Daily Quiz: UPSC Prelims Marathon (Economy) – August 4, 2020

National Small Savings Fund (NSSF) was established in 1999 within the Public Account of India for pooling the money from different small saving schemes (SSSs).

• Collections from all small savings schemes are credited to the NSSF.
• Similarly, withdrawals under small savings schemes by the depositors are made out of this Fund.
• The money in the account is used by the centre and states to finance their fiscal deficit.
• The balance in the Fund is invested in Central and State Government Securities.
• Pattern of utilization of the fund among the centre and states is decided from time to time by the Government of India.

LAF is a facility extended by the Reserve Bank of India to the scheduled commercial banks (excluding RRBs) and primary dealers to avail of liquidity in case of requirement or park excess funds with the RBI in case of excess liquidity on an overnight basis against the collateral of Government securities including State Government securities. Basically LAF enables liquidity management on a day to day basis.

Consumer Price Index or CPI as it is commonly called is an index measuring retail inflation in the economy by collecting the change in prices of most common goods and services used by consumers. Base Year for CPI is 2012.

• Wholesale Price Index, or WPI, measures the changes in the prices of goods sold and traded in bulk by wholesale businesses to other businesses.
• With an aim to align the index with the base year of other important economic indicators such as GDP and IIP, the base year was updated to 2011-12 from 2004-05 for the new series of Wholesale Price Index (WPI), effective from April 2017.
• The present base year for gross domestic product is 2011-12.

The government has set up a working group under Niti Aayog member Ramesh Chand to revise the current series of Wholesale Price Index (WPI) with base 2011-12 and devise a new Producer Price Index (PPI).

• The group will review the commodity basket of the current series of WPI, suggest changes in commodities in the light of structural changes in the economy witnessed since 2011-12 and decide on the computational methodology to be adopted for monthly WPI/PPI.
• The government had in 2014 constituted a committee under Professor BN Goldar to devise a PPI after the Reserve Bank of India began considering consumer price inflation as a better gauge of inflation than WPI.

The agricultural credit flow target for 2019-20 has been fixed at 13,50,000crore and till 30th November, 2019, a sum of 9,07,843.37crore has been disbursed.

• The regional distribution of agricultural credit in India is highly skewed.
• It is observed that credit is low in North Eastern, Hilly and Eastern States.
• The share of North Eastern States has been less than one percent in total agricultural credit disbursement.

The Reserve Bank of India (RBI) has introduced a separate channel, namely ‘Fully Accessible Route’ (FAR), to enable non-residents to invest in specified government bonds with effect from April 1, 2020.

• The move follows the Union Budget announcement that certain specified categories of government bonds would be opened fully for non-resident investors without any restrictions.
• Under FAR, eligible investors can invest in specified government securities without being subject to any investment ceilings.
• This scheme shall operate along with the two existing routes, viz., the Medium Term Framework (MTF) and the Voluntary Retention Route (VRR).

AT-1, short for Additional Tier-1 bonds, are a type of unsecured, perpetual bonds that banks issue to shore up their core capital base to meet the Basel-III norms.

• After a string of banks turned turtle in the global financial crisis, central banks got together and decided to formulate new rules (called the Basel-III norms) that would make them maintain stronger balance sheets.
• In India, one of the key new rules brought in was that banks must maintain capital at a minimum ratio of 11.5 per cent of their risk-weighted loans. Of this, 9.5 per cent needs to be in Tier-1 capital and 2 per cent in Tier-2.
• Tier-1 capital refers to equity and other forms of permanent capital that stays with the bank, as deposits and loans flow in and out.

CDS is in operation in India since October 2011-launched in only corporate bonds.

• The eligible participants are commercial banks, primary dealers, NBFCs, insurance companies and mutual funds.
• CDS is a credit derivative transaction in which two parties enter into an agreement, whereby one party (called as the ‘protection buyer’) pays the other party (called as the ‘protection seller’) periodic payments for the specified life of the agreement.
• The protection seller makes no payment unless a credit event relating to a pre-determined reference asset occurs.
• If such an event occurs, it triggers the Protection Seller’s settlement obligation, which can be either cash or physical (India follows physical settlement).
• It means, CDS is a credit derivative that can be used to transfer credit risk from the investor exposed to the risk (called protection buyer) to an investor willing to take risk (called protection seller).
• It operates like an insurance policy. In an insurance policy, the insurance firm pays the loss amount to the insured party.

FERA was mainly formulated to deal with deep crunch of foreign exchange post world war II and hence was a rigid piece of legislation which have left all the businesspeople and Indian citizens at the mercy of Enforcement Directorate as violence of FERA was considered a criminal act and there were major penalties associated with it.

• FEMA or Foreign Exchange Management Act was introduced in the year 1999 to replace FERA (Foreign Exchange Regulations Act). FEMA came into act on 1st of June 2000.
• The Scope and Objective of FEMA was mainly to amend the laws related to foreign exchange to facilitate external trade and payments and to develop the foreign exchange market in India.
• FEMA was a liberal from of its prior version (FERA). It extends to whole of the country. It introduced resident ship in place of citizenship.
• FEMA is more human and natural in nature and removed all kinds of restrictions on withdrawal of foreign exchange.
• FEMA also introduced RFC (Resident foreign currency account). It specifically deals with possession and retention of foreign currency and includes all kinds of foreign securities and immovable property.

Farm subsidies form an integral part of the government’s budget.

• In the case of developed countries, the agricultural or farm subsidies compose nearly 40 per cent of the total budgetary outlay, while in India’s case it is much lower (around 7.8 per cent of GDP) and of different nature.
• The World Trade Organization (WTO) has put some ceilings on the amount of direct and indirect subsidies being provided by the various developing and developed nations due to the fact that these subsidies distort the free market forces which have their own implications.