 1993. This land-mark amendment of the Constitution declared the Panchayats as units of self government, directed the states to devolve functions of 29 subjects directly related to social and economic development of an area, made provisions for resource sharing between the Panchayati Raj Institutions (PRIs) and Governments, regular elections to local bodies, reservation of socially disadvantaged classes and women etc.

In order to make sure that the people can have a say in the process of local governance. The institution of “Gram Sabha” was given high importance. Consultation with the Gram Sabha on all important matters including planning and implementation of development programmes was made a necessary requirement. The amendment, to a great extent, paved the way for decentralization of governance and transforming village Panchayats as institutions of self government.

Effectiveness

Almost two decades have elapsed since the 73rd amendment of the Constitution. Critics often argue the 73rd amendment, though very significant, left several things relating to Panchayats to the state’s discretion. Government of India’s due emphasis on the subject was evident from the fact that in the year 2004 the Ministry of Panchayati Raj was again constituted. It held seven Round Tables with State Ministers of Panchayats and compiled, as a series of recommendations, measures for effective devolution of authority to the Panchayats and removal of obstacles in the way of their proper functioning.

It is widely recognized that effective decentralization is dependent on existence of the following necessary conditions:

a) Strong political commitment from higher level authorities within the Government.

Activity mapping which was supposed to be done by states as per resolution of the State Panchayat Ministers’ round table has been done by quite a few states, but implementation has often remained incomplete. Transfer of functionaries has also remained mostly symbolic.

b) Autonomy of the local bodies in decision making and implementation of local schemes:

Since Panchayats implement state and union government schemes they are required to adhere to the guidelines without any authority to deviate even a little as per necessities

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emanating from local conditions. In the absence of Panchayats’ own financial resources they can hardly undertake programmes on their own in line with local requirements. It is here that decentralization of political decision making needs to be complimented by measures to ensure fiscal autonomy for PRIs so that such institutions can muster necessary financial resources on their own to be truly self-reliant in local decision-making and its implementation.

It is however true that under the govt. sponsored schemes the schemes and / or beneficiaries are selected by the Panchayats in the Gram Sabha meetings. But often such meetings are captured by the village elites and the capacity of common villagers to register their claims gets limited.

c) Availability of the internally generated resources at the local level:

In the federal system of governance that is existent in India, almost all the sources of tax or non tax revenue come under the jurisdictions of the State and Union Governments. This leaves little scope for local governments to generate resources on their own. Their own revenue generation capacity remains limited vis-a-vis their requirements and expenditure obligations. In view of this the constitution mandated for setting up of the State Finance Commissions that would help determine the devolution of state’s revenue to the local governments.

In this connection a few experiments towards effective decentralization in India can be recalled:

i) In the mid-1980s the West Bengal Government initiated decentralized planning process. The districts were asked to prepare district plans which were later integrated for preparing the state plan. The objective of this effort of the State Planning Board was to involve Panchayats in the planning process.

ii) People’s plan initiative of Kerala during 1990s generated lot of enthusiasm. It was possible to garner support of all political parties, educated citizens and government officials. Personalities like EMS Namboodiripad, AK Antony were involved in it.

iii) West Bengal undertook another experiment of village level planning, in mid 1990s under the programme Community Convergent Action, later followed by the Strengthening Rural Decentralization programmes. This met with moderate success and has become of the model of village level planning in the state involving villagers in the Gram Sansad meeting.

iv) Planning Commission of India advised the states to prepare the 11th Five year plan on the basis of village level plans prepared in the Gram Sabhas. This was expected to give a boost towards decentralization.

Deemed Export Benefit Scheme

Deemed Export Scheme, which has been in operation for more than two decades, is largely an Indian concept. Deemed Exports refers to those transactions in which goods supplied do not leave country, and payment for such supplies is received either in Indian rupees or in foreign exchange. The Deemed export benefit include rebate on duty chargeable on imports or excisable material used in the manufacture of goods which are supplied to the eligible projects.

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‘Deemed Export Benefit’ Scheme benefits are availed of by units in Power, Petroleum refinery, fertilizer and Nuclear Power Projects. They are also availed by supply of goods to projects financed by multi-lateral or bilateral agencies.

The policy aims to create a level playing field for the domestic industry vis-à-vis direct import by providing duty free inputs or exemption/refund of duty paid on goods manufactured in India. Deemed Export Scheme is primarily an instrument for import substitution. It helps in creating manufacturing capability, value addition and employment opportunities in country

Deficit Measurement in India

There are different measures of deficits in macroeconomics and each type of deficit measure carries a different macroeconomic meaning. The broad measures of deficit (which have been and/or are being) reported by the government in India, may be classified, either in terms of the ‘nature of transactions’[1] or on the basis of the ‘means of financing’ them.

The chart below elucidates a list of different types of deficits that have been and are being used in India.

I. Meaning of different measures of deficit

(a) Fiscal Deficit Gross Fiscal Deficit is defined as the excess of total expenditure of the government over the total non-debt creating receipts.

Fiscal deficit can be either ‘gross’ or ‘net’. The Central government makes capital disbursements as loans to the different segments of the economy. In the developing countries, a large part goes as loans to other sectors-States and local Governments, public sector enterprises and the like. Net fiscal deficit can be arrived at by deducting

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net domestic lending from gross fiscal deficit .

(b) Budget Deficit Also referred to as simply ‘budget deficit’ is that part of the government’s deficit which is financed through short-term borrowings. These short-term borrowings may be from the RBI or from other sources.

Normally, short-term borrowings from the RBI are through the net issuance of short-term treasury bills (that is, ad-hoc and ordinary[2] treasury bills) and by running-down the central government’s cash balances held by the RBI.

(c) Monetized deficit Also known as the ‘net reserve bank credit to the government’, it is that part of the government deficit which is financed solely by borrowing from the RBI.

Since borrowings from the RBI can be both short-term and long-term, therefore, monetized deficit is the sum of the net issuance of short-term treasury bills, dated securities (that is, long-term borrowing from the RBI) and rupee coins held exclusively by the RBI, net of Government’s deposits with the RBI.

This is different from the Traditional Budget deficit in two ways-

1. Traditional Budget deficit includes 91-day treasury bills held by both, the RBI and non-RBI entities whereas Monetized deficit includes 91-day Treasury Bills held only by the RBI.

2. Traditional Budget deficit includes only short-term sources of finance whereas Monetized deficit includes long-term securities also.

(d) Primary Deficit Gross Primary deficit is defined as gross fiscal deficit minus net interest payments. Net primary deficit, is gross primary deficit minus net domestic lending.

(e) Revenue deficit Revenue deficit is defined as the difference between revenue expenditure and revenue receipts. For a detailed exposition click here

(f) Effective revenue Deficit Introduced in 2011-12, it is defined as revenue deficit

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minus that revenue expenditure (in the form of grants), which goes into the creation of Capital Assets. For a detailed exposition click here

(g) Other measures of deficit Apart from these, there are various other types of measures of deficit that are widely used internationally, like the Consolidated Public Sector Deficit, which is the excess of expenditure over revenue for all the government entities; Operational Deficit, which is the ‘inflation-corrected’ deficit and is defined as Consolidated Public Sector Deficit minus inflation rate times the debt stock; Structural deficit which removes the effects of temporary movements in the variables from their long-run values, thereby providing an idea of the long-run position of the country after removing the impact of temporary shocks; and others.

II. Significance of different measures of deficit

S.NoDeficit

MeasureSignificance

1 Fiscal Deficit

Widely used as a summary indicator of the macroeconomic impact of the budget in several industrialized countries. This measure has been adopted by the IMF as the principal policy target in their programmes. In India, the government began to report the fiscal deficit only after 1991.

Since the shortfall in receipts over expenditure must be covered through borrowing, therefore, Gross Fiscal Deficit, gives the overall borrowing requirements of the government over a given financial year. And thus shows the net addition to the level of public debt during a financial year.

2 Budget Deficit In the presence of the system of automatic monetization of deficits through issuance of ad-hoc treasury bills, this measure of deficit, becomes an important target to keep in check.

However, in the year 1997, the government discontinued the issuance of ad-hoc and tap treasury bills. As a result of this, now, the

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concept of budget deficit in the traditional sense has lost its significance in public finance and is now not reported in the Budget documents of the Government of India.

3Monetized Deficits

Monetization of deficits, which increases the money supply, is inflationary if the rate of growth of money supply is greater than the rate of increase of the demand for cash balances arising from the growth of the economy. Thus, monetized deficits are an important indicator of the inflationary impact of the increase in government’s budgetary deficits.

4Primary Deficits

It excludes the burden of the past debt and shows the net increase in the government’s indebtedness due to the current year’s fiscal operations. A reduction in primary deficit is reflective of government’s efforts at bridging the fiscal gap during a financial year.

5Revenue Deficit

A positive revenue deficit implies that the government is resorting to borrowing to finance current consumption.

Also See

Fiscal Consolidation Fiscal Responsibility and Budget Management Act

Public Debt

Public Debt Management of the Union Government in India

1. The most important and the broadest classification of government transactions is between current (revenue) and capital expenditure. Generally understood, revenue (current) expenditures are those which do not result in the creation of physical or financial assets. This includes expenditure on wages and salaries and, commodities and services for current use. Capital expenditures, on the other hand, are those which affect the net wealth or debt position of the government. For example purchase of a building adds to the government’s assets and is thus capital in nature. Likewise, repayment of debt reduces the government’s financial liability and is therefore capital in nature.

2. Ad-hoc treasury bills are not sold to the general public and are not marketable whereas ordinary bills are freely marketable and are sold to the public and banks.

References GOI (2011), Budget Documents, Ministry of Finance, New Delhi. Rangarajan, C, A. Basu and Jadhav (1989), ‘Dynamics of Interaction between

Government Deficit and Domestic Debt in India’, RBI Occasional Papers, Vol.10, No.3, reprinted in R.Kannan (ed.), Select Essays on Indian Economy by C.Rangarajan, Academic Foundation, New delhi.

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Reddy,Y.V. (1997), ‘Budget and RBI: New Directions’, address at Administrative Staff College of India, March 8, Hyderabad.

World bank (1988), World Development Report, Oxford University Press, New York.

Demand for GrantsAccording to Article 113 of the Indian Constitution, estimates of expenditure from the Consolidated Fund of India in the Annual financial Statement are to be voted in the Lok Sabha. These expenditures are submitted in the lower house of Parliament in the form of Demand for Grants. Conventionally, one Demand for Grant is presented in respect of one Ministry or Department, though more than one Demand may also be presented according to the nature of expenditure.

For Union Territories without Legislature a separate Demand is presented for each Union territory.

Each Demand gives the totals of “voted” and “charged” expenditure and also the grand total of the amount of expenditure for which the demand is presented. This expenditure is then given under different Major and Minor heads of account. The break-up of expenditure is also provided in Plan and Non-Plan basis.

The demands include the total provisions required for a service, i.e. Provisions on account of revenue expenditure capital expenditure, grants to States and UTs and also loans and advances related to that service.

Demographic Dividend (India)

One of India’s competitive advantages is its demographic dividend. Demographic dividend occurs when the proportion of working people in the total population is high because this indicates that more people have the potential to be productive and contribute to growth of the economy. According to the United National population research, during the last four decades the countries of Asia and Latin America have been the main beneficiaries of the demographic dividend. Advanced countries of Europe, Japan and USA have an ageing population because of low birth rates and low mortality rates. Neither the least developed countries nor the countries of Africa have as yet experienced favourable demographic conditions according to the research by UN population division. China’s one child policy has reversed the demographic dividend it enjoyed since the mid 1960s according to a World Bank global development report.

Falling birth rates reduce the overall expenditure required to provide basic necessities for the under 14 age group (which is yet to be productive) and increased longevity ensures that a large proportion of the population are within the 15-59 age group (working population). Dependency ratio refers to the proportion of non -working poplation on the working population. In India this ratio is around 0.6 according to the World Bank.

However, reaping the demographic dividend requires focused policy action. A recent UNESCAP survey warns there are no guarantees the "dividend" will automatically translate to economic growth. Countries need to put in place the appropriate "social and economic policies and institutions" to absorb the rapidly growing labour force. Reforms in the health and education sector, financial inclusion and adequate employment opportunities are essential pre-requisites to ensure that India’s young

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population is truly an asset.

The Planning Commission of India, in its 12th Plan discussions, indicates that while the “demographic dividend” accounts for India having world’s youngest work force with a median age way below that of China and OECD Countries, the global economy is expected to witness a skilled man power shortage to the extent of around 56 million by 2020. Thus, the “demographic dividend” in India needs to be exploited not only to expand the production possibility frontier but also to meet the skilled manpower requirements of in India and abroad. To reap the benefits of “demographic dividend”, the Eleventh Five Year Plan had favored the creation of a comprehensive National Skill Development Mission. Various strategies for the 12th Plan – improved access to quality education, better preventive and curative health care, enhancing skills and faster generation of employment are being finalized to ensure greater productivity of Indian workers.

Depository Receipts

A Depository Receipt (DR) is a financial instrument representing certain securities (eg. shares, bonds etc.) issued by a company/entity in a foreign jurisdiction. Securities of a firm are deposited with a domestic custodian in the firm’s domestic jurisdiction, and a corresponding “depository receipt” is issued abroad, which can be purchased by foreign investors. DR is a negotiable security (which means an instrument transferrable by mere delivery or by endorsement and delivery) that can be traded on the stock exchange, if so desired.

DRs constitute an important mechanism through which issuers can raise funds outside their home jurisdiction. DRs are issued for tapping foreign investors who otherwise may not be able to participate directly in the domestic market. It is perceived as the beginning point of connecting with the foreign investors (i.e. a stage before the actual listing the shares /securities in a foreign stock exchange) or a way of introducing the company to a foreign investor. For investors, depository receipt is a way of diversifying the risk, by getting exposure to a foreign market, but without the exchange rate risk as they are foreign currency denominated. Further, they feel more safe to invest from their home location.

Depending on the location in which these receipts are issued they are called as ADRs or American Depository Receipts (if they are issued in USA on the basis of the shares/securities of the domestic (say Indian) company), IDR or Indian Depository Receipts (if they are issued in India on the basis of the shares/securities of the foreign company; Standard Chartered issued the first IDR in India) or in general as GDR or Global Depository Receipt.

Thus, ADR or GDR are issued outside India by a foreign depository on the back of an Indian security deposited with a domestic Indian custodian in India (means a custodian or keeper of securities- an Indian depository, a depository participant, or a bank- and having permission from the securities market regulator, SEBI, to provide services as custodian).

Foreign Exchange Management (Transfer or issue of Security by a Person Resident outside India) (Seventeenth Amendment) Regulations, 2014 and as per the Scheme issued in this regard by the Ministry of Finance in December 2014, a depository

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receipt is defined as follows:

‘Depository Receipt’ means a foreign currency denominated instrument, whether listed on an international exchange or not, issued by a foreign depository in a permissible jurisdiction on the back of eligible securities issued or transferred to that foreign depository and deposited with a domestic custodian and includes ‘global depository receipt’ as defined in section 2(44) of the Companies Act, 2013.”

As per the Companies Act, 2013 "Global Depository receipt" means any instrument in the form of a depository receipt created by a foreign depository outside India and authorised by a company making an issue of such depository receipts while the "Indian Depository Receipt” means any instrument in the form of a depository receipt created by a domestic depository in India and authorised by a company incorporated outside India;

In India any company - whether private limited or public limited or listed or unlisted - can issue DRs. However listed DRs enjoy some tax benefits.

ADR /GDR issues based on shares of a company are considered as part of Foreign Direct Investment (FDI) in India, though it is an indirect way of holding shares.

Types of DRs

DRs are generally classified as under:

Sponsored: Where the Indian issuer enters into a formal agreement with the foreign depository for creation or issue of DRs. A sponsored DR issue can be further classified as: Capital Raising: The issuer issues new securities which are deposited with

a domestic custodian. The foreign depository then creates DRs abroad for sale to foreign investors. This constitutes a capital raising exercise, as the proceeds of the sale of DRs go to the Indian issuer.

Non-Capital Raising: In a non-capital raising issue, no fresh underlying securities are issued. Rather, the issuer gets holders of its existing securities to deposit these securities with a domestic custodian, so that DRs can be issued abroad by the foreign depository. This is not a capital raising exercise for the Indian issuer, as the proceeds from the sale of the DRs go to the holders of the underlying securities.

Unsponsored: Unsponsored DRs are where there is no formal agreement between the foreign depository and the Indian issuer. Any person other than the Indian issuer may, without any involvement of the issuer, deposit the securities with a domestic custodian in India. A foreign depository then issues DRs abroad on the back of such deposited securities. This is not a capital raising exercise for the Indian issuer, as the proceeds from the sale of the DRs go to the holders of the underlying securities.

Based on whether a DR is traded in an organised market or in the over the counter (OTC) market, the DRs can be classified as listed or unlisted.

Listed: Listed DRs are traded on organised exchanges. The most common example of this are American Depository Receipts (ADRs) which are traded

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on the New York Stock Exchange (NYSE). Unlisted: Unlisted DRs are traded over the counter (OTC) between parties.

Such DRs are not listed on any formal exchange.

International experience

The most common DR programs internationally are:

ADRs: DRs issued in United States of America (US) by foreign firms are usually referred to as ADRs. These are further classified based on the detailed rules under the US securities laws. The classification is based on applicable disclosure norms and consists of: Level 1: These programs establish a trading presence in the US but cannot

be used for capital raising. They may only be traded on OTC markets, and can be unsponsored.

Level 2: These programs establish a trading presence on a national securities exchange in the US but cannot be used for capital raising.

Level 3: These programs can not only establish a trading presence on a national securities exchange in the US but also help raise capital for the foreign issuer.

Rule 144A: This involves sale of securities by a non-US issuer only to Qualified Institutional Buyers (QIBs) in the US.

Global Depository Receipts (GDRs): GDR is a collective term for DRs issued in non-US jurisdictions and includes the DRs traded in London, Luxembourg, Hong Kong, Singapore.

Regulatory Regime for Depository Receipts in India

In India, the issue of Depository receipts were regulated by the “The Issue of Foreign Currency Convertible Bonds and Ordinary Share (through Depository Receipt Mechanism) Scheme 1993 issued by the Ministry of Finance. The 1993 Scheme was formulated at a time when India’s capital markets were substantially closed to foreign capital and the domestic financial system was not well developed. In the last two decades, the equity market has developed sophisticated market infrastructure with active participation by both domestic and foreign investors and capital controls have been eased substantially. In this period many aspects of the Indian legal and regulatory system have evolved with substantial changes. These developments warranted a fresh look at the Scheme governing the issue of Depository Receipts (DRs). Accordingly, based on the recommendations of the MS Sahoo committee, Hon’ble Finance Minister had announced in the 2014-15 Budget Speech that he propose to “Liberalize the ADR/GDR regime to allow issuance of depository receipts on all permissible securities”. Accordingly “The Depository Receipts Scheme, 2014" was formulated and implemented from December 15, 2014.

Detailed comparison of the 1993 Scheme and the 2014 scheme

Sl. No. Parameter 1993 Scheme 2014 Scheme1 Approval for issue of

DRs from authoritiesRequired from MoF Not required

2 Issuer of DRs (foreign depository)

A bank authorized by issuer of underlying

A regulated person having legal capacity to

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securities issue DRs 3 Custodian of DRs

(domestic custodian)A bank which acts as a custodian

A regulated entity having legal capacity to act as custodian for underlying securities

4 Jurisdictions for issue of DRs

Anywhere for listed companies; FATF/ IOSCO jurisdiction for unlisted companies

FATF and IOSCO compliant jurisdictions

5 Purpose of issue of DRs Capital raising and non-capital raising

No change

6 Quantity / Limit on issue of DRs

No limit No change

7 Kind of issue of DRs Sponsored Both sponsored and unsponsored

8 Mode of issue of DRs Public offer, private placement or any other manner prevalent

No change

9 Listing of DRs Not required No change 10 End Use Restricted No restriction 11 Securities underlying

DRsEquity shares and FCCB Any securities which are

available to persons resident outside India and in demat form

12 Subscribers of DRs Any person No change 13 Mode of issue of

underlying sharesAny mode permissible under law

No change

14 Mode of transfer of underlying securities to foreign depository

Not applicable On Exchange, Off Exchange and tender process

15 Pricing of underlying securities at issue

Listed shares as per SEBI rules; Unlisted shares as per discounted cash flow method

Listed shares as per SEBI rules; No restriction on other securities

16 Issuer of underlying securities

Any company- listed or unlisted

Any issuer - listed or unlisted

17 Whether underlying shares form part public holding

No Yes subject to certain conditions

18 Conversion from underlying securities to DRs and vice versa

Permissible No change

19 Voting rights associated with underlying securities

Foreign depository No change

20 Obligations No explicit provision Custodian, depository, issuer and transferor of underlying securities, holders of DRs

21 Market Abuse No explicit provision To be dealt by SEBI22 Oversight on

Prevention on money laundering

FIU, Enforcement Directorate and SEBI

No change

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References

M.S. Sahoo. (November 2013). Report of the Committee to Review the FCCBs and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993. New Delhi: Ministry of Finance, Government of India.

Dumping

When goods are exported to another country at a price which is less than what it is sold for in the home country or when the export price is less than the cost of production in the home country, then those goods have been dumped.

Home Market Price – Export Sales Price = Margin of dumping

The Department of Commerce in the Union Ministry of Commerce and Industry has an Anti-dumping Unit which investigates cases where the domestic industry (domestic producers) provide evidence that dumping has taken place by producers abroad. They also defend cases where allegations of dumping are brought against Indian exporters by foreign governments.

There is a well established process which is followed where questionnaires are sent to all stakeholders and evidence is collected in a time-bound fashion to either prove or disprove that dumping has taken place.

If the good is alleged to be dumped from a non-market country ( a country where there are considerable distortions to the market through government subsidies ) then the Anti –dumping cell will calculate what the “normal” price of the product should be in the home market. The normal price will reflect the market price of the product had it been produced in the exporting country without these subsidies. If necessary, the price of such a commodity in a similar market ( say a neighbouring country at the same level of development as the exporting country) will be considered as the normal price.

If there is evidence of dumping then the Government of India will levy an anti-dumping duty on that commodity for a period of five years and will review the need for continuation of duty thereafter.

E E-Biz

eBiz is one of the integrated services projects and part of the 31 Mission Mode Projects (MMPs) under the National E-Governance Plan (NEGP) of the Government of India launched in 2006.

It aims to create a business and investor friendly ecosystem in India by making all business and investment related regulatory services across Central, State and local governments available on a single portal. Process of applying for Industrial License & Industrial Entrepreneur Memorandum are made online on 24X7 basis through eBiz Portal.In February 2015 eleven Central Government Services were added to eBiz portal. These services are required for starting a business in the country - four services from Ministry of Corporate Affairs, two services of Central Board of Direct Taxes, two services of Reserve Bank of India and one service each from Directorate General of Foreign Trade, Employees’ Provident Fund Organisation and Petroleum & Explosives Safety Organisation. Prior to e-biz, a business-user availed these services either from the portal of respective Ministry/Department or by physical submission of forms. With the integration of these services on eBiz portal, he/she can avail all

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these services 24*7 online end-to-end i.e., online submission of forms, attachments, payments, tracking of status and also obtain the license/permit from eBiz portal. As on date, a total of 14 Central Services have been integrated through the e-Biz Platform.

The focus of eBiz is to improve the business environment in the country by enabling fast and efficient access to Government-to-Business (G2B) services through an online portal. This will help in reducing unnecessary delays in various regulatory processes required to start and run businesses.

The vision of eBiz is to be the entry point for all individuals, businesses and organizations (local and international) who would like to do business or have any existing business in India by creating a one-stop-shop of convenient and efficient online G2B services to the business community, by reducing the complexity in obtaining information and services related to starting businesses in India, and dealing with licenses and permits across the business life-cycle.

This project aims at creating an investor-friendly business environment in India by making all regulatory information – starting from the establishment of a business, through its ongoing operations, and even its possible closure - easily available to the various stakeholders concerned. In effect, it aims to develop a transparent, efficient and convenient interface, through which the government and businesses can interact in a timely and cost effective manner, in the future.

eBiz is being implemented by Infosys Technologies Limited (Infosys) under the guidance and aegis of Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce & Industry, Government of India.

E-gold/ silver / metals

e-gold” refers to electronic mode of holding gold and is essentially a financial instrument traded in spot exchanges in India that enables its investors to invest their funds into gold in smaller denominations and hold it in ‘demat’ form” (i.e, in electronic form). Investors buying E-Gold and E-Silver can liquidate the same or convert into physical gold. Such e-contracts are also available for a few metals like copper, zinc, platinum, lead etc.

For eg. the contract specifications for e-gold at the spot exchange -National Spot Exchange Limited (NSEL) may be seen here.

Such commodity contracts are also meant for retail investors who prefer investing in commodity stocks with a view to gain benefits from the volatility in the respective commodities.

Eco-mark

Eco-mark is a voluntary labelling scheme for easily identifying environment friendly products. The Eco-mark scheme defines as an environmentally friendly product, any product which is made, used or disposed of in a way that significantly reduces the harm it would otherwise cause the environment. The definition factors in all aspects of the supply chain, taking a cradle-to-grave approach, which includes raw material extraction, manufacturing and disposal.

What sets eco-mark apart from other labels is that not only does the product have to meet strict environmental requirements, but it also has to meet strict quality requirements.

The scheme is one of India’s earliest efforts in environmental standards, launched in 1991, even before the 1992 Rio Summit in which India participated. The scheme was launched by the Ministry of Environment and Forests, and is administered by the Bureau of Indian Standards (BIS), which also administers the Indian Standards Institute (ISI) mark quality

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label, a requirement for any product to gain the Eco-mark label.

Educationally backward Districts

Educationally Backward District (EBDs), in contrast to Educationally Backward Blocks (EBBs), is identified by University Grants Commission (UGC) for the purpose of planning and allocation of funds for higher education, on the basis of gross enrolment ratio being less than the national average.

Gross Enrolment Ratio (GER) is a gross measure that includes all enrolled in higher education proportionate to population in the 18-23 years age group.

The following formula defines Gross Enrolment Ratio (GER) in Higher education =

All enrolled in post higher secondary classes x 100Total population in 18-23 age group

Accordingly, 374 districts in India have been identified as Educationally Backward Districts while there are around 3479 educationally backward blocks as identified by Ministry of Human Resource Development.

Since 2007, UGC started identifying educationally backward districts based on the criterion of Gross Enrolment Ratio (GER) being less than the National Average. Before that, UGC had adopted overall literacy rates as the single indicator for disbursement of funds under the educationally backward areas scheme during the Xth plan. Districts that had overall literacy rates below the national average (i.e. 65.4 per cent) were identified as educationally backward. Accordingly, the number of such districts, as per the Census 2001, was 294 for the country as a whole. This criteria was abandoned in favour of gross enrolment ratio as the single indicator of literacy did not capture the complexities of educational backwardness in general and higher education in particular. It was noted that in a developing country such as India there is high rate of illiteracy, low enrolment rates and high drop out rate at the higher secondary school level.

