Q. Rapid Financing Instrument” and “Rapid Credit Facility” are related to the provisions of lending by which of the following:

(a) Asian Development Bank

(b) International Monetary Fund

(c) United Nations Environment Programme Finance Initiative

(d) World Bank

Answer: (b) International Monetary Fund

Rapid Financing Instrument
  • The Rapid Financing Instrument (RFI): It is a lending facility of the International Monetary Fund (IMF) which provides rapid financial assistance.
  • It is available to all member countries facing an urgent balance of payments need. The RFI was created as part of a broader reform to make the IMF’s financial support more flexible to address the diverse needs of member countries. The RFI replaced the IMF’s previous emergency assistance policy and can be used in a wide range of circumstances.
Rapid Credit Facility
  • The Rapid Credit Facility (RCF) is a concessional policy under which the International Monetary Fund (IMF) provides financial assistance to low-income countries (LICs) facing an urgent balance of payments need.
    • The RCF was introduced under the Poverty Reduction and Growth Trust (PRGT), making this facility more refined with broader coverage.
    • The RCF provides financial help to its member LIC countries regarding commodity price shocks, economic disruptions, or in case of a large natural disaster.
    • This policy is only available for the nations that come under the Poverty Reduction and Growth Trust (PRGT).
    • The access to RCF of any nation is decided on the basis of its economic strength, capacity to repay funds, macroeconomic policies, underlying pending payments of nations, their present economic condition, and poverty.

Q. With reference to the Indian economy, consider the following statements:

  1. An increase in Nominal Effective Exchange Rate (NEER) indicates the appreciation of rupee.
  2. An increase in the Real Effective Exchange Rate (REER) indicates an improvement in trade competitiveness.
  3. An increasing trend in domestic inflation relative to inflation in other countries is likely to cause an increasing divergence between NEER and REER.

Which of the above statements are correct?

(a) 1 and 2 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3

Answer: (c) 1 and 3 only

Notes:
  • The indices of Nominal Effective Exchange Rate (NEER) and Real Effective Exchange Rate (REER) are used as indicators of external competitiveness.
  • NEER is the weighted average of bilateral nominal exchange rates of the home currency in terms of foreign currencies. An increase in Nominal Effective Exchange Rate (NEER) indicates the appreciation of rupee.
  • REER is the weighted average of nominal exchange rates adjusted for relative price differential between the domestic and foreign countries.
  • An increase in a nation’s REER is an indication that its exports are becoming more expensive and its imports are becoming cheaper. Means, it is losing its trade competitiveness.
  • A real effective exchange rate (REER) is the NEER adjusted by relative prices or costs, typically captured in inflation differentials between the home economy and trading partners. A nation’s nominal effective exchange rate (NEER) when adjusted for inflation in the home country, equals its real effective exchange rate (REER). Higher the inflation higher will be divergence (difference between) NEER and REER.
  • NEER does not account for changes in inflation rates, which can distort its measurement of a country’s currency strength. REER, on the other hand, adjusts for differences in inflation rates between countries, providing a more accurate picture of a country’s competitiveness.
  • NEER is useful for short-term analysis of a country’s currency movements, while REER is useful for long-term analysis of a country’s competitiveness and trade balance. REER provides a more comprehensive view of a country’s economic performance by taking into account the impact of inflation on trade.

Q. With reference to the Indian economy, consider the following statements:

  1. If the inflation is too high, Reserve Bank of India (RBI) is likely to buy government securities.
  2. If the rupee is rapidly depreciating, RBI is likely to sell dollars in the market.
  3. If interest rates in the USA or European Union were to fall, that is likely to induce RBI to buy dollars.

Which of the statements given above are correct?

(a) 1 and 2 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3

Answer: (b) 2 and 3 only

Notes:
  • If the inflation is too high, Reserve Bank of India (RBI) is likely to reduce the money supply in the economy to control inflation. Thus, RBI sells the government securities so as to suck the excess of money supply from the economy and to control the inflation.
  • The Reserve Bank of India intervenes in the currency market to support the rupee as a weak domestic unit can increase a country’s import bill. There are a variety of methods by which RBI intervenes. It can intervene directly in the currency market by buying and selling dollars. If RBI wishes to prop up rupee value, then it can sell dollar and when it needs to bring down rupee value, it can buy dollars.
  • When the US raises its domestic interest rates, this tends to make India less attractive for the currency trade. As a result, some of the money may be expected to move out of the Indian markets and flow back to the US, therefore decreasing the value of India’s currency against the US dollar. Thus, if interest rates in the USA or European Union were to fall, the value of rupee against the dollar increases and that is likely to induce RBI to buy dollars.

Q. With reference to the “G20 Common Framework”, consider the following statements:

  1. It is an initiative endorsed by the G20 together with the Paris Club.
  2. It is an initiative to support Low Income Countries with unsustainable debt.

Which of the statements given above is/are correct?

(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2

Answer: (c) Both 1 and 2

Notes:
  • To address the problem of unsustainable debt levels, the G20 reached agreement in November 2020 on a Common Framework for Debt Treatments.
  • The Common Framework for debt treatment beyond the DSSI (Common Framework) is an initiative to support, in a structural manner, Low Income Countries with unsustainable debt. 
  • The Common Framework considers debt treatment, on a case-by-case basis, driven by requests from eligible debtor countries. In response to a request for debt treatment, a Creditor Committee is convened. Negotiations are supported by the IMF and the World Bank, including through their Debt Sustainability Analysis.

Also Read: G20

Q. With reference to the India economy, what are the advantages of “Inflation-Indexed Bonds (IIBs)”?

  1. Government can reduce the coupon rates on its borrowing by way of IIBs.
  2. IIGs provide protection to the investors from uncertainty regarding inflation.
  3. The interest received as well as capital gains on IIBs are not taxable.

Which of the statements given above are correct?

