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Prospect Theory

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Indian Institute of Technology Madras (IIT Madras) researchers recently devised a mathematical model on contract farming to predict farmers’ delivery of commodities using a decision-theoretic framework based on the ‘Prospect Theory.’

About Prospect Theory:

  • It is a psychology theory that describes how people make decisions when presented with alternatives that involve risk, probability, and uncertainty.
  • The theory was introduced by two psychologists, Daniel Kahneman, and Amos Tversky, to describe how humans make decisions when presented with several choices.
  • It holds that people make decisions based on perceived losses or gains.
  • Prospect theory assumes that losses and gains are valued differently, and thus individuals make decisions based on perceived gains instead of perceived losses. Individuals are particularly averse to losing what they already have and less concerned to gain.
  • Also known as the “loss-aversion” theory, the general concept is that if two choices are put before an individual, both equal, with one presented in terms of potential gains and the other in terms of possible losses, the former option will be chosen.
  • For example, most people prefer winning $50 with certainty rather than taking a risky bet in which they can toss a coin and either win $100 or nothing.
  • Applications:
    • The theory finds application in behavioural finance and economics.
    • It is used to evaluate various aspects of political decision-making in international relations


Countervailing Duty (CVD)

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The finance ministry is considering a proposal to impose a countervailing duty on steel imports from China.

About Countervailing duty (CVD):

  • It is a specific form of duty that the government imposes to protect domestic producers by countering the negative impact of import subsidies.
  • CVD is thus an import tax by the importing country on imported products.
  • The World Trade Organization (WTO) permits the imposition of CVD by its member countries.
  • Why is CVD imposed?
    • Foreign governments sometimes provide subsidies to their producers to make their products cheaper and boost their demand in other countries.
    • To avoid flooding the market in the importing country with these goods, the government of the importing country imposes CVD, charging a specific amount on the import of such goods.
    • The duty nullifies and eliminates the price advantage enjoyed by an imported product.
    • The duty raises the price of the imported product, bringing it closer to its true market price
  • Who administers CVD in India?
    • The countervailing measures in India are administered by the Directorate General of Anti-dumping and Allied Duties (DGAD), in the commerce and industry ministry’s department of commerce. 
    • While the department of commerce recommends the CVD, the department of revenue in the finance ministry acts upon the recommendation within three months and imposes such duties.

What is Anti-dumping duty (AD)?

  • It is a protectionist tariff that a domestic government imposes on foreign imports that it believes are priced below fair market value.
  • Dumping is a process wherein a company exports a product at a price that is significantly lower than the price it normally charges in its home (or its domestic) market.

Countervailing duty v/s Anti-dumping duty;

  • AD is imposed to prevent low-priced foreign goods from damaging the local market. On the other hand, CVD will apply to foreign products that have enjoyed government subsidies, which eventually leads to very low prices.
  • While the AD duty amount depends on the margin of dumping, the CVD amount will completely depend upon the subsidy value of the foreign goods


Export-Import Bank of India (EXIM Bank)

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MD of EXIM Bank of India recently said that India’s future Lines of Credit (LoCs) to Africa could focus on defence exports to meet the requirements of the continent.

About Export-Import Bank of India (EXIM Bank):

  • It is the premier export finance institution of the country.
  • It was established by the Government of India, under the Export-Import Bank of India Act, 1981
  • EXIM Bank wholly owned by the Government of India.
  • Services:
    • EXIM Bank provides financial assistance to exporters and importers.
    • It extends Lines of Credit (LOCs) to overseas financial institutions, regional development banks, sovereign governments and other entities overseas, to enable buyers in those countries to import developmental and infrastructure projects, equipment, goods and services from India, on deferred credit terms. 
    • It functions as the principal financial institution for coordinating the work of institutions engaged in financing export and import of goods and services with a view to promoting the country’s international trade.
  • Structure:
    • The operations of the Bank are governed by a Board of Directors. 
    • The Board of Directors consists of a chairman, a managing director, two deputy managing directors; one director each nominated by the Reserve Bank of India; IDBI Bank Ltd. and ECGC Ltd.; and not more than 12 directors nominated by the Central Government.

What is a Line of Credit (LoC)?