For more details, see UGCs report

Educationally Backward Blocks

Educationally Backward Blocks (EBBs) means a block(this is an intermediate geographical cluster between village and a district) where the level of rural female literacy is less than the national average and the gender gap in literacy rate is above the national average.A block has been designated as an EBB on the basis of twin criteria of Female Literacy Rate (FLR) being below the national average of 46.13% and Gender Gap in Literacy being above the national average of 21.59%. This criteria for identifying an EBB has been earmarked by the Registrar General of India and Census Commissioner, India (RGI).

The number of EBBS initially were 3073 which were drawn in connection with the flagship programme of Sarva Shiksha Abhiyan. This list was subsequently expanded to include 406 more blocks, out of which 404 blocks were having rural FLR of less than 45% irrespective of the Gender Gap. Besides, one block from West Bengal with Scheduled caste (SC) concentration, wherein SC Rural Female Literacy Rate (FLR) is at 19.81% and one block in Orissa with scheduled tribe (ST) concentration wherein ST rural FLR is at 9.47% were also included under EBB thereby, taking the total number of EBBs to 3479. The updated list can be seen here.

The Ministry of Human Resource Development (MHRD) is implementing various schemes in EBBs such as Model Schools, construction of Girls hostel, Kastruba Gandhi BalikaVidyalay

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(KGBVs) etc.

This is different from the concept of ‘Educationally Backward District’ which is identified on the basis of gross enrollment ratio, which is a gross measure that includes all enrolled in higher education proportionate to population in the 18-23 years age group. Accordingly, 374 districts in India have been identified as Educationally Backward Districts.

Effective Revenue deficit

Effective Revenue deficit is a new term introduced in the Union Budget 2011-12. While revenue deficit is the difference between revenue receipts and revenue expenditure, the present accounting system includes all grants from the Union Government to the state governments/Union territories/other bodies as revenue expenditure, even if they are used to create assets. Such assets created by the sub-national governments/bodies are owned by them and not by the Union Government. Nevertheless they do result in the creation of durable assets.

According to the Finance Ministry, such revenue expenditures contribute to the growth in the economy and therefore, should not be treated as unproductive in nature. In the Union Budget (2011-12) a new methodology has been introduced to capture the ‘effective revenue deficit’, which excludes those revenue expenditures (or transfers) in the form of grants for creation of capital assets. If this methodology is taken into account, the effective revenue deficit (revised estimates) for 2010-11 is only 2.3 per cent as against the revenue deficit of 3.4 per cent of GDP. The effective revenue deficit for 2011-12 is projected at 1.8 per cent as against the revenue deficit estimates of 3.4 per cent.

It may be noted that even though some grants may be allocated towards the creation of assets, financial allocation does not always result in physical outcomes.

Grants for creation of capital assets, as a concept, was introduced in the FRBM Act through the amendment in 2012. The Act defines grants for creation of capital assets as grants-in-aid given by the Central Government to state governments, autonomous bodies, local bodies and other scheme implementing agencies for creation of capital assets which are owned by these entities.

In short, Effective Revenue Deficit is the difference between revenue deficit and grants for creation of capital assets. Effective Revenue Deficit signifies that amount of capital receipts that are being used for actual consumption expenditure of the Government.

Effective revenue deficit has now become a new fiscal parameter and same is targeted to be eliminated by the 31st of March 2015 and keep it at that level in the future, as per the Amendments made in 2012 to Fiscal Responsibility and Budget Management Act.

However, the 14th Finance Commission observed that the concept of effective revenue deficit is not recognised in the standard government accounting process.Under the Constitution, there are only two categories of expenditure- expenditure on the revenue account and other expenditure which is broadly expressed as capital expenditure. Hence, according to the Commission, the artificial carving out of the revenue account deficit into effective revenue deficit to bring out that portion of grants which is intended to create capital asset at the recipient level leads to an accounting problem and raises the moral hazard issue of creative budgeting. The Commission recommend that the Union Government should consider making an amendment to the FRBM Act to omit the definition of effective revenue deficit from 1 April 2015.

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Effective States and Inclusive Development

Inclusive Development is a multidimensional concept. It covers social, economic and financial inclusion across communities, castes, gender, regions.There are many elements to consider in pursuing inclusive development. A vital one is how to create productive and gainful employment along-with effective and efficient social safety nets to protect those who cannot work or earn little. It is essential to enhance public services such as education, healthcare, providing access to basic necessities - water, sanitation, electricity and transportation. Particular attention needs to be paid to the marginalized sections of the society, minorities and other excluded groups to bring them into the mainstream. Government has a strong role to play in this through enhanced public investment and economic governance to ensure that everyone has access to vital public services. Government therefore has to formulate strategies, fiscal policies that stimulate pro-poor growth and reduce poverty.

To achieve inclusiveness multiple interventions are required and success depends not only on introducing new policies and government programmes, but on efficient institutions as well for proper implementation of programmes. Inclusive development should result in lower incidence of poverty, improvement in health outcomes, access for children to school, access to higher education, improved quality of education, skill development, better opportunities for wage employment, improvement in provision of basic amenities like water, electricity, roads, sanitation and housing.

The objective of the Eleventh Plan was faster and inclusive growth; hence several Flagship programmes aimed at building rural and urban infrastructure, providing basic services in order to ensure inclusiveness and reduce poverty have been implemented. In some States these programmes have been successful whereas in some States there have been shortfalls. The reasons for shortfall may be attributed to many reasons like lack of capacity of local governments who implement these schemes, funds not being transferred on time, inadequate assessment of requirement of the scheme in the region or lacuna in the design of the scheme. This raises the question of capacities that enable states to deliver inclusive development. Effective State in terms of capacity of officials who are responsible for implementing schemes, proper institutional mechanism to monitor and evaluate the schemes, proper designing of schemes as per the requirement of the State. The other factor for securing inclusive development is political commitment. Development can be inclusive only if all groups of people contribute to creating opportunities, share the benefits of development and participate in decision-making.

Electoral Trust

Electoral Trust is a Section 25 Company or a non-profit company created in India for orderly receipt of the voluntary contributions from any person and for distributing the same to the respective political parties, registered under Section 29A of the Representation of People Act, 1951.

Objective

The objective of the Electoral Trust is not to earn any profit or pass any direct or indirect benefit to its members or contributors. The sole objective is to distribute the contributions received by it to the political party concerned. This is a mechanism for bringing transparency and sanity in the political party funding.

Central Board of Direct Taxes (CBDT) notified(Notification No. 9/2013/SO 309(E)), the operational guidelines- Electoral Trust Scheme 2013- on 31 January 2013, to lay down a procedure for grant of approval to an electoral trust. It is mandated that such electoral trusts have to be registered as a Section 25 Company and should bear the phrase “electoral trust” in its name. In the new Companies Act 2013, provisions corresponding to Section 25 are given at Section 8.

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Recognition of Electoral Trust

The electoral trust will have to apply to CBDT on or before 31 July of the previous year relevant to the assessment year for which the approval is sought. Approval may be given for one year or 3 years at a stretch, as specified in the approval communication. Approval can be withdrawn by the CBDT if it is satisfied that the Electoral Trust ceased to exist, or is not genuine or have not complied with the specified conditions. CBDT is empowered to call for information from the electoral trust.

Fund raising by political parties

Section 29B of the Representation of People Act, 1951, provides that subject to the provisions of the Companies Act, every political party may accept any amount of contribution voluntarily offered to it by any person or company other than a Government company. Here the word “person” does not include Government company, local authority or artificial juridical person wholly or partiallyfunded by the Government.

Further, no political party shall be eligible to accept any contribution from any foreign source defined under the Foreign Contribution (Regulation) Act, 2010. The Citizen’s charter issued by the Ministry of Home Affairs has clarified that foreign contribution cannot be accepted by a candidate for election, member of any legislature, political party or office bearer thereof.

Section 182 of the Companies Act, 2013 specifies that a company which has been in existence for more than three years can contribute to political parties upto 7.5% of its average net profit earned during the three immediately preceding financial years, provided the same is approved through a resolution passed at a meeting of the Board of Directors of the Company. A company can also make contributions within the above limits and restrictions to Electoral Trusts.

Tax treatment of political contributions

The tax treatment for the contributions made by companies and persons / individuals for political party funding is specified in Section 80GGBand Section 80GGC, respectively of the Income Tax Act,1961.

In case of an Indian company,any sum contributed by it in the previous year to any political party or an electoral trust shall be deductible from the income tax liability. Same is the case for any contributing “person”, provided, the person is not a local authority or artificial juridical person wholly or partly funded by the Government.

However, no deduction shall be allowed in respect of any sum contributed by way of cash.This provision was made to the Income Tax Act, vide the Finance Act, 2013, with effect from 1-4-2014.

Empowered Group of Ministers (EGoM)

Empowered Group of Ministers (EGoM) is a Group of Ministers (GoM) of the Union Government who, after being appointed by the Cabinet, a Cabinet Committee or the Prime Minister for investigating and reporting on such matters as may be specified, are also authorised(empowered) by the appointing authority to take decisions in such matters after investigation.

While a GoM investigates and reports to the Cabinet, which takes the decision, an EGoM additionally takes decisions on matters it is authorised for, and such decisions have the force of the Government decision.

Both EGoM as well as the GoM get appointed under the Government of India’s Transaction

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of Business Rules 1961, which at para 6 (4) provides that ‘Ad hoc Committees of Ministers including Group of Ministers may be appointed by the Cabinet, the Standing Committees of the Cabinet or by the Prime Minister for investigating and reporting to the Cabinet on such matters as may be specified, and, if so authorised by the Cabinet, Standing Committees of the Cabinet or the Prime Minister, for taking decisions on such matters.’

Rule 6(6) further provides that ‘any decision taken by a Standing or Ad hoc Committee may be reviewed by the Cabinet’. Therefore decisions in a matter taken by EGoM remain subject to review by the Cabinet at the latter’s discretion.

The list of existing EGoM's may be seen from the website of Cabinet Secretariat.

Latest Status of GoM / EGoM

As part of empowering the Ministries and Departments, the Prime Minister on 31 May 2014 decided to abolish all the existing nine Empowered Group of Ministers (EGoMs) and twenty-one Groups of Ministers (GoMs). This is expected to expedite the process of decision making and usher in greater accountability in the system. The issues pending before the EGoMs and GoMs will be processed by respective Ministries /Departments to take appropriate decisions at the level of Ministries and Departments itself. Wherever the Ministries face any difficulties, the Cabinet Secretariat and the Prime Minister’s Office will facilitate the decision making process.

Environment Impact Assessment (EIA) in India

The Environmental Impact Assessment (EIA) is a management tool to minimize adverse impacts of developmental projects on the environment and to achieve sustainable development through timely, adequate, corrective and protective mitigation measures.

The Ministry of Environment and Forests (MoEF) uses Environmental Impact Assessment Notification 2006 as a major tool for minimizing the adverse impact of rapid industrialization on environment and for reversing those trends which may lead to climate change in long run.

EIA 2006 was issued on 14th September 2006, in supersession of EIA 1994, except in respect of things done or omitted to be done before such supersession. The Notification is issued under relevant provisions of the Environment (Protection) Act, 1986.

Since EIA 2006, the various developmental projects have been re-categorised into category ‘A’ and category ‘B’ depending on their threshold capacity and likely pollution potential, requiring prior Environmental Clearance (EC) respectively from MoEF or the concerned State Environmental Impact Assessment Authorities (SEIAAs). Where state level authorities have not been constituted, the clearance would be provided by the MoEF. Further, the notification provides for screening (determining whether or not the project or activity requires further environmental studies for preparation of EIA), scoping (determining the detailed and comprehensive Terms of Reference (TOR), addressing all relevant environmental concerns /questions for the preparation of an EIA Report), public consultation (ascertaining concerns of affected persons) and appraisal of project proposals (based on the public consultations and final EIA report).

Environmental clearance is required in respect of all new projects or activities listed in the Schedule to the 2006 notification and their expansion and modernization, including any change in product –mix.

The amendments to EIA Notification of 1st December 2009 exempts environmental clearance process the biomass based power plants up to 15 MW, power plants based on non hazardous

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municipal solid waste and power plants based on waste heat recovery boilers without using auxiliary fuel.

Environment Information System (ENVIS)

Environment Information System (ENVIS) is a web portal which provides information on environment and related subject areas to researchers, academicians, policy planners, environmentalists, scientists, engineers and the general public. It is a decentralized network of databases in operation since 1982-83 (Sixth Plan) and is run by the Ministry of Environment and Forests.

ENVIS network, as on April 2014, consists of 68 Centres housed in reputed institutions with expertise in specific subject areas as well as in various State Governments/UTs Departments. These ENVIS Centres serve as information collection, collation, storage, retrieval and dissemination points on specific subject areas, and for the State/ UT as a whole, on 17 environmental modules.

The output of ENVIS is presented with the help of geographic information system (GIS) in an user friendly manner through the India State-level Basic Environmental Information Database (ISBEID). This provides for charting and tabular presentation of data. Information is disseminated to all stakeholders and national and international users. Query-answer, documentation, and referral services to individual, NGOs/ institutions are also provided by ENVIS.

The ENVIS Portal (www.envis.nic.in) has been envisaged as a dynamic Content Management System (CMS) with clearing house mechanism for query redirection by the user from the Portal to the specific ENVIS Centre. The users are able to search the entire ENVIS network websites from the Portal. A subject catalogue for all the Centres are also maintained centrally.

The benefit of the Scheme is that a decentralized comprehensive information network functions in the country to provide relevant and timely information to various users. It provides interactive access to environmental information electronically for each user, as and when needed. Such a system would not only provide backup support for conducting pioneering research in the field of environment but also provides a support system for decision making at National/ State/ local bodies. It also supports the various missions undertaken by the Ministry of Environment & Forests.

Equalization

The concept of ‘equalization’ is considered to be a guiding principle for fiscal transfers as it promotes equity as well as efficiency in resource use. Equalization transfers aim at providing citizens of every state a comparable standard of service provided their revenue effort is also comparable. In other words, equalization transfers neutralize deficiency in fiscal capacity but not in revenue effort. Under such an approach, transfers are determined on normative criteria in contrast to gap filling based on projected historical trend of revenue and expenditure.

Twelfth Finance Commission made use of the concept and recommended ‘Equalisation Grants’ to achieve partial equalization of expenditure of services in two sectors, namely education and health across different states. Since full equalisation of expenditure would have required steep step up in grants, the Commission restricted itself to partial equalization. The grants were fixed on the basis of two-stage normative measure of equalisation. In the first stage, states with low expenditure preference (i.e. states which had lower expenditure on education/health as proportion of total revenue expenditure) were identified and benchmarked to average expenditure on education/health (as proportion of adjusted total revenue expenditure) incurred by respective groups, i.e., special and general category states. In the second stage, states which had lower per capita expenditure than the group average, even after

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adjustment made in first stage, were identified and grants to the extent of 15 per cent of the difference between per capita expenditure of the state on health and average per capita expenditure of the group and to the extent of 30 percent of the difference between per capita expenditure of the state on health and average per capita expenditure of the group were provided.

Accordingly, equalization grants were provided under education to eight States and under health to seven States, where level of revenue expenditure was lower relative to average expenditure http://fincomindia.nic.in/ShowContentOne.aspx?id=8&Section=1.

Escrow Account

An escrow account in simple terms is a third party account. It is a separate bank account to hold money which belongs to others and where the money parked will be released only under fulfilment of certain conditions of a contract. The term escrow is derived from the French term “escroue” meaning a scrap of paper or roll of parchment, an indicator of the deed that was held by a third party till a transaction is completed. An escrow account is an arrangement for safeguarding the seller against its buyer from the payment risk for the goods or services sold by the former to the latter. This is done by removing the control over cash flows from the hands of the buyer to an independent agent. The independent agent, i.e, the holder of the escrow account would ensure that the appropriation of cash flows is as per the agreed terms and conditions between the transacting parties.

Escrow account has become the standard in various transactions and business deals. In India escrow account is widely used in public private partnership projects in infrastructure. RBI has also permitted Banks (Authorised Dealer Category I) to open escrow accounts on behalf of Non Resident corporates for acquisition / transfer of shares/ convertible shares of an Indian company.

Essential Commodities Act (ECA)

The Essential Commodities Act, 1955 was enacted to ensure the easy availability of essential commodities to consumers and to protect them from exploitation by unscrupulous traders. The Act provides for the regulation and control of production, distribution and pricing of commodities which are declared as essential. The Act aims at maintaining/increasing supplies/securing equitable distribution and availability of these commodities at fair prices. The enforcement/ implementation of the provisions of the Act lies with the State/UT Governments.

The list of essential commodities is reviewed from time to time with reference to their production and supply and in the light of economic liberalization in consultation with the concerned Ministries/Departments administering these commodities. Currently, the restrictions like licensing requirement, stock limits and movement restrictions have been removed from almost all agricultural commodities. Wheat, pulses and edible oils, edible oilseeds and rice are the exceptions, where States have been permitted to impose some temporary restrictions in order to contain price increase of these commodities.

Estimates of Crop Production

India being a diverse country the cropping pattern varies across States. The Ministry of Agriculture has a detailed exercise to arrive at the crop production estimates. The Ministry of Agriculture comes out with five estimates of crop production.

The First Advance Estimate of area and production of kharif crops is announced in

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September when the South-west monsoon season comes to a close and sowing would have begun in most States. The National Conference of Agriculture for Rabi Campaign is held around this time when the States come up with rough estimates of their respective kharif crops. These estimates are validated on the basis of inputs from the proceedings of Crop Weather Watch Group (CWWG) meetings, and other feedback such as relevant availability of water in major reservoirs, availability/supply of important inputs including credit to farmers, rainfall, temperature, irrigation etc.

The Second Advance Estimate is announced in January by which time the estimates of the kharif crops would under go revision and the area and production figures announced for kharif crops is called the second assessment. By this time the first estimate of the rabi crops is also announced based on the feedback received from the States where sowing for rabi crops would have commenced during November- December.

The Third Advance Estimates is announced in March last /April first week. At this time the National Conference on Agriculture for Kharif campaign is convened and the second estimate of kharif crops and the first estimate of rabi crops are further firmed up/validated with information available with State Agricultural Statistical Authorities (SASAs), remote sensing data available with Space Application Centre, Ahmedabad as well as the proceedings of the Crop Weather Watch Group meetings held every week in the Ministry.

The Fourth Advance Estimates are announced in June/July when the National Workshop on Improvement of Agricultural Statistics is held. By this time the rabi crop harvest is also over and SASAs are in a position to supply the estimates of both kharif and rabi seasons as well as the likely assessment of summer crops which are duly validated with information available from other sources.

The Final Estimate for the preceding crop year is announced in December/January. The main reason for almost four advance estimates before arriving at the final estimate is due to the large variations in crop seasons across the country and the resulting delay in the compilation of yield estimates based on crop cutting experiments. Agriculture is a State subject and the Central Government depends on the State Governments for accuracy of these estimates. For this purpose State Governments have set up High Level Coordination Committees (HLCC) comprising, inter-alia, senior officers from the Department of Agriculture, Economics & Statistics, Land Records and NSSO (FOD), IASRI, DES from Central Government for sorting out problems in preparation of these estimates in a timely and orderly manner.

Ethanol Blending Programme (EBP) in India

Ethanol blending is the practice of blending petrol with ethanol. Many countries, including India, have adopted ethanol blending in petrol in order to reduce vehicle exhaust emissions and also to reduce the import burden on account of crude petroleum from which petrol is produced. It is estimated that a 5% blending (105 crore litres) can result in replacement of around 1.8 million Barrels of crude oil . The renewable ethanol content, which is a by product of the sugar industry, is expected to result in a net reduction in the emission of carbon dioxide, carbon monoxide (CO) and hydrocarbons (HC). Ethanol itself burns cleaner and burns more completely than petrol it is blended into. In India, ethanol is mainly derived by sugarcane molasses, which is a by-product in the conversion of sugar cane juice to sugar.

The practice of blending ethanol started in India in 2001. Government of India mandated blending of 5% ethanol with petrol in 9 States and 4 Union Territories in the year 2003 and subsequently mandated 5% blending of ethanol with petrol on an all-India basis in November 2006 (in 20 States and 8 Union Territories except a few North East states and Jammu & Kashmir). This was also an attempt to reduce the Under-recovery of Public Sector Oil Marketing Companies (OMCs). In countries like US, blending is allowed upto 10%.

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Subsequent to Brazil's bio-fuel programme, which began in 1976, close to 94% of cars sold in Brazil are flexible fuel cars that can handle ethanol blends from 18 per cent upward .

Ethanol blending first found mention in the Auto fuel policy of 2003. It suggested developing technologies for producing ethanol/ bio fuels from renewable energy sources and introducing vehicles to utilise these bio fuels. Later, as per National Policy on Bio-fuels, announced in December 2009, oil companies were required to sell petrol blended with at least 5% of ethanol. It proposed that the blending level be increased to 20% by 2017.

Ethanol, being a by product of the sugar industry, was expected to be freely available. However, Oil marketing companies (OMCs) were not even able to get bids for more than 50% of the amount offered for purchase . Further, the Government decided on 22.11.2012 that procurement price of ethanol will henceforth be decided between Oil Marketing Companies (OMCs) and suppliers of ethanol. In addition, on 03.07.2013, it was decided that ethanol would be procured only from domestic sources. This led to a rise in ethanol prices, which to a great extent reportedly eroded the economy of the blend. At present, government has permitted OMCs to implement the ethanol blending programme in notified 20 States and 4 Union Territories as per the availability of ethanol.

There are reportedly significant transaction barriers which impede smooth supplies of ethanol for blending. In several States, State not only imposes levy on molasses but also regulates the movement of non levy molasses. Inter-state movement of ethanol requires No-Objection-Certificates (NOCs) from the State Excise Authorities along with permits from dispatching and receiving States. Most States impose “Export/Import” duties on ethanol leaving and entering their boundaries. There are some instances where Octroi is levied on ethanol for entry into municipal limits. Hence States were requested by the Central Government to liberalise restrictions on the supply of ethanol so that its blending with petrol can be encouraged while improving the financial health of sugar sector and also liquidation of cane dues of farmers.

As per the estimates given in Auto Fuel Vision and Policy 2025 issued in May 2014, blended petrol is available only in 13 states and the average blend is 2%.

Hence, in order to improve the availability of ethanol, the Government, on December 10, 2014, fixed the price of Ethanol in the Range of Rs. 48.50 to Rs. 49.50, depending upon the distance of distillery from the depot/installation of the OMCs. (The rates are inclusive of all central and statutory levies, transportation cost etc, which would be borne by the Ethanol suppliers). Further, ethanol produced from other non-food feedstocks besides molasses, like cellulosic and ligno cellulosic materials including petrochemical route, has also been allowed to be procured subject to meeting the relevant Bureau of Indian Standards (BIS) specifications.

References

Auto fuel Vision and Policy 2025 , published in May 2014 Auto fuel Vision and Policy 2025 published in May 2014

Ministry of Petroleum and Natural Gas (MoPNG) Press release dated 23 August 2013

PIB release of 20 February 2015

PIB release of 20 February 2015

Evaluation and Monitoring

Evaluation and Monitoring are two important pillars for assessment of any policy, programme, project or scheme. Both the terms are often used to understand the impact of

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policies in achieving the desired outcomes. The subtle difference between the two are brought out as follows:

MonitoringMonitoring is a continuous assessment that aims at providing all stakeholders with detailed information on the progress or delay of the ongoing scheme/programme. Its purpose is to determine if the outputs, outcomes have been reached as per the targets set so that action can be taken to correct any deficiencies and help in improving performance and achieving results. It establishes links between past, present and future actions.

EvaluationEvaluation is a process to assess the progress and performance of policies, programmes and projects. It is a process by which the outputs, outcomes and impact of policies programmes are examined to see whether the targets have been achieved. There are two types of evaluation – (i) midcourse or concurrent evaluation; (ii) impact evaluation. Midcourse/concurrent evaluation - It is to be done within a short period of time so that the findings can be used to take prompt remedial action. Such evaluations are done as internal exercise.Impact evaluation – It is done after the programme/projects are completed, hence no corrective measures can be taken. However it is useful for improving future policies, programmes and projects.

Benefits of Monitoring and Evaluation

Monitoring and Evaluation helps programme implementers to determine the extent to which the programme/project is on track and to make any needed corrections accordingly; make informed decisions regarding operations management and service delivery; ensure the most effective and efficient use of resources; evaluate the extent to which the programme/project is having or has had the desired impact.

Difference between monitoring and evaluation

Monitoring is an on-going analysis of progress of project/programmes towards achieving the targets with the purpose of improving management decision making whereas Evaluation is an assessment of the efficiency, impact, relevance and sustainability of the programmes/projects.Monitoring is the responsibility of the internal management whereas Evaluation is undertaken by external agencies.Monitoring helps in checking progress, taking remedial actions whereas Evaluation comes up with recommendations for future programmes and provides accountability.Monitoring is a short term process and does not take into consideration the impact and outcomes unlike the Evaluation process which assesses the outcomes and the longer term impact.The purpose of monitoring lies in providing constructive suggestions like rescheduling of project if required, allotment of more budget, etc. whereas Evaluation verifies the real benefits of the projects and aims for the future planning of projects/programmes.

Challenges to Monitoring and Evaluation Systems

The challenges are as follows:

Under-investment in monitoring and evaluation Weak commitment to evidence-based policymaking

Lack of incentives to carry out evaluations

Relative shortage of professional expertise

Underutilization of Monitoring and Evaluation data

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External Debt

At a point in time, Gross External Debt, is defined as the outstanding amount of those actual current liabilities, that require payment(s) of principal and/or interest by the debtor, in the future as per the terms laid out in the contract between the debtor and the creditor and that are owed to non-residents by the residents of the economy.

The definition of gross external debt includes debt incurred by both the Government and the private sector(s) of the economy but does not take into account contingent liabilities that are liabilities arising in the event of specific occurrences covered by the debt contract viz. default by a debtor on the principal and/or interest of a credit.

In India, (Gross) External Debt is classified primarily into the following heads:

(i) Original and Residual (Remaining) Maturity; Original Maturity is defined as the period encompassing the precise time of creation of the financial liability to its date of final maturity while Residual (or Remaining) Maturity includes short term debt by ‘Original Maturity’ of up to one year and long-term debt repayment by ‘Original Maturity’ falling due within the twelve month period following a reference date.

(ii) Long and Short Term Debt; Long Term Debt is defined as debt with an ‘Original Maturity’ of more than one year while Short Term Debt is defined as debt repayments on demand or with an ‘Original Maturity’ of one year or less.

Long-Term debt is further classified into (a) Multilateral Debt (b) Bilateral Debt (c) ‘IMF’ signifying SDR allocations to India by the IMF (c) Export Credit (d) (External) Commercial Borrowings (e) NRI Deposits and (d) Rupee Debt. Short Term Debt is classified into (a) Trade Credits (of up to 6 months and above 6 months and up to 1 year) (b) Foreign Institutional Investors’ (FII) Investment in Government Treasury-Bills and Corporate Securities (c) Investment in Treasury-bills by foreign Central Banks and International Institutions etc. and (iv) External Debt liabilities of the Central Bank and Commercial Banks.

