January,, 2018 January
“ A MONTHL MONTHLY Y MAGAZINE FOR UPSC CIVIL SERVICES EXAMINATION”
FRDI Bill, 2017
IBC Ordinance, 2017
Insolvency regime for ‘FINANCIAL’ firms
Insolvency regime for
‘NON-FINANCIAL’ firms
Bail-in clause
Chakra Cha kravyuh vyuh Prob Problem lem
twitter.com/NEXTIASMADEEASY
www.facebook.com/NEXTIASMADEEASY
www.nextias.com
Next IAS, an an initiative of MADE EASY Group, Group, is here to become a Friend, Friend, Philosopher and Guide for Civil Services aspirants. MADE EASY- a name synonymous with success in ESE and GATE exams is known for imparting quality education, its professionalism and for service to students. Our organisation strongly believes in quality of teaching and service. Next IAS aims to bring the same level of expertise and dedication for student services who are preparing for Civil Services Examination.
Classroom Courses
General Studies Prelims cum Main Foundation Course General Studies (Prelims Exclusive Batches) CSAT (Prelims Exclusive)
Essay writing (Mains Exclusive)
Exclusive Batch on ‘Current Issues’ for Main Examination Optional Subjects (Civil Engg., Mechanical Engg., Electrical Engg.) E ngg.) Test Series S eries
General Studies (Preliminary) General Studies (Mains)
Essay (Mains)
Optional Subjects (Civil Engineering, Mechanical Engineering, Engineering, Electrical Engineering, Public Administration, Geography)
Reasons to Choose
Panel of 12 renowned faculties from UPSC guidance arena.
Comprehe Comp rehensiv nsive e cove coverage rage of sylla syllabus bus..
Welll design Wel designed ed and in-de in-depth pth stud studyy mater material. ial.
Frequent motivational and counseling seminars.
Pre planned class schedule, with accurate implementation of time-table.
Interactive classrooms - As we believe in “see and learn”, we have best quality teaching tools with equipped audio-visual classrooms.
Old Rajinder Nagar Centre :
Ground Floor, 6, Old Rajinder Nagar (Near Salwan School Gate No. 2) New Delhi - 110060; Ph : 011-49858612, 8800338066
Saket Centre (Classes) Centre (Classes) : 316/274, Westend Marg (Opp. MADE EASY Centre), Saidulajab, Near Saket Metro Station, New Delhi-30 Admission & Enquiry : 44-A/1, Kalu Sarai, Near Hauz Khas Metro Station, New Delhi-110016; Ph : 011-45124642, 8800776445
[email protected]
www.nextias.com
Current Affairs January, 2018
Chief Editor
B. Singh (Ex. IES) CMD, MADE EASY Group
Editor
Aniruddh Pratap Singh
MADE EASY Publications
Publications
Corporate Corporate Office: 44-A/4, Kalu Sarai, New Delhi-110016 Visit us at: www.madeeasypublications.org 011-45124660, 8860378007 E-mail:
[email protected] [email protected]
© Copyright 2018
MADE EASY Publications has taken due care in collecting the data before publishing this book. Inspite of this, if any inaccuracy
Disclaimer:
The views and opinions expressed in this magazine are those o f the au-
thors and do not necessarily reflect policy or position of CURRENT AFFAIRS Magazine or MADE EASY Publications. They should be understood as the personal opinions of the
or printing error occurs then Made Easy Publications owes no
author/ authors. The MADE EASY assumes no responsibility for views and opinions ex-
responsibility. Made Easy Publications will be grateful if you could
pressed nor does it vouch for any claims made in the advertisements published in the
point out any such error. Your suggestions will be appreciated.
Magazine. While painstaking effort has been made to ensure the accu racy and authentic-
© All rights reserved by MADE EASY PUBLICATIONS. No part of
ity of the informations published in the Magazine, neither Publisher, Editor or any of its employee does not accept any claim for c ompensation, if any data is wrong, abbreviated,
this book may be reproduced or utilized in any form without the
cancelled, omitted or inserted incorrect.
written permission from the publisher.
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without either the prior written permission of the Publisher.
Contents Anti-Competitive Conduct .................................................................................... 67 Mission 41K ................................................................................................................ 67 Insolvency Ordinance Ordinance ....................... .................................. ...................... ....................... ....................... ....................... ....................... ................6 .....6 FRDI Bill, 2017 ...............................................................................................................9 Mid-term Review of the Foreign Trade Policy (FTP) 2015-20 ............. ....... 13 Global Entrepreneurship Summit (GES), 2017 ................................................ 17 Ease of Doing Telecom Business.......................................................................... Business .......................................................................... 20
Bureau of Indian Standard (BIS) ........................................................................... 67 Merchant Discount Rate (MDR) ........................................................................... 68 Legatum Prosperity Index 2017........................................................................... 68 100 Years of One Rupee Note ............................................................................... 69
21
Age for joining NPS increased to 65 years ....................................................... 69
QUAD An Indo-Pacific “Concert of Democracies” ........................................... 22
Pulses ........................................................................................................................... 69
Wassenaar Arrangement ....................................................................................... 24
National Anti-Profiteering Authority (NAPA) ................................................... 70
Dalveer Bhandari (ICJ) ............................................................................................ 26
Changes in GST ......................................................................................................... 70
Seaplane...................................................................................................................... Seaplane ......................................................................................................................