  • It is a preset borrowing limit that can be tapped into at any time.
  • All LOCs consist of a set amount of money that can be borrowedas needed, paid back, and borrowed again.
  • The borrower can take money out as needed until the limit is reached.
  • As money is repaid, it can be borrowed again in the case of an open line of credit.


Execution-only platform (EOP)

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Recently, the Securities and Exchange Board of India (SEBI) issued a circular, creating a new category of intermediaries called execution-only platforms (EOPs).

About Execution only platform (EOP)

  • It is a digital or online platform which facilitates transactions such as subscription, redemption and switch transactions in direct plans of schemes of mutual funds.
  • Till now, there was no specific framework available for technology/digital platforms (including platforms provided by Investment Advisers/Stock Brokers to non-clients) to provide execution-only services in direct plans of mutual fund schemes.
  • As per the new SEBI’s new guidelines, no entity would be allowed to operate as an EOP without obtaining registration from SEBI or the Association of Mutual Funds in India (AMFI).
  • Categories of EOP: The capital markets regulator has divided EOPs into two categories.
    • Category 1 EOPs: These would need to be registered with AMFI, the mutual fund industry body.
    • Under this category, the EOPs would act as an agent of asset management companies (AMCs) and integrate their systems with AMCs and/or Registrar and Transfer Agents (RTAs) authorized by AMCs to facilitate transactions in mutual funds.
    • These entities may act as an aggregator of the transactions in direct plans of schemes of mutual funds and provide services to investors or other intermediaries.
    • Category 2 EOPs: These would need to be registered as a stock broker with SEBI and can operate as an agent of investors and operate only through the platforms provided by the stock exchanges.

What is Mutual Fund?

  • It is a pool of money managed by a professional Fund Manager.
  • It is a trust that collects money from a number of investors who share a common investment objective and invests the same in equities, bonds, money market instruments and/or other securities.


Insolvency and Bankruptcy Board of India (IBBI)

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Insolvency regulator, IBBI, proposes to stipulate mandatory audit of Insolvency Resolution Process Costs (IRPC) in resolution cases where the assets of the corporate debtor (CD) is in excess of ₹ 100 crore.

 

About Insolvency and Bankruptcy Board of India (IBBI):

  • It was established on 1st October 2016 under the Insolvency and Bankruptcy Code (IBC), 2016.
  • It is responsible for the implementation of the IBC. The IBC amends and consolidates the laws relating to insolvency resolution of individuals, partnership firms and corporate persons in a time-bound manner. 
  • Functions:
    • The IBBI regulates professionals as well as processes.
    • It has regulatory oversight over the insolvency professional agencies, insolvency professional entities, insolvency professionals and information utilities.
    • It enforces rules for processes of corporate insolvency resolution, individual insolvency resolution, corporate liquidation and individual bankruptcy under the IBC.
    • It specifies the minimum eligibility requirements for registration of insolvency professional agencies, insolvency professionals and information utilities and curriculum for the qualifying examination of the, insolvency professionals for their enrolment.
    • It collects and maintains records relating to insolvency and bankruptcy cases and disseminate information relating to such cases.
  • Constitution: The Board consists of the following members who are appointed by the Central Government,
    • A Chairperson.
    • Three members from among the officers of the Central Government equivalent or not below the rank of a Joint Secretary. Out of the three members, each will represent the Ministry of Finance, Ministry of Corporate Affairs and Ministry of Law, ex -officio. 
    • One member nominated by the RBI (Reserve Bank of India), ex-officio. 
    • Five other members nominated by the Central Government, out of which at least three should be whole-time members. 
    • The term of office of the Chairperson and members (other than ex-officio members) is five years or until they attain sixty-five years, whichever is earlier, and they are eligible for re-appointment


New Development Bank (NDB)

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Honduras President recently requested the country’s admission to the BRICS-led New Development Bank (NDB).

