Impotant Economic Concept Part II indian eco

8/20/2019 Impotant Economic Concept Part II indian eco.

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Important Economic Concepts-Part-IISource: Arthapedia.in


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National Skill Certification and Monetary Reward Scheme (STAR)

The National Skill Certification and Monetary Reward Scheme, that is branded as STAR (Standard Training

Assessment and Reward) for promotional purposes, is a scheme launched by the Government in 2013 to

motivate the youth of India to acquire a vocational skills and envisages a monetary reward that will in essence

financially help those who wish to acquire a new skill or upgrade their skills to a higher level.

Salient Features of the Scheme

All trainings will be specifically oriented for developing skills in specific growth sectors. The Scheme will

provide monetary incentives [in the range of Rs. 7500 to Rs. 15,000 each trainee depending on the nature and

duration of training] on successful completion of market-driven skill training to approximately ten lakh( 1

million) youth in a span of one year from the date of implementation of the Scheme.

The entire fund [of Rs. 1000 crore] will be shouldered by the Ministry of Finance, Government of India, and

will be affected through direct bank transfer to the beneficiaries’ accounts linked through AADHAR.

Appropriate consideration will be provided to the economically backward sections.

The monetary reward is strictly dependent on obtaining a certificate that will be issued by qualified assessorsafter necessary tests have been passed. The skills are also benchmarked to National Occupational Standards that

have been developed by NSDC with the support of the Sector Skill Councils.

Implementation

The Scheme will be implemented through a Public Public Partnership mode. National Skill Development

Corporation (NSDC), a PPP institution, will be the implementing agency for this Scheme. National Skill

Development Fund (NSDF) -a 100% government-owned trust, which work in sync to fulfill the NSDC’s

strategic objectives- will do the oversight and monitor the implementation of the Scheme.

Ministry of Rural Development is contemplating to utilise this platform to skill at least one youth from each

family which had availed of 100 day employment under the under the rural job guarantee scheme - MGNREGA

National Skill Development Mission

The National Skill Development Mission was announced in the Budget Speech of 2015-16 and it aims to

consolidate the skilling initiatives spread across several Ministries and to standardize procedures and outcomes

across 31 Sector Skill Councils. For instance, currently, over 70-odd Skill Development Programmes (SDPs)

are being implemented by Government of India, each with its own norms for eligibility criteria, duration of

training, cost of training, outcomes, monitoring and tracking mechanism etc.

The Mission provides a strong institutional framework at the Centre and States for implementation of skilling

activities in the country.

Generally a "mission mode" project implies a project that has clearly defined objectives, scopes,

implementation timelines and milestones, as well as measurable outcomes and service levels.

Policy framework behind National Skill Development Mission

Recognizing the imperative need for skill development, National Skill Development Policy was first formulated

in 2009. The existing policy was reviewed in 2014-15 to take account of its progress in implementation and

emerging trends in the national and international environment. The new policy- National Skill Development and

Entrepreneurship policy of 2015 supersedes the policy of 2009 and would form the backbone of National Skill

Development Mission.

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The objective of this policy is to meet the challenge of skilling at scale (skilling large number of persons at the

same time) with speed, standard (quality) and sustainability. It aims to provide an umbrella framework to all

skilling activities being carried out within the country, to align them to common standards and link skilling with

demand centres. In addition to laying down the objectives and expected outcomes, the policy also identifies the

various institutional frameworks for reaching the expected outcomes.

Approach adopted in the policy: As per the Policy, Skills development is considered as the shared

responsibility of government, employers and individual workers, with NGOs, community based organizations, private training organizations and other stakeholders playing a critical role.

The policy links skills development to improved employability and productivity to pave the way forward for

inclusive growth in the country. The skill strategy is complemented by specific efforts to promote

entrepreneurship to create enough opportunities for skilled workforce.

“Skill India programmes” goes alongside the “Make in India” campaign – i.e, enhancing the supply of skilled

labourers to encourage producers to undertake their manufacturing initiatives in India.

The new Policy has four thrust areas:

It addresses key obstacles to skilling, including low aspirational value, lack of integration with

formal education, lack of focus on outcomes, low quality of training infrastructure and trainers, etc. Further, the Policy seeks to align supply and demand for skills by bridging existing skill gaps,

promoting industry engagement, operationalising a quality assurance framework, leverage technology and

promoting greater opportunities for apprenticeship training.

Equity is also a focus of the Policy, which targets skilling opportunities for socially/geographically

marginalised and disadvantaged groups. Skill development and entrepreneurship programmes for women are a

specific focus of the Policy.

In the entrepreneurship domain, the Policy seeks to educate and equip potential entrepreneurs,

both within and outside the formal education system. It also seeks to connect entrepreneurs to mentors,

incubators and credit markets, foster innovation and entrepreneurial culture, improve ease of doing business and

promote a focus on social entrepreneurship.Organisational Structure of National Skill Development Mission

As per the Cabinet decision on 2 July 2015, the National Skill Development Mission has a three-tiered, high

powered decision making structure.

Governing Council: At its apex, the Mission’s Governing Council, chaired by the Prime Minister,

will provide overall guidance and policy direction.

Steering Committee: The Steering Committee, chaired by Minister in Charge of Skill

Development, will review the Mission’s activities in line with the direction set by the Governing Council.

Mission Directorate: The Mission Directorate, with Secretary, Skill Development as Mission

Director, will ensure implementation, coordination and convergence of skilling activities across Central

Ministries/Departments and State Governments.

National Action Plan on Climate Change (NAPCC)

The Action Plan was released on 30th June 2008. It effectively pulls together a number of the government’s

existing national plans on water, renewable energy, energy efficiency agriculture and others – bundled with

additional ones – into a set of eight missions. The Prime Minister’s Council on Climate Change is in charge of

the overall implementation of the plan. The plan document elaborates on a unique approach to reduce the stress

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of climate change and uses the poverty-growth linkage to make its point. Emphasizing the overriding priority of

maintaining high economic growth rates to raise living standards, the plan “identifies measures that promote

development objectives while also yielding co- benefits for addressing climate change effectively.” It says these

national measures would be more successful with assistance from developed countries, and pledges that India’s

per capita greenhouse gas emissions “will at no point exceed that of developed countries even as we pursue our

development objectives.”

Plan in a Nutshell

The guiding principles of the plan are:

Inclusive and sustainable development strategy to protect the poor

Qualitative change in the method through which the national growth objectives will be achieved i.e. by

enhancing ecological sustainability leading to further mitigation

Cost effective strategies for end use demand side management

Deployment of appropriate technologies for extensive and accelerated adaptation, and mitigation of

green house gases

Innovative market, regulatory and voluntary mechanisms to promote Sustainable Development

Implementation through linkages with civil society, local governments and public-private partnerships

International cooperation, transfer of technology and funding

National Missions

The core of the implementation of the Action plan are constituted by the following eight missions, that will be

responsible for achieving the broad goals of adaptation and mitigation, as applicable.

