Daily Quiz: UPSC Prelims Marathon – March 24, 2020

The Minimum Alternate Tax (MAT) is a direct tax imposed on the ‘zero tax’ companies at the rate of 18.5 per cent on their book profit. This was first imposed in 1997–98. Basically, income tax is paid as per the provisions of the Income Tax Act (IT Act), but companies calculate their profit (through profit and loss account) as per the provisions of the Companies Act. The IT Act allows several kinds of exemptions and other incentives from total income together with deductions on the gross income. Again, the rates of ‘depreciation’ under the Companies Act are higher than the IT Act. As a result of these exemptions, deductions and other incentives under IT Act together with higher depreciation under the Companies Act, companies show their taxable income either ‘nil’ or ‘negative’, and this way; the ‘zero tax’ companies emerge.

The WTO provides a rule based, transparent and predictable multilateral trading system. The WTO rules envisage non-discrimination in the form of National Treatment and Most Favoured Nation (MFN) treatment to India’s exports in the markets of other WTO Members. National Treatment ensures that India’s products once imported into the territory of other WTO Members would not be discriminated vis-à-vis the domestic products in those countries. MFN treatment principle ensures that members do not discriminate among various WTO members.

As part of the Economic Reforms Programme initiated in 1991, the foreign investment policy of the Government of India was liberalised and negotiations undertaken with a number of countries to enter into Bilateral Investment Promotion & Protection Agreement (BIPA) in order to promote and protect on reciprocal basis investment of the investors. Government of India have, so far, (as by July 2012) signed BIPAs with 82 countries out of which 72 BIPAs have already come into force and the remaining agreements are in the process of being enforced. In addition, agreements have also been finalised and/or being negotiated with a number of other countries. The objective of the BIPA is to promote and protect the interests of investors of either country in the territory of other country. Such agreements increase the comfort level of the investors by assuring a minimum standard of treatment in all matters and provides for justifiability of disputes with the host country (it should be noted here that India is not a member of the World Bank group’s body, the ICSID, serving the same purpose. BIPA is India’s version. While the former is a multilateral body, the latter is a bilateral one).

The International Development Agency (IDA) which is also known as the soft window of the WB was set up in 1960 with the basic aim of developing infrastructural support among the member nations, long-term lending for the development of economic services. Its loans, known as credits are extended mainly to economies with less than $895 per capita income. The credits are for a period of 35–40 years, interest-free, except for a small charge to cover administrative costs. Repayment begins after a 10-year grace period. There was no human angle to its lending. But now there remain no hard and fast differences between the purposes for the IBRD and IDA lending. Every year developing nations make enough diplomatic attempts to carve out maximum loan disbursal for themselves. India had been the biggest beneficiary of the IDA support. The total support (IBRD + IDA) for India had been $ 91.81 billion till date.

Repos and Reverse Repos: In the era of economic reforms there developed two new instruments of money market-repo and reverse repo. Considered the most dynamic instruments of the Indian money market they have emerged the most favored route to raise short-term funds in India. ‘Repo’ is basically an acronym of the rate of repurchase. The RBI in a span of four years, introduced these instruments-repo in December 1992 and reverse repo in November 1996. Repo allows the banks and other financial institutions to borrow money from the RBI for short-term (by selling government securities to the RBI). In reverse repo, the banks and financial institutions purchase government securities from the RBI (basically here the RBI is borrowing from the banks and the financial institutions). All government securities are dated and the interest for the repo or reverse repo transactions is announced by the RBI from time to time. The provision of repo and the reverse repo have been able to serve the liquidity evenness in the economy as the banks are able to get the required amount of funds out of it, and they can park surplus idle funds through it. These instruments have emerged as important tools in the management of the monetary and credit policy in recent years.