About New Development Bank (NDB):

  • NDB, formerly referred to as the BRICS Development Bank, is a multilateral development bank established by the BRICS countries (Brazil, Russia, India, China and South Africa).
  • Objective: Financing infrastructure and sustainable development projects in BRICS and other emerging economies and developing countries.
  • The idea of setting up NDB was first conceived in 2012 during BRICS Summit in New Delhi, India. The Bank formally came into existence as a legal entity in 2015.
  • Headquarters: Shanghai, China
  • The first regional office of the NDB was setup in Johannesburg, South Africa. The second regional office was established in 2019 in São Paulo, Brazil, followed by Moscow, Russia.
  • Capital: The Bank has an initial authorized capital of 100 billion dollars and an initial subscribed capital of 50 billion dollars.
  • Membership in NDB is open to any member of the United Nations.
  • Governance Structure:
    • The Bank is governed by a Board of Governors made up of the finance ministers of the five BRICS countries, and a Board of Directors.
    • Voting power within the Board is based on each country’s shares in the bank.
    • While new members can join the NDB, the five BRICS countries will retain a minimum of 55% of total shares.
    • The NDB’s management includes a presidency which rotates among BRICS members, and four vice presidents who are selected from the remaining BRICS countries


Politics and Economics of MSP

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Recently, the Union government announced the MSPs (minimum support prices) for 17 crops in this year’s Kharif season.

Key details:

  • MSPs play a very significant role not just for India’s farmers and the farm economy but also for India’s consumers and the kind of food prices they face.
  • That is why MSP announcements are keenly watched and often deeply politicised.
  • The MSP announcements could prove of critical political significance, apart from their economic impact.

What are MSPs?

  • MSPs are “support prices” announced by the government (and sometimes state governments add a bonus amount to them).
  • The intended aim in announcing them is to provide a safety net for farmers.
  • Need and significance of MSP:
    • Given the acute lack of warehousing and cold storage in India, a farmer has little bargaining power in the market.
    • If the market prices are below the farmer’s cost of production they and their families can be ruined.
    • Widespread distress of this kind tends to have broader ramifications as well.
      • For example, if one particular crop, say cotton, led to the ruin of many farmers, then farmers will avoid growing cotton next season.
      • This, in turn, will reduce supply and push up prices.
    • By announcing MSPs, the government makes a promise that it will buy (called procurement) from farmers at the announced prices.
    • Since MSPs are calculated in such a manner that covers the basic costs of cultivation, the hope is that MSPs will save farmers from ruin.
    • The other big purpose of MSPs is to serve as a tool in the hands of the policymakers to tweak the production pattern.
      • If the government wants to incentivise the production of pulses, as against paddy (rice), then it can give a relatively higher hike in MSP of pulses than the MSPs for paddy.

Does the government actually buy all crops at MSPs?

  • While the government announces MSPs for a whole host of crops both in the Rabi (winter) and the Kharif (summer) season, it procures only a few of those crops and that too from only a few states.
  • Only few Kharif crops benefit from government procurement.
    • While around 45% of the paddy produced is procured at MSP, it is about 25% in case of cotton and only 1-3% in case of pulses.
  • The procurement is concentrated in only a few states:
    • Punjab, Haryana, western Uttar Pradesh, Chhattisgarh, and Telangana for paddy
    • Telangana and Maharashtra for cotton
    • Maharashtra and Karnataka for pulses

Economic and political aspects of MSP announcements

  • Political aspects:
    • India’s farm economy doesn’t really fully adhere to market principles.
      • Partly that’s because national food security is a strategic concern.
    • If large a population is involved in farming as it is in India, then it is unlikely that farming will prove to be remunerative.
    • But government intervention makes everything political.
    • Closer to elections, it is natural for governments to announce high MSPs to win over the farmer vote.
  • Economic aspects:
    • The economic aspect of MSPs is not limited to farmers alone.
    • While a sharp rise in MSPs (or higher MSPs over a sustained period) does alleviate farm distress, it can also lead to a spike in food inflation.
    • The trade-off between the interests of the farmer, on the one hand, and consumers, on the other, makes deciding MSPs so difficult.
    • The political dimension just adds to the complications.

How does the recent hike compare with the rate of food inflation and the rise in cost of production?

  • The prices of cereals went up by almost 14% in this year.
  • The MSP hike is modest.
  • The Citi Research note finds that cost of cultivation went up by 6.8% and from that perspective, a 7% hike in MSPs is enough to ensure that farm economy does not lose out to the non-farm economy.

