Important Economic Concept Part-I

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1. 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, in addition to data on agriculture credit,

implements and machinery, livestock and seeds.

2. 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.

3. 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.

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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.

AGMARKNET is also expected to play a crucial role in enabling e-commerce in agricultural

marketing.

4. 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.

5. Alternative Investment Funds (AIFs)

Anything alternate to traditional form of investments gets categorized as alternative investments.

Now, what is considered as traditional may vary 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,

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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.

6. 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 and Capital 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 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 pertains 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, documents submitted under Fiscal Responsibility and Budget Management

Act like, macro-economic framework statement, medium term fiscal policy statement etc.

7. 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

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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.

8. 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.

9. Assigned Revenue

The 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) 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.

10. 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). 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

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and thus ASRTU is committed to provide all necessary help to them in their production, quality

monitoring and to address to their common problems.

11. Atal Pension Yojana (APY)

Atal Pension Yojana is a pension scheme for the unorganized 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.

12. AYUSH

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.

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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.

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.

13. ‘Back-to-Back’ Loans

State 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.

14. Backwardness

As 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 Districts at the national level - 2003-04

Concept 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

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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 Kalahandi Bolangir-Koraput (KBK) Region of Odisha and Bundelkhand packages for 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

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health

household amenities

poverty rate

female literacy

percent of SC-ST population

urbanization rate

financial inclusion

connectivity

Improvements 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.

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.

15. 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

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

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".

16. 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 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.

17. 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.

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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.

Base rate includes all those elements of the lending rates that are common across all categories of

borrowers.

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.

18. 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.

19. 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.

20. Bid Rigging

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

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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.

21. 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 edible and

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

3. other biofuels: biomethanol, bio CNG, 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.

Further, the Ministry of Road Transport & Highways has started the initiative of promoting vehicles

which are fueled with clean fuels like Bio-Ethanol, Bio-CNG, Bio-Diesel, Electric Batteries, etc. The

specifications for test reference fuel for Bio-Ethanol fuel vehicles and emission for Bio-Ethanol Fuel

Vehicles, have been notified by the Ministry. In July 2015, the Ministry notified norms for the use of

Bio-CNG for testing and exhaust emission for vehicles running on Bio-CNG and the related norms.

With this notification, the vehicle manufacturers can manufacture, sell and get the vehicles fueled by

Bio-CNG in the country.

22. 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

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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

24. 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 / ) is the federal and supreme legislative body of India. It

consists of two houses – the Lower House – House of the People called Lok Sabha ( क )and

the Upper House- Council of States called Rajya Sabha.( ). 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

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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.

25. 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.

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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.

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.

26. Capital Budget

Under 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.

27. 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

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.

28. 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

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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 apenalty 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.

A country that uses the CRR aggressively to control domestic liquidity and target the monetary roots

of inflation is China.

29. 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:

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

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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.

30. Central Sector and Centrally Sponsored Schemes

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.

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:

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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.

31. 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.

32. 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

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that of a chit fund, its incorporation will not be allowed unless its name is indicative of that financial

activity, viz., Chit Fund

33. 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]

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.

34. 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 "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 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.

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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 excise duty).

35. 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.

36. 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).

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.

37. 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-

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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 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.

38. 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.

39. 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.

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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.

40. 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;

41. 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.

42. 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 ..

43. 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

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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.

44. 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 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.

45. 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.

46. 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

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(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.

47. 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.

„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

48. 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 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 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.

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Normally, short-term borrowings from the RBI are through the net issuance of short-term treasury

bills (that is, ad-hoc and ordinary 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.

3. (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.

4. (e) Revenue deficit Revenue deficit is defined as the difference between revenue

expenditure and revenue receipts.

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

that revenue expenditure (in the form of grants), which goes into the creation of Capital Assets.

(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.

49. 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

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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).

„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

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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 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.

50. Dumping

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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.

51. 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 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.

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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.

52. 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.

53. 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 theMinistry

of Environment and Forests, and is administered by the Bureau of Indian Standards (BIS), which

also administers the Indian Standards Institute (ISI) mark quality label, a requirement for any

product to gain the Eco-mark label.

54. 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

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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 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.

55. 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 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.

56. Escrow Account

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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.

57. 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 throughChapter 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.)

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.

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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;

(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.

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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.

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.

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

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amend those provisions. Consequent to this, Government withdrew some of those controversial

policy amendments from the Finance Bill, 2015. 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.

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.

58. Financial Inclusion

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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.

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.

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.

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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

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.

59. 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".

60. 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

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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.

61. 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

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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 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.

62. 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

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.

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.

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63. 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.

Who can get registered as FII?

Following foreign entities / funds are eligible to get registered as FII:

1. Pension Funds

2. 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:

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1. Asset Management Companies

2. Investment Manager/Advisor

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

64. 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. However, subsequent to the passing ofFinance 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

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market conditions continuously and takes remedial measures wherever necessary by imposing

various regulatory measures.

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.

65. 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.

66. 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.

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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.

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.

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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.

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 of inter-State sales.

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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

2. Central Sales Tax (levied by the Center and collected by the States)

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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

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States. This is because the IGST model cannot 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.

67. 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,

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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.

68. 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 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.

69. 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.

70. 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

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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 India In 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

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 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

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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.

Deriving GDP from the GVA From these various concepts of GVA, one can arrive at an estimate of GDP in the following 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.

71. 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 are guillotined.

Invoking the guillotine ensures timely passage of the Finance Bill and the conclusion of debates and

discussions on the year‟s Budget.

72. 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.

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In India, headline inflation is measured through the WPI – which consists of 676 commodities

(services are not included in WPI in India). It is measured on year-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.

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).

73. 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.

74. Import Tariffs, Open General License, Restricted List and Negative List

Import Tariff: A tariff is any tax or fee collected by a government. An import tariff is a tax imposed

on goods to be imported. Though tariff is used in a non-trade context, it is commonly applied to a tax

on imported goods.

There are two broad ways in which tariffs are normally levied namely, specific tariffs and ad

valorem tariffs. A specific tariff is levied as a fixed charge per unit of imports. Whereas an ad

valorem tariff is levied as a fixed percentage of the value of the imported items/commodity.

Open General License (OGL): As per ITC (HS) classification, there is no terminology called Open

General License (OGL). However, in India, during the EXIM policies of 70s and 80s the freely

imported/exported items were still used to be monitored based on the licence issued under OGL.

Today OGL is no more required. All these items and the sensitive import items are monitored

by Directorate General of Commercial Intelligence and Statistics (DGCI&S), Kolkata, without

the need of a separate licence. As on date, importability or the exportability of items in India is

classified into three categories namely, (a) Prohibited items, (b) Restricted items including items

reserved for STEs or requiring permission etc., and (c) Freely importable.

Restricted List and Negative List: In the context of export and import, negative list normally

implies the list of items which are not permitted to be freely imported or exported. However, in the

context of Free Trade Agreement (FTA), the "negative list" would mean that barring the services and

goods listed, everything else could be taxed, making the exempted goods and services cheaper. In

other words, item on which no concessions (no reduction in import tariffs) would be allowed.

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Therefore, an articulated negative list will clearly bring out the intentions of the policy makers as to

what precisely is outside the tax concession net.

75. Index of Eight Core Industries

The Office of the Economic Adviser (OEA) in the Department of Industrial Policy and Promotion

(DIPP), Government of India compiles and releases the production index of core industries.