(iii) Sovereign (Government) and Non-Sovereign Debt; Sovereign Debt includes (a) External Debt outstanding on account of loans received by the Government of India (GoI) under the ‘External Assistance’ programme and the civilian component of Rupee Debt (b) Other Government debt comprising borrowings from the IMF, defence debt component of Rupee Debt and foreign currency defence debt and (c) FII investment in Government Securities. All remaining components of External Debt get categorized as Non-Sovereign External Debt.

Multilateral Debt includes debt from Multilateral Creditors that primarily are Multilateral Institutions such as the International Development Association (IDA), International Bank for Reconstruction and Development (IBRD), Asian Development Bank (ADB) etc. Bilateral Debt includes debt from sovereign countries with whom sovereign and non-sovereign entities enter into one-to-one loan arrangements. Japan and Germany are the two major bilateral creditors in the case of India.

Apart from the above classifications, publications disseminating data on External Debt also provide information on the borrower-wise, instrument-wise and currency composition of such Debt.

Factory

Under the Factories Act 1948, factory means any space where ten or more workers are working or were working on any day in the preceding 12 months. They should be engaged in a manufacturing activity with the aid of power. Alternatively, when twenty or more workers are working in such a process without power, such a space would also be a factory. It excludes a mine , a mobile operation unit of armed forces, a railway running shed, hotel, restaurant or any eating place.

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Finance Bill or Finance Act

Finance Bill is a secret bill introduced every year in Lok Sabha (Lower chamber of the Parliament) immediately after the presentation of the Union Budget, to give effect to the financial proposals of the Government of India for the immediately following financial year. Rule 219 of the Rules of Procedure of Lok Sabha defines a Finance Bill to also include a Bill that gives effect to supplementary (additional) financial proposals for any period.

The Finance Bill is presented at the time of presentation of the Annual Financial Statement before Parliament, in fulfillment of the requirement of Article 110 (1)(a) of the Constitution, detailing the imposition, abolition, remission, alteration or regulation of taxes proposed in the Budget. It is through the Finance Act that amendments are made to the various Acts like Income Tax Act 1961, Customs Act 1962 etc.

In short, Finance Bill can be considered as an umbrella Act. However, being an Act of the Parliament, the various chapters of Finance Act independently also exist and is hence enforceable. For instance, a Commodity Transaction Tax was imposed through Chapter VII of the Finance Act of the year 2013. Similarly the service tax was introduced through Chapter V of the Finance Act of 1994.

When the proposals are introduced to the Parliament it is called as a Finance Bill. Once it is passed by the Parliament and assented to by the President, Finance Bill becomes the Finance Act for that year. (For instance, Union Budget 2015-16 for the Financial Year starting from April 2015 to March 2016, would be presented in February 2015 and would be accompanied by Finance Act, 2015 indicating the year (2015) in which the Act is passed.)

Finance Bills for various years may be seen at the site http://indiabudget.nic.in/ and the Finance Acts of various years may be seen here.

The different clauses in the Finance Act may get notified eventually, but at different times based on the readiness of the stakeholders and implementing agencies.

To facilitate understanding of the taxation proposals contained in the Finance Bill, the provisions and their implications are explained in the document titled Memorandum Explaining the Provisions of the Finance Bill.

In election years there would usually be two Finance Bills – one by the outgoing Government presented alongwith its interim budget or votes on account and another by the new Government which is titled as Finance Bill (No. 2) of that year.

Finance Bill Vs Appropriation Bill

While the Finance Bill generally seeks approval of the Parliament for raising resources through taxes, cess etc., an Appropriation Bill seeks Parliament's approval for the withdrawal from the Consolidated Fund of India to meet the approved expenditures of the Government. For more details on Appropriation Bill see here.

Both Finance Bill and Appropriation Bill are money bills.

Finance Bill Vs Money Bill

A Finance Bill is a Money Bill but not all money bills are Finance Bills. Under Article 110(1) of the Constitution a money bill is defined as follows…

110(1)…a Bill is deemed to be a Money Bill if it contains only provisions dealing with all or any of the following matters, namely:(a) the imposition, abolition, remission, alteration or regulation of any tax;

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(b) the regulation of the borrowing of money or the giving of any guarantee by the Government of India, or the amendment of the law with respect to any financial obligations undertaken or to be undertaken by the Government of India; (c) the custody of the Consolidated Fund or the Contingency Fund of India, the payment of moneys into or the withdrawal of moneys from any such fund; (d) the appropriation of moneys out of the Consolidated Fund of India; (e) the declaring of any expenditure to be expenditure charged on the Consolidated Fund of India or the increasing of the amount of any such expenditure; (f) the receipt of money on account of the Consolidated Fund of India or the public account of India or the custody or issue of such money or the audit of the accounts of the Union or of a State; or (g) any matter incidental to any of the matters specified in sub-clauses (a) to (f).

(2.) A Bill is not deemed to be Money Bill by reason only that it provides for the imposition of fines or other pecuniary penalties, or for the demand or payment of fees for licences or fees for services rendered, or by reason that it provides for the imposition, abolition, remission, alteration or regulation of any tax by any local authority or body for local purposes….

Finance Bill is generally limited to Article 110(1)(a) & (g) - the imposition, abolition, remission, alteration or regulation of any tax and any matter incidental thereto.

More about money bills may be seen in the Legislative Procedures of Lok Sabha and Rajya Sabha.

Features of Money Bills (including a Finance Bill)

Essentially Money bill including a Finance Bill has the following features:

It can be introduced only in the Lok Sabha (lower chamber of the Parliament) The bill is placed in Rajya Sabha (Upper chamber of the Parliament) thereafter and

Rajya Sabha can return the Bill with or without its recommendations.

In any case, the Bill has to be returned within a period of 14 days from the date of its receipt by Rajya Sabha. Otherwise it is deemed to have been passed by both Houses at the expiration of the said period in the form in which it was passed by Lok Sabha.

If the bill is returned to Lok Sabha without recommendation, a message to that effect is reported by the Secretary-General to the Lok Sabha if in session, or published in the Bulletin for the information of the members of the Parliament, if it is not in session. The Bill shall then be presented to the President for his assent.

If the bill is returned to the Lok Sabha with amendments it has to be laid on the Table of the House and taken up for consideration.

However, Lok Sabha is not bound to accept these amendments. Lok Sabha, under Article 109 of the Constitution, has the option to accept or reject all or any of the recommendations made by Rajya Sabha. In any case, Lok Sabha has to inform Rajya Sabha about the status of their recommendations, as to whether they have been accepted or not. It is not that Lok Sabha does not accept any of the recommendations of Rajya Sabha. For instance, in the Income Tax Bill, 1961, Rajya Sabha did recommend a number of amendments of substantial character, all of which were agreed to by Lok Sabha.[1]

If Lok Sabha accepts any amendments as recommended by the Rajya Sabha, the Bill shall be deemed to have been passed by both the Houses of the Parliament ‘with the amendments recommended by the Rajya Sabha and accepted by the Lok Sabha’ and a message to that effect has to be sent to the Rajya Sabha.

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If Lok Sabha does not accept the recommendations of the Rajya Sabha, the Bill shall be deemed to have been passed by both the Houses in the form in which it ‘was passed by the Lok Sabha without any of the amendments recommended by the Rajya Sabha’.

In all other bills final passing of the bill happens at Rajya Sabha. In case of money bills, final passing happens at Lok Sabha and then it is sent to the President for his assent.

Unlike other bills, the President cannot return the Money Bill with his recommendations to the Lok Sabha for reconsideration.

A defeat of Money bill in Lok Sabha is deemed political/parliamentary defeat of the government of the day. Speaker has unquestionable powers to decide if a Bill is a Money Bill or not. It cannot be questioned in any court. Rajya Sabha (Upper chamber of the Parliament)’s dissent on a Money Bill is of no political significance, as the Lok Sabha has overriding powers on Money Bills. Finance Bill or any money bill cannot be referred to even joint Committees of the two Houses of the Parliament (to resolve differences between the two Houses), as is in the case of other bills. The Standing Committee of the Parliament also cannot scrutinize a Money Bill.

A Finance bill, being a money bill is normally passed without much debate as against the usual procedurally lengthy and informed debates for other bills inside Parliament, and outside in standing committees or among the experts and stake-holders and in the media. Hence, Finance Bill route is generally not adopted to introduce important policy amendments with far reaching consequences, for which usually a separate bill is preferred.

Can Finance Bill contain non-tax proposals?

Finance Bill/Act normally deals with income tax, customs, service tax, central excise, cess and related aspects and is intended to help implement the Budget. Of late, Finance Bills are also used to introduce one or two amendments in certain Acts such as UTI Act or FRBM Act, Securities Contracts Regulation Act, Forward Contracts Regulation Act, Foreign Exchange Management Act, Prevention of Money Laundering Act, etc. Such amendments are usually presented under the Miscellaneous Chapter of the Finance Bill.

Finance Bill, 2015 came under criticism for incorporation of many policy amendments (like setting up of a Public Debt Management Agency, Repeal of Government Securities Act, Amendments to RBI Act etc to shift regulatory jurisdiction over various segments of the financial markets ) which did not technically qualify to be in the Finance Bill. Many members of the Parliament demanded that the bill be withdrawn and a new bill be introduced. Some argued that the inclusion of non-taxation proposals in the Finance Bill, which is a Money Bill, would curtail the power of Rajya Sabha to amend those provisions. Consequent to this, Government withdrew some of those controversial policy amendments from the Finance Bill, 2015[2]. The debate in Lok Sabha on 30 April 2015 and the Ruling of the Speaker in this regard may be seen.

Hon’ble Speaker clarified that as per Rule 219 of the Rules of Procedure of Lok Sabha, the primary object of a Finance Bill is to give effect to the financial proposals of the Government. At the same time, this Rule does not rule out the possibility of inclusion of non-taxation proposals. Therefore, a Finance Bill may contain non-taxation proposals also. But the fact is that a well-established practice of Lok Sabha has been not to include non-taxation proposals in not only a Finance Bill but also other Bills containing taxation proposals unless it is imperative to include such proposals on constitutional or legal grounds. Therefore, Speaker ruled that every effort should be made to separate taxation measures from other matters unless it is impossible on constitutional or legal grounds or some such unavoidable reasons, to do so in a particular case.

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Finance Bill Vs Financial Bill

Finance Bill is different from a “Financial Bill” which is defined under article 117(1) of the Constitution. Money bills including Finance Bills are a subset of “Financial Bills”.

Whereas a Money Bill deals solely with matters specified in article 110(1) (a) to (g) of the Constitution, a Financial Bill does not exclusively deal with all or any of the matters specified in the said article. It may contain some other provisions also.

Financial Bills can be divided into two categories.

In the first category are Bills which contain provisions attracting article 110(1)(a) to (f) of the Constitution. They are categorized as Financial Bills under article 117(1) of the Constitution. It is a Bill which has characteristics both of a Money Bill and an ordinary Bill. As in the case of a Money Bill, firstly, it cannot be introduced in Rajya Sabha, and secondly, it cannot be introduced except on the recommendations of the President. Except these two points of difference, a Financial Bill in all other respects is just like any other ordinary Bill. That is other restrictions in regard to Money Bills do not apply to this category of Bills. Financial Bill under article 117(1) of the Constitution can be referred to a Joint Committee of the Houses.

In the second category are those Bills which contain provisions which on enactment would involve expenditure from the Consolidated Fund of India. Such Bills are categorised as Financial Bills under article 117 (3) of the Constitution. Such Bills can be introduced in either House of Parliament. However, recommendation of the President is essential for consideration of these Bills by either House and unless such recommendation is received, neither House can pass the Bill. Such Bills are more in the nature of ordinary Bills rather than the Money Bills and Financial Bills mentioned earlier. The only point of difference between this category of Financial Bills and the ordinary Bills is that such a Financial Bill, if enacted and brought into operation, involves expenditure from the Consolidated Fund of India and cannot be passed by either House of Parliament unless the President has recommended to that House the consideration of the Bill. In all other respects this category of Bills is, just like ordinary Bills, so that such a Financial Bill can be introduced in Rajya Sabha, amended by it or a joint sitting can be held in case of disagreement between the Houses over such a Bill. There is, in other words, no limitation on the power of Rajya Sabha in respect of such Financial Bills.

1. Source: Rajya Sabha practice and procedure Series:

2. 41 Government amendments have been adopted, including three new clauses which have been added to the Bill. and, 31 clauses have been negatived while passing the Finance Bill 2015.

Finance commission

The Finance Commission in India is constituted, usually, once in five years. It is a constitutional body created to address issues of vertical and horizontal imbalances of federal finances in India. The constitutional mandate of the Finance Commission is (a) to decide on the proportion of tax revenue to be shared with the States and (b) the principles which should govern the grants-in-aid to States. In addition to the core mandate, the Finance Commission is also entrusted with the responsibility to make recommendations on various policy issues, as and when they arise. The Finance Commission also tender advice to the President on any other matter referred to it in the interest of sound public finance. The Finance Commission is also required to recommend on the measures needed to augment the Consolidated Fund of a State to supplement the resources of the Panchayats and Municipalities in the State on the basis of the recommendations made by the Finance Commission of the State. The recommendations made by the Finance Commission are advisory in nature and, hence, not

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binding on the Government. So far, 14 Finance Commissions have been constituted and the last one submitted its report to the Government in December 2014. Their recommendations are to cover a period from 2015-20.

The scope of the Finance Commission broadened over time as they were assigned several other issues on government finances, particularly those relating to augmentation of State Consolidation Funds to supplementing the resources of local bodies

Vertical imbalances refer to the mismatch between the revenue raising capacity and expenditure needs of the centre and the states. Horizontal imbalances exist because of the inability of some States to provide comparable services due to inadequate capacity to raise funds.

Individual States in India also set up State Finance Commissions.

Financial Conglomerates or systemically important financial institutions (SIFIs)

The Reserve Bank of India defines a financial conglomerate(FC) as a cluster of companies belonging to a Group which has significant presence in at least two financial market segments out of banking business, insurancebusiness, Mutual Fund business and NBFC business (deposit taking and non-deposittaking).

The need for identifying financial conglomerates

Regulation and supervision of such large and diversified financial institutions assumes special significance considering the system wide damage that their failure could potentially cause. Fears of such damage lead to costly bank bail-outs by governments, as was seen in the United States and Western Europe during the course of theglobal financial crisis.

Thus, it may be potent to look at the institutions perceived as “too big and complex to fail” in a different league, requiring specific measures to reduce the systemic risks these institutions pose. Measures used by financial regulators include specific additional capital, liquidity and other prudential requirements as well as other measures to reduce the complexity of group structures and, where appropriate, encourage stand-alone subsidiaries.

Defining “Too Big to Fail”- FSB’s definition on SIFIs

What is “too big and complex to fail” was left to the judgment of the regulators and governments. When the US Government bailed out the AIG and not Lehman Brothers many questions were asked and debated on why this move; what kind of financial institutions are “too big to fail” or are systematically important for the financial system.

Post the global financial crisis, the Financial Stability Board (FSB) undertook work in this area and defined a systemically important financial institution (SIFIs)as financial institutions whose distress or disorderly failure, because of theirsize, complexity and systemic interconnectedness, would cause significantdisruption to the wider financial system and economic activity. In November 2011, the FSB published the first list of 29 global systemically important financial institutions (G-SIFIs), based on the methodology set out in the Basel Committee on Banking Supervision (BCBS) document Global systemically important banks: Assessment methodology and the additional loss absorbency requirement,using data as of end-2009.

International efforts at regulation and supervision of financial conglomerates

The Bank for International Settlements (BIS) set up a Joint Forum in 1996 under the aegis of

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the BCBS, the International Organization of Securities Commissions (IOSCO) and the International Association of Insurance Supervisors (IAIS) to deal with issues common to the banking, securities and insurance sectors, including the regulation of financial conglomerates.The Joint Forum published various reports in February and December 1999 that together provided an initial framework for the supervision of financial conglomerates (the “1999 Principles”).The Joint Forum's objective in preparing these Principles is to provide national regulators with a set of internationally agreed principles that support consistent and effective supervision of financial conglomerates, particularly those financial conglomerates which have international presence. These principles cover issues in supervisory powers and authority; supervisory responsibility; capital adequacy and liquidity; corporate governance and risk management.The Forum issued its final report on Principles for the Supervision of Financial Conglomerates in September, 2012.

Until the outbreak of the global financial crisis in 2007-08, the work on the regulation and supervision of financial conglomerates was progressing separately in different countries, with limited international efforts, considering that there was no major pressure to expedite and streamline policies in this regard. With an important role played by financial conglomerates in the precipitation of the global crisis, the design of policy towards financial conglomerates has now been largely subsumed under that for systemically important financial institutions (SIFIs), referred commonly as “Too Big to Fail”.

Amongst the issues widely debated during the deliberations leading to the Dodd-Frank Wall Street Reform and Consumer Protection Act 2010 in the US was how to address risks posed by SIFIs. During the same period, the FSB issued a report titled “Reducing the moral hazard posed by systemically important financial institutions”, addressing policy towards SIFIs. This set out a framework that is broadly consistent with the provisions of the Dodd-Frank Act.

The G20, at its Pittsburgh meeting of September, 2009, mandated the FSB to propose measures to address the problems of “Too Big to Fail” associated with SIFIs. The FSB proposed a framework in response to this mandate, with the objective of improving the capacity to resolve SIFIs in financial distress or insolvency, while minimising the costs to taxpayers; reducing the probability of SIFI failures and their impact if they occur nonetheless; and strengthening the infrastructure of financial markets to reduce the risk of the spreading of contagion as a result of weaknesses of this infrastructure.

As pointed out above, in November, 2011, the FSB issued a list of G-SIFIs. It also announced a package of policy measures for them, including, inter-alia, a requirement that individual G-SIFIs have recovery and resolution plans, informed by resolvability assessments, and that home and host authorities develop institution-specific cooperation agreements and cross-border crisis management groups. It also recommended improving data systems for risk management at SIFIs and assessments of the adequacy of supervisory resources.

The next steps for the SIFI projects are extension of the global SIFI framework to domestic SIFIs and the peer review council (PRC) framework.

The Indian context

The RBI set up an inter-regulatory Working Group in 2004 to propose a list of financial conglomeratesbased on set criteria and advise on a monitoring/reporting system for them. The Group submitted its report in June 2004. The basic building blocks of the new framework proposed by the Group included identifying Financial Conglomerates that would be subjected to focused regulatory oversight; capturing intra-group transactions and exposures (which are not being captured now) amongst entities within the identified financial conglomerate and large exposures of the groups to other financial conglomerate as well as outside counterparties;identifying a designated entity within each financial conglomerate that would

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collate data in respect of all other group entities and furnish the same to its regulator (principal regulator for the group); and formalising a mechanism for inter-regulatory exchange of information.

How and to what extent the recommendations of this group were implemented is not well documented. However, there is a RBI notification of January, 2010 which defines FC as a cluster of companies belonging to a Group which has significant presence in at least two financial market segments out of banking business, insurancebusiness, Mutual Fund business and NBFC business (deposit taking and non-deposittaking). What constitutes “significant presence” in each of the market segments is also defined. Size of the balance sheet (on-balance sheet and off-balance sheet items); volume of financial activities of the subsidiaries/ associates and substantial nature of intra-group transactions and exposures are some indicators which determine the significance of financial groups in the Indian context.

In March 2013, the financial sector regulators (Reserve Bank of India, Securities and Exchange Board of India, Insurance Regulatory and Development Authority and Pension Fund Regulatory and Development Authority)signed a Memorandum of Understanding (MoU) for co-operation in the field of consolidated supervision and monitoring of financial groups identified as financial conglomerates.

Since India is a member of FSB, it is committed to pursuing the reforms agenda outlined by it in the area, among others, of regulation and effective supervision of financial conglomerates in the country. This is a “work in progress’ under the FSB umbrella.

Financial Inclusion

Access to safe, easy and affordable credit and other financial services by the poor and vulnerable groups, disadvantaged areas and lagging sectors is recognized as a pre-condition for accelerating growth and reducing income disparities and poverty. In view of this, Financial Inclusion has been identified as a key dimension of the overall strategy of “Towards Faster and More Inclusive Growth” envisaged in the eleventh Five Year Plan (2007-12).

Defining financial inclusion is considered crucial from the viewpoint of developing a conceptual framework and identifying the underlying factors that lead to low level of access to the financial system. Review of literature suggests that there is no universally accepted definition of financial inclusion.

Sometimes, it is easier to define a phenomenon, by stating what it is not, i.e., define financial exclusion (rather than inclusion). Financial inclusion is generally defined in terms of exclusion from the financial system. A target group is considered as financially excluded if they do not have access to mainstream formal financial services such as banking accounts, credit cards, insurance, payment services, etc.

Government of India had constituted a committee in 2006 under the chairmanship of Dr. C. Rangarajan to study the pattern of exclusion from access to financial services across region, gender and occupational structure and to identify the barriers confronted by vulnerable groups in accessing credit and financial services and recommend the steps needed for financial inclusion. The committee submitted its report in January 2008. The committee has given a working definition of financial inclusion as;

“Financial inclusion may be defined as the process of ensuring access to financial services and timely and adequate credit where needed by vulnerable groups such as weaker sections and low income groups at an affordable cost.”

The various financial services identified by the Rangarajan Committee include credit, savings, insurance and payments and remittance facilities. The full report of the Committee may be seen here.

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The Committee on Financial Sector Reforms headed by Dr. Raghuram Rajan in its Report - A Hundred Small Steps, proposed a paradigm shift in the way Government see inclusion. Instead of seeing the issue primarily as expanding credit, which puts the cart before the horse, the Committee urged a refocus to seeing it as expanding access to financial services, such as payments services, savings products, insurance products, and inflation-protected pensions. According to the committee, financial Inclusion, broadly defined, refers to universal access to a wide range of financial services at a reasonable cost. These include not only banking products but also other financial services such as insurance and equity products.

Each country has its unique way of interpreting financial inclusion depending upon the stage of development. For instance, UK had a task force based programme for financial inclusion which extended uptill 2011, that vastly differed from the traditional credit based approach of financial inclusion used in India. Similarly financial literacy which is also linked to financial inclusion stands defined by US authorities to suit their own requirement. In some countries the concept of financial inclusion also includes qualified financial advice. For United Nations Capital Development Fund (UNCDF), Financial Inclusion is achieved when all individuals and businesses have access to and can effectively use a broad range of financial services that are provided responsibly, and at reasonable cost, by sustainable institutions in a well-regulated environment.

Various facets of Financial Inclusion

The essence of financial inclusion is in trying to ensure that a range of appropriate financial services is available to every individual and enabling them to understand and access those services.

In order to achieve a comprehensive financial inclusion, a slew of initiatives have been taken by Government of India, RBI and NABARD. Some of the important initiatives include; SHG-Bank Linkage programme, opening of No Frills Accounts, mobile banking, Kisan Credit Cards (KCC) Pradhan Mantri Jan Dhan Yojna etc.

Benefits of Financial Inclusion

Financial inclusion enables good financial decision making through financial literacy and qualified advice as also access to financial services for all, particularly the vulnerable groups such as weaker sections, minorities, migrants, elderly, micro entrepreneurs and low income groups at an affordable cost so as to enable them to

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a) manage their finances on day to day basis confidently, effectively and securely;

b) Plan for the future to protect themselves against short term variations in income and expenditure and for wealth creation and gaining from financial sector developments; and

c) deal with financial distress effectively thereby reducing their vulnerability to the unexpected.

The United Nations Capital Development Fund (UNCDF) investing in LDCs sees financial inclusion, financial services for poor and low-income people and micro and small enterprises as an important and integral component of the financial sector, each with its own comparative advantages, and each presenting the market with a business opportunity.

Despite the marked progress made in the direction of financial inclusion, the problem of exclusion still persist. For achieving the current policy stance of “inclusive growth” the focus on financial inclusion is not only essential but a pre-requisite. And for achieving comprehensive financial inclusion, the first step is to achieve credit inclusion for the disadvantaged and vulnerable sections of our society.

Statistics

World Bank presents cross country data on various aspects of financial inclusion known as Global Findex data which may be seen here.

IMF also conducts a Financial Access Survey.

Financial Stability

The notion of financial stability leads to issues of measurement, issues of choice of instruments to achieve the objective of financial stability and issues on the degree of activism that central banks should adopt in pursuing this objective.

Monetary stability (say maintaining low and stable inflation) leads to financial stability, although, such complementarity hold in the long run, need not hold in the short-run. Monetary stability is an important precondition for financial stability. Reduction in inflation enables inflation expectations to stabilize. Low and stable inflation expectations increase confidence in the domestic financial system. Globally, central banks are concerned with both price stability and financial stability.

A stable macroeconomic environment - with low and stable inflation, sustained growth and low interest rates - can generate excessive optimism about the future economic prospects and often the risks are downplayed. However, macroeconomic stability need not necessarily always place an economy in financial stability, therefore, focused attention is required to achieve financial stability.

Contextually, financial stability in India means

(a) ensuring uninterrupted settlements of financial transactions (both internal and external),

(b) maintenance of a level of confidence in the financial system amongst all the participants and stakeholders and

(c) absence of excess volatility that unduly and adversely affects real economic activity.

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Three highlighted structural aspects of financial stability are:

(a). Vulnerabilities to real sector shocks

(b). Political system stability

(c). The size, nature and structure of the economy, level of development and socio political conditions

The sources of financial disturbances are unpredictable due to increased integration of financial markets. Contagions, progressive opening up of economies to external flows, sharp movements in exchange rates for emerging economies need to resort to borrowing in foreign currencies, all contribute to financial instability. Forces affecting financial stability, include:

(a). boom in credit to private sector, both investment and consumption, A particular form of boom and bust cycle is generated by the end of hyperinflation episodes.

(b). highly regulated systems have also suffered crises.

(c). Direct effects of fiscal difficulties.

(d). crisis in one country has a direct effect on economic conditions.

(e). Terms of trade shocks and movements in real exchange rates.

(f). Political instability, unrest, civil conflict.

(g). Policy-induced distortions, government influence over public sector banks;

In financial markets, the herd mentality catches up fast, making markets volatile. There is need to pursue a multifaceted approach towards ensuring financial stability through

(a) payments system oversight,

(b) contingency planning against market disruption,

(c) lender of last resort (LOLR),

(d) share in procedures for financial regulation and

(e) analysis and communication through reports. Overall, a continuous assessment of the health of the financial sector is essential and its ability to withstand various shocks is important.

In the pursuit of financial stability, effective regulatory and supervisory initiatives along with a calibrated approach to financial sector liberalization are critical. The pancha-sutra or five principles are

(a) cautious and appropriate sequencing of reform measures;

(b) introduction of norms that are mutually reinforcing;

(c) introduction of complementary reforms across sectors (most importantly, monetary, fiscal

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and external sector);

(d) development of financial institutions; and,

(e) development of financial markets. The reforms have aimed at enhancing productivity and efficiency of the financial sector, improving the transparency of operations and made the financial system capable of withstanding idiosyncratic shocks.

Challenge to Indian regulators is to enhance efficiency while avoiding instability. This leads to a role for the regulators to adopt / and develop market-oriented financial system while maintaining independence and credibility and remain accountable to Government, which being the ultimate risk-bearer and sovereign in law-making.