National Solar Mission: The NAPCC aims to promote the development and use of solar energy for

power generation and other uses with the ultimate objective of making solar competitive with fossil-based

energy options. The plan includes: Specific goals for increasing use of solar thermal technologies in urban

areas, industry, and commercial establishments; a goal of increasing production of photo-voltaic to 1000

MW/year; and a goal of deploying at least 1000 MW of solar thermal power generation. Other objectives

include the establishment of a solar research centre, increased international collaboration on technology

development, strengthening of domestic manufacturing capacity, and increased government funding and

international support.

National Mission for Enhanced Energy Efficiency: Current initiatives are expected to yield savings

of 10,000 MW by 2012. Building on the Energy Conservation Act 2001, the plan recommends: Mandatingspecific energy consumption decreases in large energy-consuming industries, with a system for companies to

trade energy-savings certificates; Energy incentives, including reduced taxes on energy-efficient appliances; and

Financing for public-private partnerships to reduce energy consumption through demand-side management

programs in the municipal, buildings and agricultural sectors.

National Mission on Sustainable Habitat: To promote energy efficiency as a core component of

urban planning, the plan calls for: Extending the existing Energy Conservation Building Code; A greater


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emphasis on urban waste management and recycling, including power production from waste; Strengthening the

enforcement of automotive fuel economy standards and using pricing measures to encourage the purchase of

efficient vehicles; and Incentives for the use of public transportation.

National Water Mission: With water scarcity projected to worsen as a result of climate change, the

plan sets a goal of a 20% improvement in water use efficiency through pricing and other measures.

National Mission for Sustaining the Himalayan Ecosystem: The plan aims to conserve biodiversity,forest cover, and other ecological values in the Himalayan region, where glaciers that are a major source of

India’s water supply are projected to recede as a result of global warming.

National Mission for a “Green India”: Goals include the afforestation of 6 million hectares of

degraded forest lands and expanding forest cover from 23% to 33% of India’s territory.

National Mission for Sustainable Agriculture: The plan aims to support climate adaptation in

agriculture through the development of climate-resilient crops, expansion of weather insurance mechanisms,

and agricultural practices.

National Mission on Strategic Knowledge for Climate Change: To gain a better understanding of

climate science, impacts and challenges, the plan envisions a new Climate Science Research Fund, improved

climate modeling, and increased international collaboration. It also encourages private sector initiatives to

develop adaptation and mitigation technologies through venture capital funds.

The NAPCC also describes other ongoing initiatives, including:

Power Generation: The government is mandating the retirement of inefficient coal-fired power

plants and supporting the research and development of IGCC and supercritical technologies.

Renewable Energy: Under the Electricity Act 2003 and the National Tariff Policy 2006, the central

and the state electricity regulatory commissions must purchase a certain percentage of grid-based power from

renewable sources.

Energy Efficiency: Under the Energy Conservation Act 2001, large energy consuming industries are

required to undertake energy audits and an energy labeling program for appliances has been introduced.

Implementation

Ministries with lead responsibility for each of the missions are directed to develop objectives, implementation

strategies, timelines, and monitoring and evaluation criteria, to be submitted to the Prime Minister’s Council on

Climate Change. The Council will also be responsible for periodically reviewing and reporting on each

mission’s progress. To be able to quantify progress, appropriate indicators and methodologies will be developed

to assess both avoided emissions and adaptation benefits.National Food Processing Mission

India cannot afford any waste of food grains, milk, poultry, fish, fruits and vegetables due to lack of adequate

processing facilities. Ministry of Food Processing Industries has launched a new scheme called National

Mission on Food Processing (NMFP) during 12th Plan (2012-13) for implementation through States / UTs. The

basic objective of NMFP is to promote the growth of food processing industries in the country, by creating a

National Mission at the Centre and State Missions in the various States/UTS. Better planning, supervision and

monitoring of various schemes is expected through this decentralised approach. Food procesors in the private

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sector and co-operative sector will be encouraged and incentivised to increase capital outlay, use new

technology , upgrade skills etc. Self help groups will be encouraged to become viable commercial entities. The

other objectives are to raise the standards of food safety and hygiene to the globally accepted norms; to facilitate

food processing industries to adopt HACCP and ISO certification norms; to augment farm gate infrastructure,

supply chain logistic, storage and processing capacity and to provide better support system to organized food

processing sector. State food processing missions have been created to implement the schemes.

National Food Security Mission (NFSM)

The National Food Security Mission (NFSM) was launched in 2007-08 with a view to enhancing the production

of rice, wheat, and pulses by 10 million tonnes, 8 million tonnes, and 2 million tonnes respectively by the end of

the Eleventh Plan (viz. March 2012). The Mission aims to increase production through area expansion and

productivity; create employment opportunities; and enhance the farm-level economy (i.e. farm profits) to

restore confidence of farmers. The approach is to bridge the yield gap in respect of these three crops through

dissemination of improved technologies and farm management practices while focusing on districts which have

high potential but relatively low level of productivity at present.

The NFSM has three components (i) National Food Security Mission - Rice (NFSM-Rice); (ii) National Food

Security Mission - Wheat (NFSM-Wheat); and National Food Security Mission - Pulses (NFSM Pulses).To achieve the envisaged objectives, the Mission is mandated to adopt following strategies:

Speedy implementation of programmes through active engagement of all the stakeholders at various

levels.

Promotion and extension of improved technologies i.e., seed, Integrated Nutrient Management including

micronutrients (like iron, cobalt, copper etc), soil amendments, Integrated Pest Management (IPM) and

resource conservation technologies along with capacity building of farmers.

Flow of fund would be closely monitored to ensure that interventions reach the target beneficiaries on

time.

The proposed interventions would be integrated with the targets fixed for each identified district in the

existing District Plan (formulated as a part of national Five Year Plans).

Constant monitoring and concurrent evaluation for assessing the impact of the interventions for a result

oriented approach by the implementing agencies.

The NFSM is presently being implemented in 476 identified districts of 17 States of the country. 20 million

hectares of rice, 13 million hectares of wheat and 4.5 million hectares of pulses are included in these districts

that roughly constitute 50% of cropped area for wheat and rice. For pulses, an additional 20% cropped area

would be created. Total financial implications for the NFSM will be Rs.48824.8 million during the XI Plan

(2007-08 – 2011-12). Beneficiary farmers will contribute 50% of cost of the activities / work to be taken up attheir / individual farm holdings.

National Small Savings Fund

Small Saving schemes have been always an important source of household savings in India. Small savings

instruments can be classified under three heads. These are: (i) postal deposits [comprising savings account,

recurring deposits, time deposits of varying maturities and monthly income scheme(MIS)]; (ii) savings

certificates [(National Small Savings Certificate VIII (NSC) and Kisan Vikas Patra (KVP)]; and (iii) social

security schemes [(public provident fund (PPF) and Senior Citizens‘ Savings Scheme(SCSS)].

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A “National Small Savings Fund” (NSSF) in the Public Account of India has been established with effect from

1.4.1999. A new sub sector has been introduced called “National Small Savings Fund” in the list of Major and

Minor Heads of Government Accounts. All small savings collections are credited to this Fund. Similarly, all

withdrawals under small savings schemes by the depositors are made out of the accumulations in this Fund. The

balance in the Fund is invested in Central and State Government Securities. The investment pattern is as per

norms decided from time to time by the Government of India.

