Comprehensive News Analysis - 24 November 2016

I. Archives

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Useful News Articles

A. GS1 Related

Nothing here today folks!

B. GS2 Related

Nothing here today folks!

C. GS3 Related

Category: Economy

Topic: Demonetisation

Key Points:

Here are a few broad issues that deserve immediate attention.

• Monetary base disrupted – 80% of the reserve money was the currency in circulation as on 11th Approx. 86% of this currency in circulation was in notes of Rs500 and Rs1,000.
• Impact on broad money – Broad money includes both cash and bank deposits. Only 7.3% of the broad money was the currency with the public. Thus, the impact on broad money is far less severe than the impact on base money. There has been a modification in the composition of broad money since the big announcement – from cash to bank deposits.
• Broad Money Stock – This is around 5.6 times the stock of base money. Three factors considered in monetary economics are – the monetary base, the cash reserve ratio and the ratio of cash to bank deposits (C/D) in an economy. The C/D ratio is now expected to drop which would will push up the money multiplier.
• Cash shortage – This will have an adverse effect on the informal sector that does most of its transactions in cash.

The decision will have negative immediate impact on the economy. However, the increase in the number of bank deposits will bloat the contribution of financial services to the increase in the GDP in the 3rd quarter.

In the long run, the results would depend on the behaviour of the citizens as a result of the current decision – whether they reduce the use of cash in the future, whether the tax base will expand as more transactions are done through the formal financial system and if other policy measures restrict the creation of fresh black money.

Category: Economy

Topic: Demonetisation

Key Points:

• Government should target the people higher in the ranks or hierarchy first, rather than going after the small level corruption that is part and parcel of the cutting edge of the administration.
• The work of bringing out in the open of the corrupt bureaucrats at the highest levels should be done by a committee of officers known for their integrity. This should be followed by vetting by another group, before being agreed to by the Prime Minister and one or two of his senior Cabinet colleagues.
• The exercise should begin with key organisations such as Income Tax, Customs and Central Excise, Enforcement Directorate (ED) and the Central Bureau of Investigation (CBI). In the wrong hands, these become instruments of harassment and torture.
• With the arrival of the Modi government, the condition at the Centre has definitely improved but the menace at the state remains appalling. A strong political will the required to trigger the change there.
• There is enough expertise in the country for seeing through this laudable scheme.

Key Points:

• The norms for angel funds to invest in early-stage entities have been relaxed by the SEBI as part of its attempts to facilitate fund-raising for start-ups.

Key Decisions:

• The upper limit for the number of angel investors in a scheme has been increased from 49 to 200.
• Angel Funds will also be allowed to invest in start-ups incorporated within five years instead of the earlier norm of three years.
• From Rs.50 lakhs, the minimum investment amount in any venture capital undertaking has been reduced to Rs.25 lakhs.
• They have been allowed to invest in overseas venture capital undertakings up to 25% of their investible corpus in line with other Alternative Investment Funds (AIFs).
• Based on the guidelines of the Ministry of Corporate Affairs (MCA), FPIs have been permitted to invest in unlisted non-convertible debentures and securitised debt instruments of a public or private company.
• All such agreements entered into during the last three years will have to be disclosed to the stock exchanges and companies will have to seek an approval from the public shareholders of the company.

Category: Economy

Topic: Banking

Key Points:

• NABARD has been allowed by the government to disburse Rs 21,000 crore to farmers, to help them sow winter crops ahead of the Rabi season. This would have a positive impact on more than 40% of the small and marginal farmers who avail institutional credit/crop loans.
• The farmers have been allowed to buy seeds with old Rs 500 notes from designated agencies. At the same time the government has allowed them to withdraw Rs 25,000 against sanctioned crop loans.
• The government has advised NABARD, RBI and banks to provide the required credit in cash to the farmers. It has also asked the banks to ensure the district cooperative banks and regional rural banks get sufficient cash.
• all public sector banks and some private banks have agreed to waive the transaction cost for payments through debit cards to encourage widespread usage of digital payments.
• Usage of RuPay has seen approx. 300% growth in last 12 days.
• Railways has already waived service charges on online booking of tickets and telecom operators have agreed to make mobile banking services free of cost till December 31.
• The monthly transaction limit through e-wallets has been increased to Rs 20,000.
• The automobile manufacturers have been asked by the road transport ministry to install digital RFID tag on all new vehicles to enable cashless payment at toll plazas.

D. GS4 Related

Nothing here today folks!

E. Important Editorials: A Quick Glance

Nothing here today folks!

F. Concepts-in-News: Related Concepts to Revise/Learn:
• CRR
• Demonetisation
• SEBI

H. Fun with Practice Questions 🙂
Question 1: The ratio of the cash reserves that the banks are required to keep with RBI is known as:
a) Liquidity ratio

b) Statutory liquidity ratio

c) Cash Reserve Ratio

d) Net demand and time liabilities

Question 2: Which of the following are the components of money?
i) Currency Notes and Coins
ii) Demand Deposits such as Saving Banks Deposits
iii) Cash in Hand (Except SLR)

a) I only

b) I and ii

c) all of the above

d) iii only

Question 3: Which of the following agreements defines the scope, functions and structure of the World Trade Organization (WTO)?

a) Marrakesh Agreement

b) General Agreement on Trade in Services

c) Agreement on Technical Barriers to Trade

d) None of these