The rationale of the Index of Core Industries

The Central Statistics Office (CSO) of the Government of India brings out monthly Index of

Industrial Production (IIP). Industrial Production in the IIP comprises three distinct groups of

industry, (a) Mining, (b) Manufacturing and (c) Electricity. The quick estimate of IIP pertaining to a

month is released after approximately six weeks (on 12th of the Month, or if 12th is a Gazetted

Holiday, on the previous working day).

The Eight Core Industries are Coal, Cement, Electricity, Crude Oil, Refineryproducts, Steel,

Fertilizers and Natural Gas, which have the following weights in IIP.

The Index of Eight Core Industries is released on the last day of the month following the month for

which the Index pertain. If the last day of the month is a Gazetted Holiday, then it is released on the

next working day. The Index of Eight Core Industries released about two weeks prior to the IIP

release provides an advance indication of performance of more than one third of the IIP basket.

76. Inflation Targeting In India

Inflation targeting is a monetary policy strategy used by Central Banks for maintaining price level at

a certain level or within a range. It indicates the primacy of price stability as the key objective of

monetary policy. The argument for price stability stems from the fact that rising prices create

uncertainties in decision making, adversely affecting savings and encouraging speculative

investments. Inflation targeting brings in more predictability and transparency in deciding monetary

policy. If the central banks could ensure price stability, households and companies can plan ahead,

negotiating wages on the basis of expecting low and stable inflation. Various advanced economies

including United States, Canada and Australia have been using inflation targeting as a strategy in

their monetary policy framework. The case for inflation targeting has been made in India as the

country has been experiencing a high level of inflation till recently.

The Reserve Bank of India and Government of India signed a Monetary Policy Framework

Agreement on 20th February 2015. As per terms of the agreement, the objective of monetary policy

framework would be primarily to maintain price stability, while keeping in mind the objective of

growth. The monetary policy framework would be operated by the RBI. RBI would aim to contain

consumer price inflation within 6 percent by January 2016 and within 4 percent with a band of (+/-)

2 percent for all subsequent years.

The central bank would be seen as failing to meet the targets, if retail inflation is more than 6 per

cent for three consecutive quarters from 2015-16 and less than 2 per cent for three

consecutive quarters from 2016-17. If this happens, RBI will have to explain the reason for its

failure to meet as well as give a timeframe within which it will achieve it. RBI will publish the

operating targets as well as operating procedure for the monetary policy though which the target for

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the monetary policy will be achieved. The RBI will also be required to bring a document every six

months to explain the sources of inflation and forecast for inflation for next 6-18 months.

RBI has been using headline CPI (Combined) inflation as the nominal anchor for monetary policy

stance from April 2014 onwards.

77. Infrastructure Investment Trust (InvITs)

Infrastructure Investment Trusts (InvITs) are mutual fund like institutions that enable investments

into the infrastructure sector by pooling small sums of money from multitude of individual investors

for directly investing in infrastructure so as to return a portion of the income (after deducting

expenditures) to unit holders of InvITs, who pooled in the money.

For these purposes, Infrastructure is as defined by Ministry of Finance vide its notification

dated October 07, 2013 and would include any amendments/additions made thereof.

InvITs can invest in infrastructure projects, either directly or through a special purpose vehicle

(SPV). In case of Public Private Partnership (PPP) projects, such investments can only be through

SPV.

InvITs are regulated by the securities market regulator in India- Securities and Exchange Board of

India (SEBI).

SEBI notified SEBI (Infrastructure Investment Trusts) Regulations, 2014 on September 26, 2014,

providing for registration and regulation of InvITs in India. The objective of InvIT is to facilitate

investment into the infrastructure sector in India.

InvITs are very much similar to the Real Estate investment Trusts (REITs) in structure and

operations. InvITs are modified REITs designed to suit the specific circumstances in India.

Types of InviTs Two types of InvITs have been allowed, one which is allowed to invest mainly in completed and

revenue generating infrastructure projects and other which has the flexibility to invest in

completed/under-construction projects. While the former has to undertake a public offer of its units,

the latter has to opt for a private placement of its units. Both the structures are required to be listed.

78. Infrastrucuture Debt Funds (IDFs)

The term Debt Fund is generally understood as an investment pool which invests in debt securities of

companies. However, an Infrastructure Debt Fund (IDF) registered in India refers to a company or a

Trust constituted for the purpose of investing in the debt securities of infrastructure companies

or public private partnership projects.

Thus in contrast to the general understanding of the term, IDF does not refer to a Scheme floated by

a mutual fund or such other organizations but to the Company or Trust who is investing in debt

securities. An IDF can float various Schemes for financing infrastructure projects.

Purpose

IDF is a distinctive attempt to address the issue of sourcing long term debt for infrastructure projects

in India. Union Finance Minister in his Budget speech for 2011-12 had announced setting up of IDFs

to accelerate and enhance the flow of long term debt in infrastructure projects. IDFs are meant to

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1. supplement lending for infrastructure projects

2. provide a vehicle for refinancing the existing debt of infrastructure projects presently

funded mostly by commercial banks

Structure& Regulation

These Funds can be established by Banks, Financial Institutions and Non- banking Financial

Companies (NBFCs).

IDFs can be set up either as a company or as a trust. A trust based IDF would normally be a Mutual

Fund (MF) that would issue units while a company based IDF would normally be a form of NBFC

that would issue bonds. Further, a trust based IDF (MF) would be regulated by SEBI; and an IDF set

up as a company (NBFC) would be regulated by RBI.

79. Internal and Extra Budgetary Resources (IEBR)

IEBR is an important part of the Central plan of the Government of India and constitutes the

resources raised by the PSUs through profits, loans and equity.

80. Jhum (Shifting) Cultivation

Jhum (Shifting) cultivation is a primitive practice of cultivation in States of North Eastern Hill

Region of India and people involved in such cultivation are called Jhumia. The practice involves

clearing vegetative/forest cover on land/slopes of hills, drying and burning it before onset of

monsoon and cropping on it thereafter. After harvest, this land is left fallow and vegetative

regeneration is allowed on it till the plot becomes reusable for same purpose in a cycle. Meanwhile,

the process is repeated in a new plot designated for Jhum cultivation during next year. Initially, when

Jhum cycle was long and ranged from 20 to 30 years, the process worked well. However, with

increase in human population and increasing pressure on land, Jhum cycle reduced progressively (5-

6 years) causing problem of land degradation and threat to ecology of the region at large.

Watershed Development Project in Shifting Cultivation Areas (WDPSCA) was taken up in seven

States of North Eastern Region with 100% SCA as per directions of National Development Council

(NDC) in 1994-95. Recently, under National Afforestation Programme, problem of jhum cultivation

was given special focus. Mid-term appraisal of Eleventh Five Year Plan mentions that as per report

of Ministry of Rural Development, only 6.5 per cent of households have been reportedly engaged in

shiting cultivation in the country. The percentage of area under jhum cultivation is 9.5 in North-

Eastern region, while it is 0.5 per cent for central tribal belt.

81. Kisan Vikas Patra (KVP)

Kisan Vikas Patra (KVP) is a saving instrument launched by the Government for individual savers,

wherein invested money doubled during the maturity period. This savings scheme was first launched

by the Government on 1 April, 1988 and was distributed through post offices. It was discontinued in

2011 and later reintroduced in 2014.

KVP is considered a part of the National Small Savings Fund. (for details on the accounting of the

funds thus collected, please see the write up on National Small Savings Fund). In Hindi, Kisan

stands for farmers, Vikas for development and Patra for certificate.

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However, as the name might suggest, this is not a scheme intended only for farmers nor is the raised

money used only for farmers' development. In fact, the Scheme does not distinguish between rural or

urban investors. Rather, it had an urban bias. Further, the money raised through KVP is invested in

central and state government securities, thus financing the respective Governments indirectly.