The Fund is administered by the Government of India, Ministry of Finance (Department of Economic Affairs)under National Small Savings Fund (Custody and Investment) Rules, 2001, framed by the President under

Article 283(1) of the Constitution. The objective of NSSF is to de-link small savings transactions from the

Consolidated Fund of India and ensure their operation in a transparent and self-sustaining manner. Since NSSF

operates in the public account, its transactions do not impact the fiscal deficit of the Centre directly. As an

instrument in the public account, the balances under NSSF are direct liabilities and constitute a part of the

outstanding liabilities of the Centre. The NSSF flows affect the cash position of the Central Government.

Nidhi(Mutual Benefit Society)

Nidhi in the Indian context / language means “treasure”. However, in the Indian financial sector it refers to

any mutual benefit society notified by the Central / Union Government as a Nidhi Company. They are created

mainly for cultivating the habit of thrift and savings amongst its members.

The companies doing Nidhi business, viz. borrowing from members and lending to members only, are known

under different names such as Nidhi, Permanent Fund, Benefit Funds, Mutual Benefit Funds and Mutual Benefit

Company.

Nidhis are more popular in South India and are highly localized single office institutions.They are mutual

benefit societies, because their dealings are restricted only to the members; and membership is limited to

individuals. The principal source of funds is the contribution from the members. The loans are given to the

members at relatively reasonable rates for purposes such as house construction or repairs and are generally

secured. The deposits mobilized by Nidhis are not much when compared to the organized banking sector.

Regulatory framework

Nidhi’s are companies registered under section 620A of the Companies Act, 1956(Section 406 of the

new Companies Bill 2012, as passed by Lok Sabha) and is regulated by Ministry of Corporate

Affairs (MCA).Even though Nidhis are regulated by the provisions of the Companies Act, 1956, they are

exempted from certain provisions of the Act, as applicable to other companies, due to limiting their operations

within members. The detailed rules of operation for Nidhi companies have been put in place with effect from 1

April 2014 vide notification dated 31 March 2014.

Nidhis are also included in the definition of Non- Banking Financial companies or (NBFCs) which operate

mainly in the unorganized money market. However, since 1997, NBFCs have been brought increasingly under

the regulatory ambit of the Indian Central Bank, RBI. Non-banking financial entities partially or whollyregulated by the RBI include:

NBFCs comprising equipment leasing (EL), hire purchase finance (HP), loan (LC), investment (1C)

(including primary dealers (PDs)) and residuary non-banking (RNBC) companies;

mutual benefit financial company (MBFC), i.e. nidhi company;

mutual benefit company (MBC), i.e. potential nidhi company; i.e., A company which is working on the

lines of a Nidhi company but has not yet been so declared by the Central Government; has minimum net

owned fund(NOF) of Rs.10 lakh, has applied to the RBI for certificate of registration and also to

http://en.wikipedia.org/wiki/Benefit_societyhttp://en.wikipedia.org/wiki/Benefit_societyhttp://en.wikipedia.org/wiki/Benefit_societyhttp://www.mca.gov.in/Ministry/pdf/Companies_Act_1956_13jun2011.pdfhttp://www.mca.gov.in/Ministry/pdf/Companies_Act_1956_13jun2011.pdfhttp://www.mca.gov.in/Ministry/pdf/Companies_Act_1956_13jun2011.pdfhttp://www.mca.gov.in/Ministry/pdf/The_Companies_Bill_2012.pdfhttp://www.mca.gov.in/Ministry/pdf/The_Companies_Bill_2012.pdfhttp://www.mca.gov.in/Ministry/pdf/The_Companies_Bill_2012.pdfhttp://www.mca.gov.in/Ministry/nidhi.htmlhttp://www.mca.gov.in/Ministry/nidhi.htmlhttp://www.mca.gov.in/Ministry/nidhi.htmlhttp://www.mca.gov.in/Ministry/nidhi.htmlhttp://www.mca.gov.in/Ministry/pdf/NCARules_Chapter26.pdfhttp://www.mca.gov.in/Ministry/pdf/NCARules_Chapter26.pdfhttp://www.mca.gov.in/Ministry/pdf/NCARules_Chapter26.pdfhttp://rbidocs.rbi.org.in/rdocs/Publications/PDFs/78928.pdfhttp://rbidocs.rbi.org.in/rdocs/Publications/PDFs/78928.pdfhttp://rbidocs.rbi.org.in/rdocs/Publications/PDFs/78928.pdfhttp://www.entrepreneur.com/encyclopedia/term/82320.htmlhttp://www.entrepreneur.com/encyclopedia/term/82320.htmlhttp://www.entrepreneur.com/encyclopedia/term/82320.htmlhttp://www.entrepreneur.com/encyclopedia/term/82320.htmlhttp://www.entrepreneur.com/encyclopedia/term/82320.htmlhttp://www.entrepreneur.com/encyclopedia/term/82320.htmlhttp://www.rbi.org.in/scripts/FAQView.aspx?Id=71http://www.rbi.org.in/scripts/FAQView.aspx?Id=71http://www.rbi.org.in/scripts/FAQView.aspx?Id=71http://www.rbi.org.in/scripts/FAQView.aspx?Id=71http://www.entrepreneur.com/encyclopedia/term/82320.htmlhttp://www.entrepreneur.com/encyclopedia/term/82320.htmlhttp://rbidocs.rbi.org.in/rdocs/Publications/PDFs/78928.pdfhttp://www.mca.gov.in/Ministry/pdf/NCARules_Chapter26.pdfhttp://www.mca.gov.in/Ministry/nidhi.htmlhttp://www.mca.gov.in/Ministry/nidhi.htmlhttp://www.mca.gov.in/Ministry/pdf/The_Companies_Bill_2012.pdfhttp://www.mca.gov.in/Ministry/pdf/Companies_Act_1956_13jun2011.pdfhttp://en.wikipedia.org/wiki/Benefit_society


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Department of Company Affairs (DCA) for being notified as Nidhi company and has not contravened

directions/ regulations of RBI/DCA.

miscellaneous non-banking company (MNBC), i.e. chit fund company.

Since Nidhis come under one class of NBFCs, RBI is empowered to issue directions to them in matters relating

to their deposit acceptance activities. However, in recognition of the fact that these Nidhis deal with their

shareholder-members only,RBI has exempted the notified Nidhis from the core provisions of the RBI Act andother directions applicable to NBFCs. As on date (February 2013) RBI does not have any specified regulatory

framework for Nidhis.

“Nidhi is a company formed with the exclusive object of cultivating the habit of thrift, savings and functioning

for the mutual benefit of members by receiving deposits only from individuals enrolled as members and by

lending only to individuals, also enrolled as members, and which functions as per Notification and Guidelines

prescribed by the DCA. The word Nidhi shall not form part of the name of any company, firm or individual

engaged in borrowing and lending money without incorporation by DCA and such contravention will attract

penal action.”