(a) 1 and 2 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3

Answer: (a) 1 and 2 only

Inflation-Indexed Bonds
  • Inflation-indexed bonds or IIBs is a type of bond designed to protect investors from the rising inflation, which is the rise in the overall price level of goods and services in an economy over time. As inflation erodes the purchasing power of money, it can adversely affect individuals and create economic instability. However, these bonds serve as a shield against inflation by offering a fixed rate of return that accounts for changes in the inflation rate. Both the principal amount and interest payments on these bonds are adjusted to maintain their real value, ensuring that investors’ investments are safeguarded from the impacts of inflation.
  • IIBs are indexed to inflation so that the principal and interest payments rise and fall with the rate of inflation. Government can reduce coupon rates on its borrowing by way of IIBs.
    • An inflation-indexed bond protects both investors and issuers from the uncertainty of inflation over the life of the bond.
    • Extant tax provisions will be applicable on interest payment and capital gains on IIBs. There will be no special tax treatment for these bonds.
  • Features of Inflation Indexed Bonds:
    • Coupon payments: Twice a year, you will receive a fixed interest payment on the adjusted principal amount of your investment.
    • Investment term: These bonds are issued for a period of 10 years.
    • SLR status: As government securities (G-secs), these bonds are eligible for Statutory Liquidity Ratio (SLR) status, which means that banks and other financial institutions are required to hold a certain percentage of their assets in G-secs.
    • Objective: These bonds are designed to protect the savings of the middle class and the poor from inflation.
    • Investment limits: Individual investors can invest up to Rs. 10 lakh per year, while institutional investors can invest up to Rs.25 lakh per year. The minimum investment amount is Rs. 5000.
  • Benefits of Inflation-Indexed Bonds:
    • Protection against inflation: IIBs provide protection against inflation by adjusting the principal amount and interest payments for inflation, which ensures that the real value of the investment is maintained.
    • Issued by the government: IIBs are issued by the central government, which makes them a safe investment option.
    • Fixed rate of return: IIBs offer a fixed rate of return that is adjusted for inflation, which provides investors with a predictable income stream.
    • Tradable: IIBs are tradable on stock exchanges, which provides investors with liquidity and the ability to exit their investment before maturity.
Features of IIBs

Q. With reference to foreign-owned e-commerce firms operating in India, which of the following statements is/are correct?

  1. They can sell their own goods in addition to offering their platforms as market-places.
  2. The degree to which they can own big sellers on their platforms is limited.

Select the correct answer using the code given below:

(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2

Answer: (b) 2 only

FDI Policy in India
  • The FDI Policy prohibits retail trading in any form through e-commerce for the companies with FDI engaging in the activities of multi-brand retail trading. Multi-brand retail trading means selling different products of various brands through one platform. India has not allowed FDI in inventory-driven models of e-commerce. The inventory model, which Walmart and Amazon use in the United States, is where the goods and services are owned by an e-commerce firm that sells directly to retail customers. The restriction is aimed largely at protecting India’s vast unorganized retail sector that does not have the clout to purchase at scale and offer big discounts.
  • India amended its FDI policy in e-commerce marketplaces in 2018 to classify any vendor accounting for more than 25% of the platform’s total sales as “controlled” by the marketplace operator. So, no seller must exceed 25 per cent of the total business on any foreign e-commerce platform.
Foreign Direct Investment
  • A Foreign Direct Investment (FDI) is an investment made by a firm or individual in one country into business interests located in another country.
    • FDI lets an investor purchase a direct business interest in a foreign country.
    • In FDI, the foreign entity has a say in the day-to-day operations of the company.
    • FDI is not just the inflow of money, but also the inflow of technology, knowledge, skills and expertise/know-how.
    • It is a major source of non-debt financial resources for the economic development of a country.
    • FDI generally takes place in an economy which has the prospect of growth and also a skilled workforce.
  • Investors can make FDI in a number of ways.
    • Some common ones include establishing a subsidiary in another country, acquiring or merging with an existing foreign company, or starting a joint venture partnership with a foreign company.
  • Apart from being a critical driver of economic growth, FDI has been a major non-debt financial resource for the economic development of India.
  • It is different from Foreign Portfolio Investmentwhere the foreign entity merely buys stocks and bonds of a company.
    • FPI does not provide the investor with control over the business.
  • Routes of FDI:
    • Automatic Route:
      • In this, the foreign entity does not require the prior approval of the government or the RBI (Reserve Bank of India).
      • In India FDI up to 100% is allowed in non-critical sectors through the automatic route, not requiring security clearance from the Ministry of Home Affairs (MHA).
        • Prior government approval or security clearance from MHA is required for investments in sensitive sectors such as defence, media, telecommunication, satellites, private security agencies, civil aviation and mining, besides any investment from Pakistan and Bangladesh.
    • Government Route:
      • In this, the foreign entity has to take the approval of the government.
        • The Foreign Investment Facilitation Portal (FIFP) facilitates the single window clearance of applications which are through approval route. It is administered by the Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce and Industry.

Q. Which of the following activities constitute real sector in the economy?

  1. Farmers harvesting their crops
  2. Textile mills converting raw cotton into fabrics
  3. A commercial bank lending money to a trading company
  4. A corporate body issuing Rupee Denominated Bonds overseas

(a) 1 and 2 only
(b) 2, 3 and 4 only
(c) 1, 3 and 4 only
(d) 1, 2, 3 and 4

Answer: (a) 1 and 2 only

Notes:
  • The real sector of an economy refers to the part of the economy that is involved in the production and consumption of goods and services. It includes activities such as agriculture, mining, manufacturing, and construction, among others.
  • In the given options, the activities that constitute the real sector are:
    • Farmers harvesting their crops – This is an agricultural activity, which is part of the real sector as it involves the production of food products.
    • Textile mills converting raw cotton into fabrics – This is a manufacturing activity, which is also part of the real sector as it involves the production of goods.
    • A commercial bank lending money to a trading company – This is a financial activity and is not part of the real sector. Banks are part of the financial sector, which is separate from the real sector.
    • A corporate body issuing Rupee Denominated Bonds overseas – This is also a financial activity and is not part of the real sector. Bond issuance is a financial transaction that does not involve the production or consumption of goods and services.
Real Sector vs Financial Sector of an Economy
  • The real sector of an economy is essential for economic growth. It includes all activities that directly produce goods and services, such as agriculture, manufacturing, and construction. Households and nonprofit institutions that serve households are also part of the real sector.
  • The financial sector, on the other hand, is concerned with the flow of money and other financial assets. It includes activities such as lending, investing, and trading securities. While the financial sector is important for supporting economic growth, it does not directly produce goods or services.
  • Economists and policymakers distinguish between the real sector and the financial sector to better understand the drivers of economic growth and to design policies that support the real sector. This distinction helps to ensure that resources are allocated efficiently towards sectors that directly contribute to the production of goods and services, job creation, and overall economic development.