Impact of hikes on inflation and monetary policy

  • It is unlikely that this hike per se would spike inflation.
  • Food inflation may still spike if the normal monsoon is affected by El Nino.

Impact on Government’s finances

  • Higher MSPs and more procurement as well as the storage and disbursal of subsidised foodgrains are all expenditures that weigh down government’s financial health.
  • This MSP increase will not materially alter the government’s food subsidy budgeting.

Likely impact on rural India

  • Latest GDP data showed that personal consumption growth, the biggest contributor to India’s GDP, was growing at around 2.5% over the past two quarters.
  • This is starkly lower than India’s overall GDP growth rate of 7.2%.
  • The rural economy is lagging behind urban India.
  • The consumption growth trends in the GDP have been weak with drivers of rural consumption remaining uneven.
  • The 7% MSP increase might just be enough to cover the increase in cost of production but does not signal a populist boost to rural consumption


Need for a Universal Basic Income

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At an interaction organised by the Confederation of Indian Industry (CII), the Chief Economic Advisor V Anantha Nageswaran has mentioned that the concept of ‘Universal Basic Income (UBI)’ is not necessary for India since natural economic growth would take care of the country’s many aspirations.

What is Universal Basic Income (UBI)?

  • Universal basic income (UBI) is a socio-political financial transfer policy proposal in which all citizens of a given country receive a legally stipulated and equally set financial grant paid by the government.
  • A basic income can be implemented nationally, regionally, or locally.
  • Universal basic income (UBI) is a government program in which every adult citizen receives a set amount of money regularly.
  • The goals of a basic income system are to replace other need-based social programs that potentially require greater bureaucratic involvement.

Benefits

Challenges
  • To accommodate a diverse workforce, UBI could potentially provide the necessary support and flexibility for individuals to find suitable work or pursue education and entrepreneurship.
  • UBI is supposed to be easily accessible, periodic, in the form of funds (and not vouchers or coupons) and is paid to individuals not households.
  • UBI did not significantly reduce labour force participation, except for new mothers and teenagers, who used the income to extend their maternity leaves and focus on education.
  • UBI has no criteria to select the beneficiaries,
  • Agency involved providing support in the form of cash transfers to respect, not dictate recipients’ choices.

What are the Arguments in Favour of UBI in India?

  • Social Justice: No society can be just or stable if it does not give all members of the society a stake.A Universal Basic Income promotes many of the basic values of a society which respects all individuals as free and equal.
  • Administrative Efficiency:A UBI will reduce the burden of financing a plethora of separate government schemes and administrative burden of implementation.
  • Employment:UBI is an acknowledgement of the government’s duty to guarantee a minimum living standard (Article 43 of Indian Constitution) is even more urgent in an era of uncertain employment generation.
  • Insurance against Shocks: Poor households often face multiple shocks such as bad health, job lossor aggregate shocks such as crop loss, water borne diseases, loss of property and natural disaster.
    • The UBI income floorwill provide a safety net against health, income and other shocks.
  • Freedom of Choice: A UBI treats beneficiaries as agentsand entrusts citizens with the responsibility of using welfare spending as they see best, this may not be the case with in-kind transfers.


Sagar Samriddhi

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The Union Minister of Ports, Shipping, and Waterways recently launched an online dredging monitoring system called “Sagar Samriddhi”.

About Sagar Samriddhi:

  • It is an online dredging monitoring system.
  • The new system aims to tighten the monitoring regime for dredging contracts and also focus on monetising dredged material.
  • It is part of the government’s efforts to expedite the ‘Waste to Wealth’ initiative.
  • This system has been developed by National Technology Centre for Ports, Waterways and Coasts (NTCPWC) the technological arm of MoPSW. 
  • The new technology brings marked improvement against the old system of the Draft and Loading Monitor (DLM) system.
  • All future monitoring at the major ports in the country will be done through the Sagar Samriddhi monitoring system, which will help in project implementation and cut costs.
  • The system will aid in daily and monthly progress visualisation, monitor dredger performance and downtime monitoring, and keep track of location data.
  • The system will bring in synergy among multiple input reports like daily dredging reports, and the pre and post-dredging survey data before processing and producing real-time dredging reports.

