Economy This Week (05th Feb to 11th Feb 2022)

Economy is an important part of the UPSC prelims and mains exams; this series titled ‘Economy This Week’ has been initiated to address the need to read and analyse economic articles in various business-related newspapers. The round-up of the Economy/Business section news for 05th Feb to 11th Feb 2022 is given below. Business news is essential for IAS exam preparation.

TABLE OF CONTENTS

1. Monetary Policy Review (TH 11/2/22)
2. Centre to form FPOs with small farmers (TH 6/2/22)
3. FM to discuss ATFs inclusion in GST regime (TH 7/2/22)
4. RBI, NBFCs in early talks to open credit card biz (BS 7/2/22)
5. Grants to discoms based on action plan progress (IE 8/2/22)
6. Continuation of EPCG scheme under review (ET 7/2/22)
7. India seeks to add to its solar cell, module manufacturing (LM 8/2/22)
8. India’s debt to gdp ratio better than US (TH 9/2/22)

1. Monetary Policy Review (TH 11/2/22)

• Announcements
  • MPC has kept the rates unchanged
  • Continue with accommodative stance as long as necessary to revive and sustain growth
  • Also ensure that the inflation remains within the target
  • CPI has been higher compared to the level it was during the previous meeting and core inflation has remained elevated
  • The limit on the e-RUPI digital voucher will be increased from ₹ 10000 to ₹ 1 lakh and multiple usage of the vouchers would be allowed
  • FPI investment limit under VRR increased from ₹ 1.5 lakh Cr to ₹ 2.5 lakh Cr
  • Limit for Trade Receivable Discounting System (TReDS) settlement would be increased to ₹ 3 Cr

2. Centre to form FPOs with small farmers (TH 6/2/22)

• Union govt is promoting mobilisation of small farmers to form the Farmer Producer Organisation (FPOs) and make them influential market forces and improve their incomes by developing agriculture value chain
• Govt is also promoting natural farming, digital agriculture which will help in saving the farming community from the impact of the climate change
• ICRISAT – International Crops Research Institute for the Semi-Arid Tropics – is celebrating its 50th anniversary

3. FM to discuss ATFs inclusion in GST regime (TH 7/2/22)

• Govt would be taking up inclusion of ATF under GST to the GST council
• The high global fuel prices are becoming a concern – prices are hovering at around $90 per barrel
• The aviation sector is affected by pandemic and with the demand being very low, the higher prices may further dent their revenues

4. RBI, NBFCs in early talks to open credit card biz (BS 7/2/22)

• RBI and shadow banks are in talks to explore possibility of allowing the latter to issue credit cards on standalone basis
• So far the NBFCs are allowed to issue co-branded credit cards with banks
• There are 120 mn formally employed people in India without a credit card. The startups and Fintech companies are making a beeline to issue digital loans to these and 44% of the Fintech funding in 2020 has gone to digital lending startups
• Digital credit cards and lines of credit should be allowed to operate without license to further improve financial inclusion
• As of November 2021, there are 67 mn credit cards and 550 mn customers have credit bureau histories
• A joint report by NITI Aayog and Mastercard last year has made a case for NBFCs entry into credit card business
  • NBFCs account for overall 20 to 30% credit given in the system but NBFCs are constrained from credit card market on account of high access barriers

5. Grants to discoms based on action plan progress (IE 8/2/22)

• All the states are on board for the centre’s ₹ 3.03 lakh Cr discom reform scheme
• The discoms from most of the states/UTs have submitted the reform plans under the Revamped Distribution Sector Scheme (RDSS) and govt is likely to sanction all the plans that are in accordance with the scheme guidelines
• Under RDSS
  • Reduce the AT&C losses to 12-15%
  • Reduce the gap between ARR and ACS to zero by FY25
  • Has provided the flexibility of deciding on the plans to the states
  • The states will have to submit their performance report every year to get the grants (earlier the performance data came with a lag of two years). The states are given the grants only when they meet the targets
  • Timely revision of tariffs, payment of dues by state departments to discom are some of the preconditions
• These targets are largely the same as under UDAY (launched in 2016)
• Under UDAY
  • The AT&C losses fell from 23.7% in FY16 to 20.9% in FY20
  • The average gap between ACS and ARR fell to ₹ 0.3 per unit from ₹ 0.48 per unit
  • Inadequate revision in tariffs by state discoms
  • Inadequate payments to the discoms for the power used by the state departments and subsidies are some of the issues
• ICRA has estimated losses of ₹ 90000 Cr for the discom sector in FY21

6. Continuation of EPCG scheme under review (ET 7/2/22)

• Export Promotion of Capital Goods (EPCG) scheme was launched in 1990s and the govt is reviewing the scheme to find whether it is inconsistent with the WTO
  • Under the scheme import of capital goods for pre-production, production and post production is allowed at zero duty
  • However there is an export obligation – six times of duty, taxes and cess saved within six years
  • Almost 95000 authorisations have been issued between 2015-21
• There are also viewpoints that the scheme is not supporting the development of capital goods in domestic market and hence should be discontinued

7. India seeks to add to its solar cell, module manufacturing (LM 8/2/22)

• Govt wants to create an additional domestic solar equipment manufacturing capacity of 25 GW each for solar cells and modules, and 10 GW of wafers by April 2023
• India currently has capacity of 3 GW of solar cells and 15 GW for modules
• This plan comes a after govt allocating an additional ₹ 19500 Cr under PLI in the recent budget
  • Earlier the govt allocated ₹ 4500 Cr for manufacturing PV modules
  • New allocation will be for solar modules
• The govt has plans to impose basic customs duty of 40% on modules and 25% on solar cell imports from 1st April
• Polysilicon is the building block for solar PV manufacturing from which ingots are cast. Wafers cut from ingots are then used to make solar cells, after which modules are assembled.
  • Globally manufacturing of polysilicon, wafer and ingot has been dominated by China

8. India’s debt to gdp ratio better than US (TH 9/2/22)

• Finance secretary has hit out at global rating agencies comments about India having very high debt and lack of clarity on fiscal consolidation
  • India has limited fiscal space to respond to shocks with the debt to ratio hitting around 90% of GDP (highest in countries with BBB rating)
  • The budget has offered less clarity on medium term fiscal outlook and few details on how the fiscal deficit target of 4.5% of GDP can be met by 2025-26
• The argument of the govt is that
  • India has one of the best debt-to-gdp ratios when compared to high rated countries
  • India’s ratio is lower than that of USA, Japan and other highly rated countries
  • Rating agencies adopt double standards between emerging and non-emerging countries

Economy This Week (05th Feb to 11th Feb 2022):- Download PDF Here

Download the PPT of the video lecture from the link below:

Economy This Week (05th Feb to 11th Feb 2022):- Download PPT Here