Hong Kong Convention on Recycling of Ships ............................................... 28 Aerial Refueling......................................................................................................... 30 Brahmos ...................................................................................................................... 32 Tribunals: Law Commissio n Report No. 272 ............... ............. ............ ............ 33 Defection .................................................................................................................... 35 Holding Regular Parliament.................................................................................. 37
BIMSTEC Coastal Shipping .................................................................................... 71 Yamal LNG Project .................................................................................................... 71
Hate Speech ............................................................................................................... 39
European Bank For Reconstruction & Development (EBRD) ...................... 72
Crime in India – 2016 .............................................................................................. 42
China, Djibouti Forge ‘Strategic’ Ties .................................................................. 73
Conference of the Parties (COP 23) .................................................................... 46
DRC-NITI Aayog Dialogue ...................................................................................... 73
Bharat Stage VI .......................................................................................................... 48
Hafiz Saeed Released .............................................................................................. 73
Resource Efficiency (RE) : Strategy for India..................................................... India..................................................... 50
PM Modi visit to Philippines ................................................................................. 74
Smog on the Cricket field ...................................................................................... 52 Look up to stars ........................................................................................................ 53 Data Protection Framework .................................................................................. 54 DNA Fingerprinting ................................................................................................. 56 Diabetes ...................................................................................................................... 58
Hwasong-15 ............................................................................................................... 74 Saudi-UAE Partnership ........................................................................................... 76 Sampriti 2017 ............................................................................................................ 76 G5 Sahel ...................................................................................................................... 76 Egypt Terror Attack .................................................................................................. 77 Emmerson Mnangagwa: The Crocodile ............................................................ 77
Bharat-22 ETF ............................................................................................................ 60 Initial Coin Offerings (ICO) ..................................................................................... 60 GDP, GVA Accelerates .............................................................................................. 61 Sankalp ........................................................................................................................ 61 Panel to Address NPAs in The Power Sector .................................................... 61 National Power Portal(NPP) .................................................................................. 62 Tesla Semi ..................... ............. ............ ............. ............. ............ ............. ............. ..... 62 FDI Inflow to India .................................................................................................... 62 Indian Forest (Amendment) Ordinance, 2017................................................. 2017................................................. 63
President’s bodyguard ............................................................................................ 78 International Committee of Military Medicine (ICMM) ................................ 78 INS Sarvekshak .......................................................................................................... 78 IS was?.......................................................................................................................... was?..........................................................................................................................
79
Joint Training Doctrine Indian Armed Forces – 2017.................................... 2017.................................... 79 INS Kalvari ................................................................................................................... 80 Uber Hack: The Latest Data Heist to Hit Millions ............................................ 81
SC Halts Govt to take over Unitech..................................................................... 63 New Direct Tax Legislation .................................................................................... 64 Logistics Sector Granted Infrastructure Status ............................................... 64 MSME Sambandh ..................................................................................................... 64
National Capital Region (NCR) ............................................................................. 82
India Eases Bilateral Transfer Pricing Norms .................................................... 65
Prabhari Officers ....................................................................................................... 83
Hyderbad Metro Rail ............................................................................................... 65
Consumer frauds on the rise ................................................................................ 83
Special package for leather and footwear sector .......................................... 66
Section 126 (1) of the RPA, 1951 .......................................................................... 84
North East Special Infr astructure De velopment Scheme (NESIDS) .......... 66
Ministers not under RTI .......................................................................................... 84
NLCPR for North-East .............................................................................................. 66
Judicial Infrastructure ............................................................................................ 84
New Graphene Battery ....................... .................................. ....................... ....................... ....................... ....................... ....................103 .........103 Oumuamua: Interstellar Interstellar Asteroid........................... ...................................... ....................... ....................... ....................104 .........104 National Medical Commission Bill, 2017 ........................................................... 85
Excitonium Excitonium..................... ................................. ....................... ....................... ....................... ...................... ....................... ....................... ......................105 ...........105
National Nutrition Mission .................................................................................... 85
Light Emitting Plants....................... ................................... ....................... ...................... ....................... ....................... ....................... .............. 105
Sub-Schemes Under ICDS ..................................................................................... 86
World’s Largest Lithium Lithium Ion Battery ............. ............ ............. ............. ............ .. 106
Centre to give Rs. 500 To TB patients every month ....................................... 87
Draft Space Activities Activities Bill, 2017 ................................ ........................................... ....................... ....................... ..................106 .......106
Trachoma .................... ............ ............. ............. ............ ............. ............. ............. ....... 87
R.I.P. R.I.P. Bios, Welcome UEFI ............. ............ ............. ............. ............ ............. .......... 107
National Ayush Mission (NAM) ............................................................................ 88 India Hypertension Management Initiative (IHMI) ........................................ 89 QS Ranking of BRICS Universities 2018 ............................................................. 89 Mission for Protection and Empowerment for Women ............................... 90
Law Commission Commission Report No. 269 ............................... .......................................... ...................... ....................... .................108 .....108
Pradhan Mantri Mahila Shakti Kendra ............................................................... 90
Case Study ..................... ................................. ....................... ....................... ....................... ...................... ....................... ....................... ......................111 ...........111
Rape of Minors to attract death in M.P. ............................................................. 90
Lessons from life of Sardar Patel....................... .................................. ....................... ....................... ....................... ............... ... 112
Beti Bachao Beti Padhao ........................................................................................ 91
Quote for Essay ...................... ................................. ....................... ....................... ...................... ....................... ....................... ....................... .............. 114
Laqshya........................................................................................................................
