RBI Monetary policy

Urjit Patel- RBI Governor

The Reserve Bank of India today kept the repo rate(rate at which RBI loans short term funds to banks) unchanged at 6.25 percent and hiked the reverse repo rate(rate at which RBI borrows from banks) by 25 basis points to 6 percent. Inflation seen averaging 4.5 percent in the first half of this year and 5 percent in the second half. This is above the 4 percent which the RBI is targeting. Economy estimated to grow 7.4 percent this year, versus an estimated 6.7 percent last year. The RBI will shortly come out with a comprehensive plan to fix the bad loan problem, and also revive credit growth. At higher reverse repo, the central bank would suck cash from the system to control demand and cool prices. It will also encourage banks to park excess funds(they got from the deposit of outlawed old Rs 500 and Rs 1000 notes between November 8 and December 30, 2016.) with the RBI that will fetch higher returns.

Current rates:

Policy rates

Repo rate                                         6.25%

Reverse repo rate                             6.00%

Marginal Standing Facility(MSF)   6.50%

Bank Rate                                        6.50%

Reserve ratios

Cash Reserve Ratio(CRR)                    4.00%

Statutory Liquidity  ratio(SLR)           20.50%

BHIM launched

PM Narendra Modi has launched a mobile app Bharat Interface for Mobile (BHIM) which is a Unified Payment Intreface(UPI) application. Launch was held at the Digi Dhan Mela held in Talkatora stadium, New Delhi. It is Aadhaar-based payments app which easily allows transferring money or making a payment from your bank account using only phone number. It can work even on basic phones as it supports USSD payments. It has mobile wallet facility in which money can be loaded. Using it anyone can directly connect their phone to bank account like a debit card.

End of cards is near Amitabh Kant

Nowadays,all transactions are done digitally through credit and debit cards. Digital transactions and  ATMs were set to disappear,said by Niti Aayog CEO Amitabh Kant. Digital transaction through cards would disappear around by three to four years and it would move to mobile wallet and biometric modes. “Technology will be a key driver of India’s growth,” Kant said . “India believes in globalisation and it will continue to globalise and shall never talk of protectionism. As a result, it will emerge as an economy that would attract investments and growth and make India a hub of economic engagements par excellence". "Around 1500 companies have located their innovation centres in Hyderabad and Bangalore. India is the centre of frugal engineering"said Amitabh Kant.

New CERSAI chief

The Union Government has appointed Praveen Kumar Sharma as the Central Registrar (CR), Managing Director (MD) and Chief Executive Officer (CEO) of Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI). The Appointments Committeee of Cabinet has approved his appointment for 3 years. Prior to this appointment sharma was General Manager,State Bank of India.

About CERSAI:

CERSAI is a central online security interest registry of India. It is a Government company licensed under section 25 of the Companies Act, 1956. Its headquarters is in New Delhi.

It was primarily created to check frauds in lending against equitable mortgages, in which people would take multiple loans on the same asset from different banks.

CERSAI provides the platform for filing registrations of transactions of securitization, asset reconstruction and security interest by the banks and financial institutions.

Any person can also search and inspect the records maintained by the registry on payment of prescribed fees.

BTP Amendment Act

Benami Transactions (Prohibition) Amendment Act, 2016 (BTP Amendment Act), will come into force from 1st November 2016, notified by Income Tax Department. This Act is designed to curb black money. The new law amended the Benami Transactions Act, 1988 and renamed as the Prohibition of Benami Property Transactions (PBPT) Act, 1988. The Act defines benami transactions and also provides imprisonment upto seven years and fine for violation of the Act. The official notification says,‘The PBPT Act prohibits recovery of the property held benami from benamidar by the real owner. Properties held benami are liable for confiscation by the government without payment of compensation'.

Global wealth report

The total quantum of wealth in India is rising but disparity between rich and poor is also rising as per a report on global wealth published by Credit Suisse. The uneven growth has left 96 per cent of the adult population in India at the base of the wealth pyramid. Further, wealth in India is dominated by property and other real estate that make up 86 per cent of its estimated household assets, according to the global financial services major. However, a small fraction of the adult population (0.3%) has net worth of more than $100,000.