Therefore, the relationship between a regulator and Government must emphasise on:

(a). Operational Autonomy

(b). Harmony with the government policies, due to dense linkage between fiscal and financial sectors

(c). Coordination with government in bringing about structural changes in respect of public ownership and legislative framework.

Financial Closure

Financial closure is defined as a stage when all the conditions of a financing agreement are fulfilled prior to the initial availability of funds. Financial closure is attained when all the tie ups with banks/financial institutions for funds are made and all the conditions precedent to initial drawing of debt is satisfied.

In a Public Private Partnership (PPP) project, financial closure indicates the commencement of the Concession Period. The date on which financial closure is achieved is the appointed date which is deemed to be the date of commencement of concession period.

In order to give a uniform interpretation for the term financial closure, Reserve Bank of India has provided the following definition. For Greenfield projects, financial closure has been defined as "a legally binding commitment of equity holders and debt financiers to provide or mobilise funding for the project. Such funding must account for a significant part of the project cost which should not be less than 90 per cent of the total project cost securing the construction of the facility".

Financial Sector Legislative Reforms Commission (FSLRC)

Financial Sector Legislative Reforms Commission (FSLRC) was set up by the Indian Government in pursuance of the announcement made in Union Budget 2010-11, to help rewriting and harmonizing the financial sector legislation, rules and regulations so as to address the contemporaneous requirements of the sector. The resolution notifying the FSLRC was issued on March 24, 2011. FSLRC had a two year term.

The Commission was chaired by Supreme Court Justice (Retired) B. N. Srikrishna, and had ten members with expertise in the fields of finance, economics, law and other relevant fields. The secretariat was placed at National Institute of Public Finance and Policy (NIPFP). Secretariat consisted of a Secretary at the level of Joint Secretary to the Government of India

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and other officials and support staff.

Context

The establishment of the FSLRC is the result of a realisation that the institutional foundation (laws and organizations) of the financial sector in India needs to be looked afresh to assess its soundness for addressing the emerging requirements in a rapidly changing world. Today, India has over 60 Acts and multiple Rules/ Regulations that govern the financial sector. Many of them have been written several decades back. For example, the RBI Act and the Insurance Act are of 1934 and 1938 vintage respectively and the Securities Contract Regulation Act, which governs securities transactions, was legislated in 1956 when derivatives and statutory regulators were unknown in the financial system. A Large number of amendments were, therefore, made in these Acts and regulations at different points of time to address various needs. But these have also resulted in their fragmentation, often adding to the ambiguity and complexity of regulations in the financial sector.

The piecemeal amendments have resulted in unintended outcomes including regulatory gaps, overlaps, inconsistencies and regulatory arbitrage. The fragmented regulatory architecture has also led to loss of scale and scope that could be available from a seamless financial market with all its attendant benefits of minimising the intermediation cost. For instance, complex financial intermediation by financial conglomerates of today falls under purview of multiple regulators. Various Expert Committees have also pointed out these discrepancies and recommended the need for revisiting the financial sector legislations to rectify them.

It was therefore proposed to set up the Financial Sector Legislative Reforms Commission (FSLRC), which would, inter-alia, evolve a common set of principles for governance of financial sector regulatory institutions. The Commission would examine financial sector legislations, including subordinate legislations. The Commission would also examine the case for greater convergence of regulations and streamline regulatory architecture of financial markets.

Terms of Reference of the Commission

1) Examining the architecture of the legislative and regulatory system governing the Financial sector in India, including:a) Review of existing legislation including the RBI Act, the SEBI Act, the IRDA Act, the PFRDA Act, FCRA, SCRA, FEMA etc., which govern the financial sector’b) Review of administration of such legislation, including internal structures and external structures (departments and ministries of governing), if required;c) Review of inter-play of jurisdictions occupied by various regulators;d) Review of jurisdiction of departments within each regulator, and consider need for segregation / combination, and such other streamlining;e) Review of issues relating to conflict of interest of regulators in the market;f) Review of the manner in which subordinate legislation is drafted and implemented;g) Review of eligibility criteria for senior officers in regulatory authorities and issues relating to tenure, continuity, and means of tapping and retaining lessons learnt by each authority;h) Examine a combined appellate oversight over all issues concerning users of financial legislation.2) Examine if legislation should mandate statement of principles of legislative intent behind every piece of subordinate legislation in order to make the purposive intent of the legislation clear and transparent to users of the law and to the Courts. 3) Examine if public feedback for draft subordinate legislation should be made mandatory, with exception for emergency measures. 4) Examine prescription of parameters for invocation of emergency powers where regulatory action may be taken on ex parte basis. 5) Examine the interplay of exchange controls under FEMA and FDI Policy with

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other regulatory regimes within the financial sector.6) Examine the most appropriate means of oversight over regulators and their autonomy from government. 7) Examine the need for re-statement of the law and immediate repeal of any out-dated legislation on the basis of judicial decisions and policy shifts in the last two decades of the financial sector post-liberalisation. 8) Examination of issues of data privacy and protection of consumer of financial services in the Indian market.9) Examination of legislation relating to the role of information technology in the delivery of financial services in India, and their effectiveness. 10) Examination of all recommendations already made by various expert committees set up by the government and by regulators and to implement measures that can be easily accepted. 11) Examine the role of state governments and legislatures in ensuring a smooth inter-state financial services infrastructure in India. 12) Examination of any other related issues.

FSLRC Chairman / Members

1) Justice B.N Srikrishna: Chairman2) Smt. K.J. Udeshi: Member (Chairman, Banking Codes & Standards Board of India)3) Dr. PJ Nayak: Member (Chairman, Morgan Stanley India Company Pvt. Ltd.)4) Shri C. Achuthan: Member (passed away in September 2011; No member has been substituted for Mr. C. Achuthan)5) Shri Yezdi H. Malegam: Member (S.B.Billimoria & Company)6) Justice Debi Prosad Pal: Member7) Prof. Jayanth R. Varma: Member (Professor (Finance and Accounting), Indian Institute of Management, Ahmedabad) 8) Dr. M. Govinda Rao: Member (Director, NIPFP) 9) Shri Dhirendra Swarup : Member Convener 10) Joint Secretary (Capital Markets), Department of Economic Affairs, Ministry of Finance: Nominee Member 11) Shri CKG Nair: Secretary

Progress

The Commission had held wide-ranging consultations with stakeholders. The Commission had also engaged two technical/research teams and five Working Groups (WG), each one chaired by a Member of the Commission. These WGs followed the broad principles and approaches as approved by the Commission and examined the sector specific details and produced reports and draft laws thereon. The approach paper has been published on 4 October 2012. The final report was submitted in March 2013.

In the Union Budget 2013-14 (para 84) Government had delcared its intention to examine the recommendations of the Commission and act quickly and decisively so that India's financial sector stands on sound legal foundations and remains well-regulated, efficient and internationally competitive.

The non-legislative recommendations are taken forward under the aegis of FSDC.

Financial Stability and Development Council

In pursuance of the announcement made in the Union Budget 2010–11 and with a view to strengthen and institutionalize the mechanism for maintaining financial stability and enhancing inter-regulatory coordination, Indian Government has setup an apex-level Financial Stability and Development Council (FSDC), vide its notification dated 30th December, 2010.

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The first meeting of the Council was held on 31st December, 2010.

FSDC has replaced the High Level Coordination Committee on Financial Markets (HLCCFM), which was facilitating regulatory coordination, though informally, prior to the setting up of FSDC. The technical committee under HLCCFM for RBI regulated entities, though at a modest level, had set up a Financial Conglomerate Monitoring Mechanism since 2004. The secretariat of HLCCFM was in Ministry of Finance(Capital Market Division, Department of Economic Affairs).

Composition

The Chairman of the FSDC is the Finance Minister of India and its members include the heads of the financial sector regulatory authorities (i.e, SEBI, IRDA, RBI, PFRDA and FMC) , Finance Secretary and/or Secretary, Department of Economic Affairs (Ministry of Finance), Secretary, (Department of Financial Services, Ministry of Finance) and the Chief Economic Adviser. The commodities markets regulator, Forward Markets Commission (FMC) was added to the FSDC in December 2013 subsequent to shifting of administrative jurisdiction of commodities market regulation from Ministry of consumer Affairs to Ministry of Finance. The Joint Secretary (Capital Markets Division, Department of Economic Affairs, Ministry of Finance) was the Secretary of the Council till August 2013. Now this post is being held by the Additional Secretary in the Ministry of Finance.

A sub-committee of FSDC has also been set up under the chairmanship of Governor RBI. The Sub-Committee discusses and decides on a range of issues relating to financial sector development and stability including substantive issues relating to inter-regulatory coordination.

As a result of the deliberations of the Sub-Committee of the FSDC held on August 16, 2011, two Technical Groups were set up – a Technical Group on Financial Inclusion and Financial Literacy and an Inter Regulatory Technical Group.

The Inter Regulatory Technical Group is chaired by an Executive Director of RBI and comprises of ED level representatives from the SEBI, IRDA and PFRDA. The Group will meet once every two months. It will discuss issues related to risks to systemic financial stability and inter regulatory coordination and will provide essential inputs for the meetings of the Sub-Committee.

The Technical Group on Financial Inclusion and Financial Literacy is headed by the Deputy Governor of RBI and comprises of representatives of all Regulators and Ministry of Finance.

In addition, an Inter-Regulatory Forum for Monitoring of Financial Conglomerates has also been set up under the aegies of FSDC.

FSDC also functions through working group and a macro financial monitoring group. More may be seen here.

Mandate

Without prejudice to the autonomy of regulators, this Council would monitor macro prudential supervision of the economy, including the functioning of large financial conglomerates. It will address inter-regulatory coordination issues and thus spur financial sector development. It will also focus on financial literacy and financial inclusion. What distinguishes FSDC from other such similarly situated organizations across the globe is the additional mandate given for development of financial sector.

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Background and History

In the wake of the financial crisis of 2008, the issue of financial stability as also the means and institutions to secure the same has become an important question across countries globally.

Since April 2009, India is a member of the international agency looking into the issue, namely, Financial Stability Board, a recast of the erstwhile Financial Stability Forum . HLCCFM was constituted vide a demi official letter dated 24th May 1992 written by the then Secretary (Economic Affairs, Ministry of Finance), Dr. Montek Singh Ahuluwalia to the then RBI Governor, S Venkitaramanan. HLCCFM was the forum to deal with inter-regulatory issues arising in the financial and capital markets, as India follows a multi-regulatory regime for financial sector. It functioned under the Chairmanship of Governor (RBI), with Chairman (SEBI) Secretary (Economic Affairs, Ministry of Finance), Chairman (Insurance Regulatory and Development Authority) and Chairman (Pension Fund Regulatory Development Authority- PFRDA) as members.

However, it was an informal body and had its own limitations despite being a good mechanism. In the absence of formal instruments, clear specifications as to its functions/powers and an empowered secretariat to nominate and follow up on the decisions of the HLCCFM, its effectiveness has been limited. The markets that are regulated by members of the HLCCFM have dramatically changed since 1992. Over time, markets have become more complex and converged and are becoming increasingly integrated. In such a scenario, if the regulators do not take an integrated and holistic view, it was felt that outcomes will be sub-optimal.

Various Governmental Committees, as given below, have also recommended such an approach to regulation:

a. RBI’s Advisory Group on Securities Market Regulation (RBI-AGSMR 2001);b. High Level Expert Committee on Making Mumbai an International Financial Centre (MIFC 2007); c. Committee on Financial Sector Reforms (CFSR 2008); d. Committee on Financial Sector Assessment (CFSA 2009).

The Raghuram Rajan Report (CFSR) had touched upon the need to have a regulatory mechanism for financial stability. The report suggested the creation of a statutory body called Financial Sector Oversight Agency (FSOA) to do the macro prudential supervision of the economy, to monitor the functioning of large, systemically important, financial conglomerates and to address and defuse inter-regulatory conflicts. The committee envisioned a council approach with all the chiefs of regulatory bodies as members and Finance Secretary as a permanent invitee. The Committee had also recommended strengthening the capacity of the Deposit Insurance and Credit Guarantee Corporation (DICGC) to both monitor risk and resolve a failing bank, instilling a more explicit system of prompt corrective action and making deposit insurance premia more risk-based.

The other report on financial sector namely the Making Mumbai an International Financial Center (MIFC) report had underlined the need for macroeconomic stability for a credible international financial centre to function in the country. The report of the Committee on Financial Sector Assessment (CFSA) which was a joint effort of RBI and Ministry of Finance, Government of India, says stability assessment and stress testing of the financial institutions need to be conducted on a more systemic basis, to capture the second round and contagion risks. For this purpose, CFSA had recommended setting up of an inter-disciplinary Financial Stability Unit. Accordingly various regulators had set up their own Financial Stability Units. RBI set up the unit on July 17, 2009. The CFSA report emphasised that in the interest of financial stability, there is a need for strengthening inter-regulatory co-operation and

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information-sharing arrangements, both within and across borders among the regulators. The committee had identified that there is no legislation specifically permitting regulation of financial conglomerates and holding companies in India and perhaps through an amendment of the act, RBI could be empowered to do the same.

The Finance Minister held a meeting with the Regulators and officials of Ministry of Finance on the creation of Financial Stability & Development Council on 12th October 2010. The discussion paper had been circulated by the Ministry of Finance to all stake holders. It was agreed that with a view to strengthen and institutionalize the mechanism for maintaining financial Stability and Development, Government would set up the apex Council. The council was notified on 30th December 2010.

Global Efforts in managing Financial Stability

Financial stability is indeed a sunrise area and clarity is yet to emerge on target variables and policy instruments to be used in this regard and the institutions responsible for monitoring the same. Many countries have vested these powers with the central bank considering their expertise in supervising large banks and monetary stability. As of end-2005, almost fifty central banks were publishing Financial Stability Reports, and many others were considering publication. Despite the central banks’ growing interest in financial stability, direct references to financial stability as a central banks’ objective, are rare to find in the basic central bank legislation. Only about 3 percent of the central bank laws surveyed by the IMF official (2007) had an explicit legal responsibility for financial stability. If financial stability is included, it is more likely to be found among “tasks” than among “objectives.” Financial stability is often bundled together with other “standard” tasks, such as the support for smooth functioning of the payment system, regulation and supervision of the banking system, or lender-of-the-last resort functions. Financial stability and the central bank’s role in it is more commonly specified in other documents, such as mission statements or memoranda of understanding (if there is an integrated financial supervisory agency outside the central bank). Central banks typically explain their interest in the stability and general health of the financial system by their monetary policy objectives, payment system functions, bank supervision role, and lender of last resort role.

Entrusting financial stability to central banks may be a good beginning in a crisis situation. However, as seen in the financial crisis of 2008, systemic risk arises not just from the banking sector, but from other financial firms like investment banks or insurance companies which are outside the jurisdiction of the Central Bank and potentially from non-financial firms too. For instance, central banks may be able to constrain banks from extending loans to the real estate sector to prevent an asset price build up. However, this does not preclude firms like large insurance companies from taking greater exposures in the real estate segment. Hence, financial stability requires comprehensive prudential supervision. Moreover, potentially the regulator of the banking sector may have an incentive to cover up regulatory failures by using public money to rescue a failing bank. Such incentive issues (and moral hazards) arise if the task of financial stability is assigned to any of the sectoral regulators. For example, in US, Fed is assigned the task of financial stability. However, a separate body called Federal Deposit Insurance Corporation (FDIC) is in charge closing down banks. On account of these conflict of interest issues, many jurisdictions have created a separate body consisting of representatives of various regulators to deal with financial stability. This is also essential to ensure coordinated counter cyclicality of respective policy initiatives of different regulators. For instance, even if the central bank decides to raise capital requirements for banks during a boom phase as a counter cyclical measure, it can only lead to diversion of funds from banks to non-banking sectors. Hence, all regulators need to move together while implementing counter cyclical policies. BIS , observed in this regard that "prudential tools that target financial stability need to be calibrated at the level of the financial system but implemented at the level of each regulated institution" which is essentially the task of individual regulator.

The attempt across the globe was to generate early warning signals and to formulate necessary

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plans for rescuing the situation. This is more like a disaster management system for the economy, just as there is one for tackling natural calamities. In US, an attempt was made to create on a war footing Emergency Economic Stabilization Acts, making available new resources and talent specialised in implementing emergency measures as well as generating early warning indicators, legal expertise related to foreclosures, mortgages etc.

In general, there are two models in operation for handling issues related to financial stability:

1. A single agency model, where central bank or a new national agency takes charge of systemic stability. 2. A council approach where central bank, other financial sector regulators and fiscal authorities supported by a strong secretariat looks into it.

In US, the central bank- Fed- is now given greater supervisory authority over any institution that poses a threat to the financial system and if necessary to ensure control of them if they fail, including foreign groups owning a large or risky US subsidiary. Fed’s new role will be supplemented by a new Council of regulators, which is nothing but a refined version of existing President’s Working Group, which consisted of the heads of Treasury, SEC, CFTC and Fed. The new Council will have representation from 8 regulators including the newly created Consumer Protection Agency and is headed by the Treasury Secretary. It will advise the Fed on its new role. A website has already been made functional to bring in more transparency with respect to the emergency actions taken to restore financial stability.

European Union (EU), based on the Larosiere working group report has set up European Systemic Risk Board as a “reputational body” to be in charge of macro prudential oversight and to enhance effectiveness of early warning mechanisms (i.e. ESRB will not be conceived as a body with legal personality and binding powers but rather as a body drawing its legitimacy from its reputation for independent judgments, high quality analysis and sharpness in its conclusions.) But it has powers to access all the necessary information. Banking on the expertise of central banks, European Central Bank (ECB) acts as the secretariat of the ESRB and thus will be headed by ECB president. ESRB is meant to cooperate closely with European System of Financial Supervisors (ESFS -a network of national financial supervisors) and where appropriate, provide the European Supervisory Authorities (created by the transformation of existing three committees CEBS, CEIOPS and CESR respectively for banking supervision, insurance and occupational pension, and securities regulation) with information on systemic risks required for the achievement of their tasks. ESFS would look into large cross border financial institutions.

In 2010 the UK Government outlined plans for reform of its regulatory framework, including the creation of an independent Financial Policy Committee at the Bank of England and a new prudential regulator as a subsidiary of the Bank. The Bank of England will thus be given new powers to protect and enhance financial stability. The Government will create a new Financial Policy Committee (FPC) within the Bank, which will look at the wider economic and financial risks to the stability of the system. In anticipation of the legislation to create the Financial Policy Committee (FPC), as outlined in the Government’s consultation document “A new approach to financial regulation: building a stronger system”, the UK Government and the Bank announced the establishment of an interim Financial Policy Committee on 17 February 2011. The interim FPC will undertake, as far as possible, the forthcoming statutory FPC’s macro-prudential role. The initial task is to carry out preparatory work and analysis into potential macro-prudential tools. This Committee will be equipped with specific macro-prudential tools it can use to address risks and vulnerabilities it identifies.

Memorandum of understanding which establishes a framework for co-operation between Treasury, the Bank of England and the Financial Services Authority (the FSA) in the field of financial stability can be seen here. It sets out the role of each authority, and explains how they work together towards the common objective of financial stability in the UK.

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For the documents of FSDC may please see here

Fiscal Policy Strategy Statement

The Fiscal Policy Strategy Statement is a statement presented to the Parliament at the time of Union Budget Presentation under Section 3(4) of the Fiscal Responsibility and Budget Management Act, 2003, and it outlines the strategic priorities of Government in the fiscal area for the ensuing financial year relating to taxation, expenditure, lending and investments, administered pricing, borrowings and guarantees.

The Statement explains how the current policies are in conformity with sound fiscal management principles and gives the rationale for any major deviation in key fiscal measures.

In essence, it presents the strategy to be adopted by the Government in moving towards the FRBM targets.

Fiscal Consolidation

Fiscal Consolidation refers to the policies undertaken by Governments (national and sub-national levels) to reduce their deficits and accumulation of debt stock.

Key deficits of government are the revenue deficit and the fiscal deficit. The gains from the economic reforms introduced in India in early nineties could not be sustained for a much longer period. Deficits were widening and by 1999-2000 the combined fiscal deficit (of centre and states) almost reached levels of the crisis year ‘1990-91’. Sustainability of debt too was becoming a major issue. In December 2000, Government of India introduced the Fiscal Responsibility and Budget Management (FRBM) Bill in the Parliament as it was felt that institutional support in the form of fiscal rules would help in setting the agenda for the future fiscal consolidation programme. The Twelfth Finance Commission recommended in November 2004 that state governments too enact their fiscal responsibility legislations. However, states like Karnataka, Kerala, Punjab, Tamil Nadu and Uttar Pradesh had already enacted their fiscal responsibility legislation even before the Commission recommended so.

Implementation of Fiscal Responsibility and Budget Management (FRBM) legislation at national as well as at sub-national levels in India during the period 2005-10 helped both the Union and the States to achieve considerable correction in their respective fiscal position, which was weak prior to 2005. The global slowdown in 2008-09 and 2009-10 however adversely affected the achievement of targets specified in the legislation. The Thirteenth Finance Commission (FC-XIII) has proposed a roadmap of fiscal consolidation for both centre and states. It has specified a combined debt target of 68 % for the Centre and States, to be met by 2014-15. For the Centre, a target of elimination of revenue deficit has been set by 2013-14 and fiscal deficit is to be brought down to 3 % by the same year. For States, the Commission has recommended a fiscal road map for each state depending on its current deficit and debt levels. Accordingly, States are required to eliminate revenue deficit and reduce fiscal deficit to 3 % of their GSDP, in stages, and in a manner that all states would achieve these targets latest by 2014-15. [By the end of 2009-10, the estimated debt of Centre and States was around 79 % of GDP and consolidated fiscal deficit of Centre and States at 9.5 %, during this year].The Medium Term Fiscal Policy Statement presented along with the Union Budget 2011-12, takes forward the process of fiscal consolidation of the Centre further. While the suggested roadmap of the 13th FC puts the fiscal deficit targets at 5.7 % and 4.8 % of GDP for the years 2010-11 and 2011-12 respectively, it has now been estimated at 5.1 % and 4.6 % respectively. The recommended debt target for 2014-15 of the 13th FC award period which is 44.8 % of GDP is expected to be achieved in the year 2011-12 itself (estimated at 44.2%). However, there seems to be problems in achieving the Revenue Deficit targets. Revenue expenditure of the Central Government also includes releases made to States and other implementing agencies for implementation of Government Schemes and

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programmes, amounting to about 1.6% of GDP. Leaving this out, the effective revenue deficit is about 1.8%, which is being endeavoured to be eliminated in the medium-term.

Fiscal Responsibility and Budget Management (FRBM) Act

Fiscal Responsibility and Budget Management (FRBM) became an Act in 2003. The objective of the Act is to ensure inter-generational equity in fiscal management, long run macroeconomic stability, better coordination between fiscal and monetary policy, and transparency in fiscal operation of the Government.

The Government notified FRBM rules in July 2004 to specify the annual reduction targets for fiscal indicators. The FRBM rule specifies reduction of fiscal deficit to 3% of the GDP by 2008-09 with annual reduction target of 0.3% of GDP per year by the Central government. Similarly, revenue deficit has to be reduced by 0.5% of the GDP per year with complete elimination to be achieved by 2008-09. It is the responsibility of the government to adhere to these targets. The Finance Minister has to explain the reasons and suggest corrective actions to be taken, in case of breach.

FRBM Act provides a legal institutional framework for fiscal consolidation. It is now mandatory for the Central government to take measures to reduce fiscal deficit, to eliminate revenue deficit and to generate revenue surplus in the subsequent years. The Act binds not only the present government but also the future Government to adhere to the path of fiscal consolidation. The Government can move away from the path of fiscal consolidation only in case of natural calamity, national security and other exceptional grounds which Central Government may specify.

Further, the Act prohibits borrowing by the government from the Reserve Bank of India, thereby, making monetary policy independent of fiscal policy. The Act bans the purchase of primary issues of the Central Government securities by the RBI after 2006, preventing monetization of government deficit. The Act also requires the government to lay before the parliament three policy statements in each financial year namely Medium Term Fiscal Policy Statement; Fiscal Policy Strategy Statement and Macroeconomic Framework Policy Statement.

To impart fiscal discipline at the state level, the Twelfth Finance Commission gave incentives to states through conditional debt restructuring and interest rate relief for introducing Fiscal Responsibility Legislations (FRLs). All the states have implemented their own FRLs.

Background

Indian economy faced with the problem of large fiscal deficit and its monetization spilled over to external sector in the late 1980s and early 1990s. The large borrowings of the government led to such a precarious situation that government was unable to pay even for two weeks of imports resulting in economic crisis of 1991. Consequently, Economic reforms were introduced in 1991 and fiscal consolidation emerged as one of the key areas of reforms. After a good start in the early nineties, the fiscal consolidation faltered after 1997-98. The fiscal deficit started rising after 1997-98. The Government introduced FRBM Act,2003 to check the deteriorating fiscal situation.

Implementation

The implementation of FRBM Act/FRLs improved the fiscal performance of both centre and states. The States have achieved the targets much ahead the prescribed timeline. Government of India was on the path of achieving this objective right in time. However, due to the global financial crisis, this was suspended and the fiscal consolidation as mandated in the FRBM Act

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was put on hold in 2007-08.The crisis period called for increase in expenditure by the government to boost demand in the economy. As a result of fiscal stimulus, the government has moved away from the path of fiscal consolidation. However, it should be noted that strict adherence to the path of fiscal consolidation during pre crisis period created enough fiscal space for pursuing counter cyclical fiscal policy.

Amendments to FRBM Act

Through Finance Act 2012, amendments were made to the Fiscal Responsibility and Budget Management Act, 2003 through which it was decided that in addition to the existing three documents, Central Government shall lay another document - the Medium Term Expenditure Framework Statement (MTEF) - before both Houses of Parliament in the Session immediately following the Session of Parliament in which Medium-Term Fiscal Policy Statement, Fiscal Policy Strategy Statement and Macroeconomic Framework Statement are laid.

Amendments to the FRBM Act were introduced subsequent to the recommendations of 13th Finance Commission.

Concept of “Effective Revenue Deficit” and “Medium Term Expenditure Framework” statement are the two important features of amendment to FRBM Act in the direction of expenditure reforms. Effective Revenue Deficit is the difference between revenue deficit and grants for creation of capital assets. This will help in reducing consumptive component of revenue deficit and create space for increased capital spending. Effective revenue deficit has now become a new fiscal parameter. “Medium-term Expenditure Framework” statement will set forth a three-year rolling target for expenditure indicators.

As per the amendments in 2012, the Central Government has to take appropriate measures to reduce the fiscal deficit, revenue deficit and effective revenue deficit to eliminate the effective revenue deficit by the 31st March, 2015 and thereafter build up adequate effective revenue surplus and also to reach revenue deficit of not more than 2 % of Gross Domestic Product by the 31st March, 2015 and thereafter as may be prescribed by rules made by the Central Government.

Further, the Central Government may entrust the Comptroller and Auditor-General of India to review periodically as required, the compliance of the provisions of FRBM Act and such reviews shall be laid on the table of both Houses of Parliament.