91
Dr Ambedkar Scheme for Social Integration Through Inter-Caste Marriage .......91 Kerala Alcohol Prohibition..................................................................................... 92 Hausla-2017 ............................................................................................................... 92
Katas Raj Temple Temple...................... ................................. ....................... ....................... ...................... ....................... ....................... ......................115 ...........115
Youthquake ................................................................................................................ 93
Pandit Narayanrao Bodas ...................... ................................. ....................... ....................... ...................... ....................... .................115 .....115
Quami Ekta Week...................................................................................................... 93
Intangible Intangible Cultural Heritage ...................... .................................. ....................... ....................... ....................... ......................116 ...........116
Deen Dayal Divyangajan Sahajya Scheme ....................................................... 93
Salvator Mundi ....................... .................................. ....................... ....................... ...................... ....................... ....................... ....................... .............. 117
Rohit Sharma ...................... .................................. ....................... ...................... ....................... ....................... ...................... ....................... .................118 .....118 Hemidactylus Sushilduttai .................................................................................... 95
Ravichandran Ravichandran Ashwin ....................... .................................. ....................... ....................... ....................... ....................... ......................118 ...........118
UN Environment Assembly ................................................................................... 95
Mirabai Chanu ...................... ................................. ....................... ....................... ....................... ....................... ...................... ....................... ............... ... 118
Aravalli Range............................................................................................................ Range............................................................................................................
97
Cristiano Ronaldo...................... ................................. ....................... ....................... ...................... ....................... ....................... ....................119 .........119
Costa Rica: Carbon Neutral.................................................................................... Neutral.................................................................................... 97
SAICON 2017....................... ................................... ....................... ...................... ....................... ....................... ...................... ....................... .................119 .....119
Shared Infrastructure for Solar Parks Project................................................... Project................................................... 97
Mother Teresa Memorial Award........... Award...................... ....................... ....................... ...................... ....................... .................119 .....119
International Solar Alliance (ISA) ......................................................................... 98
Miss World 2017....................... .................................. ....................... ....................... ...................... ....................... ....................... ......................120 ...........120
International Training Centre for Operational Oceanography .................. 98
Miss Universe Universe 2017 ....................... .................................. ...................... ....................... ....................... ...................... ....................... .................120 .....120
Ara San Juan .............................................................................................................. 99
48th International Film Festival of India (IFFI) ............ ............ ............. .......... 120
World’s First Mobile Stadium ................................................................................ 99
Pt. Ramnarayan Sharma National Award ............... .......................... ...................... ....................... ...................121 .......121
Machu Picchu’s “Sacred Sister” ...........................................................................100
ICCR Distinguished Indologist Award ............ ............. ............ ............. ............ 121
Eruption Of Mount Agung ....................... ................................... ....................... ...................... ....................... ....................... ............... 100
Gurbir S. Grewal ....................... .................................. ....................... ....................... ...................... ....................... ....................... ......................121 ...........121
World’s Newest Island ...........................................................................................101
Shashi Kapoor ...................... ................................. ....................... ....................... ....................... ....................... ...................... ....................... ............... ... 121 Sunil Kumar Chourasia ....................... .................................. ....................... ....................... ....................... ....................... ....................122 .........122 Homai Vyarawalla Vyarawalla ...................... ................................. ....................... ....................... ...................... ....................... ....................... ....................122 .........122 Begum Rokeya ....................... .................................. ....................... ....................... ...................... ....................... ....................... ....................... .............. 122
Aditya-L1...................... .................................. ....................... ...................... ....................... ....................... ...................... ....................... ....................... ............... 102
Rukhmabai ...................... .................................. ....................... ....................... ....................... ...................... ....................... ....................... ....................123 .........123
New “Out Of Africa” Exodus Theory ..................................................................103
Cornelia Sorabji.............. Sorabji.......................... ....................... ....................... ....................... ...................... ....................... ....................... ....................123 .........123
Halszka...................... .................................. ....................... ....................... ....................... ...................... ....................... ....................... ...................... .................103 ......103
Christian Doppler ...................... ................................. ....................... ....................... ...................... ....................... ....................... ....................123 .........123
Disclaimer: The views and opinions opinions expressed in this magazine magazine are those of the authors and do not necessarily necessarily reflect policy or position of CURRENT AFFAIRS Magazine or MADE EASY Publications. They They should be understood as the personal opinions of the author/ authors.