Q. Which one of the following situations best reflects “Indirect Transfers” often talked about in media recently with reference to India?

(a) An Indian company investing in a foreign enterprise and paying taxes to the foreign country on the profits arising out of its investment

(b) A foreign company investing in India and paying taxes to the country of its base on the profits arising out of its investment

(c) An Indian company purchases tangible assets in a foreign country and sells such assets after their value increases and transfers the proceeds to India

(d) A foreign company transfers shares and such shares derive their substantial value from assets located in India.

Answer: (d) A foreign company transfers shares and such shares derive their substantial value from assets located in India.

Notes:
  • Indirect transfers refer to situations where when foreign entities own shares or assets in India, the shares of such foreign entities are transferred instead of a direct transfer of the underlying assets in India. 
    • For example, suppose a foreign company owns a subsidiary in India, which in turn owns a valuable asset, such as a piece of land or a building. If the foreign company sells its shares to another foreign entity, and those shares derive their value from the Indian subsidiary and the valuable asset it owns, the transaction is considered an indirect transfer.
  • The amendments made in the ITA in 2012 clarified that if a company is registered or incorporated outside India, its shares will be deemed to be or have always been situated in India if they derive their value substantially from the assets located in India. As a result, the persons who sold such shares of foreign companies before the enactment of the Act (i.e., May 28, 2012) also became liable to pay tax on the income earned from such sale.

Q. With reference to the expenditure made by an organisation or a company, which of the following statements is/are correct?

  1. Acquiring new technology is capital expenditure.
  2. Debt financing is considered capital expenditure, while equity financing is considered revenue expenditure.

Select the correct answer using the code given below:

(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2

Answer: (a) 1 only

Notes:
  • Capital expenditures (CapEx) are funds used by a company to acquire, upgrade, and maintain physical assets such as property, plants, buildings, technology, or equipment. CapEx is often used to undertake new projects or investments by a company. Types of capital expenditures can include purchases of property, equipment, land, computers, furniture, and software.
Debt Financing & Equity Financing
  • When a company borrows money to be paid back at a future date with interest, it is known as debt financing.
  • Debt financing is not considered a capital expenditure.
    • Repayment of loan is an example of capital expenditure. 
  • Equity financing is the process of raising capital through the sale of shares. It is an example of non-debt capital receipts. 
    • Capital receipts are receipts that create liabilities or reduce financial assets. They also refer to incoming cash flows. 
    • Examples of non-debt capital receipts: Recovery of loans and advances, disinvestment, issue of bonus shares, etc.

Q. With reference to the Indian economy, consider the following statements:

  1. A share of the household financial savings goes towards government borrowings.
  2. Dated securities issued at market-related rates in auctions form a large component of internal debt.

Which of the above statements is/are correct?

(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2

Answer: (c) Both 1 and 2

Notes:
  • Household financial savings refer to currency, bank deposits, debt securities, mutual funds, pension funds, insurance, and investments in small savings schemes. A share of these savings goes towards government borrowings, which forms a part of the government’s internal debt.
    • Deposits with banks are the single largest form of households’ financial assets, followed by insurance funds, mutual funds and currency. Therefore, any adverse movement in the household savings will have a significant bearing on banks, insurance companies and mutual/provident funds, who, in turn, are key investors in government securities.
  • Dated securities are issued at market-related rates in auctions and form a large component of internal debt. The Central Government Debt includes all liabilities of the Central Government contracted against the Consolidated Fund of India, which is classified into internal and external debt. Marketable debt, such as Government dated securities and Treasury Bills, is issued through auctions.
  • India’s public debt profile is relatively stable and is characterised by low currency and interest rate risks. Of the Union Government’s total net liabilities in end-March 2021, 95.1% were denominated in domestic currency, while sovereign external debt constituted 4.9%, implying low currency risk.

Q. With reference to Ayushman Bharat Digital Mission, consider the following statements:

  1. Private and public hospitals must adopt it.
  2. As it aims to achieve universal health coverage, every citizen of India should be part of it ultimately.
  3. It has seamless portability across the country.

Which of the statements given above is/are correct?

