Daily Quiz: UPSC Prelims Marathon (Economy) – September 15, 2020

The “developing country” status allows a member of the WTO to seek temporary exception from the commitments under various multilateral trade agreements ratified by the organization.

• It was introduced during the initial days of the WTO as a mechanism to offer some respite to poor countries while they try to adjust to a new global trade order marked by lower barriers to trade.
• Countries such as India and China, while seeking exception from various WTO agreements, have argued that their economic backwardness should be considered when it comes to the timeline of implementation of these agreements.
• The issue of farm subsidies, for instance, is one over which rich and poor countries have had major disagreements.
• The WTO, however, does not formally classify any of its members as a developing country.
• Individual countries are allowed to unilaterally classify themselves as developing economies.
• So, as many as two-thirds of the 164 members of the WTO have classified themselves as developing countries.

The RBI had formed a committee chaired by former Governor Bimal Jalan to review its economic capital framework and suggest the quantum of excess provision to be transferred to the government.

• The committee was formed after a demand from the government for more money. The RBI Board has accepted all the recommendations of the Jalan committee.
• The Reserve Bank of India (RBI) at its board meeting (August 2019) decided to transfer a whopping ₹1.76 lakh crore to the Centre — including interim dividend of ₹28,000 crore paid in February — which is likely to address the precarious fiscal situation of the government to a great extent.
• The panel recommended a clear distinction between the two components of economic capital – realized equity and revaluation balances.
• It was recommended that realized equity could be used for meeting all risks/ losses as they were primarily built up from retained earnings, while revaluation balances could be reckoned only as risk buffers against market risks as they represented unrealized valuation gains and hence were not distributable.
• The committee also recognised that RBI’s provisioning for monetary, financial and external stability risks is the country’s savings for a ‘rainy day’,  (a monetary or financial stability crisis), which has been consciously maintained with the RBI in view of its role as the Monetary Authority and the Lender of Last Resort.

“This risk provisioning made primarily from retained earnings is cumulatively referred to as the Contingent Risk Buffer (CRB) and has been recommended to be maintained within a range of 6.5% to 5.5% of the RBI’s balance sheet,” the RBI statement said.

The Centre had announced the PCGS in July 2019, allowing public sector banks to purchase high-rated pooled assets from financially sound NBFCs and housing finance companies (HFCs).

• As a part of its Aatmanirbhar initiative, finance minister had extended the scheme in May to cover primary market issuance of bonds by NBFCs, HFCs and micro finance institutions (MFIs) with low credit ratings.
• The idea was to provide liquidity support to institutions with low credit ratings and ensure continuity of credit support to small businesses.

Gig economy can be defined as a work engagement where on one side, there is a service seeker i.e. a consumer with a demand for a specific task, and on the other side, and there is a service provider i.e. a gig worker who can perform that specific task.

• A gig economy undermines the traditional economy of full-time workers who rarely change positions and instead focus on a lifetime career.
• In this economy, tech-enabled platforms connect the consumer to the gig worker to hire services on a short-term basis.
• Gig workers include self-employed, freelancers, independent contributors and part-time workers.
• The digital gig economy generated a gross volume of approximately $204 bn from worldwide customers in 2018.
• Transportation-based services contributed to over 50% of this value. The size of the gig economy is projected to grow by a 17% CAGR and generate a gross volume of ~$455 bn by 2023.
• India has emerged as the 5th largest country for flexi-staffing after US, China, Brazil and Japan.
• Haryana, Madhya Pradesh, Andhra Pradesh, Gujarat and Telangana have most opportunities in terms of growth for the flexi-workers.

The largest of the mergers announced is that of Punjab National Bank with Oriental Bank of Commerce and United Bank.

• The amalgamated entity — to be called Punjab National Bank — will become the second-largest public sector bank in India, after the State Bank of India.
• It will also become the second-largest bank in India in terms of its branch network, with a combined total of 11,437 branches.
• The second merger announced was that of Canara Bank and Syndicate Bank, which would render the merged entity the fourth-largest public sector bank.
• The merger also has the potential to lead to large cost reductions due to network overlaps, adding that the similar business cultures of the two banks would also facilitate a smooth transition.
• The third merger is of Union Bank of India with Andhra Bank and Corporation Bank, the Finance Minister said, which would make the merged entity the fifth largest public sector bank.
• This merger would have the potential to increase the post-merger bank’s business by 2-4.5 times.
• The fourth merger announced is of Indian Bank and Allahabad Bank.
• This, too, would lead to a doubling of the size of the business and would also lead to a huge potential for scaling up due to the complementary networks of the two banks.

Following all these mergers, the country will have a total of 12 public sector banks, half of which—Punjab National Bank, Canara Bank, Union Bank of India, Indian Bank, State Bank of India, and Bank of Baroda—will be able to compete at a global level.