Advt.
6
Current Affairs MADE EASY January, 2018
Chakravyuh Problem View of Economic Survey 2015-16
Reasons for Exit Problem? (Three I’s) In India, the exit problem arises because of I’s 1. Interests
Present status of exit: Chakravyuh Problem
w
inuential then consumers.
• The Economic Survey 2015-16 invoked the legend of the Charkravyuha from the Mahabharata describing the ability to
w
in removing barriers to entry for rms but less in relation to
It is because these producers have more voice and are backed by nancial power. i.e. Power of Vested Interests.
enter but not exit, with seriously adverse consequences. • According to it, the Indian Economy has made great strides strides
Liberalizatio n is difcult because producers are more
2. Institutions: impeded exit is a combination of w
Weak institutions: Our institutions: Our weak legal procedures increase the time and nancial costs of exit.
exit. • Thus, over the course of six decades, the Indian economy
w
Strong institutions: Strong institutions: Strong but inexible institutions institutions are
has moved from Socialism with limited entry to Marketism
unable to make risky decisions when departures from
without exit. exit.
strict principles may be necessary for the economy.
• The above above view is also supported by Doing business report 2018 2018 released by World Bank which ranks India @ 103 in
3. Ideology w
The founding ideology of socialism makes it difcult to phase out entitlements even as those intended for the
resolving insolvency.
poor end up accruing to the relatively better off.
Cost of exit:
w
Impeded exit has scal, economic, and political costs. FISCAL Costs
• Inefcient rms often require government support in the form of explicit subsidies (for example bailouts) or implicit subsidies (tariffs, loans from state banks).
ECONOMIC Costs
scarce country such as India, misallocation of • Stressed assets: It also leads to stressed assets on corporate and bank balance sheets. The consequence is a reduced ow of new investment, dampening medium term growth.
costs
• Difcult
to
initiate
reforms:
programs, once set in place, are very difcult to reverse.
Solution: There are ve possible ways to address this problem. 1. Avoid exit through liberal entry: entry: I.E. promoting competition via private sector entry rather than change of ownership from
• Misallocation of resources: In a capital resources can have signicant costs.
POLITICAL
E.g. interventions in agriculture and all the anti-poverty
Government
public to private. 2. Direct policy action: i.e. have better laws like the Insolvency and Bankruptcy Code to expedite exit and strengthen institutions by empowering bureaucrats. 3. Technology and the JAM solution: Increase the use of technology as it has two broad benets (i) lowering human discretion and the layers of intermediaries; intermediaries; (ii) changing the old ways of doing business.
support to “sick” rms can give the impression
4. Increasing Transparency: e.g. In relation to agriculture,
that government favours large corporate.
government should highlight the social and environmental
Politically, this limits the ability of government
costs of over-use of fertilizer, water and power.
to undertake reforms that will benet the economy but might be seen as further benetting businesses. • Questions
the
regulatory
5. Exit as an opportunity: showcase exit as an opportunity towards a better tomorrow. e.g. If employees of a public sector rm oppose it’s privatisation, then in those cases,
mechanism:
Similarly, if wilful defaulters cannot be dealt
Resources earned from privatization could be earmarked for employee compensation and retraining.
with appropriately, the legitimacy of regulating institutions can be called into question.
To address this Chakravyuh problem , problem , Insolvency &
Article
Current Affairs MADE EASY January, 2018
Insolvency & Bankruptcy Code, 2016 Salient features of the code •
The
Code
repeals
the
Presidency
Towns
Insolvency Act, 1909 and Provincial Insolvency Act, 1920. In addition, it amends 11 laws,
Insolvency
These professionals will administer the resolution process,
Professionals
manage the assets of the debtor, and provide information for creditors to assist them in decision making.
including the Companies Act, 2013, and the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, among others. • Applies to: The to: The 2016 Code applies to companies
Insolvency
The
Professional
insolvency professional agencies. The agencies conduct
Agencies
examinations to certify the insolvency professionals and
creates time-bound processes for insolvency
professionals
will
be
registered
with
enforce a code of conduct for their performance.
and individuals. individuals. • Time-bound resolution for insolvency: The insolvency: The Code
insolvency
Information
Information utilities (IUs) will be established to collect, collate
Utilities
and disseminate nancial information to facilitate insolvency resolution.
resolution of companies and individuals. These processes will be completed within 180 days. If
Adjudicating
The proceedings of the resolution process will be adjudicated
insolvency cannot be resolved, the assets of the
authorities
by the National Companies Law Tribunal (NCLT), for companies;
borrowers may be sold to repay creditors.
and
• Resolution plan (RP): A resolution plan species
Debt Recovery Tribunal (DRT), for individuals.
the details of how the debt of a defaulting debtor can be restructured. • Institutional mechanism: The
Code
creates
various institutions to facilitate resolution of
Insolvency and
It will be set up to regulate functioning functioning of IPs, IPAs and IUs.