(a) 1 and 2 only
(b) 3 only
(c) 1 and 3 only
(d) 1, 2 and 3

Answer: (b) 3 only

Ayushman Bharat Digital Mission (ABDM)
  • The National Health Policy (NHP) 2017 seeks the attainment of the highest possible level of health and wellbeing for all at all ages, through a preventive and promotive health care orientation in all developmental policies, and universal access to good quality health care services without anyone having to face financial hardship as a consequence.
  • In a follow-up of the NHP’s specific goals for adopting digital technologies, the Ministry of Health and Family Welfare constituted a committee headed by Shri J. Satyanarayana to develop an implementation framework for the National Health Stack. This committee produced the National Digital Health Blueprint (NDHB), laying out the building blocks and an action plan to comprehensively and holistically implement digital health.
  • Since the implementation is envisioned to be in a mission mode, the initiative is referred to as the Ayushman Bharat Digital Mission (ABDM).
  • The Ayushman Bharat Digital Mission (ABDM) aims to develop the backbone necessary to support the integrated digital health infrastructure of the country. It will bridge the existing gap amongst different stakeholders of Healthcare ecosystem through digital highways.
  • Its vision is to create a national digital health ecosystem that supports universal health coverage in an efficient, accessible, inclusive, affordable, timely and safe manner, that provides a wide-range of data, information and infrastructure services, duly leveraging open, interoperable, standards-based digital systems, and ensures the security, confidentiality and privacy of health-related personal information.
    • But it is not mandatory for all citizens to get a Ayushman Bharat Health Account (ABHA) Number. Whoever wishes to participate in the Ayushman Bharat Digital Mission and wishes to have their records available digitally may create an ABHA Number.
  • Features of the Mission:
    • Health ID:
      • It will be issued for every citizen that will also work as their health account. This health account will contain details of every test, every disease, the doctors visited, the medicines taken and the diagnosis.
      • Health ID is free of cost, voluntary. It will help in doing analysis of health data and lead to better planning, budgeting and implementation for health programs.
    • Healthcare Facilities & Professionals’ Registry:
      • The other major component of the programme is creating a Healthcare Professionals’ Registry (HPR) and Healthcare Facilities Registry (HFR), allowing easy electronic access to medical professionals and health infrastructure.
      • The HPR will be a comprehensive repository of all healthcare professionals involved in delivering healthcare services across both modern and traditional systems of medicine.
      • The HFR database will have records of all the country’s health facilities.
    • Ayushman Bharat Digital Mission Sandbox:
      • The Sandbox, created as a part of the mission, will act as a framework for technology and product testing that will help organisations, including private players intending to be a part of the national digital health ecosystem become a Health Information Provider or Health Information User or efficiently link with building blocks of Ayushman Bharat Digital Mission.
  • Implementing Agency:
    • National Health Authority (NHA) under the Ministry of Health and Family Welfare.
  • Expected Benefits:
    • Ensure ease of doing business for doctors and hospitals and healthcare service providers.
    • Enable access and exchange of longitudinal health records of citizens with their consent.
    • Create integration within the digital health ecosystem, similar to the role played by the Unified Payments Interface (UPI) in revolutionising payments.

Q. Consider the following statements:

  1. Tight monetary policy of US Federal Reserve could lead to capital flight.
  2. Capital flight may increase the interest cost of firms with existing External Commercial Borrowings (ECBs).
  3. Devaluation of domestic currency decreases the currency risk associated with ECBS.

Which of the statements given above are correct?

(a) 1 and 2 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3

Answer: (a) 1 and 2 only

The Fed’s policy affects the Indian markets through various channels such as:
  • Exchange Rate Channel: The Fed’s rate hikes tend to strengthen the US dollar against other currencies, including the Indian rupee.
    • A weaker rupee also increases the debt servicing costs for Indian borrowers who have taken loans in foreign currency.
  • Capital Flow Channel: The Fed’s rate hikes also reduce the interest rate differential between the US and India, which makes India less attractive for foreign investors who seek higher returns.
    • This could lead to capital outflows from India’s equity and debt markets, which could lower asset prices and increase volatility.
    • Capital outflows could also reduce India’s foreign exchange reserves and create liquidity crunches in domestic markets.
  • Inflation Channel: The Fed’s rate hikes could also affect India’s inflation through two ways.
    • First, a weaker rupee could increase the imported inflation for India, as it raises the cost of imported goods such as oil, gold and electronics.
    • Second, higher global commodity prices due to strong US demand could also push up India’s domestic inflation, as it affects the input costs for various sectors such as agriculture, manufacturing and services.

Tight monetary Policy

  • Tight monetary policy refers to the actions that a central bank takes to limit inflation and an overheating economy. Tight monetary policy is commonly called contractionary monetary policy.
  • Tight monetary policy, or contractionary monetary policy, typically occurs when a central bank wants to keep inflation under control.
  • If there has been too much spending and borrowing by consumers and businesses, the economy can become overheated and that could considerably raise the price level of goods and services.
  • To minimize or slow down inflation, a central bank could make it more expensive for consumers to spend money and businesses to borrow money by raising interest rates. This is a form of contractionary monetary policy—it restricts, or contracts, spending.

Capital Flight

  • In economics, capital flight is a phenomenon characterized by large outflows of assets and/or capital from a country due to some events, resulting in negative economic consequences to that country.
  • In this context, Capital Flight will be induced due to the tight monetary policy of the US federal reserve.
    • Higher interest rates in the US usually lead to foreign investors pulling their money from emerging markets like India back to the US for safer, and more secure returns leading to capital flight.
    • Further capital flight will put pressure on the RBI to hike interest rates or lead to rupee depreciation against the dollar, which again would lead to imported inflation for India.
    • Capital flight may increase the interest cost of firms with existing External Commercial borrowing (ECBs) as the capital flight would lead to depreciation in the value of the currency and create supply-side restraints for borrowers.
    • Devaluation of domestic currency will inadvertently increase the currency risk associated with ECBs and will result in higher interest costs for borrowers.

Q. Consider the following statements:

  1. In India, credit rating agencies are regulated by Reserve Bank of India.
  2. The rating agency popularly known as ICRA is a public limited company.
  3. Brickwork Ratings is an Indian credit rating agency.

Which of the statements given above are correct?