Vide the Finance Act 2015, the target dates for achieving the prescribed rates of effective deficit and fiscal deficit were further extended. The effective revenue deficit which had to be eliminated by March 2015 will now need to be eliminated only after 3 years i.e., by March 2018. The 3% target of fiscal deficit to be achieved by 2016-17 has now been shifted by one more year to the end of 2017-18.

Five Year Plans

India has adopted the five-year plan model which was practiced in the earlier communist Soviet Union. The Five-Year Plan exercise is a detailed work plan. To begin with an Approach Paper is prepared to identify the growth target and the sectors to be prioritised in the five year plan. After the Approach Paper is discussed and finalised in the highest policy making body viz; the National Development Council, the subject divisions in Planning Commission representing the different Central Ministries set up Working Groups wherein subject experts, state government officials and central government officials are Members and they discuss and chart out the course of action to be implemented in the next five years. The Working Groups are mainly headed by the Head of Division of the concerned subject in the Central Ministry. After the Working Groups submit their Reports, Steering Committees

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chaired by the Members of Planning Commission examine these Reports and may support/reject/add to the recommendations made in the Working Group Reports. After this exercise the officers of Planning Commission utilise these Reports and the inputs received from the discussions held with State Government officials during plan discussions start drafting the chapters that form part of the Five Year Plan document. Once all subject divisions prepare their chapters, the Plan Coordination Division consolidates these chapters and the First draft the five year plan document is circulated among Members, to the Deputy Chairman, discussed in the Full Planning Commission meeting after which it is again placed before the National Development Council which approves the plan document. This plan document is the referral guide for officers in the Planning Commission as well as the Central Ministries in scheme formulation and implementation for the next five years. India has so far completed XI Five Year Plans and the XII Five Year Plan is presently underway.

In the event of creation of NITI Aayog to replace Planning Commission, apprehensions were raised regarding the continuation of five year plans. In the first meeting of the Governing Council of National Institution for Transforming India (NITI) Aayog, which was held on February 8, 2015, it was decided that the 12th Five Year Plan (2012-2017) would continue. NITI Aayog would suitably undertake its Mid Term Appraisal so that a shared vision of national development agenda and important national initiatives are incorporated for their effective implementation in the remaining two years of the Plan.

Flagship Programmes

Flagship programmes derive their origin from the term flagship which is the main or most important ship of a country's navy and is symbolic of the main thrust of the nation's developmental policy.

Flagship schemes of the government of India are those schemes which are declared so by the union cabinet or the Development Evaluation Advisory Committee (DEAC) of Planning Commission. The list of flagship programmes can be modified by the DEAC or the Government from time to time.

While creating the Independent Evaluation Office (IEO), the following programmes have been identified as flagship programmes by the Cabinet:

1. Mahatma Gandhi National Rural Employment Guarantee Programme: The Act was notified on 7 September 2005 and is aimed at providing livelihood security through employment for the rural poor.

2. Sarva Shiksha Abhiyan (SSA):This programme was started with the objective of providing elementary education for all children in the age group of 6–14 years by 2010.

3. Mid Day Meal Scheme (MDMS): The MDM Scheme launched in 1995 aims to give a boost to universalization of primary education by increasing enrolment, retention, and attendance and simultaneously impacting upon nutritional status of students in primary classes.

4. National Rural Health Mission(NRHM): The main aim of NRHM is to provide accessible, affordable, accountable, effective, and reliable primary health care, especially to poor and vulnerable sections of the population. The programme sets standards for rural health care and provides financial resources from the Union Government to meet these standards.

5. Jawaharlal Nehru National Urban Renewal Mission (JNNURM)

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6. Integrated Child Development Services (ICDS)

7. Rashtriya Krishi Vikash Yojana (RKVY)

8. Prime Minister's Gram Sadak Yojana (PMGSY)

9. Indira Awas Yojana (IAY)

10. Accelerated Irrigation Benefit Programme (AIBP)

11. Water and Sanitation Mission [National Drinking Water Supply Programme & Total Sanitation Campaign]

12. Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY)

13. Skill Development Mission

14.Bharat Nirman: The objective of the Bharat Nirman Programme is to give top priority to rural infrastructure by setting time-bound goals under various schemes to develop rural housing, rural roads, irrigation, rural drinking water and rural electrification. The Programme imposes a responsibility on sub-national governments to create these facilities in a transparent and accountable manner .

In India's federal system of government, both the Union and State Governments have a defined role to play in achieving developmental goals. The Govt. of India in recognition of the role played by infrastructure in poverty removal has taken up massive all India programmes for development of physical infrastructure (rural housing, rural roads, rural electrification, irrigation, drinking water, urban infrastructure etc.) and human capital formation under different flagship programmes, mainly to promote education and health care.

Food Safety and Standards Act, 2006

Food Safety and Standards Act, 2006 is an integrated food law that lays down standards and guidelines for consumer safety, protection of consumer health and regulation of the food sector .It seeks to harmonise Indian standards with the international standards like CODEX [1] and facilitates international trade in food articles. The Act lays down general provisions for food additives and processing of articles as well.

Food Safety and Standards Act received the assent of the President on 23rd August, 2006 and came into effect on 5th August, 2011. It is a comprehensive legislation for the sector and subsumes the then existing acts and standards like Prevention of Food Adulteration Act(PFA) of 1954 ,Fruit Products Order of 1955, Meat Food Products Order of 1973, Vegetable Oil Products (Control) Order of 1947, Edible Oils Packaging (Regulation)Order of 1988, Solvent Extracted Oil, De- Oiled Meal and Edible Flour (Control) Order of 1967, Milk and Milk Products Order of 1992 and also any order issued under the Essential Commodities Act, 1955 relating to food . [2]

Food Safety and Standards Authority of India (FSSAI) has been created under the Act. FSSAI regulates the food sector by laying down guidelines and standards to be followed by food businesses. It also specifies procedures for accreditation of laboratories and provides advice to central and state government in matters relating to food safety. Ministry of Health and Family Welfare is responsible for implementation of the Act. The Act deals with administrative mechanism at the state level. It also provides for setting up of Food Safety Appellate tribunal for adjudication and trails under food standard offence.

The law is significant in ensuring quality food to the consumer. It protects consumer interest by prohibiting misleading advertisement and penalising adulteration. In other words, the Act

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seeks to enhance quality of food related information to consumers and also by setting standards which, when effectively enforced by Commissioners in the States would result in increased consumer welfare.

The law also addresses contemporary challenges facing the sector like provisions related to Genetically Modified (GM) crops, functional food, international trade in food items etc. Besides, it is a single reference point for food related matters.

1. http://codexindia.nic.in/cit.htm [1]

2. http://www.thehindu.com/todays-paper/article2323850.ece [2]

Food Processing in India

Food Processing refers to various techniques and operations by which raw foodstuffs are transformed into food that are suitable for consumption, cooking, or storage. It consists of processes like the basic preparation of foods, the alteration of a food product into another form (as in making preserves from fruit), and preservation and packaging techniques. (The official definition may be seen in page 2 of [1] Data Bank on Economiic Parameters off the Food Processiing Sector.)

Processing of food has lot of advantages over raw food like longer shelf life, increased availability to farm produce and improved availability of the product throughout the year.

On one hand, India food processing sector has strong base because of the abundant production of raw food articles, aromatic and medicinal plants. On the other hand the level of food processing is not up to the mark as lot of wastage in post production handling and management take place.

This can be seen both when compared with the total potential of the sector and also vis-a-vis other developed countries [1]

The food sector engages maximum population and contributes significant portion of national income and consumer expenditure. Also, the demand for ready to eat food products by working and middle class in India is increasing and catering the same can help improve the lot of farmers in India and help Indian agriculture realise the desired growth rate of 4%. Hence, even as foreign fast food majors like McDonald's, Domino's and KFC are widening their network in the country, it's a matter of time that Indian food industry makes its presence felt globally. The next Indian food revolution will be about health, convenience and customisation.

In order to realise this, food processing in Indian economic context is considered as a sunrise industry. It serves as a crucial link between Agriculture and Industry. Hence, the growth of this sector helps in the growth of agriculture sector through backward linkages and also to the industry sector of which it is itself an important constituent and therefore to the overall GDP growth.

The average rate of growth of food processing sector during the first four years of the 10th Plan Period was @13.25 per cent at the current prices and @6.75 per cent at 1999-2000 prices. India’s food processing sector was growing at about 6% four years ago and is now expanding at nearly 15% annually, according to the Ministry of Food Processing Industries.

However, India’s share in export of processed food in global trade is only 1.5 %; whereas the size of the global processed-food market is estimated at Rs. 190 trillion and nearly 80 per cent of agricultural products in the developed countries get processed and packaged.

Structure of Food Processing Industry in India:-The food processing sector contributes

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14% of manufacturing GDP with a share of 2, 80,000 crores. Of this, the unorganized sector₹ contributes more than 70% of the production in terms of volume and 50% in terms of value [2]

Opportunities for the sector: Immense opportunities are because of both demand and supply side factors.

Demand side factors lead to increased willingness of the consumer to spend on the processed food articles thus increasing the demand for the same in the market like large disposable income, increased urbanisation, changing age profile with large share of young population having ability to spend and changing lifestyle, food habits, needs for convenience and health consciousness among the consumers.

Supply side factors affect the amount of availability of processed food in the market and thereby impacting the supply of the same like abundant production, ongoing retail revolution, varied cuisine that India offers with its rich cultural background, pool of manpower that can prove huge asset for the sector after provision of proper skills, scientific talent and testing and certification labs in place with emphasis on following International norms like codex.

Constraints faced by the sector:-Despite the opportunities, the food processing sector in India is still in nascent stage due to some constraints like production and procurement of quality raw materials for processing, lack of farmer processors linkages both backward and forward, appropriate infrastructure for instance warehouses, cold chain, grading centres and marketing channels, inadequate quality control, inefficient supply chain, high inventory carrying cost, high taxation, high packaging cost, high cost of finance, fragmented capacity, problems of wastage, lower capacity utilisation, poor economies of scale etc.

The Policy Action of the Government of India:-Indian government notified an integrated food law on 24th August 2006 i.e. Food Safety and Standards Act providing single window to food processing sector.

The Ministry of Food Processing Industries was set up in July, 1988 to give an impetus to development of food processing sector in India. The Ministry has taken Policy Initiatives for development of the food processing industry [3]

In order to make this sector vibrant, coordinated action both on the part of government at various levels and the industry is required. Public investment in providing critical infrastructure storage, integrated cold-chain infrastructure (with only 5,386 stand-alone cold storages which together have a capacity of 23.6mt) and processing infrastructure must step up.

Industry at the same time should come up with new processing technologies, new products, innovative packing, such that nutritional value, natural flavour, aroma of the raw food is retained along with the need for convenience, attractiveness and choice of the end user can be met through processed product. R&D through PPP could be explored. The awareness and education of the consumer with regards to the qualities of the processed food stuffs becomes equally important .Also, linkages between industry and the farmers should be developed and for this contract farming and other such arrangements can be made that could ensure the quality of farm produce. On farm processing and value addition should be encouraged.

References

1. http://mofpi.nic.in/images/ar10-11.pdf 2. http://mofpi.nic.in/ContentPage.aspx?CategoryId=122 ;

http://mofpi.nic.in/images/ar10-11.pdf

3. http://india.gov.in/sectors/commerce/food_processing.php

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4. Annual Report of Ministry of Food Processing Industries, 2010-2011

5. “The Food Industry in India and Its Logic”, Rahul Goswami, EPW October 9,2010

6. Report of working group on food processing sector, MOFPI (2006)

Food Security

The food security legislation is one of the watershed legislation in the parliamentary democracy of India as it made availability/access to food a “Right” of the people. There are many compelling factors - economic, social, political – as well as ethical reasons for having such a legal guarantee of protection from hunger.

The origin of this concept can be traced to Fundamental Right of Life with dignity as enshrined in Article 21 of Indian constitution. The President of India addressing the Indian Parliament on 4 June 2009 affirmed that the Government of India proposes to enact a new law - the National Food Security Act (NFSA) - that will provide a statutory basis for a framework which assures food security for all.

There has been a plethora of definition of food security that has been extended from time to time by different international agencies. The anchoring definition, however, was arrived in the Rome Declaration during the World Food Summit held in 1996 at Rome. It states:

“Food security exists when all people, at all times, have physical and economic access to sufficient, safe and nutritious food to meet their dietary needs and food preferences for an active and healthy life.”

The concept of food and nutrition security/insecurity has been conceptualized in diverse and overarching manner. However, the following three aspects (the 3 A’s) underlie most conceptualizations of food security.

1. Availability – it refers to the physical availability of foodstocks in desired quantities. This depends on the domestic production, changes in stocks, and imports along with the distribution of food across territories.

2. Access – this is determined by the bundle of entitlements. This aspect of the definition captures Amartya Sen’s thinking on the issue. This refers people’s initial endowments, i.e. what they can acquire (especially in terms of physical and economic access to food) and the opportunities open to them to achieve entitlement sets. This can be achieved either through their own endeavors or through intervention of the State or both.

3. Absorption – it is defined as the ability to biologically utilise the food consumed. This is related to several factors such as nutritional knowledge, safe drinking water, and availability of stable and sanitary physical and environmental conditions. All this allows effective biological absorption of food in a human body.

Similar definition has been given by the World Bank also which identifies food availability, food access and food use as the three pillars of food security.

The World Food Summit goal is to reduce the number of undernourished people by half, between 1990–92 and 2015. Similar target has been set by the Millennium Development Goal 1 (target 1C) to halve the proportion of people who are suffering from hunger by 2015 as compared to 1990.

Food Security Legislation in India

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The Global Hunger Index (GHI) brought out by IFPRI in 2010 has shown improvement over the 1990 GHI as it fell by almost one-quarter. But still, the index for hunger in the world remains at a level characterized as “serious”. India ranks 67 out of 122 countries in GHI in the world. Earlier, it had a rank of 66 in the list of 88 countries (GHI, 2008). The total number of undernourished people in the world was estimated to have surpassed 1 billion (1023 million in 2009) and expected to decline by to 925 million in 2010. Developing countries account for 98 percent of the world’s undernourished people. Out of these, two-thirds live in just seven countries (Bangladesh, China, the Democratic Republic of the Congo, Ethiopia, India, Indonesia and Pakistan) and over 40 percent live in China and India alone. This is an alarming situation. Hunger deaths amidst piles of rotting food grains in FCI’s storage are a matter of concern. However, to attain the goal of food security multi-pronged strategies needs to be adopted. Food security is, thus, not only about having a bumper crop production but also to make it available and affordable to the masses for fulfilling their nutritional requirement and living a dignified and healthy life.

Keeping this in mind, the Finance Minister in budget speech 2009-10 initiated the work on National Food Security Act. It sought to ensure that every family living below the poverty line in rural or urban areas will be entitled by law to 25 kilos of rice or wheat per month at Rs.3 a kilo. Carrying forward the agenda the FM in his Budget speech 2011-12, informed that the government, after detailed consultations with all stakeholders including State Governments, is close to finalisation of National Food Security Bill (NFSB). However, the recommendations from National Advisory Council (NAC) and Prime Minister’s Economic Advisory Council (PMEAC) differed on the coverage of beneficiaries. The NAC wants legal entitlement extended to 90% (46% would come in Priority Category) of rural households and 50% (28% would come in Priority Category) of urban households (available at: http://nac.nic.in/foodsecurity/explanatory_note.pdf). On the other hand, the Rangarajan Committee had raised concerns over the availability of grain for such a large cover.

Government promulgated the National Food Security Act, 2013 on 10.9.2013. As per the NFSA, food security means the supply of the entitled quantity of foodgrains and meal specified under Chapter II of the Act. Every person belonging to priority households, identified under sub-section (1) of section 10 of the Act, are entitled to receive five kilograms of foodgrains per person per month at subsidised prices specified in Schedule I from the State Government under the Targeted Public Distribution System (TPDS).

As per the Act, 75% of the rural and 50% of the urban population, at the all India level, will be entitled to receive subsidised foodgrains under Targeted Public Distribution System (TPDS). It further provides that corresponding to the above, the State-wise coverage will be determined by the Central Government. As regards identification, the Act provides that within the coverage under TPDS determined for each State, the identification of households is to be done by the State Governments.

Thus the National Food Security Act, amongst other things, provides for legal entitlement to two-thirds of the population to receive foodgrains at highly subsidized prices of Rs. 1/2/3 per kg for coarse grains/wheat/rice respectively. Coverage of beneficiaries under pre-NFSA TPDS was under three different categories of beneficiaries – Antyodaya Anna Yojana (AAY), Below Poverty Line (BPL) and Above Poverty Line (APL). Central Issue Prices (CIPs) for these categories of households were different. However, the States/UTs were given flexibility to pass on the expenditure incurred by them on intra-State movement of foodgrains and dealers margin of fair price shops to beneficiaries (except AAY beneficiaries). Accordingly, many States/UTs were distributing foodgrains to beneficiaries under Targeted Public Distribution System (TPDS) at prices higher than the CIPs. NFSA provides that beneficiaries across the country will receive foodgrains under NFSA at uniform subsidized price. States/UTs, therefore, do not have the flexibility to pass on the expenditure incurred by them on intra-State movement of foodgrains and fair price shop dealers margin to beneficiaries.

Implementation of NFSA has so far started only in 11 States/UTs. The period for

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identification of beneficiaries and implementation of the Act had to be extended thrice, upto 30.09.2015 as its implementation is yet to start in the remaining 25 States/UTs. In March 2015, Union Government agreed to bear the additional burden in the cost of transportation of foodgrains and margins to fair price shops to ensure that the beneficiaries will continue to get foodgrain at subsidized prices.

The Centrally Sponsored Scheme on Food Security

In addition to the above Act, the National Development Council (NDC) in its meeting on May, 2007 had adopted a resolution to launch Food Security Mission comprising rice, wheat and pulses to increase the production of rice by 10 million tons, wheat by 8 million tons and pulses by 2 million tons by the end of the Eleventh Plan (2011-12). Accordingly, a Centrally Sponsored Scheme, 'National Food Security Mission', has been launched from 2007-08 to operationalize the above mentioned resolution.

The performance of National Food Security Mission (NFSM) during 11th Five Year Plan has been assessed through an independent agency. The Mission has helped in widening the food basket of the country with sizeable contributions coming from the NFSM districts. The focused and target oriented implementation of mission initiatives has resulted in bumper production of rice, wheat and pulses. As informed to the Parliament on 18 December 2014, The production of wheat has increased from 75.81 million tonnes in pre-NFSM year of 2006-07 to 94.88 million tonnes during 2011-12 i.e. an increase of 19.07 million tonnes against the envisaged target of 8 million tonnes at the end of XI Plan. Similarly, the total production of rice has increased from 93.36 million tonnes in pre NFSM year of 2006-07 to 105.30 million tonnes in 2011-12 with an increase of 11.94 million tonnes against the target of 10 million tonnes. The total production of pulses has also increased from 14.20 million tonnes during 2006-07 to 17.09 million tonnes during 2011-12 with an increase of 2.89 million tonnes against the envisaged target of 2 million tonnes. Thus, 33.90 million tonnes of additional production of total foodgrains against the target of 20 million tonnes. The Mission has been continued during 12th Five Year Plan with inclusion of coarse cereals crops and commercial crops (sugarcane, jute, cotton). The Mission has target of additional production of 25 million tonnes of foodgrains comprising 10 million tonnes of rice, 8 million tonnes of wheat, 4 million tonnes of pulses and 3 million tonnes of coarse cereals by the end of 12th Five Year Plan.

Foreign Company

The term foreign company is defined in Section 2(42) of the Companies Act, 2013.

In India, “foreign company” means any company or body corporate incorporated outside India which—

(a) has a place of business in India whether by itself or through an agent, physically or through electronic mode; and

(b) conducts any business activity in India in any other manner

Foreign Portfolio Investor (FPI)

In India, the term “Foreign Portfolio Investor” refers to FIIs or their sub-accounts, or qualified foreign investors (QFIs) who are permitted to hold upto 10% stake in a company.

Origin

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The term FPI was defined to align the nomenclature of categorizing investments of foreign investors in line with international practice. FPI stands for those investors who hold a short term view on the company, in contrast to Foreign Direct Investors (FDI). FPIs generally participate through the stock markets and gets in and out of a particular stock at much faster frequencies. Short term view is associated often with lower stake in companies. Hence, globally FPIs are defined as those who hold less than 10% in a company. In India, the hitherto existing closest possible definition to an FPI was Foreign Institutional Investor.

In the Union Budget 2013-14, announced on 28 February 2013, vide para 95, Honourable Finance Minister announced his intention to go by the internationally accepted definition for foreign investors.

Prior to this, in December 2012, SEBI had constituted a “Committee on Rationalization of Investment Routes and Monitoring of Foreign Portfolio Investments” under the chairmanship of Shri K. M. Chandrasekhar with a view to rationalize/harmonize various foreign portfolio investment routes and to establish a unified, simple regulatory framework. The Committee had submitted its report in June, 2013 to the Government of India.

Based on the committee report, on 7th January, 2014 the FPI Regulations, 2014 were notified in the Gazette of India.

The new FPI Regime came into effect from 1st June, 2014. The FAQs on FPI Regulations can be seen here.

Features of FPI

Portfolio Investment by any single investor or investor group cannot exceed 10% of the equity of an Indian company, beyond which it will now be treated as FDI.

FIIs, Sub-Accounts and QFIs are merged together to form the new investor class, namely Foreign Portfolio Investors, with an aggregate investment limit of 24% which can be raised by the Company up to the applicable sectoral cap.

All existing FIIs and Sub Accounts can continue to buy, sell or otherwise deal in securities under the FPI regime.

All existing Qualified Foreign Investors (QFIs) may continue to buy, sell or otherwise deal in securities only till the period of one year from the date of notification of the FPI Regulation. In the meantime, they have to obtain FPI registration.

Non-Resident Indians (NRIs) and Foreign Venture Capital Investors (FVCI) are excluded from the purview of this definition.

Designated Depository Participants (DDPs) authorized by SEBI (as per prescribed norms) would henceforth register FPIs on behalf of SEBI subject to fulfillment of KYC (Know Your Customer) and due diligence norms. DDPs carry out necessary due diligence and obtain appropriate declarations and undertakings before registering an entity as FPI. The DDPs are either Authorized Dealer Category-1 bank authorized by Reserve Bank of India, or Depository Participant or a Custodian of Securities registered with SEBI. Existing SEBI approved Qualified Depository Participant who were registering the QFIs, but not meeting the DDP eligibility criteria, can operate as DDP only for a period of one year.

Categories of FPI

As part of Risk based approach towards customer identity verification (KYC), FPIs have been

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categorized into three major categories:

Category I (Low Risk) which would include Government and entities like Foreign Central banks, Sovereign wealth Funds, Multilateral Organizations, etc

Category II (Moderate Risk) which would include Regulated entities such as banks, Pension Funds, Insurance Companies, Mutual Funds, Investment Trusts, Asset Management Companies, University related endowments (already registered with SEBI)

Category III (High Risk) which would include all other FPIs not eligible to be included in the above two categories

FPI Investment restrictions

FPIs are not allowed to invest in unlisted shares. However, all existing investments made by the FIIs/Sub-accounts/QFIs are grandfathered. In respect of those securities, where FPIs are not allowed to invest no fresh purchase shall be allowed as FPI. They can only sell their existing investments in such securities.

However, an exception has been made by permitting them to invest in unlisted non-convertible debentures/bonds issued by an Indian company in the infrastructure sector, where ‘infrastructure’ is defined in terms of the extant External Commercial Borrowings (ECB) guidelines;

FPIs are permitted to invest in Government Securities with a minimum residual maturity of one year. However, FPIs have been prohibited from investing in T-Bills.

FPI can invest in privately placed bonds if it is listed within 15 days.

The same debt allocation mechanism that is in place for FIIs/QFIs will be followed for FPIs.

The debt investment limits as in June 2014 are as follows

S.No.

Type of Instrument

Cap (USD bn)

Cap (INR

Crore)Remarks

1Government

Debt20 99,546

Available on demand. Eligible investors may invest only in dated securities of residual maturity of one year and above, and existing investment in Treasury Bills will be allowed to taper off on maturity/sale.

2Government

Debt10 54,023

Available on demand for FIIs registered with SEBI as Sovereign Wealth Funds, Multilateral Agencies, Endowment funds, Insurance Funds, Pension Funds and Foreign Central Banks. Eligible investors may invest only in dated securities of residual maturity of one year and above.

3 Corporate Debt 51 244,323 Available on demand. Eligible investors may invest in Commercial Papers only up

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to US$ 2 billion within the limit of US$ 51 billion.

Total 81 397,892

FPIs belonging to Category III will not be allowed to issue Offshore Derivative Instruments (ODIs) and/or Participatory Notes (PNs). However, issuers of ODIs and/or PNs shall directly report to SEBI.

Data

The depositories – NSDL and CDSL- are required to maintain the data on FPIs.

Foreign Institutional Investor (FII)

Foreign Institutional Investor (FII) means an institution established or incorporated outside India which proposes to make investment in securities in India. They are registered as FIIs in accordance with Section 2 (f) of the SEBI (FII) Regulations 1995. FIIs are allowed to subscribe to new securities or trade in already issued securities. This is just one form of foreign investments in India, as may be seen here:

However, FII as a category does not exist now. It was decided to create a new investor class called "Foreign Portfolio Investor" (FPI) by merging the existing three investor classes viz. FIIs, Sub Accounts and Qualified Foreign Investors. Accordingly, SEBI (Foreign Portfolio Investors) Regulations, 2014 were notified on January 07, 2014 followed by certain other enabling notifications by Ministry of Finance and RBI. In order to ensure the seamless transition from FII regime to FPI regime, it was decided to commence the FPI regime with effect from June 1, 2014 so that the requisites systems and procedures are in place before migration to the new FPI regime.

With the new FPI regime, which has commenced from 1 June 2014, it has now been decided to dispense with the mandatory requirement of direct registration with SEBI and a risk based verification approach has been adopted to smoothen the entry of foreign investors into the Indian securities market.

FPIs have been made equivalent to FIIs from the tax perspective, vide central government notification dated 22nd January 2014.

FII Vs FDI: International standards and Indian definition

According to IMF and OECD definitions, the acquisition of at least ten percent of the ordinary shares or voting power in a public or private enterprise by non-resident investors makes it eligible to be categorized as foreign direct investment (FDI). (see OECD benchmark definition) In India, a particular FII is allowed to invest upto 10% of the paid up capital of a company, which implies that any investment above 10% will be construed as FDI, though officially such a definition does not exist. However, it may be noted that there is no minimum amount of capital to be brought in by the foreign direct investor to get the same categorised as FDI.

Given this backdrop, in the Union Budget 2013-14, announced on 28 February 2013, vide para 95, Honourable FM announced his intention to go by the internationally accepted definition for FIIs and FDIs, as stated below:

"In order to remove the ambiguity that prevails on what is Foreign Direct Investment (FDI)

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and what is Foreign Institutional Investment (FII), it is proposed to follow the international practice and lay down a broad principle that, where an investor has a stake of 10 percent or less in a company, it will be treated as FII and, where an investor has a stake of more than 10 percent, it will be treated as FDI. A committee will be constituted to examine the application of the principle and to work out the details expeditiously."