Non-Resident Indian Deposits (NRI Deposits)

Foreign Exchange Management (Deposit) Regulations, 2000 permits Non-Resident Indians (NRIs) to havedeposit accounts with authorized dealers and with banks authorized by the Reserve Bank of India (RBI). These

accounts include:

1. Foreign Currency Non-Resident (Bank) account (FCNR(B) account)

2. Non-Resident External account (NRE account)

3. Non-Resident Ordinary Rupee account (NRO account)

FCNR(B) accounts can be opened by NRIs and Overseas Corporate Bodies (OCBs) with an authorized dealer.

The accounts can be opened in the form of term deposits. Deposits of funds are allowed in Pound Sterling, US

Dollar, Japanese Yen and Euro. Rate of interest applicable to these accounts are in accordance with the

directives issued by RBI from time to time.

NRE accounts can be opened by NRIs and OCBs with authorized dealers and with banks authorized by RBI.

These can be in the form of savings, current, recurring or fixed deposit accounts. Deposits are allowed in any

permitted currency. Rate of interest applicable to these accounts are in accordance with the directives issued by

RBI from time to time.

NRO accounts can be opened by any person resident outside India with an authorized dealer or an authorized

bank for collecting their funds from local bonafide transactions in Indian Rupees. When a resident becomes an

NRI, his existing Rupee accounts are designated as NRO. These accounts can be in the form of current, savings,

recurring or fixed deposit accounts.

There were two more NRI deposit accounts in operation, viz. Non-Resident (Non-Repatriable) Rupee DepositAccount and Non-Resident (Special) Rupee Account. An amendment to Foreign Exchange Management

(Deposit) Regulations, in 2002, discontinued the acceptance of deposits in these two accounts from 1st April

2002 onwards.

Repatriation of funds in FCNR(B) and NRE accounts is permitted. Hence, deposits in these accounts are

included in India’s external debt outstanding. While the principal of NRO deposits is non-repatriable, current

income and interest earning is repatriable. Account-holders of NRO accounts are permitted to annually remit an

amount up to US$ 1 million out of the balances held in their accounts. Therefore, deposits in NRO accounts too

are included in India’s external debt.


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NORKA

A large number of Indians work abroad and remit much of their earnings back into the country to take care of

their families or to acquire assets. Kerala is a state where non residents contribute significantly to the state’s

resources. Keeping this important revenue channel in mind, the Government of Kerala launched the department

of Non-resident Keralites' Affairs (NORKA) in 1996 to redress the grievances of Non-resident Keralites.

NORKA is the first of its kind formed in an Indian state.

NORKA makes efforts to solve the grievances raised in petitions for remedial action on threats to the lives and property of those who are left at home, tracing of missing persons abroad, compensation from sponsors,

harassment from sponsors, cheating by recruiting agents, educational facilities for children of NRKs,

introduction of more flights, etc. It provides assistance to stranded Keralites through follow up action initiated

on all the petitions.

NORKA has established NORKA Roots that acts as an interface between the Non-Resident Keralites and the

Government of Kerala. Some important objectives are creation of a heritage village for parents of non residents,

cultural exchange programmes, promotion of Malayalam language, employment mapping, maintaining a data

base etc.

Out of pocket expenditure

Households, in general, avail healthcare services from public as well as private health care facilities, depending

on their accessibility and affordability to these facilities. In Public Health Institutions, Government incurs

expenditure for providing healthcare infrastructure as well as payment of salaries for medical staff, while in

private sector hospitals, the service providers charge directly from households for their services. Although the

services provided by Public Health Institutions, particularly Primary Health Centres / Government hospitals are

accessible to the public, mostly free of cost, in practice, there are various instances, where households have to

pay ‘out of pocket expenditure’. The expenses that the patient or the family pays directly to the health care

provider, without a third- party (insurer, or State) is known as ‘Out of Pocket Expenditure’ (OOP). These

expenses could be medical as well as non-medical expenditure. Out of Pocket Medical expenditure could be

payments towards doctor’s fees, medicine, diagnostics, operations, charges for blood, ambulance services etc,

while non-medical expenditure include money spent towards travelling expenses, lodging charges of escort,attendant charges, etc.

Out-of-pocket expenditure (OOP) on healthcare forms a major barrier to health seeking behaviour. The poor

sections do not have any form of financial protection and are forced to make OOP payments when they fall sick

Often, these households have to resort to borrowings or sell assets to meet this expenditure. In literature,

Catastrophic Out of Pocket Expenditure is defined as that level of out of pocket expenditure which exceeds

some fixed proportion of household income or household’s capacity to pay. As per National Health Accounts

(NHA) of India (2004-05), 71.13% of Total Health Expenditure in India is considered to be ‘Out of Pocket

Expenditure’ by the individuals / households. NHA takes into account only ‘out of pocket’ towards medical

expenditure.

Participatory Notes (PNs)

A Participatory Note (PN or P-Note) in the Indian context, in essence, is a derivative instrument issued in

foreign jurisdictions, by a SEBI registered Foreign Institutional Investor (FII) or its sub-accounts or one of its

associates, against underlying Indian securities. The underlying Indian security instrument may be equity, debt,

derivatives or may even be an index. Further, a basket of securities from different jurisdictions can also be

constructed in which a portion of the underlying securities is Indian securities or indices.

PNs are also known as Overseas Derivative Instruments, Equity Linked Notes, Capped Return Notes, and

Participating Return Notes etc. In January 2014 when the Indian securities market regulator ,SEBI issued the

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new Regulations for Foreign Portfolio Investors, participatory notes got formally defined under the tag

"Offshore Derivative Instrument" (ODIs) in Section 2(1)(j) of the said regulation. As per this definition,

participatory notes or ODIs are issued by selected foreign portfolio investors (which is a broad category also

including FIIs. Hence, Regulation excludes certain category of Foreign portfolio investors, like individuals,

from issuing the PNs) against securities held by it that are listed or proposed to be listed on any recognized

stock exchange in India.

The investor in PN does not own the underlying Indian security, which is held by the FII who issues the PN.Thus the investors in PNs derive the economic benefits of investing in the security without actually holding it.

They benefit from fluctuations in the price of the underlying security since the value of the PN is linked with the

value of the underlying Indian security. The PN holder also does not enjoy any voting rights in relation to

security/shares referenced by the PN.

Regulation of PNs

PNs are market instruments that are created and traded overseas. Hence, Indian regulators cannot ban the issue

of PNs. However, they can only be regulated, and they are indeed being regulated by the securities market

regulator in India, SEBI. When a PN is traded on an overseas exchange, the regulator in that jurisdiction would

be the authority to regulate that trade.

Participatory Notes have been used by FIIs since FIIs were permitted to invest in the Securities Market. They

were not specifically dealt with under the regulations until 2003. According to Regulation 15(A) of

the Securities and Exchange Board of India (SEBI) Regulations, 1995, which was inserted later in 2004 and

further amended in 2008 with the objective of tightening regulations in this regard, PNs can be issued only to

those entities which are regulated by the relevant regulatory authority in the countries of their incorporation and

are subject to compliance of "Know Your Client" norms. Down-stream issuance or transfer of the instruments

can also be made only to a regulated entity. Further, the FIIs who issue PNs against underlying Indian securities

are required to report the issued and outstanding PNs to SEBI in a prescribed format.