(a) 1 and 2 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3

Answer: (b) 2 and 3 only

Notes:
  • Credit Rating Agencies form an essential part of the financial markets. They are regulated by SEBI and not by RBI under the powers derived from the Securities and Exchange Board of India (Credit Rating Agencies) Regulations, 1999.
  • ICRA Limited was set up in 1991 by leading financial/investment institutions, commercial banks and financial services companies as an independent and professional investment Information and Credit Rating Agency. ICRA is a Public Limited Company, with its shares listed on the Bombay Stock Exchange and the National Stock Exchange.
  • Brickwork Ratings (BWR) is a SEBI registered Indian Credit Rating Agency. It has also been accredited by RBI offers rating services on Bank Loans, NCD, Commercial Paper, Fixed deposits, Securitized paper, Security receipts etc.
Credit Rating Agencies
  • A credit rating agency (CRA, also called a ratings service) is a company that assigns credit ratings, which rate a debtor’s ability to pay back debt by making timely principal and interest payments and the likelihood of default.
  • An agency may rate the creditworthiness of issuers of debt obligations, of debt instruments, and in some cases, of the servicers of the underlying debt, but not of individual consumers.
  • Credit ratings are usually expressed as letter grades. Whereas, credit scores usually help determine the creditworthiness of individuals and are calculated on the basis of the credit history found in the credit report. 
  • The rating scales used by the Credit Rating Agencies are scaled from ‘AAA’ to ‘D’, wherein ‘AAA’ stands for highest ratings and ‘D’ as lowest or Bad Credit Rating. Similarly, Credit score is a 3-digit number ranging between 300 to 900, wherein any score above 750 and as close to 900 is considered good by the potential lenders.
  • Credit scores are computed by four major credit bureaus in India including TransUnion CIBIL, Equifax, Experian and CRIF High Mark.
  • The global credit rating industry is highly concentrated, with three leading agencies: Moody’s, Standard & Poor’s, and Fitch.
  • Credit Rating Agencies in India:
    • Credit Rating Information Services of India Limited (CRISIL)
    • Investment Information and Credit Rating Agency of India Limited (ICRA)
    • Credit Analysis & Research (CARE)
    • Onida Individual Credit Rating Agency of India (ONICRA)
    • Fitch India
    • Brickwork Ratings (BWR)
    • SME Rating Agency of India Limited (SMERA)
Securities and Exchange Board of India (SEBI)
  • SEBI is a statutory body established on April 12, 1992 in accordance with the provisions of the Securities and Exchange Board of India Act, 1992.
    • Headquartered in Mumbai, the Securities and Exchange Board of India (SEBI) has four regional offices located in Ahmedabad, Chennai, Delhi and Kolkata.
  • The basic functions of the Securities and Exchange Board of India is to protect the interests of investors in securities and to promote and regulate the securities market.
  • Structure of SEBI:
    • SEBI Board consists of a Chairman and several other whole time and part time members.
    • SEBI also appoints various committees, whenever required to look into the pressing issues of that time.
    • Further, a Securities Appellate Tribunal (SAT) has been constituted to protect the interest of entities that feel aggrieved by SEBI’s decision.
    • SAT consists of a Presiding Officer and two other Members.
    • It has the same powers as vested in a civil court. Further, if any person feels aggrieved by SAT’s decision or order can appeal to the Supreme Court.
  • Powers and Functions of SEBI:
    • SEBI is a quasi-legislative and quasi-judicial body which can draft regulations, conduct inquiries, pass rulings and impose penalties.
    • It functions to fulfill the requirements of three categories –
      • Issuers – By providing a marketplace in which the issuers can increase their finance.
      • Investors – By ensuring safety and supply of precise and accurate information.
      • Intermediaries – By enabling a competitive professional market for intermediaries.
    • By Securities Laws (Amendment) Act, 2014, SEBI is now able to regulate any money pooling scheme worth Rs. 100 cr. or more and attach assets in cases of non-compliance.
    • SEBI Chairman has the authority to order “search and seizure operations”. SEBI board can also seek information, such as telephone call data records, from any persons or entities in respect to any securities transaction being investigated by it.
    • SEBI perform the function of registration and regulation of the working of venture capital funds and collective investment schemes including mutual funds.
    • It also works for promoting and regulating self-regulatory organizations and prohibiting fraudulent and unfair trade practices relating to securities markets.

Q. With reference to the ‘Banks Board Bureau (BBB)’, which of the following statements are correct?

  1. The Governor of RBI is the Chairman of BBB.
  2. BBB recommends for the selection of heads for Public Sector Banks.
  3. BBB helps the Public Sector Banks in developing strategies and capital raising plans.

Select the correct answer using the code given below:

(a) 1 and 2 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3

Answer: (b) 2 and 3 only

Banks Board Bureau (BBB)
  • Banks Board Bureau (BBB) is a self-governing autonomous body of the Government of India tasked to search and select apposite personages for Board of Public Sector Banks, Public Sector Financial Institutions and Public Sector Insurance Companies and recommend measures to improve Corporate Governance in these Institutions.
  • Banks Board Bureau headquarter is at the Central Office of Reserve Bank of India, Mumbai and started its functioning on April 1, 2016.
    • The Banks Board Bureau (BBB) has its genesis in the recommendations of ‘The Committee to Review Governance of Boards of Banks in India, May 2014 (Chairman – P. J. Nayak)’.
  • BBB was a part of the seven-point strategy of the Indradhanush Mission aimed at revamping the Public Sector Banks. It is an autonomous body of officials and distinguished professionals for the PSBs  (Public Sector Banks). 
    • The Governor of RBI is not the Chairman of the Bank Board Bureau (BBB). The Appointments Committee of the Cabinet in its discretion appoints the Chairman and members of the BBB.
  • The Ministry of Finance has the final decision-making authority on the appointments in consultation with the Prime Minister’s Office.
  • The mandate of the Bureau includes:
    • To recommend the selection and appointment of Board of Directors in Nationalised Banks, Financial Institutions and Public Sector Insurance Companies (Whole Time Directors and chairman);
    • To advise the Central Government on matters relating to appointments, confirmation or extension of tenure and termination of services of the Directors of mandated institutions;
    • To advise the Central Government on the desired management structure of mandated institutions, at the level of Board of Directors and senior management;
    • To advise the Central Government on a suitable performance appraisal system for mandated institutions;
    • To build a data bank containing data relating to the performance of mandated institutions and its officers;
    • To advise the Central Government on the formulation and enforcement of a code of conduct and ethics for managerial personnel in mandated institutions.
    • To advise the Central Government on evolving suitable training and development programs for managerial personnel in mandated institutions
    • To help the banks in terms of developing business strategies and capital raising plan and the like;
    • Any other work assigned by the Government in consultation with Reserve Bank of India.

Q. Convertible Bonds, consider the following statements:

  1. As there is an option to exchange the bond for equity, Convertible Bonds pay a lower rate of interest.
  2. The option to convert to equity affords the bondholder a degree of indexation to rising consumer prices.