What is dredging?

  • Dredging is the removal of sediments and debris from the bottom of lakes, rivers, harbours, and other water bodies.
  • It is a routine necessity in waterways around the world because sedimentation—the natural process of sand and silt washing downstream—gradually fills channels and harbours

sagar sam



Direct Seeded Rice (DSR) method

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The Punjab Government has set a target of five lakh acres to be sown under the direct seeded rice (DSR) method of paddy cultivation this kharif season.

About the Direct Seeded Rice (DSR) method:

  • DSR, also called the ‘broadcasting seed technique’, is a water-saving method of sowing paddy.
  • Seeds are directly drilled into the fields in this method.
  • This saves groundwater, as opposed to the traditional water-intensive method, under which rice seedlings are transplanted from a nursery to waterlogged fields. 
  • With DSR technique, farmers must sow paddy only after pre-sowing (rauni) irrigation and not in dry fields. Further, the field should be laser levelled.
  • Advantages:
    • No significant reduction of yield under optimal conditions;
    • Savings on irrigation water by 12-35% under efficient water management practices;
    • Reduces labour and drudgery by eliminating seedling uprooting and transplanting;
    • Reduces cultivation time, energy, and cost;
    • No plant stress from transplanting;
    • Faster maturation of crops;
    • Lower GHG emissions;
    • Mechanised DSR provides employment opportunities;
    • Increases total income by reducing the cost of cultivation;
  • Current Constraints:
    • Higher seed rates;
    • Seeds exposed to birds and pests;
    • Weed management;
    • Higher risk of lodging;
    • Risk of poor or non-uniform crop establishment;


RBI’s bi-monthly monetary policy review

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In the release of Reserve Bank of India (RBI’s) bi-monthly monetary policy review report, the interest rates remains constant for the second consecutive time this year.

Significance of the move:

  • The constant interest rates bring relief for borrowers and markets (Capital) as the EMIs and investments benefitted.
  • This is expected to give some stability to the credit market, to boost capital expenditure and investments.
  • The decision will be driven by surplus liquidity in the banking system due to improvement in low-cost current account and savings account (CASA) balance following the deposit of Rs.2000 banknotes.

About Monetary Policy:

  • The rules that are made to regulate the economy of any country are called monetary policy.
  • Monetary policy is prepared by the monetary policy committee (MPC).
  • The money flow in any country is controlled through monetary policy. Through these rules, the entire banking system of the economy is controlled.

Tools of monetary Policy:

  • Open Market Operations: The objective of OMOs is to adjust the level of reserve balances to manipulate the short-term interest rates and that affect other interest rates.
  • Interest Rates:
    • The central bank may change the interest rates or the required collateral that it demands. In the U.S., this rate is known as the discount rate. Banks will loan more or less freely depending on this interest rate.
  • Reserve Requirements:
    • Authorities can manipulate the reserve requirements, the funds that banks must retain as a proportion of the deposits made by their customers to ensure that they can meet their liabilities.

Goals of Monetary Policy:

  • To curb Inflation:
    • Contractionary monetary policy is used to temper inflation and reduce the level of money circulating in the economy. Expansionary monetary policy fosters inflationary pressure and increases the amount of money in circulation.
  • Unemployment:
    • An expansionary monetary policy decreases unemployment as a higher money supply and attractive interest rates stimulate business activities and expansion of the job market.
  • Exchange Rates:
    • The exchange rates between domestic and foreign currencies can be affected by monetary policy. With an increase in the money supply, the domestic currency becomes cheaper than its foreign exchange.

What will be its impact?

  • As the repo rate remains at 6.5%, external benchmark lending rates (EBLR) linked to the repo rate will not increase.
  • For borrowers with equated monthly instalments (EMIs) are likely to remain stable in the short term.
  • It will also spur corporates to proceed with investments, infuse credit growth, and push consumption, which will help economic growth.


RuPay Card

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Recently, the Reserve Bank of India (RBI), in a bid to broaden the scope of RuPay cards has decided to permit banks to issue RuPay Prepaid forex cards to customers and to issue such cards abroad.