In addition, SEBI can call for any information from FIIs under Regulation 20(A) of the SEBI (FII) Regulations

concerning off-shore derivative instruments issued by it, as and when and in such form as SEBI may require.

In order to monitor the investment through these instruments, SEBI, vide circular dated October 31, 2001,

advised FIIs to submit information regarding issuance of derivative instruments by them, on a monthly basis.

These reports require the communication of details such as name and constitution of the subscribers to PNs,

their location, nature of Indian underlying securities etc.

FIIs cannot issue PNs to non-resident Indians (NRIs) and those issuing PNs are required to give an undertaking

to the effect.

SEBI has also mandated that Qualified Foreign Investors shall not issue PNs.

SEBI in consultation with the Government had decided in October 2007, to place certain restrictions on the

issue of Participatory Notes (PNs) by FIIs and their sub-accounts. This decision was taken with a view to

moderate the surge in foreign capital inflows into the country and to address the know-your-client concerns forthe PN holders. However, it was found that such restrictions were ineffective. Therefore, SEBI in October 2008

reviewed its earlier decision and decided to remove these restrictions in the light of the above factors. Rather

more attention is given to effective disclosures.

Poverty, Poverty Line, Below and Above poverty line (APL, BPL)

In India, Planning Commission estimates the number and proportion of people living below the poverty line at

national and State levels, separately for rural and urban areas. It makes poverty estimates based on a large

sample survey of household consumption expenditure carried out by the National Sample Survey Organization

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(NSSO) after an interval of approximately five years. The Commission has been estimating the poverty line and

poverty ratio since 1997 on the basis of the methodology spelt out in the report of the Expert Group on

'Estimation of Number and Proportion of Poor' (popularly known as Lakdawala Committee Report).

Poverty is a social as well as a multidimensional phenomenon. According to the World Bank, “poverty is

pronounced deprivation in wellbeing.” Amartya Sen in his capability approach perhaps gave the broadest

meaning to well-being. According to him well-being comes from a capability to function in society. Poverty

arises when people lack key capabilities due to inadequate income or education, or poor health, or insecurity, orlow self-confidence, or a sense of powerlessness, or the absence of rights such as freedom of speech.

The Human Development Report (2010) pioneered the Multidimensional Poverty Index (MPI) which is

grounded in the capability approach and an innovative effort to complement the income based poverty indices.

It includes an array of dimensions from participatory exercises among poor communities and an emerging

international consensus. The MPI shows the share of population that is multidimensionally poor adjusted by the

intensity of deprivation in terms of living standards, health and education.

Pradhan Mantri Jan-Dhan Yojna (PMJDY)

Pradhan Mantri Jan-Dhan Yojna (PMJDY) is a programme for financial inclusion to cover all unbanked

households in India, whether in urban or rural area, and aims at providing affordable financial services like

savings & deposit accounts, banking services, remittance, credit, insurance, pension etc. Financial

inclusion broadly means the delivery of financial services at affordable costs to sections of disadvantaged and

low-income groups. The Scheme was announced by the Prime Minister- Shri Narendra Modi - in his

independence day speech on 15 August, 2014 and was launched by him on 28 August 2014. (In Hindi, Pradhan

Mantri stands for Prime Minister, Jan for people, Dhan means money /wealth and yojna means plan or scheme)

The mission mode objective of the PMJDY consists of 6 pillars. During the 1st year of implementation

under Phase I (15 August, 2014- 14 August, 2015), three Pillars namely

1.

universal access to banking facilities

2. financial literacy Programme and

3.

endowing basic banking accounts after satisfactory operation for six months, with

an overdraft facility of Rs. 5000 at a rate of interest of 12% per annum,

RuPay Debit card with inbuilt accident insurance cover of Rs 1 lakh and

issuance of Kisan Credit Card (KCC) as RuPay Kisan Card, will be implemented.

To get benefit of Accidental Insurance Cover of Rs. 1 lakh, RuPay Debit Card must be used at least once in 45

days and this is available to beneficiaries in the age group of 18-70. Electronic Transfer of subsidies (direct

benefit transfer) under various schemes of Government would also be enabled.

Phase II of PMJDY, beginning from 15 August 2015 upto 15 August, 2018 will address

1.

creation of Credit Guarantee Fund for coverage of defaults in overdraft A/Cs

2. micro insurance and

3. Unorganized sector Pension schemes like Swavlamban. In addition, in this phase coverage of

households in hilly, tribal and difficult areas would be carried out. This is the phase where the hitherto

uncovered areas comes in. Moreover, this phase would focus on coverage of remaining adults in the households

and students.

Life insurance cover of Rs.30000/- will be available to all account-holders (with Rupay Card) in the age group

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of 18-59 who are the breadwinners of the family and are opening a bank account for the first time, except

Government servants (both retired and serving) and their family members, income tax payees, and beneficiaries

of Aam Admi Bima Yojana (another life insurance scheme).

Overdraft facility upto Rs.5000/- will be available to only one person in the family (preferably lady of the

house).

In case people are already holding bank accounts, they need not open another bank account to avail of benefits

under PMJDY. However, accident cover benefits are available through the RuPay Card. Hence, the existingaccount holders need to submit an application to the concerned branch to enable them to get a RuPay Debit

Card in order to avail of the benefits of insurance / accident covers under PMJDY. Micro credit limit of Rs.

5000/- as overdraft, can also be extended in existing bank accounts on application, depending on the satisfactory

conduct of the account.

For the implementation of the Scheme, RBI has enabled creation of small accounts, whereby people who do not

have officially valid documents or Aadhaar Numbers can still get bank accounts opened by submitting 2 copies

of signed photographs at the bank branch. However, these accounts will be called small accounts and shall

normally be valid for 12 months and shall be continued subject to showing of proof that he/she has applied for

any of the officially valid document within 12 months of opening of such ‘Small Account’’. These accounts

have certain limitations such as balance at any point of time should not exceed Rs. 50,000/-, total credit in oneyear should not exceed Rs. 1 lakh and total withdrawal should not exceed Rs. 10,000/- in a month.

PMJDY also aims at providing Mobile Banking, offering basic banking facilities like money transfer, bill

payments, balance enquiries, merchant payments etc. on a simple GSM based mobile phone, without the need to

download application on a phone as required at present in the Immediate Payment Service (IMPS) based Mobile

Banking. Transactions can be performed on basic phone handsets. Charges, as applicable by the Telecom

Operator (not more than Rs.1.50 per transaction as mandated by TRAI) may be applicable.

PMJDY is a scheme that brings together all other previous initiatives in this regard - like Kisan credit card,

Business correspondent model of expanding financial access, micro insurance, micro pension (Swavlamban)

etc. - with a wider scope and targeting both rural as well as urban households.

Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY)

Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) is an insurance scheme for the age group of 18-50

covering both natural and accidental death risk of Rs. 2 lakh for a premium of Rs. 330 per year (less than Rs.

1/day). i.e. it will cover all the savings account holders of the age group 18-50 for death due to any cause.

This scheme is offered through LIC of India or other Life Insurance companies that are willing to offer life

insurance on similar terms.

The scheme was launched in simultaneous functions held at 115 venues across the country on 9 May 2015. This

is different from the Pradhan Mantri Suraksha Bima Yojna (PMSBY) scheme launched on the same day

covering all the savings account holders of the age group 18 to 70 for accidental disability or death of Rs.2 Lakh

for a premium of just Rs. 12 per year (i.e. Rs 1/month as premium).

Pradhan Mantri Suraksha Bima Yojna (PMSBY)

Pradhan Mantri Suraksha Bima Yojna (PMSBY) is an insurance scheme covering accidental death risk of

Rs.2 Lakh for a premium of just Rs. 12 per year (i.e. Rs 1/month as premium). It will cover all the savings

account holders of the age group 18 to 70 for accidental disability or death.

Under PMSBY, the risk coverage will be Rs. 2 lakh for accidental death and full disability and Rs. 1 lakh for

partial disability.

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Public sector general insurance companies or other general insurance companies that are willing to offer

insurance coverage to individuals on similar terms would offer and administer this scheme. The scheme is

delivered through banks including regional rural banks as well as cooperative banks.

The scheme was launched in simultaneous functions held at 115 venues across the country on 9 May 2015. This

Scheme is different from the Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY)launched on the same

day, which cover both natural and accidental death risk of Rs. 2 lakh for a premium of Rs. 330 per year for the

age group of 18-50 (less than Rs. 1/day).Price Stabilisation Fund (PSF)

Price Stabilisation Fund (PSF) refers to any fund constituted for the purpose of containing extreme volatility in

prices of selected commodities. The amount in the fund is generally utilised for activities aimed at bringing

down/up the high/low prices say for instance, procurement of such products and distribution of the same as and

when required, so that prices remain in a range.

Many countries use such dedicated funds for stabilisation of major petroleum product prices, particularly if they

are importers. Some countries use such funds for stabilising not just commodity prices but a variety of key

macroeconomic variables such as the exchange rate (which is nothing but the price of the domestic currency

expressed in terms of an external currency), benchmark stock indices etc. The operational details of such funds

vary from country to country.

India first created a price stabilisation fund for some export oriented plantation crops in 2003, and this ceased to

exist in 2013. Another fund was created in 2015 for perishable agricultural and horticultural commodities, but

initially limited to support potato and onion prices only.

PSF mechanism is apart from the Minimum Support Price (MSP) based initiatives already existing in the

country for certain agricultural goods. The MSP system has some price tempering properties, but it is from the

perspective of the growers / farmers and becomes operative when prices fall below the cost of production. The

output thus procured by the Government at MSP is later distributed at affordable rates through the public

distribution system.

Another parallel to PSF are the Consumer Federations (known commonly as Consumerfeds) which undertakedistribution of consumer goods at reasonable and affordable rates. They undertake bulk procurement of

consumer goods, essential goods, medicines etc. (including their imports if required), and supply to affiliated

and/or other Co-operatives Societies and arrange for proper storage, packing, grading and transport of such

goods. While tempering the prices of such goods, these entities save the public from the exploitation by retail /

middleman and continually operate throughout the year irrespective of the movement in the market prices of

these goods. Some consumerfeds establish and run manufacturing and processing units for production of

consumer goods in collaboration with other entities or directly by itself.

In contrast to MSP and consumer fed operations, a PSF is generally conceived to be operative in both directions

of price movement, subject to prices crossing some threshold level.

Price stabilisation Fund announced in 2015 A Price Stabilization Fund of Rs. 500 Crore for agricultural commodities was announced in the Union Budget

2014-15 with a view to mitigate volatility in the prices of agricultural produce.

Accordingly, the Government of India, on 27 March 2015, approved the creation of a Price Stabilization Fund

(PSF) with a corpus of Rs.500 crores as a Central Sector Scheme, to support market interventions for price

control of perishable agri-horticultural commodities during 2014-15 to 2016-17. Initially the fund is proposed to

be used for market interventions for onion and potato only.

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Procurement of these commodities will be undertaken directly from farmers or far mers’ organizations at farm

gate/mandi and made available at a more reasonable price to the consumers. Losses incurred, if any, in the

operations will be shared between the Centre and the States. Hence, the PSF Scheme of 2015 is focused more at

consumers.

PSF Scheme provides for advancing interest free loan to State Governments/Union Territories (UTs) and

Central agencies to support their working capital and other expenses they might incur on procurement and

distribution interventions for such commodities. Hence, the actual utilisation of the fund depends on thewillingness of the state governments / union territories to avail of such loans for these purposes. Further, the

actual detection of the period when support is required and the deployment of price support measures are left to

the states.

For this purpose, the States will have to set up a ‘revolving fund’ (a fund which is constantly replenished and

not limited by the fiscal year considerations) to which Centre and State will contribute equally (50:50). The

ratio of Centre-State contribution to the State level corpus in respect of North-East States will, however, be

75:25. Central Agencies will set up their revolving fund entirely with the advance from the Centre.

The Price Stabilization Fund will be managed centrally by a Price Stabilization Fund Management Committee

(PSFMC) which will approve all proposals from State Governments and Central Agencies. The PSF will be

maintained as a Central Corpus Fund by Small Farmers Agribusiness Consortium (SFAC), a society promoted by Ministry of Agriculture for linking agriculture to private businesses and investments and technology. SFAC

will act as Fund Manager. Funds from this Central Corpus will be released in two streams, one to the State

Governments/UTs as a onetime advance to each State/UT based on its first proposal and the other to the Central

Agencies. The Central Corpus Fund has already been established by SFAC in 2014-15.

The one time advance to the States/UTs based on their first proposal along with matching funds from the

State/UT will form a State/UT level revolving fund, which can then be used by them for all future market

interventions to control prices of onions and potatoes based on approvals by State Level Committee set up

explicitly for this purpose.

Public Debt

Article 292 of the Indian Constitution states that the Government of India can borrow amounts specified by the

Parliament from time to time. Article 293 of the Indian Constitution mandates that the State Governments in

India can borrow only from internal sources. Thus the Government of India incurs both external and internal

debt, while State Governments incur only internal debt.

As per the recommendations of the 12th Finance Commission, access to external financing by the States for

various projects is facilitated by the Central Government, which provides the sovereign guarantee for these

borrowings. From April 1, 2005, all general category states borrow from multi-lateral and bilateral agencies (

World Bank, ADB etc.) on a back-to-back basis viz. the interest cost and the risk emanating from currency and

exchange rate fluctuations are passed on to States. In the case of special category states ( North-eastern states,

Himachal, Uttarakhand and J&K), external borrowings of state governments are given by the Union

Government as 90 per cent loan and 10 per cent grant.