Meanwhile, to rationalize/harmonize various foreign portfolio investment windows and to simplify procedures, SEBI had formed a “Committee on Rationalization of Investment Routes and Monitoring of Foreign Portfolio Investments” under the chairmanship of Shri K. M. Chandrasekhar, former Cabinet Secretary. The Committee submitted its report on June 12, 2013.

In accordance with the budget announcement, a committee has been constituted under the chairmanship of Secy (DEA), to examine and work out the details of the application of the principle followed internationally for defining FDI and FII. The committee submitted its report in June 2014.

In India, FDI and FII are defined in Schedule 1 and 2 respectively of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations 2000. (Original notification is available at http://rbi.org.in/Scripts/BS_FemaNotifications.aspx?Id=174 Subsequent amendment notifications are available at http://rbi.org.in/Scripts/BS_FemaNotifications.aspx)

Myths about FIIs

There are certain myths / beliefs about FIIs which are not necessarily true.

Myth -1:- FIIs do not invest in unlisted entities. They participate only through stock exchanges

Myth -2:- FIIs cannot invest at the time of initial allotment. Foreign investors investing in initial allotment of shares (say IPOs or when a group of entities come together to float a company) are categorized as FDIs

Truth on 1 and 2:- As per Section 15 (1) (a) of the SEBI FII Regulations, 1995, a Foreign Institutional Investor (FII) may invest in the securities in the primary and secondary markets including shares, debentures and warrants of companies unlisted, listed or to be listed on a recognized stock exchange in India. In fact FIIs are very active in the over the counter (OTC) markets and in the IPO market in India.

Myth 3:- FDI has more direct involvement in technology, management etc while FIIs are interested in capital gain and momentary price differences. Generally direct investment involves a lasting interest in the management of an enterprise and includes reinvestment of profits. In contrast, FIIs do not generally influence the management of the enterprise.

Truth on 3:- To some extant this notion is true and is emphasized in policy documents. For instance, consolidated FDI Policy of Department of Industrial Policy and Promotion (DIPP) states that “foreign Direct Investment, as distinguished from portfolio investment (FII), has the connotation of establishing a ‘lasting interest’ in an enterprise that is resident in an economy other than that of the investor”.

However, of late, there have been occasions where FIIs come together to influence decisions in companies where they hold shares. The difference between FDI and FII, except for the fact that the latter necessarily has to be an institution (FDI can come from an individual also),

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rather lies in the registration or approval process and to some extent in the individual investment limits or lock-in conditions specified for each category.

Globally also, the acquisition of at least ten percent of the ordinary shares or voting power in a public or private enterprise by non-resident investors makes it eligible to be categorized as FDI, rather than the purpose of the investments, as intimated or stated by the investing foreigner due to difficulty in assessing it and also for statistical consistency.

Regulation of FIIs

The regulations for foreign investment in India have been framed by the Reserve Bank of India in terms of Sections 6 and 47 of the Foreign Exchange Management Act, 1999 and notified vide Notification No. FEMA 20/ 2000-RB dated 3rd May 2000 viz. Foreign Exchange Management (Transfer or issue of Security by a person Resident outside India) Regulations 2000, as amended from time to time. In line with the said regulations, since 2003, the Securities and Exchange Board of India (SEBI) has been registering FIIs and monitoring investments made by them through the portfolio investment route under the SEBI (FII) regulations 1995. SEBI acts as the nodal point in the registration of FIIs.

Who can get registered as FII?

Following foreign entities / funds are eligible to get registered as FII:

1. Pension Funds2. Mutual Funds

3. Investment Trusts

4. Banks

5. Insurance Companies / Reinsurance Company

6. Foreign Central Banks

7. Foreign Governmental Agencies

8. Sovereign Wealth Funds

9. International/ Multilateral organization/ agency

10. University Funds (Serving public interests)

11. Endowments (Serving public interests)

12. Foundations (Serving public interests)

13. Charitable Trusts / Charitable Societies (Serving public interests)

Thus it may be seen that sovereign wealth funds (SWFs) are also regulated under FII regulations only, and no separate regulation exists for SWFs. Further, following entities proposing to invest on behalf of broad based funds, are also eligible to be registered as FIIs:

1. Asset Management Companies2. Investment Manager/Advisor

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3. Institutional Portfolio Managers

4. Trustee of a Trust

5. Bank

Foreign individuals can register as sub-accounts of FII to make investments in Indian securities.

What FIIs can do?

A Foreign Institutional Investor may invest only in the following:-

i. securities in the primary and secondary markets including shares, debentures and warrants of companies unlisted, listed or to be listed on a recognised stock exchange in India; and

ii. units of schemes floated by domestic mutual funds including Unit Trust of India, whether listed on a recognised stock exchange or not

iii. units of scheme floated by a collective investment scheme

iv. dated Government Securities

v. derivatives traded on a recognised stock exchange

vi. commercial paper

vii. Security receipts

viii. Indian Depository Receipt

FIIs are allowed to trade in all exchange traded derivative contracts subject to the position limits as prescribed by SEBI from time to time. Clearing Corporation monitors the open positions of the FII/ sub-accounts of the FII for each underlying security and index, against the position limits, at the end of each trading day.

How do they invest?

A SEBI registered FII (as per Schedules 2 of Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations 2000) can invest/trade through a registered broker in the capital of Indian Companies on recognised Indian Stock Exchanges. FIIs can purchase shares / convertible debentures either through private placement or through offer for sale.

An FII can also invest in India on behalf of a sub-account (means any person outside India on whose behalf investments are proposed to be made in India by a FII) which is registered as a sub-account under Section 2 (k) of the SEBI (FII) Regulations, 1995.

Also, an FII can issue off-shore derivative instruments (ODIs) to persons who are regulated by an appropriate foreign regulatory authority and after compliance with Know Your Client (KYC) norms.

Every FII/sub-account is required to appoint a domestic Indian custodian to hold in custody its Indian securities. Custodian of Securities is a registered and regulated entity by SEBI. The FII/sub-account is also required to ensure that the domestic custodian it has appointed

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monitors the investments made by it in India, reports its transactions in securities to SEBI on a daily basis and preserve records of transactions for a specified period. The FII/sub-account is also required to suitably enable the custodian to furnish reports pertaining to its activities, to SEBI, as and when required by SEBI.

Authorized dealer banks (i.e. the bank which is authorized by RBI to deal in foreign currency) can offer forward cover (i.e, to minimize the impact of currency fluctuations, banks offer them the option to sell / purchase foreign currency on a fixed future date at a rate specified today) to FIIs to the extent of total inward remittances of liquidated investments.

FII investment limits

Investment by individual FIIs/ sub-accounts (excluding foreign corporates and individuals) cannot exceed 10 per cent of paid up capital of a company. Investment by foreign corporates or individuals registered as sub accounts of FII cannot exceed 5 per cent of paid up capital. All FIIs and their sub-accounts taken together cannot acquire more than 24 per cent of the paid up capital of an Indian Company. An Indian Company can raise the 24 per cent ceiling to the Sectoral Cap / Statutory Ceiling, as applicable, by passing a resolution by its Board of Directors followed by passing a Special Resolution to that effect by their General Body. The list of such companies who have passed a Special Resolution in this regard can be seen from the RBI website.

Progression of allowable limit of FIIs investment in Debt Instruments is given below:

FIIs investment in Debt Instruments [In US$ Billion]2006 2007 2008 2009 2010 2011 (March) 2011 (Nov) 2012 (June)

Corporate Bond 0.5# 1.5# 3# 15#20

(15# + 5**)40

(15# + 25 **)45

(20# + 25**)46

(20# + 25** +1 ##)

Govt. Securities 1.75* 3.2* 5* 5*10

(5* + 5^)10

(5* + 5^)15

(10* + 5^)20

(10* + 10^^)

Notes:

* G-Sec Old: The limit can be invested in securities without any residual maturity criterion.

^ G-Sec LT: The limit can be invested in securities with residual maturity of five years.

^^ G-Sec LT: The limit can be invested in securities with residual maturity of three years.

# Corporate Debt Old: The limit can be invested in securities without any residual maturity/lock-in criterion.

** Incremental limit of US$ 5 billion would be invested in securities with residual maturity of over five years issued by companies in infrastructure sector.

## A separate sub-limit of USD 1 billion has been created for QFIs investment in corporate bonds and mutual fund debt schemes.

** Distribution of USD 25 Billion limit is as under:

i. US$10 billion investment in Infrastructure Debt Funds (IDF) –(a) Lock-in period of 1 Year (b) Residual maturity of at least 15 months.

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ii. US$ 12 Billion for FII investment in in long term infrastructure bonds – (a) Lock-in period of 1 Year (b) Residual maturity of at least 15 months.

iii. USD 3 billion for QFI Investment in MF debt schemes which hold at least 25% of their assets (either in debt or equity or in both) in the infrastructure sector.

Monitoring Foreign Investments

The Reserve Bank of India monitors the ceilings on FII investments in Indian companies on a daily basis. For effective monitoring of foreign investment ceiling limits, the Reserve Bank has fixed cut-off points that are two percentage points lower than the actual ceilings. The cut-off point, for instance, is fixed at 22 per cent for companies in with 24 per cent ceiling. Once the aggregate net purchases of equity shares of the company by FIIs reach the cut-off point, which is 2% below the overall limit, the Reserve Bank cautions all designated bank branches so as not to purchase any more equity shares of the respective company on behalf of FIIs without prior approval of the Reserve Bank. The link offices are then required to intimate the Reserve Bank about the total number and value of equity shares/convertible debentures of the company they propose to buy on behalf of FIIs. On receipt of such proposals, the Reserve Bank gives clearances on a first-come-first served basis till such investments in companies reach the investment limit or the sectoral caps/statutory ceilings as applicable. On reaching the aggregate ceiling limit, the Reserve Bank advises all designated bank branches to stop purchases on behalf of their FIIs. The Reserve Bank also informs the general public about the `caution’ and the `stop purchase’ in these companies through a press release.

Data on FII

The data on FII investments can be obtained from three sources, SEBI, Stock Exchanges and RBI. The figures may vary across these sources.

Custodians on a daily basis, report to SEBI the investments made by the FIIs on the previous day/s. The details can be accessed here.

http://www.sebi.gov.in/sebiweb/investment/statistics.jsp?s=fii

All figures reported to SEBI are about investment details and FIIs are necessarily required to invest in Rupees. Thus all figures are in Rupees on SEBI website. The USD figure mentioned on the SEBI data is for representational purpose only- i.e., the USD rate is taken from RBI website and the conversion is done automatically by the software.

SEBI data on FIIs thus, represents only investments activity; it does not indicate the actual flow of money out of India or into India. Hence, SEBI always mentions investment activity of FIIs and never states that it is reporting inflow or outflow of funds.

The RBI data, on the other hand, represents the actual flow of money in and out of India. As per Schedule II of FEMA Notification no. 20, the FIIs can maintain a non-interest bearing foreign currency account and a non-interest bearing Special Non-Resident Rupee account where the cash balances can be kept without any caps. It has been observed that FIIs keep balances in these accounts without making investments at times. These balances reflect the amounts received from abroad as well as divestments proceeds accruing to the FIIs from their investments in India. In terms of the regulations issued under FEMA for investment into the Portfolio Investment Scheme, RBI has not placed any restriction on the amount being kept on these accounts. Accordingly, there is no one to one correspondence between foreign capital flows on account of FIIs and investments made by FIIs in any particular period of time.

The Foreign Institutional Investors (FII) related provisional figures reported on the websites of National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) are also not

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comparable to the FII Investment Figures published on the SEBI website for the following reasons:

1. The FII data reported on the BSE-NSE website is provisional trade data reported on the trade date (T day) as per the trades posted by the brokers in the exchanges’ trading system.

2. The FII investment data as reported on SEBI website is confirmed trade data provided by custodian of securities after confirmation of transactions on behalf of FII, to the stock exchange(s).

3. The FII investment data on SEBI website is provided by custodians of securities after their confirmation on T+1 basis.

4. The provisional trade data reported by NSE/BSE on their website is limited only to transactions in secondary market, whereas the custodian reporting to SEBI includes the following transaction types:-

o Purchase and sale in secondary market

o Purchase and sale of mutual fund units in secondary market

o Purchase in primary market

o Preferential allotment

o Purchase through rights issue

o Conversion of debentures into equity shares

o Receipt of bonus shares

o Redemption of debenture /units of mutual funds

o Lodging shares in terms of open offer

o Repurchase of units by mutual fund

o Buyback of shares by company

o Payment of allotment/call money

o Square off - on account of short delivery received

o Square off and auction- on account of short delivery given

o Consolidation sub division of securities.

Forward Markets Commission (FMC)

The Forward Markets Commission (FMC) is a statutory body set up under the Forward Contracts (Regulation) Act, 1952. It functions under the administrative control of the Department of Economic Affairs, Ministry of Finance since September 2013. (Before this, FMC used to function under Department of Consumer Affairs, Ministry of Consumer Affairs, Food & Public Distribution, Govt. of India. Vide Gazette Notification S.O. No. 2694 dated 6 September 2013 the work related to Forward Markets Commission, Futures trading and The Forward Contracts (Regulation) Act of 1952 were shifted to Department of Economic Affairs (DEA) from Department of Consumer Affairs (DCA).) FMC has its headquarters at Mumbai and one regional office at Kolkata. The Commission comprises of a Chairman, and two Members. It is organized into five administrative divisions to carry out various tasks.

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However, subsequent to the passing of Finance Act 2015, FMC ceased to exist and the responsibility of regulating commodity markets have been given to the securities market regulator, SEBI

Forward Markets Commission provides regulatory oversight in order to ensure financial integrity (i.e. to prevent systematic risk of default by one major operator or group of operators), market integrity (i.e. to ensure that futures prices are truly aligned with the prospective demand and supply conditions) and to protect & promote interest of consumers /non-members. The Forward Markets Commission performs the role of a market regulator. After assessing the market situation and taking into account the recommendations made by the Board of Directors of the Commodity Exchange, the Commission approves the rules and regulations of the Exchange in accordance with which trading is to be conducted. It accords permission for commencement of trading in different contracts, monitors market conditions continuously and takes remedial measures wherever necessary by imposing various regulatory measures.

As in September 2013, there are 22 exchanges including six 'national level' exchanges which have been recognized for conducting futures/forward trading in India. The major national exchanges are (i) Multi-commodity Exchange of India Limited (MCX) Mumbai, (ii) National Commodity and Derivatives Exchange Limited(NCDEX), Mumbai and (iii) National Multi-commodity Exchange of India Limited(NMCE) Ahmedabad. These on-line national commodity exchanges have been organized for conducting forward/futures trading activities in all commodities, to which section 15 of the Forward Contracts (Regulation) Act, 1952 is applicable, and other commodities subject to the approval of the Forward Markets Commission.

Functions of the Forward Markets Commission as defined in the FCRA, 1952 are as follows:

(a) To advise the Central Government in respect of the recognition or the withdrawal of recognition from any association or in respect of any other matter arising out of the administration of the Forward Contracts (Regulation) Act 1952.(b) To keep forward markets under observation and to take such action in relation to them, as it may consider necessary, in exercise of the powers assigned to it by or under the Act.(c) To collect and whenever the Commission thinks it necessary, to publish information regarding the trading conditions in respect of goods to which any of the provisions of the act is made applicable, including information regarding supply, demand and prices, and to submit to the Central Government, periodical reports on the working of forward markets relating to such goods;(d) To make recommendations generally with a view to improving the organization and working of forward markets;(e) To undertake the inspection of the accounts and other documents of any recognized association or registered association or any member of such association whenever it considerers it necessary.(f) To perform such other duties and exercise such other powers as may be assigned to the Commission by or under this Act, or as may be prescribed.

Powers of the Commission as indicated in Section 4 A of the F.C.(R) Act, 1952:-

The Commission shall, in the performance of its functions, have all the powers of a civil court under the Code of Civil Procedure, 1908 (5 of 1908), while trying a suit in respect of the following matters, namely:

(a) Summoning and enforcing the attendance of any person and examining him on

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oath;(b) requiring the discovery and production of any document;(c) receiving evidence on affidavits;(d) requisitioning any public record or copy thereof from any office;(e) any other matters which may be prescribed.

The powers of approving memorandum and articles of association and Bye-laws; powers to direct to make or to make articles (Rules) or Byelaws; powers to suspend governing body of recognized association, and, powers to suspend business of recognized association.

Merging of FMC with SEBI

In the Union Budget 2015-16, it was proposed that FMC be merged with the securities market regulator - Securities and Exchange Board of India (SEBI). Amendments to the relevant Acts were carried out through Chapter VIII of the Finance Act of 2015. With the passing of Finance Act 2015, the Forward Contracts Regulation Act stands repealed.

Functions of Planning Commission

The functions of Planning Commission includes formulation of five-year plans, finalisation of plan discussions of the Central Ministries and States/UTs annually and conveying the plan requirement to the Ministry of Finance, clearance/grant of In-Principle approval for starting Central Sector/Centrally Sponsored Schemes, appraisal of the Central Sector/Centrally Sponsored Scheme before the scheme is cleared by the Expenditure Finance Committee under the Ministry of Finance.

Functions of Project Appraisal and Management Division in Planning Commission.

The Project Appraisal and Management Division (PAMD) in Planning Commission is the division that examines and appraises all new Central Sector/Centrally Sponsored Schemes/projects before they are cleared by the FPC or Ministry of Finance or the subject Ministry which is dependent on the financial upper limit of the proposal. When an existing scheme is proposed to be revised even then the comments of PAMD is ascertained. PAMD prepares the Appraisal Report after seeking the comments of the Subject Division on the proposal.

Infrastructure Division in Planning Commission

The Government of India in 2004 approved a new funding pattern in plan implementation viz; Public Private Partnership. The Public Private Partnership in Infrastructure Projects was managed by the PM’s Secretariat on Infrastructure set up in 2004 in Planning Commission. In July 2009 the Cabinet Committee on Infrastructure (CCI) under the chairmanship of Prime Minister was set up to fast track implementation of infrastructure projects. This Committee clears infrastructure projects costing more than Rs.150 crores. The Infrastructure Division examines and appraises Infrastructure Projects proposed to be implemented through Public Private Partnership. The Infrastructure Division has framed the guidelines for examining these projects.

G Gadgil-Mukherjee Formula

Up to 3rd Five Year Plan (FYP) [1961-66] and during Plan Holiday (1966-69), allocation of Central Plan Assistance was schematic and no formula was in use. The Gadgil Formula comprising (i) Population [60%] (ii) Per Capita Income (PCI) [10%] (iii) Tax Effort [10%] (iv) On-going Irrigation & Power Projects [10%] and (v) Special Problems [10%] was used during 4th FYP (1969-74) and 5th FYP (1974-78).

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However, since item (iv) was perceived as being weighted in favour of rich states, the formula was modified by raising the weightage of PCI to 20%. The National Development Council (NDC) approved the modified Gadgil formula in August 1980. It formed the basis of allocation during 6th FYP (1980-85), 7th FYP (1985-90) and Annual Plan (AP) 1990-91. Following suggestions from State Governments, the modified Gadgil Formula was revised to Population (55%), PCI [25% {20% by deviation method and 5% by distance method}], Fiscal Management (5%) and Special Development Problems (15%). However, it was used only during AP 1991-92.

Due to reservations of State Governments on revision, a Committee under Shri Pranab Mukherjee, then Deputy Chairman, Planning Commission was constituted to evolve a suitable formula. The suggestions made by the Committee were considered by NDC in December 1991, where following a consensus, the Gadgil-Mukherjee Formula was adopted. It was made the basis for allocation during 8th FYP (1992-97) and it has since been in use. After setting apart funds required for (a) Externally Aided Projects and (b) Special Area Programme, 30% of the balance of Central Assistance for State Plans is provided to the Special Category States. The remaining amount is distributed among the non-Special Category States, as per Gadgil-Mukherjee Formula.

Gadgil-Mukherjee Formula

I Criteria Weight Remarks

II Population (1971) 60%

Per capita Income 25%

a) Deviation method 20%Covering states with per capita SDP below national average

b) Distance method 5% For all states

III

Performance in Tax Effort, Fiscal Management and Progress in respect of National objectives

7.5% Tax policy [2.5%], Fiscal Management [2.0%], National

objectives [3%] comprising population control (1.0%), elimination of illiteracy (1.0%), timely completion of Externally Aided Projects (0.5%)

and land reforms (0.5%)

IV

Special Problems 7.5%

GDP / National Accounts Revised Series with 2011-12 as base year

The structure of economic activities changes over time due to changes in structure of production and demand in the economy. On production side, the production pattern changes along with changes in technology and innovations in the system and in this process some production become obsolete and other comes in vogue. While on demand side, the consumption pattern also changes over time. The changes in relative prices stimulate changes in the consumption and production choices. Therefore, to account for these structural changes and to update the prices, the rebasing exercise is needed after a certain period. The exercise of rebasing national accounts brings up a fresh lot of information about the changes in economic structure of the economy, along with switching over to new base prices. This also helps in judging the size of the economy, correction of biases and looking afresh at the relative

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importance of sectors in the economy.

The recent introduction of new series of national accounts by Central Statistics Office (CSO) revised the base for National Accounts Statistics to 2011-12 from 2004-05 [1] , which was last set in January, 2010. Along with revision of base, a number of methodological changes have also been made. Despite its comprehensiveness, the Press Note puzzled more people than it explained to; the user being surprised by unexpected moves of growth numbers. Many being apprehensive, warranted for a cautious approach to use new numbers for policy purpose. The confusion prevails on-which numbers should be used, old or new? This note tries to describe the changes made in the new series and why growth numbers for some of sectors, especially manufacturing, witness unexpected changes.

The new series of national accounts is an improvement upon old (base:2004-05) in terms of its comprehensive coverage of Corporate Sector and Government Activities and incorporation recent data generated through National Sample Surveys. It also brings up some change in methods of evaluation, approaches to account economic activities, introduced new concepts and incorporation of new classifications. Originally the base revision was due for 2009-10 but it was postponed due to the global financial crisis. In this base revision to 2011-12 prices, recent data sources such as NSSO Employment-Unemployment Survey 2011-12, Unincorporated Enterprise Survey 2010-11, Household Consumer Expenditure Survey 2011-12 etc. have been used in the estimation.

Earlier "GDP at factor cost" was known as simply the "GDP" in India. It is nothing but sum of the factor costs incurred during the process of turning out economy's output for the concerned year. Thus, it is a compilation of wages, interests salaries, profits etc. This concept - GDP at factor cost - used to be expressed both in constant prices (with 2004-05 prices as the base year prices) and current prices. For most purposes, including academic works, GDP at factor cost in constant prices was used as "GDP". Further by adding net indirect taxes (ie. product taxes - product subsidies), GDP at market prices were also reported in the National Account Statistics. (For details of the calculations one can see the brochure issued by CSO, Ministry of Statistics and programme Implementation)

In the revised series, as is the practice internationally, industry-wise estimates are presented as Gross Value Added (GVA) at basic prices, while "GDP at market prices" will be referred to as "GDP". GVA at basic prices can be referred to as GVA at producer price and GDP at market price as GDP at buyer price. Estimates of GVA at factor cost (earlier called GDP at factor cost) can be compiled by using the estimates of GVA at basic prices and production taxes less subsidies. It would result in effect on size of GVA compared to GDP at factor cost, which may be different for different sector. For example, net production tax being positive in manufacturing would result in higher GVA than GDP in the sector. New growth figures for GVA at Basic prices would also carry an impression of tax and subsidies which was not the case in GDP at factor cost. The production tax has been distinguished from product tax as the first is independent of quantity produced while the second varies with it. Similar distinction is also made between production and product subsidies.

for eg. Production Taxes - Land Revenues, Stamps and Registration fees and Tax on profession etc.

Production Subsidies - Subsidies to Railways, Input subsidies to farmers, Subsidies to village and small industries, Administrative subsidies to corporations or cooperatives, etc.

Product taxes or subsidies are paid or received on per unit of product. Some examples are:

Product Taxes: Excise Tax, Sales tax, Service Tax and Import and Export duties etc.

Product Subsidies: Food, Petroleum and fertilizer subsidies, Interest subsidies given to farmers, households etc through banks, Subsidies for providing insurance to households at

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lower rates etc.

GDP at market prices which is henceforth be referred as GDP, can be computed by adding net of product tax and product subsidies in GVA at basic prices.

Gross Value Added (GVA) at basic prices = compensation of employees + operating surplus/mixed income + consumption of fixed capital (CFC) or depreciation + Production taxes - Production subsidies

Value added is calculated as Output - intermediate consumption

GVA at factor cost (earlier referred to as GDP at factor cost) = GVA at basic prices – (Production taxes - Production subsidies) Gross Domestic Product (GDP) = Σ GVA at basic prices + Product taxes - Product subsidies

(Note that it is not production taxes / subsidies but product taxes and subsidies)

In manufacturing many argue that the output was falling and then how come the new series shows that manufacturing sector was in fact performing not that bad. It was because although the output was stagnant or less but the value addition was better off. GDP is a measure of value added, it’s not about output. It’s the case of output being stagnant but value-addition is going up.

Earlier the sectoral manufacturing data value addition was sourced from the RBI Industrial Outlook Survey conducted on an quarterly basis; but now with the Ministry of Corporate Affairs making it obligatory on the part of the companies registered under the Companies Act for online reporting, the MCA 21 database has been used for the manufacturing sector value added. The MCA database as on date covers 5 lakh companies and is fairly representative of the universe. The RBI surveys are small in size and not much reliable for the sectoral analysis. Further, the manufacturing value added was calculated from ASI Annual data and extrapolated using IIP for the intervening period. The limitation with this data was that the ASI and IIP are establishment based data while the MCA database goes beyond establishment based value addition and also incorporates data on brand pricing ,marketing etc i.e. includes allied activities which were earlier outside the purview of manufacturing value added. Further the corporate segment manufacturing coverage accounts for almost 66-70 percent of the manufacturing sector.

Incorporation of National Industrial Classification - 2008 (NIC-2008 classifications) for industries is possibly one reason for the adjustments in the activities for an industry. The number of industries has increased from eight in old series to eleven in new series, the additional three industries reclassified within service sector named as “Transport, storage, communication & services related to broadcasting”, “Real estate, ownership of dwelling & professional services”, and “other services”. The description of industries has also been changed for example earlier “Community services etc.” become “Public administration and defence”.

The new, “Effective Labour Input Method” is adopted for Unincorporated Manufacturing & Services Enterprises for compiling the estimates for unorgansied non-agriculture sector. This method assigns due weights to different types of workers based on productivity and skills, unlike the earlier method which assumed equal value addition of each worker, irrespective of their skills and productivity. The adoption of new method is likely result in better estimates of value addition in the unorgansied non-agriculture sector.