In KVP, a single holder type certificate was issued to an adult for himself or on behalf of a minor, or

jointly to two adults. When introduced initially, it was available in denominations of INR. 100/-,

500/-, 1000/-, 5000/-, 10,000/-, in all Post Offices and INR. 50,000/- in all Head Post Offices.

Further, there was no limit on investment under KVP. In addition, it was easily transferrable like

a bearer instrument. It had longer maturity than a term deposit and had higher interest rate than a

government security of a comparable maturity. The maturity period of the scheme, when launched,

was 5 ½ years and the money invested doubled on maturity. However, KVP is not a tax saving

instrument as it does not offer any income tax exemption.

The scheme was very popular among the investors and the percentage share of gross collections

secured in KVP was in the range of 9% to 29% against the total collections received under all

National Savings Schemes in the country. Gross collections under the scheme in the year 2010-11

were Rs. 21631.16 crores which was 9% of the total gross collections during the year.

However, the Committee set up for comprehensive review of National Small Savings Fund (NSSF)

headed by Smt. Shyamala Gopinath, Deputy Governor, Reserve Bank of India which submitted

its report in June 2011 had recommended discontinuation of Kisan Vikas Patra. Committee observed

as follows:

"The continued popularity of both KVP and National Savings Certificate (NSC) among the urban

population who are not all small savers could be prompted by an incentive to avoid tax. As

compared to NSC, KVP is more popular as it is a bearer-like certificate due to its ease of transfer. It

also has an in built liquidity due to the regulated premature closure facility offered in the scheme.

The absence of Tax deduction at Source (TDS) and ceiling on investment, tax benefits on NSC and

higher than market rate of return have posed considerable fiscal costs to the Government. The

deposits under both KVP and NSC can be pledged as a security with financial intermediaries,

including banks. The Rakesh Mohan Committee had recommended that both these instruments are

quite expensive in terms of the effective cost to the Government and felt that these instruments should

be discontinued to ensure an equitable and harmonious tax treatment across the full spectrum of

medium term savings schemes. The Committee endorses this recommendation. In view of the recent

developments on Anti money laundering (AML)/Combating the Financing of Terrorism (CFT) front,

the Committee recommends that KVP should be discontinued."

Committee had also recommended to examine the reasons for large number of irregularities, such as

opening of irregular accounts and issue of NSCs and KVPs to the persons firms, institutions, trust,

etc, and to suggest remedial measures to curb such irregularities.

Accordingly, the Scheme was discontinued from 01.12.2011. In the year of its closure, the scheme

secured gross collections of Rs. 7575.95 crores (April 2011 to November 2011). In 2011, it yielded

around 8.41% and money used to double in 8 years and 7 months.

However, in view of the popular demand and to revitalize Small Savings, the Finance Minister vide

para 27 of his Budget Speech of 2014-15 (July) announced that Kisan Vikas Patra (KVP) will be

reintroduced. This was implemented with effect from 18 November 2014.

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The major concern regarding KVP has been addressed now as KYC norms (Know your client

norms) regarding all National Savings Schemes (NSS) are now applicable in post offices and banks

w.e.f. January, 2012.

The re-launched Kisan Vikas Patra (KVP) will be available to the investors in the denomination of

Rs. 1000, 5000, 10,000 and 50,000, with no upper ceiling on investment. The certificates can be

issued in single or joint names and can be transferred from one person to any other person / persons,

multiple times. The facility of transfer from one post office to another anywhere in India and of

nomination will be available. As in the case of previous issue, the certificate can also be pledged as

security to avail loans from the banks and in other case where security is required to be deposited.

Though, initially the certificates will be sold through post offices, it is intended to make it available

to the investing public through designated branches of nationalized banks, in contrast to the original

KVP.

As in the previous issue, Kisan Vikas Patras have unique liquidity feature, where an investor can, if

he so desires, encash his certificates after the lock-in period of 2 years and 6 months and thereafter in

any block of six months on pre-determined maturity value. The investment made in the certificate

will double in 100 months (8 years and 4 months).

Reintroduction of Kisan Vikas Patra (KVP) was to provide a safe and secure investment avenue to

the investors so as to help in augmenting the savings rate in the country. The scheme is also aimed at

safeguarding investors from fraudulent schemes, considering the number of ponzi schemes that have

surfaced particularly after the closure of KVP. With a maturity period of 8 years 4 months, the

collections under the scheme will be available with the Govt. for a fairly long period to be utilized in

financing developmental plans of the Centre and State Governments.

82. Kisan Credit Card

Kisan Credit Card is a pioneering credit delivery innovation for providing adequate and timely credit

to farmers under single window. It is a flexible and simplified procedure, adopting whole farm

approach, including short-term, medium-term and long-term credit needs of borrowers for

agriculture and allied activities and a reasonable component for consumption needs.

Credit card and pass book or credit card cum pass book provided to eligible farmers facilitate

revolving cash credit facility. Any number of drawals and repayments within a limit, which is fixed

on the basis of operational land holding, cropping pattern and scale of finance can be made. Each

drawal has to be repaid within a maximum period of 12 months and the Card is valid for 3 to 5 years

subject to annual review. Conversion/reschedulement of loans is permissible in case of damage to

crops due to natural calamities. Crop loans disbursed under KCC Scheme for notified crops are

covered under Rashtriya Krishi Bima Yojana (National Crop Insurance Scheme), to protect farmers

against loss of crop yield caused by natural calamities, pest attacks etc.

83. Kudumbashree

Kudumbashree ( which means prosperity of the family) is one of the largest women-empowering

projects in the country and is a model for implementing various poverty implementing programmes

at the local self government level in Kerala. The programme has 37 lakh members and covers more

than 50% of the households in Kerala. The three pillars of this programme are micro

credit, entrepreneurship and empowerment of women. Kudumbashree perceives poverty not just

as the deprivation of money, but also as the deprivation of basic rights.

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Kudumbashree was conceived as a joint programme of the Government of Kerala and NABARD

and is implemented through Community Development Societies (CDSs) of poor women, serving as

the community wing of Local Governments.

Kudumbashree is formally registered as the "State Poverty Eradication Mission" (SPEM), a society

registered under the Travancore Kochi Literary, Scientific and Charitable Societies Act 1955. It has

a governing body chaired by the State Minister of LSG. There is a state mission with a field officer

in each district. This official structure supports and facilitates the activities of the community

network across the state.

A major problem in Kerala is the problem of Waste Management and Kudumbashree is actively

involved in solid waste management in cities in Kerala. Kudumbashree is also involved in a variety

of initiatives such as holistic health, rehabilitation of destitute families, special schools etc.

84. Liquidity Adjustment Facility (LAF)

Liquidity adjustment facility (LAF) is a monetary policy tool which allows banks to borrow money

through repurchase agreements. LAF is used to aid banks in adjusting the day to day mismatches in

liquidity.LAF consists of repo and reverse repo operations. Repo or repurchase option is a

collaterised lending i.e. banks borrow money from Reserve bank of India to meet short term needs

by selling securities to RBI with an agreement to repurchase the same at predetermined rate and

date. The rate charged by RBI for this transaction is called the repo rate. Repo operations therefore

inject liquidity into the system. Reverse repo operation is when RBI borrows money from banks by

lending securities. The interest rate paid by RBI is in this case is called the reverse repo rate. Reverse

repo operation therefore absorbs the liquidity in the system. The collateral used for repo and reverse

repo operations comprise of Government of India securities. Oil bonds have been also suggested to

be included as collateral for Liquidity adjustment facility

Liquidity adjustment facility has emerged as the principal operating instrument for modulating short

term liquidity in the economy. Repo rate has become the key policy rate which signals the monetary

policy stance of the economy.