About RuPay card:

  • It is an Indian domestic card scheme conceived and launched by the National Payments Corporation of India (NPCI).
  • Its mission is to fulfil the Reserve Bank of India’s vision of having a domestic, open-loop and multilateral system of payments in India.
  • It works to enable electronic payment at all Indian banks and financial institutions.
  • Benefits of RuPay Card
    • Lower cost and affordability: Since the transaction processing will happen domestically, it would lead to a lower cost of clearing and settlement for each transaction. This will make the transaction cost affordable and will drive the usage of cards in the industry.
    • Customized product offering: RuPay, being a domestic scheme is committed towards the development of customized product and service offerings for Indian consumers.
    • Protection of information related to Indian consumers: Transaction and customer data related to RuPay card transactions will reside in India.

Key facts about NPCI

  • It is an umbrella organisation launched in 2008 by the Reserve Bank of India (RBI) and the Indian Banks’ Association (IBA) under the provisions of the Payment and Settlement Systems Act, 2007.
  • It is owned by a consortium of banks, is aimed at creating robust payments and settlement systems.


First Loss Default Guarantee (FLDG)

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The Reserve Bank of India (RBI) has recently granted its approval for First Loss Default Guarantee (FLDG) framework.

About First Loss Default Guarantee (FLDG):

  • What is it? FLDG is a lending model between fintech firms and their partner banks and non-banking finance companies where the initial hit on a default is taken by the fintech firm that originated the loan.
  • Under these agreements, the fintech originates a loan and promises to compensate the partners up to a pre-decided percentage in case customers fail to repay.
  • The bank/NBFC partners lend through the fintech but from their books.
  • Advantages:
    • FLDG helps expand the customer base of traditional lenders but relies on the fintech’s underwriting capabilities.
    • It will also rationalise the existing prudential norms to implement resolution plans in respect of exposures affected by natural calamities.

What is FinTech?

  • Fintech, a combination of the terms “financial” and “technology,” is the application of new technological advancements to products and services in the financial industry. 
  • It refers to the application of software and hardware to financial services and processes, making them faster, easier to use and more secure.
  • The fintech industry includes everything from payment processing solutions to mobile banking apps.
  • Some examples include mobile banking, peer-to-peer payment services, automated portfolio managers or trading platforms.


Financial Services Institution Bureau (FSIB)

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Recently, the Financial Services Institution Bureau (FSIB) has selected new chiefs for the General Insurance Corporation of India (GIC Re) and National Insurance Company (NIC).

About Financial Services Institution Bureau (FSIB):

  • What is it? It’s a government body set up under the Department of Financial Services (DFI) by replacing the Bank Board’s Bureau (BBB). 
  • Structure:
    • It is headed by a chairman who is nominated by the central government.
    • The board would comprise the Secretaries of the DFS, the chairman of IRDAI, and a deputy governor of the RBI.
    • Additionally, it will have three part-time members who are experts in banking and three more from the insurance sector.

The Primary role of FSIB:

  • To identify manpower capabilities and ensure proper selection of talent for senior positions at financial institutions owned by the government.
  • It is entrusted with making recommendations for the appointment of full-time directors and non-executive chairmen of state-run financial services institutions.
  • The final decision on the FSIB recommendation would be taken by the Appointments Committee of the Cabinet headed by the Prime Minister.
  • It would also issue guidelines for selecting general managers and directors of public sector general insurance companies.
  • It will also be involved in formulating and developing business strategies for state-run banks and helping them in their fund-raising plans.
  • It would also monitor and assess the performance of public sector banks, government-owned financial institutions and insurance companies.


Pension Fund Regulatory and Development Authority (PFRDA)

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Pension Fund Regulatory and Development Authority (PFRDA) Chairman recently said that a pension scheme with minimum assured returns is in the works by the PFRDA, which may entail higher premium payments for higher returns.

