Daily Quiz: UPSC Prelims Marathon (Economy) – September 8, 2020

The National Digital Communications Policy, 2018 seeks to unlock the transformative power of digital communications networks – to achieve the goal of digital empowerment and improved well being of the people of India; and towards this end, attempts to outline a set of goals, initiatives, strategies and intended policy outcomes.

The National Communications Policy aims to accomplish the following Strategic Objectives by 2022:

• Provisioning of Broadband for All
• Creating 4 Million additional jobs in the Digital Communications sector
• Enhancing the contribution of the Digital Communications sector to 8% of India’s GDP from ~ 6% in 2017
• Propelling India to the Top 50 Nations in the ICT Development Index of ITU from 134 in 2017
• Enhancing India’s contribution to Global Value Chains
• Ensuring Digital Sovereignty

The traditional argument is that the lower the interest rate, the better for businesses as it brings down the cost of capital, making investments more attractive.

• Any government would love this as the country would then draw higher investments leading to higher growth and more job creation.
• Governments abhor higher interest rates as, theoretically, these push up project costs and keep investors away.
• Capital is one of the three main factors of production, which are critical to the growth of a commercial entity, the other two being land and labour.
• But capital is only a necessary, not sufficient, condition. Land, unless allocated by the local government, is too costly for investors seeking to set up shop.
• On labour, even if adequate hands are available for a job, the skill quotient is still low. Training graduates to be job-ready is a form of tax that companies pay.
• Also to be taken into account is the market environment and demand. If end users are seeing lesser money in hand than earlier, demand will certainly be impacted.
• Therefore, in an environment where the other factors of production are not favourable for an investor, low interest rates by themselves may not prove attractive enough.
• Any revival of economic activity will be contingent on joint efforts by the government on the fiscal front to stimulate demand, and the RBI, to keep interest rates low.

The renminbi is the official currency of the People’s Republic of China, and translates to “people’s money.” Its international symbol is CNY (or CNH in Hong Kong; but abbreviated RMB, with the symbol ¥).

Currency depreciation can occur for a variety of reasons. Broadly these include changes in inflation rates, political instability and other economic factors. More specifically, some of the leading causes of currency depreciation are:

• Lower export revenues
• A surge in imports
• Reduced monetary policy interest rates
• Central bank intervention
• Traders and speculators selling currencies on the market

India’s real or inflation-adjusted gross domestic product (GDP) grew at 5 per cent in the June 2019 quarter of financial year 2019-20 (Q1FY20), the slowest growth in six years (25 quarters). In nominal terms, the growth stood at 7.99 per cent, lowest since December 2002.

• A slowdown in consumption demand, decline in manufacturing, inability of the Insolvency and Bankruptcy Code (IBC) to resolve cases in a time-bound manner, and rising global trade tension and its adverse impact on exports are some of the factors affecting India’s growth
• “Private consumption, which contributes nearly 55-60 per cent, to India’s GDP has been slowing down.
• While the reduced income growth of households has reduced urban consumption, drought/near-drought conditions in three of the past five years coupled with collapse of food prices has taken a heavy toll on rural consumption”.
• Savings by household sector – which are used to extend loans for investment — have gone down from 35 per cent (FY12) to 17.2 per cent (FY18). Households, including MSMEs, make 23.6 per cent of the total savings in the GDP.
• Gross Fixed Capital Formation (GFCF), a metric to gauge investment in the economy, too has declined from 34.3 per cent in 2011 to 28.8 per cent in 2018, government data show. Similarly, in the private sector, it has declined from 26.9 per cent in 2011 to 21.4 per cent in 2018.
• The household sector, which is the biggest contributor to the total capex in the economy, invests nearly 77 per cent in the real estate sector, which has lost steam since demonetization.

A cyclical slowdown is a period of lean economic activity that occurs at regular intervals.

• Such slowdowns last over the short-to-medium term, and are based on the changes in the business cycle.
• Generally, interim fiscal and monetary measures, temporary re-capitalisation of credit markets, and need-based regulatory changes are required to revive the economy.
• A structural slowdown, on the other hand, is a more deep-rooted phenomenon that occurs due to a one-off shift from an existing paradigm.
• The changes, which last over a long-term, are driven by disruptive technologies, changing demographics, and/or change in consumer behaviour.

Angel investors finance small startups. They provide funds at a stage where such startups find it difficult to obtain funds from traditional sources of finance such as banks, financial institutions, etc. In this way, they encourage entrepreneurship in the country.

• Further, such investors provide mentoring to entrepreneurs as well as access to their own business networks. Thus, they bring both experience and capital to new ventures.
• Angel Tax, formally known as Section 56 (2) (vii b) of the Income Tax Act, taxes funds raised by startups if they exceed the fair market value of the company.
• It was introduced in 2012 by the UPA government in order to detect money laundering practices and catch bogus startups.

CPSE ETF, as the name suggests, is an exchange-traded fund (ETF) comprising public sector enterprises (PSEs).

• The ETF was launched by the government in March 2014 to help divest its stake in select public sector undertakings through the ETF route.
• The ETF is based on the Nifty CPSE index that comprises 11 PSEs such as ONGC, NTPC, Coal India, Indian Oil Corporation, REC, Power Finance Corporation, Bharat Electronics, Oil India, NBCC (India), NLC India and SJVN.
• The parameters based on which companies have been made part of the index include a criteria that they have paid at least 10% dividend in the last two consecutive years.

Shadow banking refers to often high-yield lending undertaken by NBFCs that takes place outside the regular banking sector. They are not subject to strict regulation and can sometimes be risky.

• The term ‘shadow bank’ was coined by Paul McCulley in 2007.
• Examples of shadow lenders include Special Purpose Entities, Non Banking Financial Companies (NBFCs), Hedge Funds etc.
• These institutions function as intermediaries between the investors and the borrowers, providing credit, thus, leading to financial inclusion and hence generate liquidity in the system.