85. Local Governance system in rural India (Panchayati Raj) and the 73rd amendment of the

Constitution

Institutions of local governance in the rural areas of India are referred to as Panchayats.

History

The history of legalized or institutionalized Panchayats (initiated by the British in different parts of

India in the later part of the 19th century) is not very old. However, the spirit, in which this is viewed

in independent India, is believed to be ancient. In the early ages, when the emperors‟ rule hardly

reached remote corners of the kingdom, villages were generally isolated and communication systems

primitive, village residents gathered under the leadership of village elders or religious leaders to

discuss and sort out their problems. This practice of finding solutions to local problems collectively,

has found mention in ancient texts like Kautilya‟s “Arthshastra” and in subsequent years, in Abul

Fazal‟s “Ain-E-Akbari and are still prevalent in different forms all over the country.

Rural local governments during the British rule were not given enough functions, authority, or

resources. Those were not truly representative and often dominated by government functionaries.

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Mention of local governments in the Indian Constitution, as it was adopted in 1950, can be found in

the chapter on Directive Principles of State Policy, which stated that the states should enact

appropriate laws for constituting Panchayats enabling them to function as local governments. In

1957 a committee headed by Balawant Rai Mehta was set up to assess the success of the Community

Development Programmes and National Extension Services launched in 1951 and 1952 (as well as

other programmes) during the first five year plan. One of the most significant recommendations of

the Committee was the observation that in order to make various development initiatives meaningful

by ensuring that the benefits reach the targeted beneficiaries, revival of Panchayats were necessary.

The Committee felt that it was possible only for the Panchayats to involve the primary stakeholders,

the people, with developmental activities.

In the wake of this recommendation many states enacted new Panchayat Acts thereby substituting

the old ones inherited from the British. It is in such a manner that the first generation of Panchayats

came into being in the country, with two tiers in some states, three tiers in many and even four tiers

in a few. First generation Panchayats, which were apolitical, were not very successful for a variety of

reasons. Most important of them were: ambiguous laws about exact roles, functions and authority,

insufficient manpower and a general lack of resources.

However, on the recommendation of the Ashok Mehta Committee (1977), most of the states

provided for political participation in Panchayat elections. This, coupled with decisions of several

states‟ to involve Panchayats in the developmental initiatives and delivery of various services to the

rural people, made the Panchayats somewhat active and vibrant. Examples of West Bengal, Kerala

and Karnataka can be referred to in this respect.

Admittedly, even after this Panchayats did not evolve as people‟s institutions and largely failed to

deliver what were expected of them. L.M. Singhvi Committee in 1985 opined that in order to make

the Panchayats effective, such institutions should be declared as units of local governments and there

should be Constitutional mandate on state governments to ensure that the Panchayats function as

such.

The 73rd Amendment of the Constitution, 1992

1992 was the most significant year in the history of Panchayats in India as the 73rd amendment of

the Constitution (amendment of Article 243) was passed by the Indian Parliament that declared

Panchayats as institutions of self government. (The 74th amendment done at the same time relate to

urban local bodies). These amendments came into force from April 24 1993. The major features of

the 73rd amendment can be enumerated as under:

There should be three tiers of Panchayats (District Panchayats, Block Panchayats i.e.

intermediary Panchayats and Village or Gram Panchayats) in states with over 25 lakh of population.

States with less than this population will have only two tiers omitting the intermediary tier.

Panchayats declared as institutions of self governments (signifying that the status of

Panchayats is same in their respective areas, as that of the Union Government at the national and

State Governments at the state level).

States were mandated to devolve functions relating to 29 subjects (including agriculture,

land reforms, minor irrigation, fisheries, cottage and small scale industries, rural communication,

drinking water, poverty alleviation programmes etc.) to the Panchayats.

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Panchayats were mandated to prepare plan(s) for economic development and social justice

and implement them.

States were asked to constitute a State Finance Commission every five years to determine

the Panchayats‟ share of state‟s financial resources as a matter of entitlement (just as the Central

Finance Commission determines how resources of the Central government should be shared between

the union and state governments).

Panchayat bodies must have proportionate representation of Scheduled Caste, Scheduled

Tribes and women. Such reservation should also apply in the cases of Chairpersons and Deputy

Chairpersons of these bodies.

There shall be State Election Commission in each state which shall conduct elections to the

local bodies in every five years.

(Note: This amendment is not applicable in some special areas and in the states like Nagaland,

Mizoram, etc. and in areas where regional councils exist).

Amendment of the Constitution necessitated large scale amendments in the Panchayat Acts of

individual states, though in states like West Bengal almost all the requirements of the Constitutional

amendment were already provided for in the Panchayat Act.

Almost all the states are presently having three tiers of Panchayats. At the lowest level is the Gram

Panchayat (GP, headed by Pradhan/Sarpanch/Mukhia). The intermediary level Panchayat is called

Block Panchayat/Panchayat Samiti/Taluka Panchayat (PS, headed by President/Sabhapati). At the

district level there is the District Panchayat/Zilla Parishad/Zilla Panchayat (ZP headed by

Chairman/ Sabhadhipati).

86. Macro-economic Framework Statement

The Macro-economic Framework Statement is a statement presented to the Parliament at the time of

Union Budget under Section 3(5) of the Fiscal Responsibility and Budget Management Act,

2003 and the rules made thereunder and contains an assessment of the growth prospects of the

economy with specific underlying assumptions.

It contains an assessment regarding the expected GDP growth rate, fiscal balance of the Central

Government and the external sector balance of the economy.

The statement is submitted annually.

87. Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) of 2005

This is a rural wage employment programme in India. It provides for a legal guarantee of at least 100

days of unskilled wage employment in a financial year to rural households whose adult members are

willing to engage in unskilled manual work at a pre-determined minimum wage rate.

The objectives of the Act are:

to enhance the livelihood security of the rural poor by generating wage employment

opportunities; and

to create a rural asset base which would enhance productive ways of employment, augment

and sustain rural household income.

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MGNREGA was initially implemented as National Rural Employment Guarantee Act (NREGA) in

200 selected backward districts in India on February 2, 2006. It was extended to an additional 130

districts with effect from April 1, 2007. Later, the remaining 285 districts were covered from April 1,

2008. The National Rural Employment Guarantee (Amendment) Act, 2009 renamed NREGA as

MGNREGA.

Section 4(1) of MGNREGA mandates the design and implementation of State-specific Rural

Employment Guarantee Schemes (REGS) to give effect to the provisions made in MGNREGA.

Section 6(1) empowers the Central Government to specify the wage rates for MGNREGA

beneficiaries. So far, the wage rates have been modified three times, the latest being on January 14,

2011 where the base minimum wage rate of Rs. 100 was indexed to inflation.

MGNREGA is unique in not only ensuring at least 100 days of employment to the willing unskilled

workers, but also in ensuring an enforceable commitment on the implementing machinery i.e., the

State Governments, and providing a bargaining power to the labourers. The failure of provision for

employment within 15 days of the receipt of job application from a prospective household will result

in the payment of unemployment allowance to the job seekers.

The implementation of MGNREGA largely depends on the active participation of three-tier

decentralized self governance units called Panchayat institutions. The panchayats are required to

estimate labour demand, identify works and demarcate work sites, prioritize works, prepare

village/block/district level development plans in advance for the continuous and smooth planning

and the execution of this wage employment programme. The Panchayats are responsible for

processing the registration of job seekers, issuance of job cards, receipts of applications for

employment, allotment of jobs, identification of work sites, planning, allocation and execution of

works, payment of wages and commencement of social audit, transparency and accountability check

at the grass-root level.