Indian Scenario: The wealth in India is mostly dominated by property and other real estate. It makes up 86% of its estimated household assets. The wealth in India in local currency terms increased 5.1% in 2016 but due to adverse currency exchange movements. India’s household wealth fell by 0.8% to $3 trillion in dollar terms. The annual growth of wealth per adult in rupees has averaged 6% between 2000 and 2016. The number of millionaires remained flat at 1.78 lakh with $973 billion in wealth. Among these, ultra high-networth individuals increased by 5.2% to 2,260, including 1,040 with more than $100 million. The number of millionaires in India is projected to increase by 9.5% in the next five years to 2.8 lakh in 2021. Meanwhile, the personal debts are estimated to be 9% of gross assets in India which is much lower than in most developed countries.

Global Scenario:Overall growth in wealth remained limited in 2016. It is continuing the trend that had emerged in 2013 and is contrasting sharply with the double-digit growth rates witnessed before the global financial crisis of 2008. The total global wealth in 2016 edged up by 1.4% or $3.5 trillion to a total of $256 trillion, a rise in line with the increase in the world’s adult population.

“Islamic window” in banking

Reserve Bank of India, has reportedly proposed opening of “Islamic window” in conventional banks for “gradual” introduction of Sharia-compliant or interest-free banking in the country.Both the Centre and RBI are exploring the possibility of introduction of Islamic banking for long to ensure financial inclusion of those sections of the society that remain excluded due to religious reasons.In this regard, RBI has also prepared a technical analysis report and submitted to the Union Finance Ministry for its consideration.

Islamic or Sharia banking is a finance system based on the principles of not charging interest. The charging of interest is prohibited under Islam. However, in recent times both the Union Government and the RBI have been exploring the possibility of introduction of Islamic banking for a while to ensure financial inclusion of those sections of society that have remain excluded due to religious reasons.

RBI monetary policy review

Reserve Bank of India (RBI) in its fourth bi-monthly monetary policy review for year 2016-17 has cut the repo rate by 25 basis points to 6.25%. This monetary policy decision was taken by the newly constituted Monetary Policy Committee (MPC).  This was also Urjit Patel’s maiden monetary policy announcement as RBI Governor.

Rates:

Repo rate under the liquidity adjustment facility (LAF): Reduced by 0.25 basis points to 6.25 percent.

Reverse repo rate under the LAF: It was adjusted to 5.75 per cent.

Marginal standing facility (MSF) and Bank Rate: It was adjusted to 6.75 per cent.

Reserve Ratios Cash Reserve Ratio (CRR) of scheduled banks: Unchanged at 4.0 per cent of net demand and time liability (NDTL).

Statutory Liquidity Ratio (SLR):20.75 per cent.

Eastern Dedicated Freight Corridor (EDFC)-III project gets world bank funding

The  Union Government and the World Bank signed a $650 million loan agreement for construction of the Eastern Dedicated Freight Corridor (EDFC)-III project.The project aims to enhance rail transport capacity, improve service quality and boost freight carriage on the 401-km- long Ludhiana-Khurja section of the EDFC. This project will provide the power and heavy manufacturing industries located in the Northern and Eastern parts of India. A smooth railway network for efficient transportation of their raw materials along with distribution of processed and consumer goods.

NWDA gets funding

National Bank for Agriculture and Rural Development (NABARD) sanctioned Rs 19,702 crore loan to National Water Development Agency (NWDA) for 50 irrigation projects from 11 states which was announced during the Budget 2016-17 under Long Term Irrigation Fund (LTIF).

The loan funds for these irrigation projects will help to create additional irrigation potential of 39.14 lakh hectares in 11 States. Thus, it will support government’s vision to double the farmers’ income by 2022 as providing assured irrigation to farmers is one of the important prerequisites to achieve that target.