Bankruptcy
The Board will consist of representatives of Reserve Bank of
Board
India, and the Ministries of Finance, Corporate Affairs and
insolvency. These are as follows:
Law.
Committee to Review IBC, 2016 Recently, in November 2017, 2017, The
Ministry
of
Corporate
Affairs constituted an Insolvency Law Committee to examine suggestions for improving the IBC, 2016. • Composition: Composition: The Committee will be chaired by the Secretary, Ministry Ministry of Corporate Corporate Affairs. Affairs. Its members will will include representatives representatives from: (i) RBI, (ii) Ministry of Finance, (iii) law rms, (iv) chartered accountants, and (v) company secretaries. • Objective: The Committee will: (i) examine the implementation of the IBC, 2016, and (ii) make recommendations recommendations to improve the efciency of the corporate resolution and liquidation framework. • The Committee will submit its recommendations within two months from its first meeting.
7
Salient features:
IBC (Amendment) Ordinance, 2017
The recent IBC (amendment) ordinance, ordinance, 2017 amends the Insolvency and Bankruptcy Code, 2016.
I B C , 20 16
IBC (AMENDMENT ) ORDINANCE, 2017
Definition of
RA is a person who submits a resoluti on RA is a person who submits a resolution plan after receiving an invite
Resolution
plan to an insolvency insolvency professional (IP).
by the IP to do so.
applicant (RA) Eligibility for RA
IP will take control control of the defaulting IP will only invite those resolution applicants to submit a RP, who fulfil company, and invite applicants to
certain criteria laid down by him or by the Insolvency and Bankruptcy
submit resolution plans (RP).
Board.
Bar on certain
—
RA
Certain persons are prohibited from being a resolution applicant and submitting a resolution plan. e.g. Undischarged insolvent; wilful defaulter; person whose account has been NPA for over 1 yr. (This is the most debatable debatable provision)
Approving RP
Committee of creditors will approve a Committee of creditors will approve a RP by 75% majority subject to RP with 75% majority.
any other conditions specified by the Insolvency and Bankruptcy Board. Committee of creditors are prohibited from approving a RP submitted before the promulgation of this Ordinance, where the plan has been submitted by a person ineligible to be a resolution applicant.
Liquidation
IP are allowed to sell the moveable or
IP are prohibited to prohibited to sell this property to any person who is ineligible to
immovable property of the debtor in
be a resolution applicant.
case of liquidation. Penalties
—
Any person violating the Code for which no penalty has been specied will be punishable with a ne ranging between Rs. 1 lakh -2 crores.
Significance:
• By widening the scope and denition of those it considers
• The IBC, 2016 is a landmark in India’s economic reforms.
ineligible to participate in the resolution process the
However, creditors had expressed concerns about promoters
amendment risks becoming an instrument of blunt force that
wresting back control of their defaulting companies.
hurts more than it helps.
• The ordinance ordinance provides clarity clarity on the eligibility eligibility criteria criteria for
• The existing existing promoters have have better understanding understanding of their their
the resolution applicants. This ensures that due diligence is
companies and they understand the reasons for the failures
followed to determine the credentials, creditworthiness and
better. Outside investors may place much lower bids than the
capability of resolution applicants.
reasonable value of the business and this may result in loss
• The amendment will deter chronic defaulters from regaining
for the creditors.
control of the company in the guise of a resolution plan. After
• And, worse, by making the amendments retrospective
all, the purpose of the IBC would be defeated if fraudulent
to cover even those cases already referred to the
promoters re-acquired the assets.
National Company Law Tribunal, the Centre may have
• In September, 2017 the rating agency agency CRISIL estimated estimated stressed assets to be Rs 11.5 lakh crore, nearly 14 per cent
ended up, unintentionally, throwing the baby out with the bathwater.
of the total advances made by banks. Recent amendments
• In short, No other restructuring law in the world has such
to the IBC will allow the banks to deal with stressed assets
restrictive thresholds. There is fear that it could reduce the
better.
number of revival proposals that may come up during the process.
Concerns regarding people barred: • The category of people barred barred includes promoters and
Concluding remark:
those in management whose loan accounts are classied
• IBC is not intended intended to serve serve as a mere instrument of liquidation. liquidation.
as non-performing assets for one year or more. It should be
Instead, it is to provide an enabling legal framework for
remembered that the not all bad loans are a result of mala
insolvency resolution in a time bound manner and promote
de intent on the borrower’s part.
entrepreneurship, entrepreneurship, among other goals.