The implementation of MGNREGA has influenced the wage structure in rural areas as the minimum

wages for agricultural labourers across States have witnessed an upward trend between 2006 and

2010. The Act has broadened the occupational choices available to the agricultural workers within

their locality, thereby impacting rural-urban migration.

88. Mahatma Gandhi Pravasi Surksha Yojna (MGPSY)

Mahatma Gandhi Pravasi Surksha Yojna (MGPSY) is a scheme launched by Ministry of Overseas

Indian Affairs (MOIA) for providing social security in the form (a) pension, (b) savings for return

and resettlement and (c) life insurance to unskilled / semi-skilled overseas Indian workers (with

below matriculation education).

The Scheme commenced on a pilot basis in Kerala on 1st May 2012,for overseas workers

in 17 Emigrant Check Required (ECR) countries -ie., those countries where social security needs of

foreign workers are less /not addressed.The Scheme is named after the father of nation – Mahatma

Gandhi.

This Scheme combines the three existing voluntary savings schemes functioning under the

jurisdiction of three financial sector regulators –Pension Fund Regulatory Development

Authority(PFRDA),Securities and Exchange Board of India (SEBI) and Insurance Regulatory

Development Authority (IRDA).

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In detail, MGPSY provides for:

1. Pension from the age of 60 through investment in a PFRDA regulated pension scheme -

NPS Lite; Withdrawal in NPS Lite is not permitted before attaining the age of 60 years, subject

tothe exit policy of PFRDA.

2. Savings for return & resettlement (R&R) through investment in the UTI Monthly Income

Scheme (MIS) run by the SEBI regulated mutual fund Unit Trust of India(UTI);Subscriber can

withdraw this amount on return to India or can remain invested;

3. Freelife insurance cover against natural /accidental death and disability during the period of

coverage under JanashreeBimaYojana (JBY) run by the IRDA regulated insurance firm - Life

Insurance Corporation of India(LIC).

Government of India, from the budget of Ministry of Overseas Indian Affairs contributes to the

Scheme in the following manner:-

1. Government contributes Rs.1,000 per annum for male MGPSY beneficiary and 2000 per

annum for female MGPSY beneficiary, if they save between Rs.1,000 and Rs.12,000 per year in

NPS-Lite.

2. Government contributes Rs.900 towards Return and Resettlement (R&R) of the overseas

Indian workers (whether male or female)if they save Rs.4,000 or more per annum in R&R Scheme

of UTI-AMC.

3. A free contribution of Rs. 100 is made by the Government for providing insurance coverage

to all MGPSY beneficiaries.

4. Government will co- contribute for a period of five financial years or till the worker return

to India, whichever is earlier.

MGPSY is a voluntary scheme with subscriber joining this scheme on his/her own discretion.

MGPSY offers all the three Partner schemes in the form of a package and not in isolation. That is,

subscribers have to opt in all three partner schemes if he wishes to subscribe in MGPSY and

registration in MGPSY will stand cancelled if subscriber fails to get registered in any of the three

sub schemes.

Minimum contribution under R&R scheme is Rs 1000 and in NPS lite, it is Rs 100. (i.e, an MGPSY

beneficiary has to pay a minimum of Rs. 1100 at the time of enrollment) However, government‟s co-

contribution occurs only if the beneficiaries save per annum, Rs. 1000or more for NPS-Lite and Rs.

4000 or more for R&R Scheme.

If the worker fails to contribute at any point of time later-on, the savings accumulated in subscriber‟s

MGPSY account will remain secure and will remain invested in NPS-Lite and UTI-MIS in his/her

own name. There is no penalty by MOIA in the event of no contribution from subscriber. However,

subscriber will not get any kind of co-contributory benefit from MOIA if s/he does not contribute but

will still be covered under Insurance.

1) Pravasi refers to Non-resident; Suraksha refers to security; Yojna refers to Scheme / Plan

2) The term of social security can be described as follows:”… the protection which society provides

for its members, through a series of public measures, against the economic and social distress that

otherwise would be caused by the stoppage or substantial reduction of earnings resulting from

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sickness, maternity, employment injury, unemployment, invalidity, old age and death; the provision

of medical care; and the provision of subsidies for families with children…” (ILO, 1984, p.3). This

definition corresponds to the nine classical branches of social security laid down in the ILO Social

Security (Minimum Standards) Convention, 1952 (No.102):

1.Medical care

2.Sickness benefit

3.Unemployment benefit

4.Old-age benefit

5.Employment injury benefit

6.Family benefit

7.Maternity benefit

8.Invalidity benefit and

9.Survivors‟ benefit.

3) Emigration Act, 1983 provides that no citizen of India shall migrate unless he obtains emigration

clearance from Protector of Emigrants. Similarly, it has been recognized that certain countries

(currently 17) do not have strict laws regulating the entry and employment of foreign nationals. They

also do not provide avenues for grievance redressal. Thus they have been categorized as Emigration

Check Required (ECR) countries. Hence, all persons, having ECR endorsed passports and going to

any of the 17 ECR countries for taking up employment require emigration clearance. However, ECR

passport holders going to any ECR country for purposes other than employment do not require

emigration clearance.

4) Aggregators are intermediaries identified and approved by PFRDA, to perform subscriber

interface functions under their pension Scheme -NPS-Lite. Aggregator shall perform the functions

relating to registration of subscribers, undertaking Know Your Customer (KYC) verification,

receiving contributions and instructions from subscribers and transmission of the same to designated

NPS Lite intermediaries

89. Mandi

Mandi in Hindi language means market place. Traditionally, such market places were for food and

agri-commodities. However, over time the coverage of mandis got widened to include trading hubs

for grains, vegetables, timber, gems and diamonds; almost every tradable was included. Mandis for

animals like cattle, goats, horses, mules, camels and buffaloes, and poultry are often organised as

fairs. Thus the word mandi assumes the contours of a catch-all market place where anything is

bought and sold.

In a still predominantly rural India, mandis form part of the life-line infrastructure for the people. In

most of the states/provinces in India, the Agricultural Produce Marketing

Committee(APMC) operates the wholesale market for agri-products. Wholesale markets are

segregated depending on the type of commodity handled: for instance, for grains, pulses, vegetables,

potato and onion, spices and condiments, fruits. The growing disenchantment with the functioning of

APMCs has led to relaxation of the APMC Rules and the emergence of direct marketing in agri-

commodities. These are often called farmers markets: inthe state of Andhra Pradesh they are called

„Rythu bazaar‟ and in Tamil Nadu „Uzhavar Sandhai‟ .These markets enable the farmer to sell his

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produce directly to the consumers without the middlemen in the APMCs. Minimising intermediation

and the creation of a national common market are long cherished policy goals of the government.

Tezi mandi or Futures markets

India is known for commodity forward and futures markets that existed for centuries though

standardised, regulated futures trading has a history of over a century only. Unregulated futures

markets are often called Satta Bazar.

Futures markets are auction markets in which participants buy and sell futures contracts for delivery

on a specified future date. Trading used to be carried out through open outcry- yelling and hand

signals- in a trading pits .However, since the early 2000s most of the commodity futures exchanges

have migrated to the new technology platform of online or electronic trading. The commodity

futures markets are regulated by the Forward Markets Commission. Through the Finance Act,

2015, Forward Markets Commission has been merged with the securities market regulator - SEBI.