Which of the statements given above is/are correct?

(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2

Answer: (c) Both 1 and 2

Convertible Bonds:
  • A convertible bond is a type of debt security that provides an investor with a right or an obligation to exchange the bond for a predetermined number of shares in the issuing company at certain times of a bond’s lifetime. It is a hybrid security that possesses features of both debt and equity.
    • When issued, they act just like regular corporate bonds, albeit with a slightly lower interest rate. Because convertibles can be changed into stock and, thus, benefit from a rise in the price of the underlying stock, companies offer lower yields on convertibles.
  • Advantages of investing in Convertible Bonds:
    • One of the advantages of convertible bonds is that the option to convert to equity affords the bondholder a degree of indexation to rising consumer prices.
    • Lower interest payments: Generally, investors are willing to accept lower interest payments on convertible bonds than on regular bonds. Thus, issuing companies can save money on their interest payments.
    • Potential for capital appreciation: Convertible bonds offer the potential for capital appreciation if the underlying stock price rises. This is because convertible bondholders can convert their bonds into shares of stock at a predetermined price.
    • Income generation: Convertible bonds typically pay regular interest payments, which can provide investors with a steady stream of income.
    • Reduced risk: Convertible bonds are less risky than traditional stocks, as they offer the downside protection of a bond.This is because convertible bondholders are guaranteed to receive the principal investment back at maturity, even if the underlying stock price has fallen.
    • Diversification: Convertible bonds can help investors to diversify their portfolios. This is because convertible bonds have characteristics of both bonds and stocks, and they can therefore help to reduce overall portfolio risk.
    • Deferral of stock dilution: If a company is not willing to dilute its stock shares in the short or medium term but is comfortable doing so in the long term, convertible bond financing is more appropriate than equity financing. The current company’s shareholders retain their voting power and they may benefit from the capital appreciation of its stock price in the future.
Preferred Stocks
  • Preferred shares (also known as preferred stock or preference shares) are securities that represent ownership in a corporation, and that have a priority claim over common shares on the company’s assets and earnings. The shares are more senior than common stock but are more junior relative to bonds in terms of claim on assets.
    • Holding stock in a company means having ownership or equity in that firm. There are two kinds of stocks an investor can own: common stock and preferred stock.
    • Common stockholders can elect a board of directors and vote on company policy, but they are lower in the food chain than owners of preferred stock, particularly in matters of dividends and other payments. On the downside, preferred stockholders have limited rights, which usually does not include voting.
    • When a company is going through liquidation, preferred shareholders and other debt holders have the rights to company assets first, before common shareholders. Preferred shareholders also have priority regarding dividends, which tend to yield more than common stock and are paid monthly or quarterly.
  • Features of Preferred Shares:
    • Preference in assets upon liquidation: The shares provide their holders with priority over common stock holders to claim the company’s assets upon liquidation.
    • Dividend payments: The shares provide dividend payments to shareholders. The payments can be fixed or floating, based on an interest rate benchmark such as LIBOR.
    • Preference in dividends: Preferred shareholders have a priority in dividend payments over the holders of the common stock.
    • Non-voting: Generally, the shares do not assign voting rights to their holders. However, some preferred shares allow its holders to vote on extraordinary events.
    • Convertibility to common stock: Preferred shares may be converted to a predetermined number of common shares. Some preferred shares specify the date at which the shares can be converted, while others require approval from the board of directors for the conversion.
    • Callability: The shares can be repurchased by the issuer at specified dates.