About Pension Fund Regulatory and Development Authority (PFRDA):

  • It is a statutory regulatory body set up under PFRDA Act enacted in 2014.
  • Objective: To promote old age income security by establishing, developing, and regulating pension funds and to protect the interests of subscribers to schemes of pension funds and related matters.
  • It comes under the jurisdiction of the Ministry of Finance.
  • Headquarters: New Delhi
  • Composition: It consists of a Chairperson and not more than six members, of whom at least three shall be Whole-Time Members, to be appointed by the Central Government.
  • Functions:
    • Regulate National Pension System (NPS) and other pension schemes to which PFRDA Act applies;
    • Establish, develop and regulate pension funds;
    • Protect the interest of pension fund subscribers;
    • Register and regulate intermediaries;
    • Laying down norms for management of corpus of pension funds;
    • Establish grievance redressal mechanism for subscribers;
    • Settle disputes among intermediaries and also between intermediaries and subscribers;
    • Train intermediaries and educate subscribers and the general public with respect to pension, retirement savings, and related issues;
    • Call for information, conduct inquiries, investigations, and audit of intermediaries and other entities connected with pension funds;

Key Facts about National Pension System (NPS):

  • It is a government-sponsored pension scheme launched in January 2004 for government employees.
  • It was opened to all sections in 2009.
  • NPS is mandatorily applicable to Central Government employees (except Armed Forces) recruited on or after 01.01.2004.
  • Under NPS, a subscriber can contribute regularly to a pension account during her working life, withdraw a part of the corpus in a lumpsum and use the remaining corpus to buy an annuity to secure a regular income after retirement.


Trade Receivables Discounting System (TReDS) Platform

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The Reserve Bank on Wednesday expanded the trade receivables discounting system (TReDS) by permitting insurance companies to function as participants.

About Trade Receivables Discounting System (TReDS) platform:

  • It is an electronic platform for facilitating the financing/discounting of trade receivables of Micro, Small, and Medium Enterprises (MSMEs) through multiple financiers. 
  • These receivables can be due from corporates and other buyers, including Government Departments and Public Sector Undertakings (PSUs).
  • Purpose: To allow MSME sellers to discount invoices raised against major corporations, which helps them manage their working capital demands. The platform enables MSMEs to receive payments more quickly.
  • Participants:
    • Sellers, buyers, and financiers are the participants on a TReDS platform.
    • Only MSMEs can participate as sellers in TReDS.
    • Corporates, Government Departments, PSUs, and any other entity can participate as buyers in TReDS.
    • Banks, NBFC – Factors, and other financial institutions, as permitted by the RBI, can participate as financiers in TReDS.
  • RBI has not made it compulsory for any buyer, seller, or financier to participate in TReDS. 
  • The Government has made it compulsory for certain segments of companies to mandatorily register as buyers on the TReDS platform(s). The government directive, however, does not make it compulsory for these entities to perform transactions in TReDS.
  • How does TReDS work?
    • Creation of a Factoring Unit (FU)– standard nomenclature used in TReDS for invoice(s) or bill(s) of exchange – containing details of invoices/bills of exchange.
    • Acceptance of the FU by the counterparty– buyer or the seller, as the case may be;
    • Bidding by financiers;
    • Selection of best bid by the seller or the buyer, as the case may be;
    • Payment made by the financier (of the selected bid) to the MSME seller at the agreed rate of financing/discounting;
    • Payment by the buyer to the financier on the due date.

What are Trade receivables?

  • Trade receivables are defined as the amount owed to a business by its customers following the sale of goods or services on credit.


Price Support Scheme (PSS)

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Recently, in a significant step towards enhancing domestic production of pulses, the government of India has removed the procurement ceilings of 40% for tur, urad and Masur under Price Support Scheme (PSS) operations for 2023-24.

About Price Support Scheme:

  • It is being implemented by the Government of India in the state.
  • It is one of the components of the Pradhan Mantri Annadata Aay Sanrakshan Abhiyan (AASA) scheme.
  • Implemented by: The Department of Agriculture & Cooperation implements this scheme for procurement of oil seeds, pulses and cotton, through NAFED which is the Central nodal agency, at the MSP declared by the government.
  • Main crops covered: Bajra, Jowar, Maize, Paddy, Cotton, Tur, Moong, Urad, Groundnut, Sesamum Wheat, Gram, Mustard, Sugarcane etc.

What are the Benefits?

  • Farmers get the benefit of the scheme through the sale of their produce at support price in APMC centres opened by the Nodal procurement agency.
  • When prices of commodities fall below the MSP, State and central notified procurement nodal agencies purchase commodities directly from the farmers at MSP, Under specified FAQ (fair Average Quality).
  • In this way, prices of the main commodities are procured and protect the farmers against economic loss in farming.