90. Marginal Standing Facility

Marginal Standing Facility (MSF) is a new scheme announced by the Reserve Bank of India (RBI)

in its Monetary Policy (2011-12) and refers to the penal rate at which banks can borrow money from

the central bank over and above what is available to them through the LAF window.

MSF, being a penal rate, is always fixed above the repo rate. The MSF would be the last resort for

banks once they exhaust all borrowing options including the liquidity adjustment facility by pledging

through government securities, which has lower rate of interest in comparison with the MSF. The

MSF would be a penal rate for banks and the banks can borrow funds by pledging government

securities within the limits of the statutory liquidity ratio. The scheme has been introduced by RBI

with the main aim of reducing volatility in the overnight lending rates in the inter-bank market and

to enable smooth monetary transmission in the financial system.

MSF represents the upper band of the interest corridor and reverse repo as the lower band and the

repo rate in the middle. To balance the liquidity, RBI intend to use the sole independent "policy rate"

which is the repo rate and the MSF rate automatically gets adjusted to a fixed per cent above the

repo rate (MSF was originally intended to be 1% above the repo rate).

Banks can borrow through MSF on all working days except Saturdays, between 3.30 and 4 30 p.m.

in Mumbai where RBI has its headquarters. The minimum amount which can be accessed through

MSF is Rs.1 crore and in multiples of Rs.1 crore. ( Rs 1 crore = Rs 10 million). The application for

the facility can be submitted electronically also by the eligible scheduled commercial banks. The

banks used the facility for the first time in June 2011 and borrowed Rs.1 billion via the MSF.

91. Market Stabilization Scheme (MSS)

This scheme came into existence following a MoU between the Reserve Bank of India (RBI) and the

Government of India (GoI) with the primary aim of aiding the sterilization operations of the RBI.

Historically, the RBI had been sterilizing the effects of significant capital inflows on domestic

liquidity by offloading parts of the stock of Government Securities held by it. It is pertinent to recall,

in this context, that the assets side of the RBI‟s Balance Sheet (July 1 to June 30) includes Foreign

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Exchange Reserves and Government Securities while liabilities are primarily in the form of High

Powered Money (consisting of Currency with the public and Reserves held in the RBI by the

Banking System). Thus, any rise in Foreign Exchange Reserves resulting from the intervention of

the RBI in the Foreign Exchange Markets (with the intention, say, to maintain the exchange rate on

the face of huge capital inflows) entails a corresponding rise in High Powered Money. The Money

Supply in the economy is linked to High Powered Money via the money multiplier. Therefore, on

the face of large capital inflows, to keep the liabilities side constant so as to not raise the Supply of

Money, corresponding reduction in the stock of Government Securities by the RBI is necessary.

The MSS was devised since continuous resort to sterilization by the RBI depleted its limited stock of

Government Securities and impaired the scope for similar interventions in the future. Under this

scheme, the GoI borrows from the RBI (such borrowing being additional to its normal borrowing

requirements) and issues Treasury-Bills/Dated Securities that are utilized for absorbing excess

liquidity from the market. Therefore, the MSS constitutes an arrangement aiding in liquidity

absorption, in keeping with the overall monetary policy stance of the RBI, alongside tools like the

Liquidity Adjustment Facility (LAF) and Open Market Operations (OMO).

The securities issued under MSS, termed as Market Stabilization Scheme (MSS) Securities/Bonds,

are issued by way of auctions conducted by the RBI and are done according to a specified ceiling

mutually agreed upon by the GoI and the RBI. They possess all the attributes of existing Treasury-

Bills/Dated Securities and are included as a part of the country‟s „internal Central Government debt‟.

The amount raised under the MSS does not get credited to the Government Account but is

maintained in a separate cash account with the RBI and are used only for the purpose of

redemption/buy back of Treasury-Bills/Dated Securities issued under the scheme.

Treasury-Bills/Securities issued under MSS are matched by equivalent cash balances that are held by

the Government with the RBI. Such payments are not made from the MSS account just as receipts

due to premium or accrued interest on these Securities are not credited to it.

92. Masala Bonds

"Masala Bonds" are the 10 year off-shore rupee bonds issued by International Finance Corporation

(IFC), a member of the World Bank group, in the international capital market in November 2014, to

raise funds for supporting private sector infrastructure development initiatives in India. Masala

bonds are listed in London Stock Exchange.

Masala bonds, like any other off-shore bonds, are intended for those foreign investors who want to

take exposure to Indian assets, yet constrained from doing it directly in the Indian market or prefer to

do so from their offshore locations. The settlement of the bonds will be in US dollars but since they

are pegged to the Indian currency -rupee-, investors will directly take the currency risk or exchange

rate risks. Settlement is done in US dollars because of the limited convertibility of rupee.

The term "masala" stands for Indian spices, which gives Indian cuisine its characteristic flavour, and

helped India gain a place in the global trade map. IFC, established in 1956 and owned by 184

member countries, is the largest global development institution focused exclusively on the private

sector companies and financial institutions in developing countries.

Masala bonds were issued on 10 November 2014 under IFC‟s $2 billion offshore rupee program and

yields 6.3%. IFC issued the bonds in London, a premier financial center and the investment banker,

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J.P. Morgan was the sole arranger for the bond. The vast majority of investors in masala bonds are

European insurance companies. Proceeds from this 10-year, 10 billion Indian rupee bond (equivalent

to $163 million) will be used to support a forthcoming infrastructure bond issuance by Axis Bank,

back in India. Thus, Masala bonds pave the way for more foreign investment to help meet India‟s

private sector development needs.

Masala bonds are the first rupee bonds listed on the London Stock Exchange. They are the longest-

dated bonds in the offshore rupee markets, building on earlier offshore rupee issuances by IFC at

three-, five-, and seven-year maturities. However, these earlier bond issuances were not issued under

the nomenclature of masala bonds. As on date, the present issue of masala bonds is a one-time issue.

Hence, subsequent issuances of the off shore rupee bonds by IFC may also not be under this

nomenclature.

Yet by usage of the term, Masala Bonds are similar to dimsum bonds -bonds issued outside China

but denominated in Chinese currency. But they are different from samurai bonds which are Yen

(Japanese currency)-denominated bond issued in Tokyo by a non-Japanese company and subject to

Japanese regulations.

Offshore bonds have its own set of advantages and disadvantages for both the issuer and the investor

as well as for the economy. Competition from offshore markets may induce improvements in

domestic bonds markets such as strengthening of domestic market infrastructure, improving investor

protection and removing tax distortions that hinder domestic market development etc. Against these

benefits come the risks associated with financial openness and sudden shifts in capital flows, and the

risk that offshore markets may draw liquidity away from the domestic market.

93. Medium-term Expenditure Framework (MTEF) Statement

The Medium-term Expenditure Framework Statement is a statement presented to the Parliament

under Section 3 of the Fiscal Responsibility and Budget Management (FRBM) Act, 2003and sets

forth a three-year rolling target for the expenditure indicators with specification of underlying

assumptions and risks involved.

The statement provides an estimate of expenditure commitments for various items viz. Education,

Health, Rural Development, Energy, Subsidies and Pension etc. While formulating the MTEF

Statement, information on expenditure commitments spread across the various central ministries on

salaries (including grants-in-aid for salaries) and pensions, grants-in-aid for creation of capital assets,

major programme, interest payment, defense expenditure and major subsidies etc. and other

commitments of Government, will be considered. To take an example, in MTEF, salary component

which now appears scattered amongst the various Demand for Grants of central Ministries would be

aggregated and projected into the future. Expenditure commitments are shown separately for

Revenue and Capital expenditure. " Grants-in-aid for creation of capital assets" and its projection are

also depicted as a part of Revenue expenditure.