Q. In India, which one of the following is responsible for maintaining price stability by controlling inflation?

(a) Department of Consumer Affairs

(b) Expenditure Management Commission

(c) Financial Stability and Development Council

(d) Reserve Bank of India

Answer: (d) Reserve Bank of India

Reserve Bank of India
  • Reserve Bank of India is India’s central bank has key function to keep check on the inflation by use of monetary policy in forms of qualitative and quantitative measures. This responsibility is explicitly mandated under the Reserve Bank of India Act, 1934.
  • The primary objective of monetary policy is to maintain price stability while keeping in mind the objective of growth. Price stability is a necessary precondition to sustainable growth.
  • In May 2016, the Reserve Bank of India (RBI) Act, 1934 was amended to provide a statutory basis for the implementation of the flexible inflation targeting framework. The amended RBI Act also provides for the inflation target to be set by the Government of India, in consultation with the Reserve Bank, once in every five years.
  • Functions of RBI:
    • Monetary authority: The Reserve Bank of India (RBI) is the central bank of India and is responsible for implementing and monitoring monetary policy to ensure price stability and support economic growth.
    • Foreign exchange management: The RBI manages India’s foreign exchange reserves and oversees the foreign trade payment system. It also maintains the value of the rupee outside India.
    • Regulator and administrator of the financial system: The RBI regulates and supervises the banking and financial system in India. It sets the rules for branch expansion, bank mergers, liquidity of assets, and the issuance of licences.
    • Issuer of currency: The RBI issues and manages India’s currency notes and coins. It is also responsible for exchanging coins and currency.
    • Banker to banks: The RBI settles interbank transactions and acts as the banker’s bank.
    • Developmental role: The RBI supports and promotes India’s economic development.
    • Banker and debt manager to the government: The RBI conducts banking transactions for the Indian government and manages its cash holdings. It also manages the government’s public debt and issues new loans.
    • Overseer of market operations: The RBI regulates and develops the repo market, money market, and other market instruments. It also conducts money market operations, foreign exchange operations, and government securities operations.
    • Lender of last resort: The RBI provides loans to banks in times of financial crisis.
Financial Stability and Development Council (FSDC)
  • Establishment of FSDC:
    • The Financial Stability and Development Council (FSDC) is an autonomous body constituted by the Government of India.
    • It is a non-statutory apex council under the Ministry of Finance constituted by the Executive Order in 2010.
      • The Raghuram Rajan committee (2008) on financial sector reforms first proposed the creation of FSDC.
  • Composition:
    • It is chaired by the Finance Minister and its members include the heads of all Financial Sector Regulators (RBI, SEBI, PFRDA & IRDA), Finance Secretary, Secretary of Department of Economic Affairs (DEA), Secretary of Department of Financial Services (DFS), and Chief Economic Adviser.
      • In 2018, the government reconstituted FSDC to include the Minister of State responsible for the Department of Economic Affairs (DEA), Secretary of Department of Electronics and Information Technology, Chairperson of the Insolvency and Bankruptcy Board of India (IBBI) and the Revenue Secretary.
    • FSDC sub-committee is headed by the Governor of RBI.
    • The Council can invite experts to its meeting if required.
  • Functions:
    • To strengthen and institutionalize the mechanism for maintaining financial stability, enhancing inter-regulatory coordination and promoting financial sector development.
    • To monitor macro-prudential supervision of the economy. It assesses the functioning of large financial conglomerates.
    • Coordinating India’s international interface with financial sector bodies like the Financial Action Task Force (FATF), Financial Stability Board (FSB) and any such body as may be decided by the Finance Minister from time to time.
Expenditure Management Commission
  • The constitution of Expenditure Management Commission (EMC) of India was announced in the Budget Speech by Finance Minister of India Arun Jaitley in the budget of 2014–15.
  • The Commission was a recommendation body with the primary responsibility of suggesting major expenditure reforms that will enable the government to reduce and manage its fiscal deficit at a more sustainable levels.
  • The commission was mandated to evaluate proposals for reducing the three major subsidies (i.e. food, fertilizer and oil).
Department of Consumer Affairs
  • Department of Consumer Affairs is one of the two Departments under the Ministry of Consumer Affairs, Food & Public Distribution.
  • It was constituted as a separate Department in June 1997 as it was considered necessary to have a separate Department to give a fillip to the nascent consumer movement in the country.
  • The Department has been entrusted with the following work:
    • Implementation of Consumer Protection Act, 2019.
    • Implementation of Bureau of Indian Standards Act, 2016
    • Implementation of Standards of Weights and Measures – The Legal Metrology Act, 2009.
    • Regulation of Packaged Commodities.
    • The Essential Commodities Act, 1955 (10 of 1955) (Supply, Prices and Distribution of Essential Commodities not dealt with specifically by any other Department).
    • Prevention of Black Marketing and Maintenance of Supply of Essential Commodities Act, 1980(7 of 1980).
    • Monitoring of prices and availability of essential commodities.
    • Direct Selling
    • Training in Legal Metrology.
    • The Emblems and Names (Prevention of Improper Use) Act, 1952.
    • Laying down specifications, standards and codes and ensuring quality control of bio-fuels for end uses.
    • Consumer Cooperatives
    • National Test House.

Q. With reference to Non-Fungible Tokens (NFTs), consider the following statements:

  1. They enable the digital representation of physical assets.
  2. They are unique cryptographic tokens that exist on a blockchain.
  3. They can be traded or exchanged at equivalency and therefore can be used as a medium of commercial transactions.

Which of the statements given above are correct?

(a) 1 and 2 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3

Answer: (a) 1 and 2 only

Non-Fungible Tokens (NFTs)
  • Non-Fungible Tokens (NFTs) are unique cryptographic tokens that exist on a blockchain and cannot be replicated.
  • They can represent digital or real-world items like artwork, photograph, song,  video, real estate, individuals’ identities, property rights, and more.
  • Thus, NFTs are assets that have been tokenized via a blockchain. They are assigned unique identification codes and metadata that distinguish them from other tokens.
  • The term ‘non-fungible’ simply means that each token is different as opposed to a fungible currency such as money (a ten-rupee note can be exchanged for another and so on).
  • NFTs can be traded and exchanged for money, cryptocurrencies, or other NFTs—it all depends on the value the market and owners have placed on them. 
    • Physical money and cryptocurrencies are “fungible,” meaning they can be traded or exchanged for one another. They’re also equal in value—one dollar is always worth another dollar; one Bitcoin is always equal to another Bitcoin. Crypto’s fungibility makes it a trusted means of conducting transactions on the blockchain. NFTs are different. Each has a digital signature that makes it impossible for NFTs to be exchanged for or equal to one another (hence, non-fungible).
  • NFT transactions are recorded on blockchains, which is a digital public ledger, with most NFTs being a part of the Ethereum blockchain. 
  • NFTs became popular in 2021, when they were beginning to be seen by artists as a convenient way to monetise their work.
Blockchain Technology
  • A blockchain is essentially a digital ledger of transactions that is duplicated and distributed across the entire network of computer systems on the blockchain. 
  • Each block in the chain contains a number of transactions, and every time a new transaction occurs on the blockchain, a record of that transaction is added to every participant’s ledger.
  • Decentralized blockchains are immutable, which means that the data entered is irreversible. 
  • This means if one block in one chain was changed, it would be immediately apparent it had been tampered with.

Q. In India, which one of the following compiles information on industrial disputes, closures, retrenchments and lay-offs in factories employing workers?

