Daily Quiz: UPSC Prelims Marathon (Economy) – August 11, 2020

The interim report of the Fifteenth Finance Commission, tabled together with the Union Budget for 2020-21, leaves the tax devolution formula between the centre and states largely unchanged.

• It, however, calls for greater clarity on government finances, a new fiscal legislation and improvements in the implementation of the Goods and Services Tax.
• The commission will submit its final report only in October 2020. Its interim recommendations will underpin the 2020-21 budget while final recommendations will be used for subsequent years.
• The finance commission, headed by NK Singh, recommended an aggregate share of 41 percent of the net proceeds of the union taxes to be devolved to states in FY21.
• The Fourteenth Finance Commission has increased the devolution to states to 42 percent.
• The demographic performance is the new crucial parameter that has been added to the mix.

The Corporate Affairs Ministry (MCA) has come up with the ‘Companies Fresh Start Scheme 2020’ to enable companies make good of any filing-related defaults, irrespective of duration of default, and make a fresh start as a fully compliant entity.

• To provide a similar facility to Limited Liability Partnerships (LLPs), the MCA has also revised the ‘LLP Settlement Scheme, 2020’, which is in vogue today.
• The Fresh Start scheme and modified LLP Settlement Scheme reduce compliance burden during the unprecedented public health situation caused by Covid-19.
• The USP of both the schemes is a one-time waiver of additional filing fees for delayed filings by the companies or LLPs with the Registrar of Companies during the currency of the Schemes, i.e. during the period starting from April 1 and ending on September 30.
• The Schemes, apart from giving longer timelines for corporate to comply with various filing requirements under the Companies Act 2013 and LLP Act, 2008, significantly reduce the related financial burden on them, especially for those with long standing defaults, thereby giving them an opportunity to make a “fresh start”.

Both the Schemes also contain provision for giving immunity from penal proceedings, including against imposition of penalties for late submissions and also provide additional time for filing appeals before the concerned Regional Directors against imposition of penalties, if already imposed.

The 73rd Constitutional Amendment requires both the Centre and states to help Panchayati Raj institutions to evolve as a unit of self-governance by assigning them funds, functions and functionaries.

The Finance Commission Grants, in the Union Budget, provides funds to local bodies, state disaster relief funds and compensates any revenue loss to states after devolution of taxes.

The Finance Commission Grants are primarily divided into four sub-heads.

1. Grants for rural local bodies: The three-tier model of governance envisioned in the Constitution assigns clear roles and responsibilities to Gram Panchayats.

• The Finance Commission recommendations ensure that these local bodies are adequately funded.
• In fact, nearly half of the Finance Commission Grants in Union Budget goes to village local bodies.

2. Grants for urban local bodies: In addition to units of self-governance at the village level, the Constitution also envisages cities as units of self-governance.

• Urban local bodies like municipal councils receive the largest chunk of Finance Commission Grants after Rural Local Bodies and Post Devolution Deficit Grants to states.

3. Assistance to SDRF: The central government also provides funds to State Disaster Relief Funds in addition to funding the National Disaster Management Authority (NDMA).

• The assistance to state government’s disaster relief authorities is provided as per the recommendations of the Finance Commission.

4. Post devolution revenue deficit grants: About a third of the total revenue collected by the Centre is directly transferred to states as their share in the divisible pool.

• However, the Finance Commission also provides a mechanism for compensation of any loss incurred by states, which is called post-devolution revenue deficit grants.
• This Finance Commission Grant forms the second largest chunk of Finance Commission transfers after the assistance to local rural bodies.

The Reserve Bank of India or RBI mandates that banks store a proportion of their deposits in the form of cash so that the same can be given to the bank’s customers if the need arises.

• The percentage of cash required to be kept in reserves, vis-a-vis a bank’s total deposits, is called the Cash Reserve Ratio.
• The cash reserve is either stored in the bank’s vault or is sent to the RBI.
• Banks do not get any interest on the money that is with the RBI under the CRR requirements.
• Unlike Statutory Liquidity Ratio or SLR, which can be maintained in either gold or cash, CRR needs to be maintained only in cash.

After nearly eight decades, the Reserve Bank of India (RBI) has decided to change its accounting year from July-June to April- May.

• Accordingly, the next accounting year will be a nine-month period, which starts from July 2020 and ends on March 31, 2021.
• Thereafter, all the financial years will start from April every year, the RBI.
• The Bimal Jalan Committee on Economic Capital Framework (ECF) of the RBI had proposed a more transparent presentation of the RBI‘s annual accounts and change in its accounting year from July to June to April to March from the financial year 2020-21.

Regional Rural Banks (RRBs) are financial institutions which ensure adequate credit for agriculture and other rural sectors.

• Regional Rural Banks were set up on the basis of the recommendations of the Narasimham Working Group (1975), and after the legislations of the Regional Rural Banks Act, 1976.
• The first Regional Rural Bank “Prathama Grameen Bank” was set up on October 2, 1975. At present there are 82 RRBs in India.
• The equity of a regional rural bank is held by the Central Government, concerned State Government and the Sponsor Bank in the proportion of 50:15:35.
• The RRBs combine the characteristics of a cooperative in terms of the familiarity of the rural problems and a commercial bank in terms of its professionalism and ability to mobilise financial resources.
• Each RRB operates within the local limits as notified by Government.
• The main objectives of RRB’s are to provide credit and other facilities‚ especially to the small and marginal farmers‚ agricultural labourers artisans and small entrepreneurs in rural areas with the objective of bridging the credit gap in rural areas, checking the outflow of rural deposits to urban areas and reduce regional imbalances and increase rural employment generation.

Created by the Chicago Board Options Exchange (CBOE), the Volatility Index, or VIX, is a real-time market index that represents the market’s expectation of 30-day forward-looking volatility.

• Derived from the price inputs of the S&P 500 index options, it provides a measure of market risk and investors’ sentiments.
• It is also known by other names like “Fear Gauge” or “Fear Index”.
• Investors, research analysts and portfolio managers look to VIX values as a way to measure market risk, fear and stress before they take investment decisions.

Terming delays in highway projects as “unacceptable”, Road Transport and Highways Minister, asked officials and developers to strictly adhere to project schedules.

• Minister also launched online web portal ‘GATI’ on the pattern of ‘PRAGATI’, the portal used by the Prime Ministers’ Office for monitoring projects.
• The portal ‘GATI’ can be accessed from NHAI’s website, and contractors and concessionaires can raise any project-related issues on the platform, according to a statement by the Ministry of Road Transport and Highways.
• The issues raised on ‘GATI’ will be daily monitored by a team of NHAI officers and will be constantly reviewed by the senior officers of the National Highways Authority of India (NHAI) and the Ministry of Road Transport and Highways.

The Extended Fund Facility is lending facility of the Fund of the IMF and it was established in 1974 to help countries address medium- and longer-term balance of payments problems.

• The EFF is prescribed for a country who is suffering from balance of payment problem caused by structural weaknesses and who need fundamental economic reforms.
• The use of the facility has increased substantially in the recent crisis period.

Wholesale Price Index (WPI) measures the average change in the prices of commodities for bulk sale at the level of early stage of transactions.

The index basket of the WPI covers commodities falling under the three major groups namely Primary Articles, Fuel and Power and Manufactured products. (The index basket of the present 2011-12 series has a total of 697items including 117 items for Primary Articles, 16 items for Fuel & Power and 564 items for Manufactured Products.)