• It ignores the genuine genuine business business failures and doesn’t doesn’t provides opportunity to the existing promoters who may have viable resolution plans
• With the IBC still evolving, evolving, it needs to be seen if it can can indeed deliver where earlier resolution structures failed.
Meaning of Terms �1� FINANCIAL FIRMS:
�3� DEPOSIT INSURANCE:
• Types: Financial rms include banks, insurance companies,
Need:
and stock exchanges, among others.
• Protecting the deposits deposits made by people in banks is very
• Task: These rms accept deposits from consumers, channel
important to ensure condence in the banking system. The
these deposits into investments, provide loans, and manage
common form of providing safety to depositors is deposit
payment systems that facilitate transactions in the country.
insurance.
�2� FINANCIAL RESOLU RESOLUTION: TION:
Meaning:
Need:
• Deposit insurance insurance is providing providing insurance insurance protection protection to the
• As we can see from above nancial rms are an integral part of the nancial system.
depositor’s money by receiving a premium. • Here, when the bank fails, fails, the depositors depositors will get get back their
• Since they transact with each other, their failure may have an
money. Insurance to deposits will be provided up to a limit.
adverse impact on nancial stability and result in consumers
For getting the deposit insurance protection, the depositors
losing their deposits and investments.
should pay an insurance premium.
• As witnessed in 2008, the failure of a rm (Lehman Brothers) impacted the nancial system across the world, and triggered a global nancial crisis. Meaning: • Resolution regime is a government created created legal framework
Institutional mechanism in India: • Deposit
Insurance
Corporation
and
Credit
Guarantee
Corporation (DICGC): In India, the deposit insurance was started with the launch of the DICGC of India in 1961. DICGC is fully owned by the RBI.
that resolves a failed bank/nancial institution in an orderly
• Coverage amount: The premium charged is on a at rate basis
way so the nancial markets do not collapse. Simply, it is an
which is 10 paise per Rs 100. The amount of coverage is
insolvency regime for financial institutions.
presently limited to Rs one lakh.
Institutional mechanism mechanism in India: • Currently, there is no specialised law law for the resolution of nancial rms in India. • The Insolvency and Bankruptcy Code, 2016 enacted by the Parliament provides for resolution and liquidation of nonfinancial firms. • In the Budget 2016-17, 2016-17, it was was announced announced that the Code for resolution of nancial rms, together with the Insolvency and Bankruptcy Code will provide a comprehensive resolution mechanism for our economy. • Accordingly, Government has proposed the Financial Resolution and Deposit Insurance Bill, 2017. The FRDI Bill is complementary to the Insolvency and Bankruptcy Code-2016 for for resolving bad loans
• Deposit Insurance Fund (DIF): (DIF) : A DIF is built up from the premium received from insured banks and the coupon received from investment in central government securities. • In the event event of a bank failure, failure, DICGC protects bank bank deposits that are payable in India. Institutions covered under deposit insurance: • Deposit insurance insurance is mandatory for all banks including foreign banks functioning in India. Types of deposits insured by the DICGC: • The DICGC insures insures all deposits such such as savings, xed, xed, current, recurring, etc. • Exemption: Exemption:
Deposits
of
foreign
and
Central/State
Governments; Inter-bank deposits; Deposits of the State
10
Current Affairs MADE EASY January, 2018
Key Provisions of The Bill How does the resolution corporation corporation monitor and prevent failure of financial firms? Timeline:
• Time-limit of resolution: It will resolve the rm using any of
• The FRDI Bill, 2017 was introduced in Lok Sabha during
the methods specied in the Bill, within one year (may be extended by another year). During this period, the rm will be
Monsoon Session 2017. • It is currently currently being examined by a Joint Committee of the two
immune against all legal actions. • Methods: Financial rm can be resolved using any of the ve
Houses of Parliament.
methods:
Objective:
1. Transferring the assets and liabilities liabilities of of the rm to another another rm.
1. To create a framework for monitoring the risk faced by
2. Merger or acquisition acquisition of the rm.
nancial rms. 2. And resolve them if they fail to honour their obligations (such
3. Creating a bridge nancial rm (where a new company is created to take over the assets, liabilities and management
as repaying depositors).
of the failing rm).
Resolution corporation corporation::
4. bail-in (internally transferring or converting the debt of the rm).
• The bill seeks to establish a Resolution Corporation. • Composition: It will include representatives from all nancial sector regulators (RBI, IRDA, SEBI) and the ministry of
5. liquidate the rm to repay its creditors. • Which method to use? w
nance, among others.
To ensure continuity of a failing rm, it may be resolved by merging it with another rm, transferring its assets and
• Task: Task: To monitor these rms to pre-empt failure, and resolve
liabilities, liabilities, or reducing its debt.
or liquidate them in case of such failure. w
Risk based classification:
If resolution resolution is found to be unviable, the rm may be liquidated, and its assets sold to repay its creditors.