(a) Central Statistics Office

(b) Department for Promotion of Industry and Internal Trade

(c) Labour Bureau

(d) National Technical Manpower Information System

Answer: (c) Labour Bureau

Labour Bureau
  • Labour Bureau, an attached office under Ministry of Labour and Employment, was set up on 1st October 1946.
  • It is entrusted with the work of compilation, collection, analysis and dissemination of statistics on different aspects of labour.
  • Labour Bureau has two main wings stationed in Shimla and Chandigarh.
  • The functions/activities of Labour Bureau can be classified under the following major heads:
    • Compilation and maintenance of Consumer Price Index Numbers for Industrial Workers, Agricultural/Rural Labourers, Retail Price Index of Selected Essential Commodities in Urban Areas etc.
    • Quick Employment Survey and Employment-Unemployment survey are also being conducted by Labour Bureau.
  • The various editions on Statistics of “Industrial Disputes, Closures, Retrenchments and Lay-offs in India during 2006” is compiled based on the voluntary returns received every month from the Labour Departments of the States and the Regional Labour Commissioner (Central).
National Statistical Office (NSO)
  • National Statistical Office (NSO) acts as the nodal agency under the Ministry of Statistics and Programme Implementation for planned development of the statistical system in the country, lays down and maintains norms and standards in the field of statistics, involving concepts and definitions, methodology of data collection, processing of data and dissemination of results. 
  • The National Statistical Office (NSO) consists of the Central Statistical Office (CSO), the Computer center and the National Sample Survey Office (NSSO).
    • NSO is headed by the Ministry of Statistics and Programme Implementation (MOSPI).
  • Functions:
    • It compiles and releases the Index of Industrial Production (IIP) every month in the form of ‘quick estimates’; conducts the Annual Survey of Industries (ASI); and provides statistical information to assess and evaluate the changes in the growth, composition and structure of the organized manufacturing sector.
  • National Statistical Office (NSO) is mandated with the following responsibilities:
    • acts as the nodal agency for planned development of the statistical system in the country, lays down and maintains norms and standards in the field of statistics, involving concepts and definitions, methodology of data collection, processing of data and dissemination of results;
    • coordinates the statistical work in respect of the Ministries/Departments of the Government of India and State Statistical Bureaus (SSBs), advises the Ministries/Departments of the Government of India on statistical methodology and on statistical analysis of data;
    • prepares national accounts as well as publishes annual estimates of national product, government and private consumption expenditure, capital formation, savings, estimates of capital stock and consumption of fixed capital, as also the state level gross capital formation of supra-regional sectors and prepares comparable estimates of State Domestic Product (SDP) at current prices;
    • maintains liaison with international statistical organizations, such as, the United Nations Statistical Division (UNSD), the Economic and Social Commission for Asia and the Pacific (ESCAP), the Statistical Institute for Asia and the Pacific (SIAP), the International Monetary Fund (IMF), the Asian Development Bank (ADB), the Food and Agriculture Organizations (FAO), the International Labour Organizations (ILO), etc.
    • compiles and releases the Index of Industrial Production (IIP) every month in the form of ‘quick estimates’; conducts the Annual Survey of Industries (ASI); and provides statistical information to assess and evaluate the changes in the growth, composition and structure of the organized manufacturing sector;
    • organizes and conducts periodic all-India Economic Censuses and follow-up enterprise surveys, provides an in-house facility to process the data collected through various socio economic surveys and follow-up enterprise surveys of Economic Censuses;
    • conducts large scale all-India sample surveys for creating the database needed for studying the impact of specific problems for the benefit of different population groups in diverse socio economic areas, such as employment, consumer expenditure, housing conditions and environment, literacy levels, health, nutrition, family welfare, etc.;
    • examines the survey reports from the technical angle and evaluates the sampling design including survey feasibility studies in respect of surveys conducted by the National Sample Survey Organizations and other Central Ministries and Departments;
    • dissemination of statistical information on various aspects through a number of publications distributed to Government, semi-Government, or private data users/ agencies; and disseminates data, on request, to the United Nations agencies like the UNSD, the ESCAP, the ILO and other international agencies;
    • releases grants-in-aid to registered Non-Governmental Organizations and research institutions of repute for undertaking special studies or surveys, printing of statistical reports, and financing seminars, workshops and conferences relating to different subject areas of official statistics.
Department for Promotion of Industry and Internal Trade
  • The Department for Promotion of Industry and Internal Trade is a central government department under the Ministry of Commerce and Industry in India.
  • It is responsible for formulation and implementation of promotional and developmental measures for growth of the industrial sector, keeping in view the national priorities and socio-economic objectives. While individual administrative ministries look after the production, distribution, development and planning aspects of specific industries allocated to them, DPIIT is responsible for the overall industrial policy.
  • It is also responsible for facilitating and increasing the foreign direct investment (FDI) flows to the country.
  • DPIIT is the nodal Department in Government of India for coordinating and implementing programmes with the United Nations Industrial Development Organization (UNIDO) in India. The department also coordinates with apex Industry Associations such as Federation of Indian Chambers of Commerce and Industry, Confederation of Indian Industry, ASSOCHAM in their activities relating to promotion of industrial cooperation and to stimulate FDI into India.
  • Responsibilities:
    • The department has created an online portal called the India Investment Grid (IIG), an interactive investment portal providing details of sectors, states and projects in which domestic and foreign investors may sink in capital.
    • The department is the nodal body for the Startup India initiative, which aims to make India a hub for startups. It aims to discard restrictive States Government policies within this domain, such as License Raj, Land Permissions, Foreign Investment Proposals, and Environmental Clearances.
    • The department is currently framing the e-commerce policy, a set of rules aimed at streamlining and regulating the digital business ecosystem.
    • DPIIT is also responsible for intellectual property rights relating to patents, designs, trademarks, copyrights, layout-designs of integrated circuits, and geographical indication of goods, and oversees the initiative relating to their promotion and protection.
National Technical Manpower Information System (NTMIS)
  • National Technical Manpower Information Systems (NTMIS) is a scheme of the Ministry of Human Resource Development, Govt. of India in 1983.
  • This scheme is funded by the All India Council for Technical Education (AICTE).
  • The National Technical Manpower Information System (NATMIS) is a database or information system maintained by the government of a country that provides information about the technical workforce in the country.
  • The purpose of NATMIS is to provide a comprehensive and up-to-date record of technical manpower available in the country, as well as the skills, qualifications, and competencies of these individuals.
  • The main functions of NATMIS include:
    • Collection of data: NATMIS collects data from various sources such as educational institutions, employers, and training centers to build a comprehensive database of technical manpower in the country.
    • Monitoring and analysis: NATMIS can be used to monitor the trends and patterns in the technical workforce, and to analyze the supply and demand of skills in different sectors.
    • Support for policy and planning: NATMIS provides valuable information that can be used to support the development of policies and plans aimed at improving the quality and competitiveness of the technical workforce.
    • Career guidance and employment services: NATMIS can be used to provide career guidance and employment services to individuals seeking information about employment opportunities, training programs, and other related services.