This loan will be part of the Central share of assistance to State Governments.

It will ensure front loading of resources so that the identified incomplete irrigation projects under Pradhan Mandtri Krishi Sinchai Yojna (PMKSY) are executed in time.

Loan released by NABARD to NWDA would be disbursed to the respective State Governments as Central Share in the projects sanctioned.

ECB norms for start-ups eased

RBI with the view to boosting innovation and promoting job creation in the country eased external commercial borrowing(ECB) norms for start-ups.

 RBI allowed start-up companies recognized by the government to borrow up to $3 million in a financial year for three year tenure through ECB.The money raised can be used for any expenditure connected with the business of the company. “The borrowing can be in the form of loans or non-convertible, optionally convertible or partially convertible preference shares,” RBI said adding that it can be done in any convertible currency or in Indian rupees. 

Setu Bharatam

PM Modi launches ‘Setu Bharatam’ project which will build 208 rail-over bridges and rail-under bridges which aims to make all national highways free of railway crossings by 2019.  Around 1,500 bridges that are over 50 to 60 years old will be rebuild under the project. More than 50 thousand crore rupees will be spent on the project. Road Transport and Highways Minister Nitin Gadkari and Minister of State for Road Transport and Highways Pon Radhakrishnan were also present on the occasion. “Veins give strength to our body. Similarly, infrastructure will give speed and strength to the development of India. There will be progress if we focus on building road and railway network, optical fibre network, water, grid and electricity connectivity along with electricity supply. Our government is working in that direction,” Mr. Modi said on the occasion.

He said that developing rural roads is a priority for the government and it has got huge budgetary support this year. In Budget 2016-17, Rs. 19,000 crore has been sanctioned under the Pradham Mantri Gram Sadak Yojana (PMGSY), to connect all villages with roads, compared with Rs. 14,291 crore in the revised estimates of 2015-16.