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In the Trade sector the gross value added was earlier calculated using the gross trading index this has been replaced by the index derived from sales tax collections. The Gross Trading Income (GTI) index tracked the growth in volume of tradable goods, in the economy, derived from current estimates of production in agriculture and manufacturing. The underlying assumption was that value added is strongly correlated with the physical volume of goods available for trade. This is a reasonable assumption in short intervals of time; however, when projections are extended over long periods of time, errors build up. This is because in addition to physical volume, value added also depends on levels of intermediation between the producer and consumers; changes in underlying quality of goods; and changes in marketing practises, for instance bundling higher quality value added services with goods like warranties etc. and so on. In the current new series, in addition to the updated surveys, this has also been partly corrected by changing the underlying indicator from a volume indicator to one based on value, namely sales tax collections. Since sales taxes are value based, growth in this indicator captures the underlying growth better in value added. Consequent to this and incorporation of new survey results, the 2011-12 estimates in the new series are less than those in the old series as can be seen from the table below.This would also change in the future when the GST is introduced and the Ministry of Finance is able to collect GST sector wise by invoking the Collection of Statistics Act, 2008.

Then the new series data collected from local bodies is also used and the coverage is 60 percent.

The ‘valuables’ segment, which basically comprises of gold and jewellery which is an important component of capital formation , was treated as consumption. In new series valuables are combined into household savings and, therefore, consumption has come down and savings have gone up accordingly. The new GDP numbers will be liable to changes in future based on change in base year of IIP WPI and CPI series. These are important indices which play a pivotal role when computing GDP at constant and current prices. Based on revisions of base year of these indices, GDP growth rates may change.

Differences in statistics with old and new base:

GDP at factor cost at current prices (at 2004-05 prices)

GDP in Rs. Crore GDP Growth rates in %

2011-12 2012-132013-14 (PE)

2014-15 (AE)

2011-12 2012-132013-14 (PE)

2014-15 (AE)

a. GDP at factor cost

8391691 9388876 10472807 15.8 11.9 11.5

b. net indirect taxes

618031 724405 882266 15.5 17.2 21.8

c. GDP at market prices (c= a+b)

9009722 10113281 11355073 15.7 12.2 12.3

As per New Series estimates

2011-12 2012-13 2013-142014-15 (AE)

2011-12 2012-13 2013-142014-15 (AE)

GDP at factor cost at 2011-12 prices

8206398 9263138 10487074 11702988 12.88% 13.21% 11.59%

GDP at market

8832012 9988540 11345056 12653762 13.09% 13.58% 11.54%

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prices 2011-12 prices

GDP at factor cost at constant prices (at 2004-05 prices)

GDP in Rs. Crore GDP Growth rates in %

2011-12 2012-132013-14 (PE)

2014-15 (AE)

2011-12 2012-132013-14 (PE)

2014-15 (AE)

a. GDP at factor cost

5247530 5482111 5741791 6.7 4.5 4.7

b. net indirect taxes

385520 417736 454051 6.0 8.4 8.7

c. GDP at market prices (c= a+b)

5633050 5899847 6195842 6.6 4.7 5.0

As per New Series estimates (NS)

2011-12 2012-13 2013-142014-15 (AE)

2011-12 2012-13 2013-142014-15 (AE)

GDP at factor cost at 2011-12 prices

8206398 8609516 9178444 9865247 4.91% 6.61% 7.48%

GDP at market prices 2011-12 prices

8832012 9280803 9921106 10656925 5.08% 6.90% 7.42%

Source: Summary of macro economic aggregates published by CSO. Press releases of CSO dated 30 January 2015 and 9 February 2015

The growth of GVA at constant prices reported higher at 4.9 % in 2012-13 with new base (2011-12) against 4.5% growth of GDP at factor cost at old base (2004-05). In 2013-14, the growth of GVA at new base is reported at 6.6% which was 4.7% at old base. The growth of GVA for manufacturing have shown noticeable rise in 2012-13 and 2013-14, which is updated to 6.2% and 5.3% at new base year compared to earlier 1.1% and -0.7% at old base year respectively. The sectoral share of manufacturing has also substantially increased in 2012-13 and 2013-14, as reported at 17.9% at new base compared to 14.1% at old base in 2011-12. These differences are surely on account of better coverage and changed methodologies and possibly change in concepts and classifications. It is crucial to know how much difference these factors has made to GVA and in which sector.

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Source: Central Statistics Office.

Note: Estimates for the earlier series (2004-05 series) have been derived from GVA at factor cost, while estimates for the 2011-12 series have been derived from GVA at basic prices.

The growth at constant prices, computed either using new base or old base prices, should not differ if other thing remains the same. In other words, merely a shift in base year cannot be accounted for the differences in growth at constant prices calculated using new or old base. With this logic, the differences in the sectoral growth rates calculated at constant prices of new and old base is plotted in the graph above. These differences inter-alia shows the under or overestimation bias in the growth of the economy, assuming that estimates in new series are better representation of the activities. In overall, the growth of the economy was underestimated with about two percentage point in 2013-14 in the old series. Although the reasons for this bias are not restricted only to structural changes, while the other factors such as conceptual changes, improved valuation methods, better coverage etc. have also been responsible. Among the sectors, the growth of ‘mining & quarrying’, ‘Manufacturing’, ‘trade, repair and hotels’, ‘transport, storage, etc’, and ‘community services etc’, appears heavily underestimated, while the growth in ‘Agriculture and allied’ and ‘Financial, real estate & business services’, was overestimated in old series.

Further, it can be seen that growth in current prices in 2014-15 is estimated at 11.5% as against 13.6% in 2013-14, though real (constant price) growth in 2014-15 is 7.4% as against 6.9% in 2013-14. i.e., the trend in growth rate shown by current price is exactly the opposite of the trend shown by the real prices. This is reported by MOSPI as due to the hugely differential rates of inflation. For instance, there has been a reduction in the growth in the underlying price indices, Wholesale price index (WPI) and Consumer Price Index (CPI) in 2014-15 as compared to the corresponding growth in 2013-14. WPI and CPI, increased by 3.4% and 6.0% in 2014-15, as compared to 6.0% and 9.5% in 2013-14. Consequently, the GDP deflator (implicit price deflator for GDP which is a measure of the level of prices of all new, domestically produced, final goods and services in an economy; it can be broadly thought of as GDP at current price / GDP at constant price) increased by 3.8% in 2014-15 as against 6.2% in 2013-14, leading to diverging trends. (Growth in GDP can come from either change/growth in prices (P) or from changes in quantity (Q) of output. Increase in P for 2013-14 was far greater than increase P for 2014-15 and it outweighed the changes in

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growth in output (Q) to give it a negative direction.)

Summary

The reasons for the rise in growth for manufacturing sector at new base are structural as well as change in compilation methodology. The methodological changes includes the change in approach, better coverage, use of new valuation methods and introduction of new concepts. Some of these highlighted in the Press Note are as follows:

i. The shift from Establishment approach to Enterprise approach: The establishment approach used in Annual Survey of Industries did not capture the activities of a unit other than manufacturing. Whereas, an enterprise along with its manufacturing activities is also engaged in activities other than manufacturing such as ancillary activities etc. Now, in new approach, the activities of a manufacturing company other than manufacturing are accounted in manufacturing sector. The enterprise approach is facilitated by MCA 21 data with Ministry of Corporate Affairs. These changes possibly have increased the coverage of registered sector of manufacturing.

ii. Incorporation of findings of NSSO Surveys: The details of new NSS Surveys viz. Unincorporated Enterprises Surveys (2010-11) and Employment & Unemployed Survey, 2011-12 are now available, therefore incorporated in the new series. The updates are an improvement in the representation of activities in the unorganized manufacturing sector.

iii. The change in Labour input Method: The new series has switched over to “Effective Labour Input Method” for Unincorporated Manufacturing & Services Enterprises. Earlier method was assigning equal weights to all types of worker, while the new method assigns different weight for workers as per their productivity.

iv. The inclusion of production tax less subsidies: The net of production tax and production subsidies is positive in manufacturing, while it is inter-alia negative in ‘agriculture and allied’ and ‘Electricity, gas etc’. Therefore, the positive net production tax would increase the size of GVA in the sector in absolute and relative to other sectors. Moreover, any change, including change in policy, if alters the lump sum production tax and subsidies then this may also likely to reflect in the growth rates in the sector.

In sum, one can say, the vast difference in the new series figures is not just because of updation of the database or change in methodology but more so because of the change in data source. Trend analysis not possible right now but can be tried by working out the difference in the ASI value added and the MCA database, which is left to the academicians.

The new GDP numbers will be liable to changes in future based on change in base year of IIP WPI and CPI series. These are important indices which play a pivotal role when computing GDP at constant and current prices. Based on revisions of base year of these indices, GDP growth rates may change.

Also see the FAQ released by Ministry of Statistics and Programme Implementation on the matter.

1. Base year revisions differ from annual revisions in National Accounts primarily because of nature of changes. In annual revisions, changes are made only on the basis of updated data becoming available without making any changes in the conceptual framework or using any new data source, to ensure strict comparison over years. In case of base year revisions, apart from a shift in the reference year for measuring the real growth, conceptual changes, as recommended by the international guidelines, are

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incorporated. Further, statistical changes like revisions in the methodology of compilation, adoption of latest classification systems, and, inclusion of new and recent data sources are also made. Changes are also made in the presentation of estimates to improve ease of understanding for analysis and facilitate international comparability. (Source: PIB Press release dated 30 January 2015)

Also See

Gross Value Added (GVA) at basic prices and GVA at Factor Costs

GDP deflator

The Gross Domestic Product (GDP) deflator is a measure of general price inflation. It is calculated by dividing nominal GDP by real GDP and then multiplying by 100. Nominal GDP is the market value of goods and services produced in an economy, unadjusted for inflation (It is the GDP measured at current prices). Real GDP is nominal GDP, adjusted for inflation to reflect changes in real output (It is the GDP measured at constant prices).

GDP Deflator = Nominal GDP x 100

Real GDP

Importance of GDP Deflator

There are other measures of inflation too like Consumer Price Index (CPI) and Wholesale Price Index (or WPI); however GDP deflator is a much broader and comprehensive measure. Since Gross Domestic Product is an aggregate measure of production, being the sum of all final uses of goods and services (less imports), GDP deflator reflects the prices of all domestically produced goods and services in the economy whereas, other measures like CPI and WPI are based on a limited basket of goods and services, thereby not representing the entire economy (the basket of goods is changed to accommodate changes in consumption patterns, but after a considerable period of time). Another important distinction is that the basket of WPI (at present) has no representation of services sector. The GDP deflator also includes the prices of investment goods, government services and exports, and excludes the price of imports. Changes in consumption patterns or the introduction of new goods and services or structural transformation are automatically reflected in the deflator which is not the case with other inflation measures.

However WPI and CPI are available on monthly basis whereas deflator comes with a lag (yearly or quarterly, after quarterly GDP data is released). Hence, monthly change in inflation cannot be tracked using GDP deflator, limiting its usefulness.

Statistics Ministry of Statistics and Programme Implementation (MOSPI) comes out with GDP deflator in National Accounts Statistics as price indices. The base of the GDP deflator is revised when base of GDP series is changed. The latest available GDP deflator series with 2004-05 may be seen here.

Further References

1. User Guide for GDP deflators published by Government of UK 2. FAQ of Bureau of Economic Analysis , US Department of Commerce

3. Measures of Inflation in India: Issues and Perspectives by Deepak Mohanty, Executive Director RBI

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Goods and Services Tax

Goods and Services Tax (GST) refers to the single unified tax created by amalgamating a large number of Central and State taxes presently applicable in India. The latest constitution Amendment Bill of December 2014 made in this regard, proposes to insert a definition of GST in Article 366 of the constitution by inserting a sub-clause 12A. As per that, GST means any tax on supply of goods, or services, or both, except taxes on supply of the alcoholic liquor for human consumption. And here, services are defined to mean anything other than goods.

Implementation of GST is one of the major indirect tax reforms in India and is expected to be put in place by April 2016.

Context & Genesis of GST

Currently, fiscal powers between the Centre and the States are clearly demarcated in the Constitution of India with almost no overlap between the respective domains. The Centre has the powers to levy tax on the manufacture of goods (except alcoholic liquor for human consumption, opium, narcotics etc.) while the States have the powers to levy tax on the sale of goods. In the case of inter-State sales, the Centre has the power to levy a tax (the Central Sales Tax) but, the tax is collected and retained entirely by the States. As for services, it is the Centre alone that is empowered to levy service tax. Since the States are not empowered to levy any tax on the sale or purchase of goods in the course of their importation into or exportation from India, the Centre levies and collects this tax as additional duties of customs. This duty counterbalances excise duties, sales tax, State value added tax (VAT) and other taxes levied on the like domestic product. Introduction of the GST would require amendments in the Constitution so as to concurrently empower the Centre and the States to levy and collect the GST.

The tax unification process has been going on in India for some time now. There have been efforts to improve upon the Central excise duty and States sales tax regime starting with the introduction of MODVAT in 1986. CENVAT which replaced MODVAT, at the central level, is a valued added tax that provided credit on tax paid on inputs and it was an improvement over Central excise duty. At state level, the state VAT was an improvement over sales tax regime. However, there have been some problems associated with the present taxation system like; the CENVAT is confined only to the manufacturing stage and it has not included several Central taxes. Similarly, the State VAT is paid on the value of goods that includes the CENVAT already paid. It is thereby a “tax on tax”. There is also burden of Central Sales Tax (CST) on the inter-state movement of goods. Further, ‘setting-off’ service tax has been a difficult proposition especially at the state level and taxes like luxury tax, entertainment tax etc. are still out of the purview of State level VAT. The GST is thus an overarching and overhauling effort in the Indian taxation system to unify the process and reduce the multiplicity of taxes.

The idea of moving towards the GST was first mooted by the then Union Finance Minister Shri P. Chidambaram in his Budget for 2006-07. Initially, it was proposed that GST would be introduced by 1st April, 2010. The Empowered Committee of State Finance Ministers (EC) which had formulated the design of State VAT was requested to come up with a roadmap and structure for the GST. Joint Working Groups of officials having representation of the States as well as the Centre were set up to examine various aspects of the GST and draw up reports specifically on exemptions and thresholds, taxation of services and taxation of inter-State supplies. Based on discussions within and between it and the Central Government, the EC released its First Discussion Paper (FDP) on the GST in November, 2009. This spells out the features of the proposed GST and has formed the basis for discussion between the Centre and the States so far.

The GST implementation took a lot of time as some States have been apprehensive about surrendering their taxation jurisdiction while others wanted to be adequately compensated.

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In the Union Budget 2014-15 the Finance Minister indicated that the debate whether to introduce a Goods and Services Tax (GST) must now come to an end. Following the Budget presentation in July 2014, the Constitution Amendment Bill was placed in the Parliament in December 2014.

Advantages of GST

Adam Smith, father of economics, has laid down four canons of taxation which are equality, certainty, convenience and economy. A tax can be tested on these four criteria. The Good and Services Tax (GST) qualifies for these four canons in a better manner. By amalgamating various taxes into a single tax, GST would mitigate cascading or double taxation (tax upon tax situations) in a major way and pave the way for a common national market. If the benefits are passed on fully, for consumers, this would mean 25%-30% reduction in the prices they pay, as tax burden on goods comes down[1]. This can reduce the overall costs of production and hence, introduction of GST would also make Indian products more competitive in the domestic and international markets, with beneficial effects on economic growth. According to the implementing agency, Central Board of Excise and Customs (CBEC), this tax, because of its transparent character, would be easier to administer. Union Budget 2014-15 admitted that GST will streamline the tax administration, avoid harassment of the business and result in higher revenue collection, both for the Centre and the States. GST also helps in better tax collections, better tax compliance, less cases of tax evasion and litigation, more transparency, less harassment and corruption, according to Union Finance Minister, Shri Arun Jaitly[2].

Salient Features of GST as proposed in India

The salient features of GST are as under:

i. GST comes under the broad spectrum of what is known as Value Added Tax which provides for input credits and taxes only the value addition that happened in the process of production / provision of service.

ii. GST would be applicable on supply of goods or services as against the present concept of tax on the manufacture or on sale of goods or on provision of services.

iii. GST would be a destination based tax as against the present concept of origin based tax. i.e, tax is imposed at the point of consumption.

iv. It would be a dual GST with the Centre and the States simultaneously levying it on a common base. The GST, to be levied by the Centre would be called Central GST (CGST) and that to be levied by the States would be called State GST (SGST). This is to protect the fiscal federalism of this country as both the levels of government have the constitutional mandate to levy and collect specific taxes. SGST would be applicable only if both the buyer and seller are located within the state. CGST does not have any such restriction regarding location.

v. The Centre would levy and collect the Integrated Goods and Services Tax (IGST) on all inter-State supply of goods and services. There will be seamless flow of input tax credit from one State to another. Proceeds of IGST will be apportioned among the States.

vi. CGST and SGST would be levied at rates to be mutually agreed upon by the Centre and the States.

vii. Credit of CGST paid on inputs may be used only for paying CGST on the output and the credit of SGST paid on inputs may be used only for paying SGST. In other words, the two streams of input tax credit cannot be mixed except in specified circumstances

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of inter-State sales.

viii. All goods and services, except alcoholic liquor for human consumption, will be brought under the purview of GST (To include alcoholic liquor, which is a major source of revenue for the states, another constitution amendment would be required). Crude Petroleum and some petroleum products have also been Constitutionally brought under GST. However, it is provided that petroleum and petroleum products shall not be subject to the levy of GST till notified at a future date on the recommendation of the GST Council. The present taxes levied by the States and the Centre on petroleum and petroleum products, i.e., Sales Tax/VAT, CST and Excise duty only, will continue to be levied in the interim period.

ix. Tobacco and tobacco products would be subject to GST. In addition, the Centre could continue to levy Central Excise duty and the States can levy sales tax / VAT.

x. Exports would be zero-rated.

xi. Import of goods or services would be treated as inter-State supplies and therefore, would be subject to IGST in addition to the applicable customs duties.

xii. The list of exempted goods and services is attempted to be kept to a minimum and it would be harmonized for the Centre and the States as far as possible.

xiii. A common threshold exemption would apply to both CGST and SGST. Dealers with a turnover below it would be exempt from tax. A compounding option (i.e.to pay tax at a flat rate without credits) would be available to small dealers below a certain threshold. The threshold exemption and compounding provision would be optional.

xiv. GST rates will be uniform across the country. However, to give some fiscal autonomy to the States and Centre, there will a provision of a narrow tax band over and above the floor rates of CGST and SGST.

xv. It is proposed to levy a non-vatable additional tax of not more than 1% on supply of goods in the course of inter-State trade or commerce, except on those goods which are specifically exempted by the Central Government. This tax will be for a period not exceeding 2 years, or further such period as recommended by the GST Council. This additional tax on supply of goods will be assigned to the States from where such supplies originate. (Since GST is a destination based tax where the consuming state would receive the revenue, this provision has been built in to compensate the producer / manufacturing states, like say in case of petroleum products whose production constitutes a substantial portion of revenue for a few states)

xvi. The laws, regulations and procedures for levy and collection of CGST and SGST would be harmonized to the extent possible.

xvii. A Goods & Services Tax Council which will be a joint forum of the Centre and the States will be created. This Council would function under the Chairmanship of the Union Finance Minister and will have Ministers in charge of Finance/Revenue or Minister nominated by each of the States & UTs with Legislatures, as members. Members have differential voting powers with votes of the central government having 1/3rd weightage and rest 2/3rd with states. Decisions can be taken only if it has more than 3/4th majority (i.e. Votes in Favour = 1/3 *Votes in favour by Center + [(2/3 * 1/No. of states present and Voting)*Votes in favour by States]). Such decisions will be immune from the deficiencies in the constitution of the GST council or appointment of its members or any procedural irregularity. The Council will make recommendations to the Union and the States on important issues like

1. taxes, cesses and surcharges levied by the Union, States and local bodies which may be subsumed in the GST

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2. the goods and services that may be subjected to or exempted from GST

3. apportioning of the revenue between center and states in case of IGST

4. Framing of model GST laws

5. deciding the principles that govern the determination of place of supply, based on GST laws

6. decision on threshold limits of turnover below which goods and services may be exempted from GST,

7. creating special provisions for states like Jammu& Kashmir, North Eastern States including Assam, and hilly states like Himachal Pradesh and Uttarakhand,

8. decision on the date on which GST will be levied on crude petroleum, high speed diesel, petrol, natural gas, and ATF.

9. tax rates including the floor rates and bands, special rates /rates for a specified period to raise additional resources during a natural calamity or disaster

10. framing dispute resolution modalities.

xviii. GST levied and collected by Union Govt. except the tax apportioned with states in case of IGST shall also be distributable between Union and States as per the recommendations of the Finance Commission.

xix. Union Government cannot impose surcharges (which usually goes to the consolidated fund of India) on articles which are covered under GST laws.

xx. Centre will compensate States for loss of revenue arising on account of implementation of the GST for a period up to five years. (The compensation will be on a tapering basis, i.e., 100% for first three years, 75% in the fourth year and 50% in the fifth year).

Taxes subsumed in GST

GST would replace the following taxes currently levied and collected by the Centre:

1. Central Excise duty 2. Excise Duty levied under the Medicinal and Toilet Preparations (Excise Duties) Act

1955,

3. Additional Excise Duties (Goods of Special Importance)

4. Additional Excise Duties (Textiles and Textile Products)

5. Additional Customs Duty (commonly known as Countervailing duties or CVD)

6. Special Additional Duty of Customs (SAD)

7. Service Tax

8. Cesses and surcharges in so far as they relate to the supply of goods and services

9. Taxes on the sale or purchase of newspapers and on advertisements published therein.

State taxes that would be subsumed within the GST are:

1. State VAT/ Sales Tax

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2. Central Sales Tax (levied by the Center and collected by the States)

3. Luxury Tax

4. Octroi

5. Entry Tax i.e, taxes on the entry of goods into a local area for consumption, use or sale therein. (other than those in lieu of octroi)

6. Purchase Tax

7. Entertainment Tax which are not levied by the local bodies; i.e. panchayats, municipalities and District councils of autonomous districts can impose taxes on entertainment and amusements

8. Taxes on general advertisements

9. Taxes on lotteries, betting and gambling

10. State cesses and surcharges insofar as they relate to supply of goods or services

GST does not subsume stamp duties and custom duties.

Constitution Amendment Bills of 2011 & 2014

The assignment of concurrent jurisdiction to the Centre and the States for the levy of GST would require a unique institutional mechanism that would ensure that decisions about the structure, design and operation of GST are taken jointly by the two. For it to be effective, such a mechanism also needs to have Constitutional force.

To address all these and other issues, the Constitution (115th Amendment) Bill was introduced in the Lok Sabha on 22.03.2011. The Bill was referred to the Parliamentary Standing Committee on Finance for examination and based on its report, certain official amendments were prepared. Subsequent to general elections and formation of a new Government, the Union Cabinet under Prime Minister Shri Narendra Modi approved on 17th December, 2014 the proposal for replacing the earlier bill of the erstwhile government with a similar bill alongwith some more amendments -The Constitution (122nd Amendment) (GST) Bill, 2014- to facilitate the introduction of GST. The Union Finance Minister Shri Arun Jaitley introduced the said Bill in the Lok Sabha on 19th December 2014.

Constitution Amendment Bill confers concurrent powers to Parliament and the state Legislatures to make laws governing GST.

Way forward

The Constitution Amendment Bill needs to be passed by a two-third majority in both Houses of Parliament and subsequent ratification by at least half of the State Legislatures. After passage of the Bill by both Houses of Parliament, ratification by State legislatures and receipt of assent by the President, the process of enactment would be complete.

Suitable legislation for the levy of GST (Central GST Bill and State GST Bills) drawing powers from the Constitution can be introduced in Parliament or the State Legislatures only after the enactment of the Constitution Amendment Bill. Unlike the Constitutional Amendment, the GST Bills would need to be passed by a simple majority. Obviously, the levy of the tax can commence only after the GST law has been enacted by the respective legislatures. Also, unlike the State VAT, the date of commencement of this levy would have to be synchronized across the Centre and the States. This is because the IGST model cannot

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function unless the Centre and all the States participate simultaneously.

Implementation Progress

Every Union Budget since its introduction of the idea in 2006-07 has been expressing the Government's commitments to go ahead with the GST implementation. GST is expected to be implemented by April 2016.

The Central Board of Excise and Customs (CBEC) is involved with the drafting of GST law and procedures, particularly the CGST and IGST law, which will be exclusive domain of the Central Government. CBEC also addresses the implementation challenges. A GST Cell has been created within CBEC which functions under the Joint Secretary TRU –II.

In 2013, four Committees were constituted by the Empowered Committee of State Finance Ministers (EC) to deal with the various aspects of work relating to the introduction of GST. The Committees are:

i. The Committee on the Problem of Dual Control, Threshold and Exemptions in GST Regime;

ii. The Committee on Revenue Neutral Rates for State GST & Central GST and Place of Supply Rules (A Sub-Committee has been constituted to examines issues relating to the Place of Supply Rules);

iii. The Committee on IGST & GST on Imports (A Sub- Committee was set up to examine issues pertaining to IGST model);

iv. The Committee to draft model GST Law (Three Sub-Committees were constituted to draft various aspects of the model law).

The GST law is still evolving and the dialogue continues between the Centre and the States on related issues. A number of procedural, legal and administrative issues relating to GST are under active discussions in various Committees / Sub-committees constituted by the EC and in various Groups constituted by the CBEC.

Gram Nyayalayas or Village Courts

Gram Nyayalayas are mobile village courts in India established under Gram Nyayalayas Act, 2008 for speedy and easy access to justice system in the rural areas of India. They are aimed at providing inexpensive justice to people in rural areas at their doorsteps. The Act came into force on October 2, 2009 i.e. the birth anniversary of Mahatma Gandhi. (Gram stands for village; Nyay stands for Justice and Aalya stands for House/centre etc)

Gram Nyayalaya is a mobile court and exercises the powers of both Criminal and Civil Courts; i.e., the seat of the Gram Nyayalaya will be located at the headquarters of the intermediate Panchayat, but they will go to villages, work there and dispose of the cases. It can try criminal cases, civil suits, claims or disputes which are specified in the First Schedule and the Second Schedule to the Gram Nyayalaya Act and the scope of these cases can be amended by the Central as well as the State Governments, as per their respective legislative competence;

The Gram Nyayalaya are supposed to try to settle the disputes as far as possible by bringing about conciliation between the parties and for this purpose, it can make use of the appointed conciliators. The judgment and order passed by the Gram Nyayalaya are deemed to be a decree and to avoid delay in its execution, the Gram Nyayalaya can follow summary

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procedure for its execution.

Gram Nyayalaya are courts of Judicial Magistrate of the first class and its presiding officer (Nyayadhikari) is appointed by the State Government in consultation with the High Court of the State concerned; The Nyayadhikaris who will preside over these Gram Nyayalayas are strictly judicial officers and will be drawing the same salary and deriving the same powers as First Class Magistrates working under High Courts.

The Gram Nyayalaya will not be bound by the rules of evidence provided in the Indian Evidence Act, 1872 but shall be guided by the principles of natural justice and subject to any rule made by the High Court;

Appeal in criminal cases shall lie to the Court of Session, which shall be heard and disposed of within a period of six months from the date of filing of such appeal. Appeal in civil cases shall lie to the District Court, which shall be heard and disposed of within a period of six months from the date of filing of the appeal.