The objective of the MTEF is to provide a closer integration between budget and the FRBM

Statements. This Statement is presented separately in the session next to the session in which Union

Budget is presented, i.e. normally in the Monsoon Session.

MTEF, inter alia, contain:

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a) The expenditure commitment of the government on major policy changes involving new services,

new instrument of service, new schemes and programmes;

b) The explicit contingent liabilities, which are in the form of stipulated annuity payments over a

multi-year time-frame;

c) The detailed break-up of grants for creation of capital assets.

94. Medium-term Fiscal Policy (MTFP) Statement

The Medium-term Fiscal Policy Statement (MTFP) is a statement presented to the Parliament under

Section 3(2) of the Fiscal Responsibility and Budget Management (FRBM) Act, 2003, which sets

out three-year rolling targets for five specific fiscal indicators in relation to GDP at market prices,

namely, (i) Revenue Deficit (ii) effective revenue deficit, (iii) Fiscal Deficit, (iv) Tax to GDP ratio

and (v) Total outstanding Debt as percentage of GDP at the end of the year.

MTFP is a document which lays down the projected fiscal aggregates to arrive at the fiscal targets as

prescribed in Fiscal Responsibility and Budget Management (FRBM) Act/Rules (say, keeping

revenue deficit at zero and fiscal deficit at 3%) over the coming three year period.

The Statement includes the underlying assumptions, an assessment of sustainability relating to

balance between revenue receipts and revenue expenditure and the use of capital receipts including

market borrowings for generation of productive assets.

Background

The Fiscal Responsibility and Budget Management (FRBM) Act, 2003 was enacted with a view to

provide a legislative framework for reduction of deficit, and thereby debt, of the Government to

sustainable levels over a medium term so as to ensure inter-generational equity in fiscal management

and long term macro-economic stability. FRBM Act requires the government to lay before the

parliament four policy statements in each financial year namely, Medium Term Fiscal Policy

Statement, Fiscal Policy Strategy Statement, Macroeconomic Framework Policy Statement

and Medium Term Expenditure Framework (MTEF).

The FRBM framework provides a medium term perspective to fiscal management. For instance, the

FRBM framework requires the Government to reduce the deficits to a prescribed level in a

prescribed time following a laid out fiscal consolidation roadmap. Accordingly, Government is

required to place a medium term fiscal framework in the parliament, laying down the projected fiscal

aggregates to meet the fiscal targets as prescribed in Act/Rules. The Act also mandates the

Government to spell out the strategy that it decides to adopt to meet the projected fiscal plan. While

the Medium Term Fiscal Policy (MTFP) lays down the fiscal constraints of the Government in

medium term, Medium Term Expenditure Framework (MTEF) lays down the expenditure

commitments for various sectors over a 3 years rolling framework.

In terms of principles of Public Expenditure Management Handbook of World Bank issued in 1998,

the MTFP can be considered as one of the steps to arrive at Medium term Expenditure Framework.

95. Member of Parliament Local Area Development Scheme (MPLADS)

MPLADS is a Plan Scheme fully funded by Government of India. Under the scheme, each Member

of Parliament (MP) has the choice to suggest to the District Collector works to the tune of Rs.5 crore

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per annum to be taken up in her/his constituency, as per eligibility. Rajya Sabha MP can recommend

works in one or more districts in the State from where she/he has been elected. Nominated Members

of Lok Sabha and Rajya Sabha may select any one or more districts from any one State in the

Country for implementation of work(s) of their choice under the scheme.

Ministry of Statistics & Programme Implementation (MOS&PI) has issued guidelines on Scheme

Concept, implementation, and monitoring http://mplads.nic.in/. Progress of works being

implemented under the scheme is monitored by MOS&PI on regular basis.

96. Mezzanine Financing

Mezzanine financing is defined as a financial instrument which is a mix of debt & equity finance. It

is a debt capital that gives the lender the rights to convert to an ownership or equity interest in the

company. Mezzanine finance is listed as an asset on company‟s balance sheet. As it is treated as

equity in a company‟s balance sheet, it allows the company to access other traditional sources of

finance. In the hierarchy of creditors, mezzanine finance is subordinate to senior debt but ranks

higher than equity. The return on mezzanine finance is higher in relation to debt finance but lower

than equity finance. It is also available quickly to the borrower with little or no collateral. The

concept of mezzanine financing is just catching up in India. Mezzanine financing is used mainly for

small and medium enterprises, infrastructure and real estate. ICICI Venture's Mezzanine Fund was

the first fund in India to focus on mezzanine finance opportunities.

97. Micro Units Development Refinance Agency (MUDRA) Bank

Micro Units Development Refinance Agency (MUDRA) Bank is a refinance institution for micro-

finance institutions. As on date, MUDRA is conceived not only as a refinance institution and but

also as a regulator for the micro finance institutions (MFIs).

The MUDRA Bank would primarily be responsible for –

1) Laying down policy guidelines for micro/small enterprise financing business

2) Registration of MFI entities

3) Regulation of MFI entities

4) Accreditation /rating of MFI entities

5) Laying down responsible financing practices to ward off indebtedness and ensure proper client

protection principles and methods of recovery

6) Development of standardized set of covenants governing last mile lending to micro/small

enterprises

7) Promoting right technology solutions for the last mile

8) Formulating and running a Credit Guarantee scheme for providing guarantees to the loans which

are being extended to micro enterprises

9) Creating a good architecture of Last Mile Credit Delivery to micro businesses under the scheme

of Pradhan Mantri Mudra Yojana

Union Budget 2015-16 has proposed to create MUDRA with a corpus of Rs. 20,000 crore made

available from the shortfalls of Priority Sector Lending. In addition, there is a credit guarantee

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corpus of Rs.3,000 crore for guaranteeing loans being provided to the micro enterprises. MUDRA

Bank will refinance Micro-Finance Institutions through a Pradhan Mantri Mudra Yojana.

MUDRA Bank will operate through regional level financing institutions who in turn will connect

with last mile lenders such as Micro Finance Institutions (MFIs), Small Banks, Primary Credit

Cooperative Societies, Self Help Groups (SHGs), NBFC (other than MFI) and such other lending

institutions.

In lending, MUDRA proposes to give priority to enterprises set up by the under-privileged sections

of the society particularly those from the scheduled caste / tribe (SC/ST) groups, first generation

entrepreneurs and existing small businesses. There are estimated to be some 5.77 crore small

business units in India, mostly individual proprietorship, which run small manufacturing, trading or

service businesses. 62% of these are owned by SC/ST/OBC as stated in the Union Budget speech of

2015-16.

MUDRA Bank will be set up through an enactment of law and it will take some time. To begin with,

the same is being operationalised as a subsidiary of Small Industries Development Bank of India

(SIDBI). It was launched on 8 April 2015.

98. Mid-Term Appraisal of Five Year Plans

The time duration for implementing a Five Year Plan as the nomenclature suggests is five years. As

the third year of implementation of the plan draws to a close, the process for evaluating three years

of implementation of the five-year plan and to recommend corrective measures for the remaining

two years of the plan starts. To ascertain the performance meetings are held with the implementing

officers at the Central and State level, subject experts are invited to give their views and data on

implementation is collected from the States after which the MTA document is finalised. Major mid-

course corrections usually does not take place. Minor interventions that come to the notice of the

Central Ministry are addressed then and there. Every Central Ministry holds

annual/biannual/quarterly conferences with their State counterparts to ascertain the progress of

implementation of the various schemes. These inputs are also made available for preparation of the

Mid-Term Appraisal document. The Mid-Term Appraisal document is made available in the public

domain after approval by the National Development Council.

