Economy This Week (24th Jul to 30th Jul 2021)

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 24th Jul to 30th Jul 2021 is given below. Business news is essential for IAS exam preparation.

ETW 24th Jul to 30th Jul 2021:- Download PDF Here

TABLE OF CONTENTS

1. Tesla seeks cut in import taxes (FE 24/7/21)
2. RBI allows non-bank PSPs in centralised payment systems (FE 29/7/21)
3. India’s tariff drops sharply in 2020 (FE 26/7/21)
4. Revised factoring rules should help in MSMEs out (LM 28/7/21)
5. Parliamentary Panel raps govt over MSMEs (TH 28/7/21)
6. Deposits up to ₹ 5 lakh in ailing banks to be repaid in 90 days (TH 29/7/21)
7. SFBs slow to borrow via RBI window (BL 30/7/21)

1. Tesla seeks cut in import taxes (FE 24/7/21)

• The Indian market for premium EVs is in its infancy stage. Only 5000 of the 2.4 mn cars sold last year were electric.
• Govt has imposed an import duty of 60% on import of assembled electric cars with prices below $40000 (including cost, freight and insurance) and 100% in case of prices above it.
• Tesla has requested the govt to reduce it to 40%.
• It will make these cars more affordable but the threshold is still high enough to compel companies to manufacture locally if demand picks up.

2. RBI allows non-bank PSPs in centralised payment systems (FE 29/7/21)

• RBI has allowed non-bank payment system providers (PSPs) in centralised payment systems (CPS) such as RTGS and NEFT, as direct members.
• PSPs include prepaid payment instrument (PPI) issuers, card networks, white label ATM operators and Trade Receivable Discounting Systems (TReDS) platforms.
• This is expected to –
  • Lower overall risk in the payment ecosystem.
  • Bring advantages to non-banks like reduction in the cost of payments, minimising dependence on the banks, reducing the time taken for completing payments, eliminating uncertainty about finality of payments.

3. India’s tariff drops sharply in 2020 (FE 26/7/21)

• India’s average tariffs (average of the effectively applied rates for all products subject to tariffs) have declined from 17.6% in 2019 to 15% in 2020.
• This is the sharpest decline or annual fall in about a decade and a half.
• This reflects a partial reversal of duty hikes, which had marked a continuous push for import substitution through self-reliance and reaction to protectionism in other countries such as the USA and China.
• However, the tariffs are still higher than the levels in 2014 – 13.5%.
• There have been complaints by other countries regarding the higher tariffs that are imposed by the Indian government. However, the govt has defended itself by pointing out that the applied tariffs are way below the permissible limit under the WTO framework called bound rate (which was 50.8% in 2020) and unlike other major economies India hardly uses the non-tariff barriers to crack down on imports it deems non-essential.
• Former NITI Aayog vice-chairman has cautioned that no country with such high duties can achieve a growth rate of 8 to 10% and it has to open up the market for imports and bring down the industrial tariffs to at most 10%.

4. Revised factoring rules should help in MSMEs out (LM 28/7/21)

• Factor is a financial intermediary which will acquire the receivables of a company (at discount and later realise whatever they can from the billed entities).
• The MSMEs have been under distress and are finding it difficult to recover their dues from big companies. The unpaid invoices are holding up the capital. In critical situations, this may even force some MSMEs out of business.
• Lok Sabha has passed the Factoring Regulation (Amendment) Bill 2020.
  • Liberalises the business of factoring
  • Drops the need for reporting every transaction within 30 days
  • Opens up the field to non-banking financial companies (NBFCs) that do not operate as specialised factors
• If new factors step in then the volumes of factoring transactions are expected to rise and provide relief to the MSMEs.
• By a recent estimate, the small businesses are owed ₹ 15 tn.
• Though many measures have been taken to address the payment delays, the problem still persists.
  • RBI started TReDS in 2014 but has been falling short of participants (a parliamentary panel headed by Mr Jayant Sinha suggested that it be linked with the GSTN e-invoices portal, this is expected to draw the sellers and buyers; this has been accepted by the finance ministry).
• Factoring was given a legal framework with a passage of the act in 2011.

5. Parliamentary Panel raps govt over MSMEs (TH 28/7/21)

• A parliamentary panel has criticised the govt over its inadequate relief measures for the MSME sector that was affected by covid.
• Govt has offered long term measures and loans instead of improving the cash flow to generate demand and this has increased the stress on these units.
• The committee has recommended that the govt should bring out a larger economic package that will increase the demand, investment, exports and employment generation.

6. Deposits up to ₹ 5 lakh in ailing banks to be repaid in 90 days (TH 29/7/21)

• Cabinet has cleared amendments to deposit insurance law – The Deposit Insurance Credit Guarantee Corporation Bill 2021.
• This will ensure that the depositors get their deposits up to ₹ 5 lakh within 90 days of the RBI’s imposition of a moratorium on the bank’s operations.
• Normally it takes about 8 to 10 years after complete liquidation of the bank and with this amendment, the deposits will be provided back within 90 days even if the bank is under moratorium.
• The bank under moratorium will have to collect all the account details and submit them to DICGC within 45 days and DICGC would be getting another 45 days to check the details and process the claims.
• The deposit insurance has been increased from ₹ 1 lakh to ₹ 5 lakh (both principal and interest). This will cover 98.3% of all deposit accounts and 50.9% of deposits’ value. This is much higher compared to global values of 80% and 20 to 30% respectively.
• The premium paid by the banks to the DICGC will also be raised.

7. SFBs slow to borrow via RBI window (BL 30/7/21)

• RBI has introduced Special Long Term Repo Operations (SLTRO) under which banks can pledge their SLR securities to borrow for three years.
• RBI has announced that it will be conducting a 3-year SLTRO for the SFBs from May to October (at repo rate = 4%) and the unutilised amount will be carried forward.
• The SLTRO funds drawn have to be used for fresh lending by the SFBs up to ₹ 10 lakh per borrower.
• Small Finance Banks (SFBs) have cumulatively borrowed only ₹ 1640 Cr in the SLTRO conducted during May, June and July 2021 against a notified amount of ₹ 10000 Cr (they can still borrow the unutilised amount of over ₹8300 Cr till October). This is to provide further support to the small business units and other unorganised units which have been affected by covid.
• This is because –
  • The SFBs have high liquidity and demand for loans from MSMEs have been muted in recent months.
  • There are also constraints with the pledging of SLR securities (once these are pledged, the amount of g-sec under SLR will come down).

ETW 24th Jul to 30th Jul 2021:- Download PDF Here

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

ETW (24th Jul to 30th Jul 2021):- Download PPT Here