In terms of Section 3(1) of the Gram Nyayalayas Act, 2008, it is for the State Governments to establish Gram Nyayalayas in consultation with the respective High Courts. More than 5000 Gram Nyayalayas are expected to be set up under the Act. Around 194 such courts have been set up as on March 2015.

Sl.No. State Gram Nyayalayas Notified till date

1. Madhya Pradesh 892. Rajasthan 453. Karnataka 24. Orissa 165. Maharashtra 186. Jharkhand 67. Goa 28. Punjab 29. Haryana 210. Uttar Pradesh 12

Total 194Source: PIB release of 10 March 2015

The Central Government meets the non-recurring expenditure on the establishment of these Gram Nyayalayas subject to a ceiling of Rs. 18.00 lakhs out of which Rs. 10.00 lakhs is for construction of the court, Rs. 5.00 lakhs for vehicle and Rs. 3.00 lakhs for office equipment. Central and State Governments also incur some recurring expenditure on salaries etc.

The setting up of Gram Nyayalayas is considered as an important measure to reduce arrears and is a part of the judicial reforms. It is estimated that Gram Nyayalayas can reduce around 50% of the pendency of cases in subordinate courts and can take care of the new litigations which will be disposed within six months.

Reluctance of police officials and other State functionaries to invoke jurisdiction of Gram Nyayalayas, lukewarm response of the Bar, non-availability of notaries and stamp vendors, problem of concurrent jurisdiction of regular courts etc. are some of the issues indicated by the States which are coming in the way of operationalisation of the Gram Nayayalayas. Further, majority of States have now set up regular courts at Taluk level, thus reducing the demand for gram nayayalayas.

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Grants for creation of capital assets

Grants for creation of capital assets, as a concept, was introduced in the Fiscal Responsibility and Budget Management (FRBM) Act through the amendment in 2012. The Act defines grants for creation of capital assets as grants-in-aid given by the Central Government to state governments, autonomous bodies, local bodies and other scheme implementing agencies for creation of capital assets which are owned by these entities.

These grants are relevant for the projection of the effective revenue deficit, which has been defined under the Act as the difference between revenue deficit as defined under the Act and grants for creation of capital assets.

Green Climate Fund

The Green Climate Fund (GCF)was established in December 2011 as per the decision taken by the Conference of Parties to the United Nations Framework Convention on Climate Change (UNFCCC) in Cancun in December 2010. In fact, one of the significant outcomes at the recent sessions of the UNFCCC was the decision to establish and operationalize the Green Climate Fund.

The GCF has been designated as an operating entity of the financial mechanism, under Article 11 of the Convention for provision of financial resources on a grant or concessional basis, including for the transfer of technology to the developing countries for achieving the objectives of the Convention to counter climate change. It is guided by and accountable to the Conference of Parties (COP) which is the supreme body of the Convention. The guidance consists of policies, programme priorities and eligibility criteria.

As per the UN Framework Convention on Climate Change, provision of adequate climate change finance by the developed countries to developing countries is a commitment/obligation of developed countries (responsible for historic emissions and causing climate change). Developed country parties have to mobilize and provide funds for addressing adaptation and mitigation at the required scale through the Financial Mechanism of the Convention.

The purpose of the GCF is to significantly contribute to the global efforts towards achieving the ultimate objective of the Convention – stabilization of greenhouse gas (GHG) concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system. Such a level should be achieved within a time frame sufficient to allow ecosystems to adapt naturally to climate change, to ensure that food production is not threatened and to enable economic development to proceed in a sustainable manner.

The GCF will support developing countries in their efforts to combat climate change. It is expected that significant amount of the climate finance (the political commitment from developed countries is a goal of US$100 billion annually by 2020)—from developed to developing countries---would flow eventually through GCF. The GCF will support projects, programmes, policies and other activities in developing countries. The Republic of Korea has been selected as the host country to house its secretariat.

The operationalization of GCF is noteworthy from India’s point of view because it was India and other developing countries who insisted on setting up a multilateral financial mechanism under UNFCCC with resources provided by developed countries.

The GCFis governed by the GCF Board of 24 members balanced equally between developed and developing nations, a new governance structure. The Board of the GCF is now primarily engaged in developing the Business Model Framework and raising and mobilizing resources

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for GCF operations. The Governing Instrument of the GCF states that the Fund will provide simplified and improved access to funding, including direct access, basing its activities on a country-driven approach and will encourage the involvement of relevant stakeholders, including vulnerable groups and addressing gender aspects. More importantly, the role of Nationally Designated Entities in accessing the resources from the Fund is fully recognized. The Board of the GCF, among other things, agreed that the GCF should follow a country –driven and owned approach as a core principle while progressing its work on the business model framework.

In sum, why we need the GCF is to ensure the success of a globally cooperative effort towards a safer planet, and to ensure that developing countries continue to be on a path of a lower-carbon, climate-resilient growth to which they have already pledged in one way or another, and where development remains an overriding priority.

Green GDP

Green GDP is a term used generally for expressing GDP after adjusting for environmental damage.

The System of National Accounts (SNA) is an accounting framework for measuring the economic activities of production, consumption and accumulation of wealth in an economy during a period of time. When information on economy's use of the natural environment is integrated into the system of national accounts, it becomes green national accounts or environmental accounting.

The process of environmental accounting involves three steps viz. Physical accounting; Monetary valuation; and integration with national Income/wealth Accounts. Physical accounting determines the state of the resources, types, and extent (qualitative and quantitative) in spatial and temporal terms. Monetary valuation is done to determine its tangible and intangible components. Thereafter, the net change in natural resources in monetary terms is integrated into the Gross Domestic Product in order to reach the value of Green GDP.

The process envisaged by Ministry of Environment and Forest does not require any change in the core System of National Accounts (SNA), and is achieved by establishing linkages between the two through a system of satellite accounts (called Satellite accounts as it adds new information to core accounts). For example, Environmental Satellite Accounts link measures of emissions, material use, costs of remediation and environmental taxes to measures of economic activity. Satellite accounts are a framework that enables attention to be focused on a certain field or aspect of economic and social life. They are produced in the context of national accounts but are more flexible as they allow concepts, definitions, accounting rules and classifications to be changed, where it improves analysis.

An Expert Group was also convened under the direction of Prime Minister by the National Statistical Organization, Ministry of Statistics and Programme Implementation, Government of India in August 2011 to examine the prospects of developing green national accounts in India. The committee was Chaired Shri Partha Dasgupta and submitted its report in March 2013.

The report of the Committee Green National Accounts in India: A Framework, opines that the word green GDP is a misnomer as it is about the wealth of the nation that one is referring to (not income) while talking about accretion or depletion of natural resources. The work in coming out with green GDP estimates is progressing.

History of environmental accounting in India*

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A Framework for the Development of Environmental Statistics (FDES) was developed by the Central Statistics Office (CSO) of India in the early 1990s. The Compendium of Environment Statistics is being released since 1997.

As per the recommendations of Technical Working Group on Natural Resource Accounting (NRA) in the later 1990s, a pilot project on NRA in the State of Goa was initiated during 1999-2000. Thereafter, resource accounting studies were carried out in 8 states on different set of natural resources. Later a Technical Advisory Committee was constituted in the year 2010 under the Chairmanship of Dr. Kirit Parikh to bring out a Synthesis Report combining the findings of all these studies. The report recommended the preparation of a National Accounting Matrix that would include environmental accounts. The High powered expert group under Partha Dasgupta was constituted subsequently in 2011 with the mandate of developing a framework for green national accounts of India and for preparing a roadmap to implement the framework.

Following the guidance of International Organisation of Supreme Audit Institutions (INTOSAI) on the framework for of environmental auditing, the supreme audit institution of India – Comptroller and Auditor General of India (CAG) also conducts environmental audit in India. This process was formalised with the introduction of specialized guidelines {MSO (Audit) 2002} for conduct of environmental audits. This laid down broad guidelines to enable India’s auditors to examine whether the auditee institutions gave due regard to the efforts of promulgating sustainability development and environmental concerns, where warranted.

Thus, in India, Environmental audit is conducted within the broad framework of Compliance Audit and Performance Audit at the central level by the Office of Principal Director of Audit (Scientific Departments) and by the state Accountant Generals (Audit) at the state level. Over the years, more and more states have taken up environmental audits. These compliance as well as performance audits have been printed in the respective state/ central audit reports and presented to Legislature/Parliament. All these reports deal with the environment themes of water issues, air pollution, waste, biodiversity and environment management systems. All the environment audits done at the state level and at the central level since 2001 are collated in the CAG reports on environmental audit.

Green Building

With the growing population, India has to not only provide adequate housing, commercial buildings, infrastructure, institutions etc. to cater to the basic shelter needs and the growing aspirational needs of people but also to ensure that the process is environmentally sustainable. In recent times, there has been a greater consciousness about environmental degradation and alternatives to cement are being actively considered. Materials which use less water and other natural resources and require less energy to be maintained are increasingly being preferred by Government town planners in India. The Ministry of New and Renewable Energy has developed an organization called Green Rating for Integrated Habitat Assessment (GRIHA) along with TERI to ensure that more and more Green Buildings are created. Clear parameters have been defined to indicate what constitutes a green building.

Grievances Against Misleading Advertisements (GAMA)

Grievances Against Misleading Advertisements (GAMA) is a dedicated online web portal established by Department of Consumer Affairs, Government of India in March 2015 to enable consumers to register their grievances on misleading advertisements which makes claims that are dubious or unverified. GAMA serves as a central registry for complaints against misleading advertisements.

Any consumer in any part of the country can register on this site and can lodge a complaint against misleading advertisements. A well-defined protocol then ensures that the complaints are taken up with the relevant authorities in the state or the central government concerned and appropriate action taken. The portal also enables the consumer to be informed of the action

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taken. The portal will be linked to all state authorities concerned, select voluntary consumer organizations in the country and the sector regulators in the Government of India.

Gross Budgetary Support (GBS)

The Gross Budgetary Support (GBS) is an important component of the Central Plan of the Government of India.

The Government's support to the Central plan is called the Gross Budgetary Support. The GBS includes the tax receipts and other sources of revenue raised by the Government. In the recent years the GBS has been slightly more than 50% of the total Central Plan. The Planning Commission aggregates and puts forward the demand by various administrative Ministries in a consolidated form to the Finance Ministry for the budgetary support required from the Government. This demand is vetted and then approved by the Finance Ministry. The share of the GBS in Central Plan has been rising since 2008-09.

Gross Value Added (GVA) at basic prices and GVA at Factor Costs

Gross Value Added (GVA) Vs. GDP

Gross value added (GVA) is defined as the value of output less the value of intermediate consumption. Value added represents the contribution of labour and capital to the production process. When the value of taxes on products (less subsidies on products) is added, the sum of value added for all resident units gives the value of gross domestic product (GDP). Thus, Gross Domestic Product (GDP) of any nation represents the sum total of gross value added (GVA) (i.e, without discounting for capital consumption or depreciation) in all the sectors of that economy during the said year after adjusting for taxes and subsidies.

Introduction of GVA at basic prices in IndiaIn India, GDP is estimated by Central Statistical Office (CSO). Under the Fiscal Responsibility and Budget Management Act 2003 and Rules thereunder, Ministry of Finance uses the GDP numbers (at current prices) to peg the fiscal targets. For this purpose, Ministry of Finance makes their own projections about GDP for the coming two years while specifying future fiscal targets.

In the revision of National Accounts statistics done by Central Statistical Organization (CSO) in January 2015, it was decided that sector-wise wise estimates of Gross Value Added (GVA) will now be given at basic prices instead of factor cost. In simple terms, for any commodity the basic price is the amount receivable by the producer from the purchaser for a unit of a product minus any tax on the product plus any subsidy on the product. However, GVA at basic prices will include production taxes and exclude production subsidies available on the commodity. On the other hand, GVA at factor cost includes no taxes and excludes no subsidies and GDP at market prices include both production and product taxes and excludes both production and product subsidies.

The relationship between GVA at Factor Cost and GVA at Basic Prices and GDP at market prices and GVA at basic prices is shown below:

GVA at factor cost + (Production taxes less Production subsidies) = GVA at basic prices

GDP at market prices = GVA at basic prices + Product taxes- Product subsidies

Production taxes or production subsidies are paid or received with relation to production and are independent of the volume of actual production. Some examples of production taxes are land revenues, stamps and registration fees and tax on profession. Some production subsidies include subsidies to Railways, input subsidies to farmers, subsidies to village and small industries, administrative subsidies to corporations or cooperatives, etc. Product taxes or subsidies are paid or received on per unit of product. Some examples of product taxes are excise tax, sales tax, service tax and import and export duties. Product subsidies include food,

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petroleum and fertilizer subsidies, interest subsidies given to farmers, households, etc. through banks.

The concept of GVA at basic prices follows from the United Nation's System of National Accounts (SNA) introduced in 1993 and carried forward in an identical fashion in SNA 2008 as a part of revision of compilation and classification systems. This has been adopted by CSO in its base revision carried out in January 2015.

GVA at Basic Price Vs Producers' Price Vs Factor Costs as in The UN System of National Accounts (2008)

In the SNA, intermediate inputs are valued and recorded at the time they enter the production process, while outputs are recorded and valued as they emerge from the process. (The difference between the value of the intermediate inputs and the value of the outputs is gross value added.)

More than one set of prices may be used to value outputs and inputs depending upon how taxes and subsidies on products, and also transport charges, are recorded. Moreover, value added taxes (VAT), and similar deductible taxes may also be recorded in more than one way. Intermediate inputs are normally valued at purchasers’ prices and outputs at basic prices, or alternatively at producers’ prices if basic prices are not available.

Thus the SNA utilizes two kinds of prices to measure output, namely, basic prices and producers’ prices:

The basic price is the amount receivable by the producer from the purchaser for a unit of a good or service produced as output minus any tax payable, and plus any subsidy receivable, by the producer as a consequence of its production or sale. It excludes any transport charges invoiced separately by the producer.

The producer’s price is the amount receivable by the producer from the purchaser for a unit of a good or service produced as output minus any VAT, or similar deductible tax, invoiced to the purchaser. It excludes any transport charges invoiced separately by the producer.

Basic prices exclude any taxes on products the producer receives from the purchaser and passes on to government but include any subsidies the producer receives from government and uses to lower the prices charged to purchasers. Both producers’ and basic prices are actual transaction prices that can be directly observed and recorded. The basic price measures the amount retained by the producer and is, therefore, the price most relevant for the producer’s decision-taking. The basic price is obtained from the producer’s price by deducting any tax on products payable on a unit of output (other than invoiced VAT already omitted from the producer’s price) and adding any subsidy on products receivable on a unit of output. In consequence, no taxes on products or subsidies on products are to be recorded as payables or receivables in the producer’s generation of income account when value added is measured at basic prices, the preferred valuation basis in the SNA.

Gross value added at basic prices is defined as output valued at basic prices less intermediate consumption valued at purchasers’ prices. Here the GVA is known by the price with which the output is valued. From the point of view of the producer, purchasers’ prices for inputs and basic prices for outputs represent the prices actually paid and received. Their use leads to a measure of gross value added that is particularly relevant for the producer.

Gross value added at producers’ prices is defined as output valued at producers’ prices less intermediate consumption valued at purchasers’ prices. In the absence of VAT, the total value of the intermediate inputs consumed is the same whether they are valued at producers’ or at purchasers’ prices, in which case this measure of gross value added is the same as one that uses producers’ prices to value both inputs and outputs. It is an economically meaningful

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measure that is equivalent to the traditional measure of gross value added at market prices. However, in the presence of VAT, the producer’s price excludes invoiced VAT, and it would be inappropriate to describe this measure as being at “market” prices.

By definition, the value of output at producers’ prices exceeds that at basic prices by the amount, if any, of the taxes on products, less subsidies on products so that the two associated measures of gross value added must differ by the same amount.

Gross value added at factor cost is not a concept used explicitly in the SNA. However, it can easily be derived from either of GVA at basic prices or GVA at producer's price by subtracting the value of any taxes on production and adding subsidies on production, payable out of gross value added as defined. For example, the only taxes on production remaining to be paid out of gross value added at basic prices consist of “other taxes on production” which are not charged per unit. These consist mostly of current taxes (or subsidies) on the labour or capital employed in the enterprise, such as payroll taxes or current taxes on vehicles or buildings. Gross value added at factor cost can thus be derived from gross value added at basic prices by subtracting other taxes on production and adding subsidies on production.

The conceptual difficulty with gross value added at factor cost is that there is no observable set of prices such that gross value added at factor cost is obtained directly by multiplying this set of prices by the sets of quantities of outputs. By definition, other taxes or subsidies on production are not taxes or subsidies on products that can be eliminated from the input and output prices. Thus, despite its traditional name, gross value added at factor cost is not strictly a measure of value added; it is essentially a measure of income and not output. It represents the amount remaining for distribution out of gross value added, however defined, after the payment of all taxes on production and the receipt of all subsidies on production. It makes no difference which measure of gross value added is used to derive this income measure because the alternative measures of value added considered above differ only in respect of the amounts of the taxes or subsidies on production that remain payable out of gross value added.

Different prices coming into GVA estimations= Purchasers' price (or the price at which that product is being sold in the market)

(-) wholesalers' & retailers' margins (-) separately invoiced Transport Charges (-) VAT not deductible by the purchaser

= Producers' Price (+) subsidies on the product (-) taxes on the product excluding invoiced VAT

= Basic Price (-) Production Taxes(+) Production Subsidies

= Factor Costs

Deriving GDP from the GVA

From these various concepts of GVA, one can arrive at an estimate of GDP in the following

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manner:

a. GDP = the sum of the gross value added at producers’ prices, plus taxes on imports, less subsidies on imports, plus non-deductible VAT.

b. GDP = the sum of the gross value added at basic prices, plus all taxes on products, less all subsidies on products.

c. GDP = the sum of the gross value added at factor cost plus all taxes on products, less all subsidies on products, plus all other taxes on production, less all other subsidies on production.

In cases (b) and (c), the items taxes on products and subsidies on products includes taxes and subsidies on imports as well as on outputs.

Also See

GDP / National Accounts Revised Series with 2011-12 as base year

Source: Ministry of Statistics and Programme Implementation, Eurostat, OECD Glossary of Statistical terms, EPW Research Foundation (February 14, 2015 publication) UN System of National Accounts-2008

Guarantee Redemption Fund

“Guarantees” are contingent liabilities that may have to be invoked if an event covered by the guarantee occurs. Since guarantees result in increase in contingent liability, they should be examined with as much due diligence as a proposal for a loan, taking into account, the credit-worthiness of the borrower, the amount and risks sought to be covered by a sovereign guarantee, the terms of the borrowing, the justification and public purpose to be served, probabilities that various commitments will become due and possible costs of such liabilities, etc.

Article 292 of the Constitution of India extends the executive power of the Union to the giving of guarantees on the security of the Consolidated Fund of India, within such limits as may be fixed by Parliament. Article 293 provides that the legislature of a State can fix limits on borrowing by a State as well as limits on guarantees to be given by it. Articles 292 and 293 refer, respectively, to borrowings by the Government of India and borrowings by the States. In article 292, a limit on the borrowing as well as on guarantees to be given by the Union government can be fixed by Parliament by law. Similarly article 293 provides that the legislature of a State can fix limits on borrowing by a State as well as limits on guarantees to be given by it. Article 299 of the Constitution provides that all contracts made in the exercise of the executive power of the Union shall be made expressly indicating that the contract has been made on behalf of the President.

The Ninth Finance Commission observed that in order that the capital stock of the country might be maintained intact, there should be adequate provision for depreciation and loan should be repaid out of the amortization/sinking fund. The Tenth Finance Commission recommended the establishment of sinking funds for overall fiscal discipline. Eleventh Finance Commission also emphasized the need for setting up of Sinking Fund in each State for the amortization of debt.

A Guarantee Redemption Fund (GRF) has been established in the Public Account of India from 1999-2000 for redemption of guarantees given to CPSEs, FIs, etc. by the Union Government whenever such guarantees are invoked. The fund is fed through budgetary

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appropriations with an annual provision in the Budget Estimates (BE),under the head 'Transfer to Guarantee Redemption Fund' (Grant No. 32 of Department of Economic Affairs).

On the recommendations of Twelfth Finance Commission that all States should set up sinking funds / guaranteed redemption fund for amortization of all loan including loans from banks, liabilities on account of NSSF, etc through earmarked guarantee fees, fifteen States have set up Guarantee Redemption Fund and twenty States Consolidated Sinking Fund. This fund is maintained outside the consolidated fund of the States in the public account and is not to be used for any other purpose, except for redemption of loans. This ensures good fiscal governance.

Reports of the Finance Commissions

1. http://www.fincomindia.nic.in/ 2. http://www.fincomindia.nic.in/writereaddata/html_en_files/11threport.pdf

3. http://rbidocs.rbi.org.in/rdocs/Publications/PDFs/STF28032011.pdf

Guillotine

Each year, after the Budget is presented in the floor of the Lok Sabha by the Finance Minister, the House has the opportunity to discuss the financial proposals contained in it. The process of deliberations on the Budget sets off with a general discussion followed by the Vote on Account, debating and voting on the Demands for Grants and finally, consideration and passing of the Appropriation and Finance Bills.

Guillotine refers to the exercise vide which the Speaker of the House, on the very last day of the period allotted for discussions on the Demands for Grants, puts to vote all outstanding Demands for Grants at a time specified in advance. The aim of the exercise is to conclude discussions on financial proposals within the time specified.

All outstanding Demands for Grants must be voted by the House without discussions once the guillotine is invoked.

Once the pre-specified time for invoking the guillotine is reached, the member who is in possession of the house at that point in time, is requested by the Speaker to resume his or her seat following which Demands for Grants under discussion are immediately put to vote. Thereafter, all outstanding Demands areguillotined.

Invoking the guillotine ensures timely passage of the Finance Bill and the conclusion of debates and discussions on the year’s Budget.

H Headline inflation

In general, reflects the rate of change in prices of all goods and services in an economy over a period of time. Every country has its own set of commodity basket to track inflation. While some countries use Wholesale Price Index (WPI) as their official measure of inflation and some others use the Consumer Price Index (CPI). The International Monetary Fund (IMF) statistics reveals that, while 24 countries use WPI as the official measure to track inflation, 157 countries use CPI. Conceptually these two measures of inflation stress different stages of price realization as well as composition: while WPI measures the change in price level at wholesale market, CPI measures the change in price level at retail level.

In India, headline inflation is measured through the WPI – which consists of 676 commodities

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(services are not included in WPI in India). It is measured onyear-on-year basis i.e., rate of change in price level in a given month vis a vis corresponding month of last year. This is also known as point to point inflation.

In India, there are three main components in WPI – Primary Articles (weight: 20.12%), Fuel & Power (weight: 14.91%) and Manufactured Products (weight: 64.97). Within WPI, Food commodities (from which Food Inflation) have a combined weight of 24.31%. This includes “Food Articles” in the Primary Articles (14.34%) and “Food Products” in the Manufactured Products category (9.97%). Food Inflation is also calculated on year-on-year basis.

Apart from WPI, CPI is also computed to capture inflation in India. In particular, four categories of CPI are computed – for Industrial Workers (CPI-IW), Urban Non-Manual Employees (CPI-UNME), Agricultural Labourers (CPI-AL) and Rural Labourers (CPI-RL). However, WPI is considered as the preferred measure of headline inflation due to its wider coverage. To overcome this lacuna, the Central Statistical Organization (on 18th February 2011) has introduced a new series of CPI (with 2010=100 as the base year), which would be calculated for all-India as well as States/UTs – with separate categorization for rural, urban and combined (rural + urban).

Health and Well being

Health constitutes an integral part of human development. As per World Health Organization (WHO) Constitution, the objective is to attain the ‘highest possible level of health by all people’. The Alma-Ata Declaration of 1978 noted that “Health for All” could contribute both to a better quality of life and also a global peace and security.

The broad objectives, which encompass a health system, are:

Improve the health status of the population by lowering mortality and morbidity rates Protect the population against the financial risks of health problems

Respond to citizens’ demands and needs.

Taking into account these broad objectives, the major vision of Government of India has been enunciated in the National Health Policy (2002), which is to achieve acceptable standards of health care for the people of the country. The other main objectives include reducing mortality and overall disease burden through universal access to primary health care services for all sections of society, strengthening secondary and tertiary health care by developing human resources for health and at the same time bringing about population stabilization in the country.

Health and Well-being Indicators

AnaemiaAnemia is characterized by low level of hemoglobin in the blood. Hemoglobin is necessary for transporting oxygen from the lungs to other tissues and organs of the body. Anemia in younger children is a matter of serious concern as it can result in impaired cognitive performance behavioral development as well as increased mortality from infectious diseases. In India, anemia is a serious health problem and affects men, women and children. A main reason for Anemia is non-availability of adequate food for women and children. This has morbidity implications in the context of rising food price.

MorbidityMorbidity indicates a state of departure from a normal physical or mental well being of a

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individual. Morbidity rate refers to the number of individuals affected by illness during a given period (prevalence rate) or the number of newly appearing cases of diseases per unit of time (incidence rate). As per National Sample Survey Organisation (NSSO), morbidity rates refers to the proportion of Ailing Persons, measured as the number of persons reporting ailment during a 15 day per period per 1000 persons for broad age groups.

MortalityMortality rate is an indicator of number of deaths in a population or sub population, scaled to size of the population per unit of time. Mortality varies access the various sub groups of population. The main indicators of mortality are:

Maternal Mortality Ratio (MMR) refers to the number of maternal deaths per 100,000 women of reproductive age in a year.

Child Mortality Rate (CMR) refers to the number of deaths of children less than 5 years of age per 1000 live births.

Infant Mortality Rate (IMR) refers to the number of deaths of children less than one year of age per 1000 live births.

Neo natal Mortality Rate refers to the number of deaths of children less than 28 days per 1000 live births.

Peri-natal Mortality Rate refers to the sum total of neo-natal death and foetal deaths (still births) per 1000 live births.

Hindu rate of growth

The term ‘secular’ rate of growth (which connotes long term trend growth) is well established in literature of development economics. (It is also used in the sense of a religious belief, practice and process of the State). In distinctive contrast, ‘Hindu’ rate of growth was coined to refer to the phenomenon of sluggishness in growth rate of Indian economy (3.5 per cent observed persistently during 1950s through 1980s).

The term, which owes to Professor Raj Krishna, Member, Planning Commission, captured popular imagination and was used synonymously to describe inadequacy of India’s growth performance. However, of late, the term has lost its relevance and appeal as economic reforms and liberalization in India since 1990s manifested in tripling of growth rate of Indian economy from this paltry level.

Household Industry Workers

Household Industry is defined as an industry conducted by one or more members of the household at home or within the village in rural areas and only within the precincts of the house where the household lives in urban areas. The larger proportion of workers in the household industry consists of members of the household. The industry is not run on the scale of a registered factory which would qualify or has to be registered under the Indian Factories Act. Household Industry relates to production, processing, servicing, repairing or making and selling (but not merely selling) of goods. It does not include professions such as a Pleader, Doctor, Musician, Dancer, Astrologer, Dhobi, Barber, etc., or merely trade or business, even if such professions trade or services are run at home by members of the household.

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