99. Minimum Export Price

Minimum Export Price (MEP) is the price below which an exporter is not allowed to export the

commodity from India. MEP is imposed in view of the rising domestic retail / wholesale price or

production disruptions in the country. MEP is a kind of quantitative restriction to trade. As per a

2005 study by OECD, around 14 of the WTO members had adopted a Minimum Export Price

Policy.

Government fixes MEP for the selected commodities with a view to arrest domestic price rise and

augment domestic supply. This is intended to be imposed for short durations and is removed when

situations change. The removal of MEP helps farmers / exporters in realising better and

remunerative prices and would also help in earning valuable foreign exchange for the country.

For instance, minimum Export Prices (MEP) of US$ 450/MT on Potato was imposed on 26th June,

2014 to augment domestic supplies in view of rising retail and wholesale prices in domestic markets.

This continued till 20th February, 2015, for almost 8 months, uptill surplus supply of potato in the

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domestic markets and consequent rapid fall in price (In domestic and retail) led to its removal by

Department of Commerce vide another Gazette Notification.

Generally, MEP imposition is restricted to essential commodities like potatoes, Onions, rice, edible

oils etc.

100. Minimum Support Prices

Minimum Support Price (MSP) is a form of market intervention by the Government of India to

insure agricultural producers against any sharp fall in farm prices. The minimum support prices are

announced by the Government of India at the beginning of the sowing season for certain crops on

the basis of the recommendations of the Commission for Agricultural Costs and Prices (CACP).

MSP is price fixed by Government of India to protect the producer - farmers - against excessive fall

in price during bumper production years. The minimum support prices are a guarantee price for their

produce from the Government. The major objectives are to support the farmers from distress sales

and to procure food grains for public distribution. In case the market price for the commodity falls

below the announced minimum price due to bumper production and glut in the market, govt.

agencies purchase the entire quantity offered by the farmers at the announced minimum price.

Minimum support prices are currently announced for 24 commodities including seven cereals

(paddy, wheat, barley, jowar, bajra, maize and ragi); five pulses (gram, arhar/tur, moong, urad and

lentil); eight oilseeds (groundnut, rapeseed/mustard, toria, soyabean, sunflower seed, sesamum,

safflower seed and nigerseed); copra, raw cotton, raw jute and virginia flu cured (VFC) tobacco.

Such minimum support prices are fixed at incentive level, so as to induce the farmers to make capital

investment for the improvement of their farm and to motivate them to adopt improved crop

production technologies to step up their production and thereby their net income. In the absence of

such a guaranteed price, there is a concern that farmers may shift to other crops causing shortage in

these commodities.

101. Money Bill

Money Bill refers to a bill (draft law) introduced in the Lower Chamber of Indian Parliament (Lok

Sabha) which generally covers the issue of receipt and spending of money, such as tax laws, laws

governing borrowing and expenditure of the Government, prevention of black money etc.

Eg. of Money bills are Finance Bills and Appropriation Bills, Income Tax Act, 1961, The

Undisclosed Foreign Income And Assets (Imposition Of Tax) Bill, 2015 etc .

The term “money bill” hence, connotes certain characteristics of the proposed bill.

Under Article 110(1) of the Constitution of India 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;

(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;

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(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….

Features of Money Bills Essentially a Money 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.

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‟.

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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. 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.

102. Minority Communities

Minority Community is a community notified so by the Central Government as per clause (c) of

Section 2 of the National Commission for Minorities Act, 1992 (19 of 1992).

Accordingly, the following five communities e.g. Muslim, Christian, Sikhs, Buddhists and

Zoroastrians (Parsis) have been declared as minority communities, vide Ministry of Welfare

Notification dated 23.10.1993. Jain has also been declared as Minority Community recently.

Population of minority communities can be obtained from Census of India – which provides

statistical information on different characteristics of the people of India.

The word minority has been devised to ensure a more focused approach towards issues relating to

the minorities and to facilitate the formulation of overall policy and review of the regulatory

framework and development programmes also towards the benefit of the minority communities.The

Union Ministry of Minority Affairs was created on 29th January, 2006 with these objectives in mind.

The Act also provides for a National Commission for Minorities which was set up on 17th May 1993

to perform the following functions.

1. evaluate the progress of the development of Minorities under the Union and States.

2. monitor the working of the safeguards provided in the Constitution and in laws enacted by

Parliament and the State Legislatures.

3. make recommendations for the effective implementation of safeguards for the protection of

the interests of Minorities by the Central Government or the State Governments.

4. look into specific complaints regarding deprivation of rights and safeguards of the

Minorities and take up such matters with the appropriate authorities.

5. cause studies to be undertaken into problems arising out of any discrimination against

Minorities and recommend measures for their removal.

6. conduct studies, research and analysis on the issues relating to socio-economic and

educational development of Minorities.

7. suggest appropriate measures in respect of any Minority to be undertaken by the Central

Government or the State Governments.

8. make periodical or special reports to the Central Government on any matter pertaining to

Minorities and in particular the difficulties confronted by them.

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103. National Clean Energy Fund (NCEF)

The National Clean Energy Fund (NCEF) is a fund created in 2010-11 using the carbon tax - clean

energy cess - for funding research and innovative projects in clean energy technologies of public

sector or private sector entities, upto the extent of 40% of the total project cost. Assistance is

available as a loan or as a viability gap funding, as deemed fit by the Inter-Ministerial group, which

decides on the merits of such projects.

The Fund is designed as a non lapsable fund under Public Accounts and with its secretariat in Plan

Finance II Division, Department of Expenditure, Ministry of Finance.

Creation of NCEF was announced in the Union Budget 2010-11.

An Inter-Ministerial Group, chaired by the Finance Secretary in Ministry of Finance (and comprising

of Secretaries of Departments of Expenditure and Revenue at Ministry of Finance, Principal

Scientific Advisor to the Government of India, a representative of Planning Commission and a

Representatives of Ministry sponsoring the proposal and other Ministries concerned with that

specific proposal) recommends projects eligible for funding under NCEF. Upon recommendation by

NCEF, the final approval is given by the Minister of the concerned nodal Ministry (which initially

approved and decided to take the project submitted by the public or private entity to NCEF) if the

project cost is below Rs. 150 Crore; by Minister of Finance and the Minister of the concerned nodal

Ministry if the project cost is between Rs. 150 Crore and 300 crore; and by the Cabinet Committee

on Economic Affairs if the project cost is above Rs. 300 Crore.

104. National Investment and Infrastructure Fund (NIIF)

National Investment and Infrastructure Fund (NIIF) is a fund created for enhancing infrastructure

financing in the country. NIIF, proposed to be set up as a Trust, would raise debt to invest in the

equity of infrastructure finance companies such as Indian Rail Finance Corporation

(IRFC) and National Housing Bank (NHB). The idea is that these infrastructure finance companies

can then leverage this extra equity, manifold. In that sense, NIIF is a banker of the banker of the

banker.

The fund is yet to be constituted. Its creation was announced in the Union Budget 2015-16.

105. National Investment Fund (NIF)

The cabinet Committee on Economic Affairs (CCEA) on 27th January, 2005 had approved the

constitution of a National Investment Fund (NIF). The Purpose of the fund was to receive

disinvestment proceeds of central public sector enterprises and to invest the same to generate

earnings without depleting the corpus. The earnings of the Fund were to be used for selectedCentral

social welfare Schemes. This fund was kept outside the consolidated fund of India.