This note explains the coverage of the ‘Public Debt’ of the Central Government of India.

In India, total Central Government Liabilities constitutes the following three categories;

[i] Internal Debt.

[ii] External Debt.

[iii] Public Account Liabilities.

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Public Debt in India includes only Internal and External Debt incurred by the Central Government. Internal

Debt includes liabilities incurred by resident units in the Indian economy to other resident units, while External

Debt includes liabilities incurred by residents to non-residents.

The major instruments covered under Internal Debt are as follows:

Dated Securities: Primarily fixed coupon securities of short, medium and long term maturity whichhave a specified redemption date. These are the single-most important component of financing the fiscal deficit

of the Central Government (around 91 % in 2010-11) with average maturity of around 10 years.

Treasury-Bills: Zero coupon securities that are issued at a discount and redeemed in face value at

maturity. These are issued to address short term receipt-expenditure mismatches under the auction program of

the Government. These are primarily issued in three tenors, 91,182 and 364 day.

14 Day Treasury Bills.

Securities issued to International Financial Institutions: Securities issued to institutions viz. IMF,

IBRD, IDA, ADB, IFAD etc. for India’s contributions to these institutions etc.

Securities issued against ‘Small Savings’: All deposits under small savings schemes are credited to

the National Small Savings Fund (NSSF). The balance in the NSSF (net of withdrawals) is invested in special

Government securities.

Market Stabilization Scheme (MSS) Bonds: Governed by a MoU between the GoI and the RBI,

MSS was created to assist the RBI in managing its sterilization operations. GoI borrows under this scheme from

the RBI, while proceeds from such borrowings are maintained in a separate cash account with the latter and is

used only for redemption of T-bills /dated securities raised under this scheme.

Public Debt Management of the Union Government in India

Objectives of Public Debt Management in India

The overall objective of the Central Government’s debt management policy, as laid out by the Central

Government's status paper in November 2010 is to “meet Central Government’s financing needs at the lowest

possible long term borrowing costs and also to keep the total debt within sustainable levels. Additionally, it

aims at supporting development of a well-functioning and vibrant domestic bond market”.

Apart from this declared objectives, timely availability of resources for Government is ensured in a non-

disruptive manner for the market. Various institutional arrangements are also put in place accordingly.

India is not formally using the IMF / World Bank Medium Term Debt Strategy and Debt SustainabilityAnalysis. Many countries across the globe follow / target Medium Term Public Debt Strategy specifying the

debt targets to be met and the strategies for achieving the same. In India, such a framework / document is not in

existence. However, in the Medium Term Fiscal Policy Statement laid before the Parliament, a two year target

for outstanding liabilities is incorporated. In the Fiscal Policy Strategy Statement laid before the Parliament,

Government outlines the prudent debt management strategies so as to ensure that the public debt remains within

sustainable limits and does not crowd out private borrowing for investment.

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As per the Fiscal Policy Strategy Statement of 2012-13 the public debt management policy of the Government

is driven by the principle of gradual reduction of public debt to GDP ratio. This is with the objective of further

reducing the debt servicing risk and to create fiscal space for developmental expenditure. On the financing side,

the Government policy focuses on the following principles

i. greater reliance on domestic borrowings over external debt,

ii. preference for market borrowings over instruments carrying administered interest rates,

iii.

consolidation of the debt portfolio and

iv. development of a deep and wide market for Government securities to improve liquidity in secondary

market.

Finance Minister in his Budget Speech for 2010-11 had indicated his intention to bring out a status paper giving

detailed analysis of the government’s debt situation and a road map for curtailing the overall public debt.

Accordingly, a paper was brought out in November 2010, titled Government Debt: Status and Road Ahead with

detailed analysis on status of Central Government debt. At the same time, it also charts out a well calibrated

roadmap for reduction in the overall debt as percentage of GDP for the general government during the period

2010-11 to 2014-15.

Public Debt Management Agency (PDMA)Public Debt Management Agency (PDMA) is a specialized independent agency that manages the internal and

external liabilities of the Central Government in a holistic manner and advises on such matters in return for a

fee. In other words, PDMA is the Investment Banker or Merchant Banker to the Government. PDMA manages

the issue, reissue and trading of Government securities, manages and advises the Central Government on

its contingent liabilities and undertakes cash management for the central government including issuing and

redeeming of short term securities and advising on its cash management.

PDMA was proposed to be established in India through the Finance Bill, 2015. As a corollary of the decision to

create a PDMA, the RBI or the Central Bank in India was given the task of inflation targeting under a monetary

policy framework agreement. However, the creation of PDMA was put on hold due to the difference of opinion

on the matter and the relevant clauses were dropped from the Finance Bill, 2015 while the latter was passed.

PDMA is considered to be set up with the objective of "minimising the cost of raising and servicing public

debt over the long-term within an acceptable level of risk at all times, under the general superintendence of the

central government". This will guide all of its key functions, which include managing the public debt, cash and

contingent liabilities of Central Government, and related activities.

Need for PDMA

The need for PDMA was felt due to the following reasons:

Fragmented jurisdiction in public debt management: Before the creation of PDMA, the central Bank

or RBI used to manage the market borrowing programmes of Central and State Governments. On the other

hand, external debt was managed directly by the Central Government. Establishing a debt management office

would consolidate all debt management functions in a single agency and bring in holistic management of the

internal and external liabilities.

Some functions that are crucial to managing public debt were not carried out. For instance, no

agency used to undertake cash and investment management and information relating to contingent and other

liabilities were not consolidated. Hence, there was no comprehensive picture of the liabilities of the Central

Government, which impeded informed decision making regarding both domestic and foreign borrowing.

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An autonomous PDMA can be the catalyst for wider institutional reform, including building a

government securities market, and bring in transparency about public debt.

It is considered as an internationally accepted best practice that debt management should be

disaggregated from monetary policy, and taken out of the realm of the central bank. Most advanced economies

have dedicated debt management offices. Several emerging economies, including Brazil, Argentina, Colombia,

and South Africa, have restructured debt management in recent years and created an independent agency for the

same. The sources of these conflict of interest in RBI managing the Government debt, as listed out in the 2008

report of the Government are as under:

There is a severe conflict of interest between setting the short term interest rate (i.e. the task

of monetary policy) and selling bonds for the government. If the Central Bank tries to be an effective debt

manager, it would lean towards selling bonds at high prices, i.e. keeping interest rates low. This leads to an

inflationary bias in monetary policy.

Where the Central Bank also regulates banks, as in India, there is a further conflict of

interest. If the Central Bank tries to do a good job of discharging its responsibility of selling bonds, it has an

incentive to mandate that banks hold a large amount of government paper. This bias leads to flawed banking

regulation and supervision, so as to induce banks to buy government bonds, particularly long-dated government bonds. Having a pool of captive buyers undermines the growth of a deep, liquid market in government

securities, with vibrant trading and speculative price discovery. This, in turn, hampers the development of the

corporate bond market - the absence of a benchmark sovereign yield curve makes it difficult to price corporate

bonds.