• The Resolution Corporation or the appropria te nancial sector regulator may classify nancial rms under ve categories,
• Liquidation: w
based on their risk of failure.
If the resolution is not completed within a maximum maximum period of two years, then the rm will automatically go in for liquidation.
• These categories categories in the order of increasing risk are: (i) (i) low, (ii) (ii) moderate, (iii) material, (iv) imminent, and (v) critical. • Based on the risk to failure, the Resolution Corporation or
w
The Bill also species the order of distribut ing liquidation proceeds to creditors. The amount paid to depositors as deposit insurance gets preference over other creditors.
regulators takes action.
Corrective action: (for firms at Material and Imminent risk)
• Restrictions: If the rm is at a higher risk to failure (under ‘material’ or ‘imminent’ categories), the Resolution Corporation or the regulator may: w
prevent it from accepting deposits from consumers, consumers,
w
prohibit the rm from acquiring acquiring other other businesses, businesses, or
w
require it to increase its capital.
• Resolution and Restoration plans: Further, these rms will formulate resolution and restoration plans to prepare a strategy for improving their nancial position and resolving the rm in case it fails.
Subsuming DICGC: • In India, deposits in banks are insured for a maximum of
Resolution by corporation corporation::
Rs 1 lakh by the Deposit Insurance and Credit Guarantee
(for firms at critical risk)
• Take-over of management: The
Resolution
Corporation
will take over the management of a nancial rm once it is classied as ‘critical’ (i.e. if it is on the verge of failure).
Corporation (DICGC), which is now an arm of the RBI. • The Bill proposes proposes to subsume subsume the functions functions of the DICGC DICGC under the Resolution Corporation.
Article
Current Affairs MADE EASY January, 2018
11
12
Current Affairs MADE EASY January, 2018
Bail-In Provisions What is bail-in?
Safeguards for creditors:
• It is one of the the various method method specied in in the bill to resolve
There are certain safeguards which seek to protect creditors and
a failing nancial rm. • Bail-in allows a nancial rm to be rescued by internally restructuring its debt. It allows for cancellation or writing down of liabilities of a nancial rm
ensure continuity of critical functions of the rm when resolving a rm through bail-in. • The power of the Corporation while using bail-in to resolve a rm will be limited.
• Bail-in vs bail-out: Bail-in differs from a bail-out which
• The Corporation will have to ensure that none of the creditors
involves funds being infused by external sources to resolve
receive less than what they would have been entitled to
a firm. This includes a failing firm being rescued by the
receive if the rm was to be liquidated.
government.
Methods of bail-in: • Under bail-in, the Resolution Corporation can internally restructure the rm’s debt by: (i) Cancelling firm’s liabilities that the firm owes to its creditors, or (ii) Converting its liabilities into any other instrument (such as equity), among others. • The Bill allows the Resolution Corporation to either resolve a
firm by only using bail-in , or using bail-in in combination like a merger or acquisition. with other resolution methods like
Rationale behind bail-in: • This method is used where where it is necessary to continue continue the services of the firm, but the option of selling it is not feasible. • It also aims to minimise the cost of any such failures of nancial rms to taxpayers (who suffer in bail-out). Shareholders of banks and creditors must also pay their share of costs, rather
than governments or taxpayers absorbing all losses.
Concerns: • Bail-in has caused a lot of concern among depositors who are worried they may lose their hard-earned money deposited with banks in case a bank fails. • The bail-in clause matters because it formalises the risk associated with depositing money in banks. Even now, deposits are not risk-free. In the case of a bank being forced to liquidate, deposits are insured only up to ` 1 lakh; the rest is forfeited. • There are concerns that the Bill may not clearly lay down the quantum of protection for deposits, or classify deposits separately. • This assumes greater importance in the light of the government’s recent efforts to increase banking coverage. About 30.7 crore bank accounts have been opened under the Jan Dhan Yojana. • The banking sector sector is under stress, with with non-performing non-performing assets rising to alarming levels, especially for public sector banks.
• A liability is be cancelled or converted under bail-in only if the creditor has given his consent to do so in the contract governing such debt. • The terms and conditions conditions of bank deposits deposits will determine determine whether the bail-in clause can be applied to them.
Clarification by Government: (07-December-2017) The government has claried that • India’s FRDI FRDI Bill is more more depositor-friendly depositor-friendly than that of many other jurisdictions that provide for statutory bail-ins, where the consent of creditors or depositors is not required for bailins. • It does not propose propose in any any way to limit limit the scope scope of powers to extend nancing and resolution support to banks, including public sector banks. • The government’s government’s implicit implicit guarantee guarantee for public sector sector banks remains unaffected. That is perhaps an indication that the sovereign may not want to foreclose the option to back a failed bank.