Union Budget 2016-17 Summary for Competitive Exams

The highlights of union budget 2016 are

• Growth of Economy accelerated to 7.6% in 2015-16.
• Pradhan Mantri Fasal Bima Yojana(Prime Minister Crop Insurance Scheme) in which the premium rates to be paid by the farmers have been brought down substantially so as to enable more farmers avail insurance cover against crop loss on account of natural calamities. The scheme will come into effect from the upcoming Kharif season. Allocation under Prime Minister Fasal Bima Yojana Rs. 5,500 crore.
• Allocation for Agriculture and Farmers’ welfare is Rs. 35,984 crore
• ‘Pradhan Mantri Krishi Sinchai Yojana’ to be implemented in mission mode. 28.5 lakh hectares will be brought under irrigation.
• Implementation of 89 irrigation projects under Accelerated Irrigation Benefits Programme (AIBP), which are languishing for a long time, will be fast tracked
• A dedicated Long Term Irrigation Fund will be created in NABARD with an initial corpus of about Rs. 20,000 crore
• Programme for sustainable management of ground water resources with an estimated cost of Rs. 6,000 crore will be implemented through multilateral funding
• Promote organic farming through ‘Parmparagat Krishi Vikas Yojana’ and 'Organic Value Chain Development in North East Region'.
• Allocation under Pradhan Mantri Gram Sadak Yojana increased to Rs.19,000 crore. Will connect remaining 65,000 eligible habitations by 2019.
• Rs. 850 crore for four dairying projects - ‘Pashudhan Sanjivani’, ‘Nakul Swasthya Patra’, ‘E-Pashudhan Haat’ and National Genomic Centre for indigenous breeds
• A sum of Rs. 38,500 crore allocated for MGNREGS.
• 300 Rurban Clusters will be developed under the Shyama Prasad Mukherjee Rurban Mission
• 100% village electrification by 1st May, 2018.
• Rashtriya Gram Swaraj Abhiyan  with an allocation of  RS. 655 crore to be launched to strengthen the Panchayati Raj Institutions
• Allocation for social sector including education and health care Rs.1,51,581 crore.
• Rs. 2,000 crore allocated for initial cost of providing LPG connections to BPL families.
• New health protection scheme will provide health cover up to Rs. Onelakh per family. For senior citizens an additional top-up package up to Rs. 30,000 will be provided.
• 3,000 Stores under Prime Minister’s Jan Aushadhi Yojana will be opened during 2016-17.
• ‘National Dialysis Services Programme’ to be started under National Health Mission through PPP mode
• “Stand Up India Scheme” to facilitate at least two projects per bank branch. This will benefit at least 2.5 lakh entrepreneurs.
• Digital Depository for School Leaving Certificates, College Degrees, Academic Awards and Mark sheets to be set-up.
• Allocation for skill development – Rs. 1804. crore. 
• National Board for Skill Development Certification to be setup in partnership with the industry and academia
• 100 Model Career Centres to operational by the end of 2016-17 under National Career Service.
• Total investment in the road sector, including PMGSY allocation, would be Rs. 97,000 crore during 2016-17.
• India’s highest ever kilometres of new highways were awarded in 2015. To approve nearly 10,000 kms of National Highways in 2016-17.
• Allocation of Rs. 55,000 crore in the Budget for Roads. Additional Rs. 15,000 crore to be raised by NHAI through bonds
• Total outlay for infrastructure - Rs. 2,21,246 crore.
• 100% FDI to be allowed through FIPB route in marketing of food products produced and manufactured in India.
• Allocation of Rs. 25,000 crore towards recapitalisation of Public Sector Banks.
• Target of amount sanctioned under Pradhan Mantri Mudra Yojana increased to Rs 1,80,000 crore.
• Price Stabilisation Fund with a corpus of Rs. 900 crore to help maintain stable prices of Pulses. 
• “Ek Bharat Shreshtha Bharat” programme will be launched to link States and Districts in an annual programme that connects people through exchanges in areas of language, trade, culture, travel and tourism.
• Fiscal deficit in RE 2015-16 and BE 2016-17 retained at 3.9% and 3.5%.
• Revenue Deficit target from 2.8% to 2.5% in RE 2015-16
• Total expenditure projected at Rs. 19.78 lakh crore
• Plan expenditure pegged at Rs. 5.50 lakh crore under Plan, increase of 15.3%
• Non-Plan expenditure kept at Rs. 14.28 lakh crores
• Mobilisation of additional finances to the extent of Rs. 31,300 crore by NHAI, PFC, REC, IREDA, NABARD and Inland Water Authority by raising Bonds. 
• Committee to review the implementation of the FRBM Act.
• Raise the ceiling of tax rebate under section 87A from Rs.2000 to Rs.5000 to lessen tax burden on individuals with income upto Rs.5 laks. 
• Increase the limit of deduction of rent paid under section 80GG from Rs.24000 per annum to Rs.60000, to provide relief to those who live in rented houses.
• New manufacturing companies incorporated on or after 1.3.2016 to be given an option to be taxed at 25% + surcharge and cess provided they do not claim profit linked or investment linked deductions and do not avail of investment allowance and accelerated depreciation.
• Lower the corporate tax rate for the next financial year for relatively small enterprises i.e companies with turnover not exceeding Rs. 5 crore (in the financial year ending March 2015), to 29% plus surcharge and cess.
• 100% deduction of profits for 3 out of 5 years for startups setup during April, 2016 to March, 2019. MAT will apply in such cases. 
• Commitment to implement General Anti Avoidance Rules (GAAR) from 1.4.2017.
• Withdrawal up to 40% of the corpus at the time of retirement to be tax exempt in the case of National Pension Scheme (NPS). Annuity fund which goes to legal heir will not be taxable.
• Krishi Kalyan Cess, @ 0.5% on all taxable services, w.e.f. 1 June 2016. Proceeds would be exclusively used for financing initiatives for improvement of agriculture and welfare of farmers. Input tax credit of this cess will be available for payment of this cess. 

global growth forecast

A further sharp downturn in emerging market economies and world trade has weakened global growth to around 2.9 percent this year – well below its long-term average – and is a source of uncertainty for near-term prospects, the Organisation for Economic Co-operation and Development (OECD).In its latest twice-yearly Economic Outlook, the OECD projected a gradual strengthening of global growth in 2016 and 2017 to 3.3 percent and 3.6 percent, respectively, but said any pick-up would require a smooth rebalancing of activity in China and more investment in advanced economies.