If the Central Bank administers the operating systems for the government securities markets,

as the RBI currently does, this creates another conflict, where the owner/ administrator of these systems is also a

participant in the market.

Features of PDMA as outlined in the Finance Bill, 2015 Structure & Administration

PDMA is a body corporate to be run on the grants or loans received from the Central Government

and from other sources as may be prescribed by the central government.

PDMA is headed by a chief executive officer (CEO) and he has powers of only general direction and

control in respect of all administrative matters of PDMA.

PDMA can set advisory councils if it wishes to do so

PDMA is empowered to create by-laws

The Board of Directors include nominee directors of the Central Government and RBI.

Being an agency of the Government, the Central Government has the right to terminate the servicesof a Member of the Board even before the expiry of her tenure on grounds of moral turpitude, unsound mind,

insolvency and for abuse of position.

Further, Central Government is empowered to issue directions on Policy to PDMA and latter is

bound by that.

Members and employees of the PDMA or any other person who has been delegated any function by

PDMA shall be deemed to be "public servants" within the meaning of Section 21 of the Indian Penal Code.

PDMA can establish offices either in India or abroad

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Accounts of PDMA are audited by the Comptroller and Auditor General of India (CAG) and the

CAG audited report and annual report are to be laid in Parliament.

Legal protection is given for actions taken in good faith

PDMA is given exemption from all kinds of taxes for all its operations

Functions

collecting and publishing information about public debt, including borrowings by the centralgovernment.

issue of government securities (in demat or electronic form) and maintenance and management of

the registry of holders (which would actually be maintained by the Depositories) and making payments to them;

However, the terms and conditions of G-Secs would be prescribed to the PDMA and hence, central government

would be liable to meet the obligations arising from the financial transactions authorized by it and undertaken

by the PDMA.

purchasing, re-issuing and trading in G-Secs

Managing Contingent liabilities of the Central Government including developing ways for its

measurement, reduction in quantum and cost of such liabilities.

advising central Government on its contingent liabilities

Undertaking Cash management of the Central Government including acquiring information about its

cash assets, predicting the future cash requirements and issuing and redeeming such short term securities

required to meet the cash requirements etc.

Advising central Government on management of cash assets

Relationship of RBI with central Government after the removal of debt management functions (as

contained in Finance Bill 2015)

The Constitution of India gives the executive branch of the Government the powers to borrow upon the security

of the Consolidated Fund of India. Reserve Bank as an agent of the Government (both Union and the States)

implemented the borrowing program. The Reserve Bank draws the necessary statutory powers for debt

management from Section 21 of the Reserve Bank of India Act, 1934. While the management of Union/CentralGovernment's public debt is an obligation for the Reserve Bank, the Reserve Bank undertakes the management

of the public debts of the various State Governments by agreement. The procedural aspects in debt management

operations were governed by the Government Securities Act, 2006 and rules framed under the Act. The debt

management functions comprised of formulation of a calendar for primary issuance, deciding the desired

maturity profile of the debt, size and timing of issuance, designing the instruments and methods of raising

resources, etc. taking into account government's needs, market conditions, and preferences of various segments

while ensuring that the entire strategy is consistent with the overall macro-economic policy objectives. Reserve

Bank also undertakes the conduct of auctions and manages the registry and depository functions.

All these functions will be transferred to PDMA in respect of the central government. As per the Finance Bill

2015 RBI was required by law to provide all necessary information and assistance to the effective functioningof PDMA.

With the creation of PDMA, RBI is given the explicit task of inflation targeting and reducing its earlier focus on

multiple objectives like growth, financial stability, monetary management, debt management etc.

RBI may still be managing the borrowing requirements of the state governments as per the agreement it has

entered into with them earlier.

Though debt management is taken out of RBI, it would continue to function as the banker to the Government.

As a banker to the Government, the RBI would perform the same functions for the Government as a

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commercial bank performs for its customers. It would maintain accounts of the Government; receive deposits

from, and make advances to the Government; provide foreign exchange resources to the Government for

repaying external debt or purchasing foreign goods or making other payments.

Contrary views: why central bank should continue to do debt management functions in India

Creation of a PDMA was a matter of intense debate in India. Many, at some phase even RBI, believed that debt

management functions should be continued with RBI for the following reasons.

Historically RBI had been managing the debt at a lower cost while keeping the interest rate in line

with the requirements of the economy.

Theoretical formulations can conjecture conflicts of interest; the validity of assumptions need to be

tested by evaluation of experience/performance and on that count, conflict of interest cannot be established with

regard to Reserve Bank.

The FRBM Act, 2003 which precluded the Reserve Bank from participating in the primary auction

of the Government bonds has resolved the conflict of interest with the monetary policy. Monetary signalling in

India is now done by the repo rate (policy rate) under the liquidity adjustment facility (LAF) and not the bond

yields. On the other hand, Government’s ownership of majority stake in public sector banks (which own 70 per

cent of banking sector assets) could be a source of conflict of interest with its role as debt manager, eitherdirectly or through an agency controlled by it.

Commercial Banks hold more G-Secs than what is warranted under Statutory Liquidity Ratio

(SLR). In India, at present, SLR is more of a prudential requirement than a captive quota for G-Secs.

The size and dynamics of government market borrowing has a much wider influence on interest rate

movements and systemic liquidity. An autonomous PDMA, driven by specific objectives exclusively focusing

on debt management alone, may not be able to manage this complex task involving various trade-offs. It may

even be compelled to issue more short term debts and enlarge the space for foreign investors making economy

more vulnerable to the risk of capital flight.

The significant impact of the Government borrowing on the broader interest rate structure in the

economy and, therefore, on the monetary transmission process in financial markets, makes it a critical

component of the macroeconomic management framework. Overall coordination by RBI hence becomes

important.

It may not be true that what has been practiced in some other countries would come true for India.

The institutional arrangements for debt management must take into view the country specific context and

requirements. The experience of debt management offices in the Euro area (especially Greece, Portugal and

Ireland) has been less than satisfactory and has resulted in creating financial instability in the entire Euro Zone.

Qualified Foreign Investors (QFIs)

The Qualified Foreign Investor (QFI) is sub-category of Foreign Portfolio Investor and refers to any foreign

individuals, groups or associations, or resident, however, restricted to those from a country that is a member

of Financial Action Task Force (FATF) or a country that is a member of a group which is a member of FATF

and a country that is a signatory to International Organization of Securities Commission’s (IOSCO) MultilateralMemorandum of Understanding (MMOU).

QFI scheme was introduced by Government of India in consultation with RBI and SEBI in the year 2011,

through a Union Budget announcement.

The objective of enabling QFIs is to deepen and infuse more foreign funds in the Indian capital market and to

reduce market volatility as individuals are considered to be long term investors, as compared to institutional

investors.

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QFIs are allowed to make investments in the following instruments by opening a demat account in any of the

SEBI approved Qualified Depository Participant (QDP):

Equity and Debt schemes of Indian mutual funds,

Equity shares listed on recognized stock exchanges,

Equity shares offered through public offers

Corporate bonds listed/to be listed on

Documents

Impotant Economic Concept Part II indian eco