On August 26, the Reserve Bank of India (RBI) central board decided to transfer ₹1.76 lakh crore to the government (including a sum of ₹52,637 crore from its contingency reserve), a move that is likely to address the Central government’s precarious fiscal situation.

• The transfer amount included the payment of dividend worth ₹1.23 lakh crore, and funds from its reserves, as identified under a new economic capital framework (ECF) adopted by the RBI board.
• The RBI had formed a committee chaired by former RBI Governor Bimal Jalan to review its ECF last year.
• Each year, the RBI transfers to the government any money in its balance sheet that it deems to be beyond its operational and contingency needs. The RBI’s transfer of funds to the government per se is nothing new.
• But what has raised eyebrows this time is that the amount of funds being transferred by the central bank to the government this year is much higher than earlier — 146.8% more than what it had paid out last year, when it transferred ₹50,000 crore as dividend.
• Previously, the highest amount of surplus funds that the RBI had transferred to the government was ₹65,896 crore in 2014-15.
• The net surplus figures are: ₹52,683 (2013-14); ₹65,896 (2014-15); ₹65,880 (2015-16); ₹30,659 (2016-17) and ₹50,000 (2017-18).

In terms of recommendations of the Committee on Financial Benchmarks set up by Reserve Bank of India (February 2014) to review the systems governing major financial benchmarks in India, Fixed Income Money Market & Derivative Association of India (FIMMDA) and Foreign Exchange Dealers’ Association of India (FEDAI) were identified as benchmark administrators for the Indian rupee interest rate benchmarks and Foreign exchange benchmarks respectively.

• Financial Benchmark India Private Ltd (FBIL) was jointly promoted by Fixed Income Money Market & Derivative Association of India (FIMMDA), Foreign Exchange Dealers’ Association of India (FEDAI) and Indian Banks’ ‘Association (IBA).
• It was incorporated on 9th December 2014 under the Companies Act 2013.
• It was recognised by Reserve bank of India as an independent Benchmark administrator on 2nd July 2015.
• The company is run by a Board of Directors, assisted by an oversight committee.
• The main object of the company is to act as the administrators of the Indian interest rate and foreign exchange benchmarks and to introduce and implement policies and procedures to handle the benchmarks.
• It also will make policies for possible cessation of any benchmark and to follow steps for ensuring orderly transition to the new benchmarks.
• FBIL will review each benchmark to ensure that the benchmarks accurately represent the economic realities of the interest that it intends to measure.
• It will take up/consider such other benchmarks as may be required from time to time by periodically assessing the emerging needs of the end -users.

The Reserve Bank of India (RBI) made it mandatory for all banks to link floating rate loans — to retail customers and loans to micro, small and medium enterprises (MSME) — to an external benchmark.

• Some banks have already started to link home and auto loan rates to the repo rate, which is an external benchmark.
• “The RBI, therefore, has issued a circular making it mandatory for banks to link all new floating rate personal or retail loans and floating rate loans to MSMEs to an external benchmark effective October 1, 2019.”
• The norms for external benchmark linking of interest rates was scheduled to be operational from April 1, but was deferred.
• At present, interest rates on loans are linked to a bank’s marginal cost of fund-based interest rate (MCLR).
• Banks can choose from one of the four external benchmarks — repo rate, three-month treasury bill yield, six-month treasury bill yield or any other benchmark interest rate published by Financial Benchmarks India Private Ltd.

The World Gold Council’s 28 Members are some of the world’s most forward-thinking gold mining companies. They are headquartered across the world and have mining operations in over 45 countries.

India has piped the Netherlands to move into the list of top ten countries in terms of total gold reserves.

• According to the World Gold Council, India has gold reserves totalling 618.2 tonnes, which is marginally higher than the Netherlands’ reserves of 612.5 tonnes.
• Interestingly, in terms of individual countries, India actually ranks ninth since the International Monetary Fund (IMF) occupies the third position after the U.S. and Germany.
• According to the latest release by the World Gold Council, U.S. leads the country list with total gold reserves of 8,133.5 tonnes followed by Germany with 3,366.8 tonnes.
• While the IMF is ranked third with a holding of 2,451.8 tonnes, it is followed by countries such as Italy (2,451.8 tonnes), France (2,436.1 tonnes), Russia (2,219.2 tonnes), China (1,936.5 tonnes), Switzerland (1,040 tonnes) and Japan (765.2 tonnes) before India at the 10th spot.

India’s entry into the list of top ten countries comes at a time when the quantum of monthly purchases is the lowest in over three years.

Presently, India is rated by six international credit rating agencies, namely Standard and Poor’s (S&P), Moody’s Investor Services, FITCH, Dominion Bond Rating Service (DBRS), the Japanese Credit Rating Agency (JCRA), and the Rating and Investment Information Inc., Tokyo(R&I).