Policy rates and reserve ratios

Policy Rates

Policy Repo Rate : 6.75%
Reverse Repo Rate : 5.75%
Marginal Standing Facility Rate : 7.75%
Bank Rate : 7.75%

Reserve Ratios

CRR : 4%

SLR   : 21.5%

Kelkar panel recommends 100% free irrigation, power to farmers

The Vijay Kelkar Committee,Maharashtra, has recommended “100% free irrigation and power facilities” to farmers of Marathwada and Vidarbha regions to stop suicide by farmers.

The report has directed the government to restructure Regional Development Boards (RDB) with the Chief Minister as the Chairman and their “empowerment” by entrusting planning, approval, execution and monitoring as well as its further enhancement by establishing separate regional secretariats.

Mid-Year Economic Review projects 5.5 per cent growth

 The Mid-Year Economic Analysis for the current year, tabled in Parliament by Union Finance Minister Arun Jaitley,  projects 2014-15 growth will be 5.5 per cent. India faces challenges that are mostly domestic.India grew at sub-5 per cent for the last two years. Growth bounced to 5.7 per cent in the April-June quarter before slipping again to 5.3 per cent in the July-September quarter. Chief  Economic Advisor (CEA) Arvind Subramanian told reporters after the Review '' What we are yet to see decisively is private investment picking up''. 

                                          Dr. Subramanian said that the rupee is weakenng. It is weakening against the dollar, which, he clarified, is strengthening against the other major currencies. Against a broader basket of currencies, the rupee has become stronger by 10 per cent since September, 2013.The CEA  said that inflation has come down dramatically for four reasons — policy actions by the Reserve Bank and the government; declining agricultural prices; declining oil prices; and the economy growing slower than its potential.

RBI policy rates and reserve ratios

Policy Rates

Bank Rate                                : 8.75%
Repo Rate                                : 7.75%
Reverse Repo Rate                   : 6.75%
Marginal Standing Facility Rate : 8.75%

Reserve Ratios

CRR     : 4%

SLR      : 23%

Click to know more...

New Companies Bill passed in RS: Key highlights

The New Companies Bill was finally passed in Rajya Sabha today, making it mandatory for profit making companies to spend on activities related to Corporate Social Responsibility (CSR).

With the new legislation, India would possibly become the first country to have Corporate Social Responsibility (CSR) spending through a statutory provision.

The Bill, aimed at enhancing corporate governance, also contains provisions to strengthen regulations for corporates as well as auditing firms and promises  to ensure  an equitable and sustainable growth of the country.

Presenting the bill in Parliament, Corporate Affairs Minister Sachin Pilot termed the passage of the Bill as a new era for corporate law and regulation in Indian economy and said this is a ‘historic moment for the country.”

Food Security Ordinance signed

President Pranab Mukherjee today signed Food Security Ordinance, paving way for implementation of the controversial Food Security Bill. Ordinance will give nation's two-third population the right to 5 kgs of foodgrain every month at highly subsidised rates of Rs 1-3 per kg.  At Rs 125,000 crore of government support, the food security programme will be the largest in the world.
"India is producing 214 million tonnes of food grain and what we need is 62 and we procure 30%. Last season we procured 82 million tonnes and as I speak now, storage is going to be 73-74 million, so we have enough food grains with us,"  Food minister K V Thomas said.
About 2.43 crore poorest of the poor families covered under the Antyodaya Anna Yojana (AAY) scheme under PDS (Public Distribution System) would continue to get 35 kg of foodgrains per family per month but with legal entitlement.