Securities Appellate Tribunal

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Recently, the Securities Appellate Tribunal (SAT) quashed the order passed by the Securities and Exchange Board of India (SEBI) cancelling Brickwork Ratings’ licence as a credit rating agency.

About Securities appellate tribunal:

  • It is a statutory body established under the provisions of the Securities and Exchange Board of India Act, 1992.
  • It hears and disposes of appeals against orders passed by the Securities and Exchange Board of India, the Pension Fund Regulatory and Development Authority (PFRDA) and the Insurance Regulatory Development Authority of India (IRDAI).
  • Composition:
    • It consists of a Presiding Officer & Two other members.
    • The Presiding officer shall be appointed by the Central Government in consultation with the Chief Justice of India or his nominee.
  • It has the same powers as vested in a civil court under the code of civil procedure while trying a suit.

Key facts about SEBI

  • It is a statutory regulatory body established by the Government of India in 1992.
  • It was given statutory powers through the SEBI Act, of 1992.
  • Objective: To regulate the securities market in India and protect the interests of investors in securities.


Prepaid Payment Instrument (PPI)

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Recently, a committee set up to review the Customer Service Standards in RBI Regulated Entities has recommended that the central bank should examine the extension of Deposit Insurance and Credit Guarantee Corporation (DICGC) cover to PPI.

About Prepaid Payment Instruments:

  • These are instruments that facilitate the purchase of goods and services, conduct of financial services and enable remittance facilities, among others, against the money stored in them. PPIs can be issued as cards or wallets.
  • There are two types of PPIs – small PPIs and full-KYC (know your customer) PPIs.
  • Further, small PPIs are categorized as – PPIs up to Rs 10,000 (with cash loading facility) and PPIs up to Rs 10,000 (with no cash loading facility).
  • PPIs can be loaded/reloaded by cash, debit to a bank account, or credit and debit cards.
  • The cash loading of PPIs is limited to Rs 50,000 per month subject to the overall limit of the PPI.

Who can issue PPI instruments?

  • PPIs can be issued by banks and non-banks after obtaining approval from the RBI.
  • Some of the approved PPI issuing banks are; Airtel Payments Bank, Axis Bank, Bank of Baroda, Jio Payments Bank, Kotak Mahindra Bank etc.

Key Facts about Deposit Insurance and Credit Guarantee Corporation

  • It is a statutory body established under the Deposit Insurance and Credit Guarantee Corporation Act, of 1961.
  • It is a wholly-owned subsidiary of the Reserve Bank of India (RBI).
  • It provides deposit insurance that works as a protection cover for bank deposit holders when the bank fails to pay its depositors.
  • The agency insures all kinds of deposit accounts of a bank, such as savings, current, recurring, and fixed deposits up to a limit of Rs. 5 lakh per account holder per bank.
  • In case an individual’s deposit amount exceeds Rs.5 lakh in a single bank, only Rs.5 lakh, including the principal and interest, will be paid by DICGC if the bank becomes bankrupt.

What DICGC Does Not Cover?

  • Deposits of state or Central governments, foreign governments, Inter-bank deposits, and state land development banks depositing with the state cooperative bank.
  • Funds that are due on account of India and deposits received outside India and funds exempted by the corporation with the previous approval from RBI.


Peer-to-Peer (P2P) lending

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After digital payments and digital lending, the Reserve Bank of India is looking closely at platforms that facilitate direct, or peer-to-peer (P2P), lending between individuals.

About Peer-to-Peer (P2P) lending:

  • It is done through a website that connects borrowers and lenders directly.
  • Those who want to lend money, open an account with a P2P platform as a lender. And those who require a loan register themselves as a borrower.
  • It enables individuals to obtain loans directly from other individuals, cutting out the financial institution as the middleman.
  • In 2017, the Reserve Bank of India brought this service under its regulatory purview.
  • Only an NBFC can register as a P2P lender with the permission of RBI. Every P2P lender should obtain a certificate of registration from the RBI.
  • The minimum capital requirement to set up a P2P platform is fixed at Rs. 2 Crores.