Comment: • The recent clarication from the nance ministry doesn’t fully address saver concerns. Asserting that the FRDI Bill provides ‘additional protections’ protections’ to depositors, it doesn’t elaborate on
what these are. • It says that FRDI FRDI bail-in provisions are are far friendlier friendlier than other jurisdictions, but depositors are more worried about changes to their status quo. • The reiteration reiteration of the sovereign guarantee to PSBs is reassuring, but informed depositors may like more details about how the insurance mechanism will change under the FRDI and the extent of discretionary powers to the Resolution Corporation. • The FRDI Bill must must specify the amount amount guaranteed guaranteed • The time is is also ripe to sharply increase the the measly deposit deposit
insurance cover of 1 lakh per depositor set over two decades ago. • The JPC must incorporate incorporate these aspects aspects into its ongoing ongoing review of the FRDI Bill.
Mid-T Mid -Term erm Rev Review iew FTP 2015-20 On December 5, 2017, the Minister of Commerce and Industry, Shri Suresh Prabhu released the Mid-term Review of the Foreign Trade Trade Policy (FTP) 2015-20.
FTP 2015-2020: Snapshot • Objective: In 2015, government announced foreign trade
policy, 2015-2020, to provide stable policy environment for trade and Promote diversication of export base. • Target: It has set an export target of $900 billion by 2020,
almost double of $466 billion achieved in 2013-4. • Incentive scheme: It Introduced following two incentive
schemes without any (conditionality’s attached to it) for rewarding merchandise exports with different Duty Scrips. w
MEIS (Merchandise Exports from INDIA): for goods.
w
SEIS (service exports from India scheme) : for services.
• Scrapping old schemes: It did away with the following 5
schemes which have been merged with MEIS w FPS (focus product scheme) w
MLFPS (market linked FPS)
w
FMS (focus market scheme)
w
Agriculture infrastructure infrastructure incentive scrip
w
Vishesh krishi gram udyog yojna
• E-commerce: For the rst time, exports by e-commerce will
be provided incentives under MEIS. • Defense: Defense products will be supported under MEIS
(another new step). • Council for trade development and promotion (CTDP):
CTDP will be setup comprising representatives from the states and UTs, Thus ensuring cooperative federalism. • Make in India: To boost make in India, export obligations
has been reduced to 75% from 90% in case of procurem ent of capital goods from domestic manufacturers. • Quality: A roadmap has been prepared to improve quality
of Indian merchandise. • Branding: Branding campaign for Indian products will be
started. • Revision: New policy will be revived after 2 and half years
MID TERM REVIEW Highlights of the FTP 2015-2020 – Mid Term review (December 2017) are as follows:
GST related reforms: • GST has been launched w.e.f. 1.07.2017. Uniform tax rates and practices across States have led to huge logistics and transaction cost saving for exporters. • Exporters have been extended the benet of sourcing inputs/ capital goods from abroad as well as domestic suppliers for exports without upfront payment of GST.
Encouraging exports by MSMEs and labour intensive industries: • Across the board increase of 2% in existing MEIS incentive for exports by MSMEs / labour intensive industries involving additional annual incentive of 4567 Crore. • Major sectors covered are leather, agriculture, carpets, handtools, marine products, rubber products, ceramics, sports goods etc.
New trust based Self Ratification Ratification scheme for duty free import of raw material: • New trust based Self Ratication Scheme has been introduced to allow duty free inputs for export production under duty exemption scheme with a self-declaration. • The scheme will expedite export of new products by decreasing product turn-around time, particularly in sectors such as pharmaceuticals, chemicals, engineering which have dynamic raw material requirements.
Contact@DGFT Contact@DGFT service for trade facilitation: • Contact@DGFT service has been launched on the DGFT website (www.dgft.gov.in) as a single window contact point for exporters and importers for resolving all foreign trade
14
Current Affairs MADE EASY January, 2018
Ease of Trading Across Borders: • Focus is on improving improving Ease of Trading Trading across Borders Borders for exporters and importers.
Focus on agricultural exports for increasing farmers’ income: • New Agricultural Exports Policy is under formulation to focus
• Professional team has been envisaged to handhold, assist and
on increasing exports of agricultural value added products
support exporters with their export related problems, accessing
through elements like:
export markets and meeting regulatory requirements.
w
a stable and `open’ `open’ export policy for for the long long term.
w
effective handling of sanitary sanitary and phytosanitary phytosanitary standards standards
Trade facilitation:
(SPS) and technical barriers to trade (TBT) issues in
• National Trade Facilitation Committee (NTFC):
domestic and destination markets.
w
It has set up under Cabinet Cabinet Secretary Secretary following following ratication
w
by India of the Trade Facilitation Agreement (TFA). w
It broadly covers provisions provisions related to transparency, transparency,
technology, simplication of procedures, risk based assessment and infrastructure augmentation. augmentation. • National Trade Facilitation Action Plan (NTFAP): w
It has been drawn out in consultation with the stakeholders, identifying 76 trade facilitation measures with implementation
creating cold chain and transport logistics facilities from the farm to the ports and airports.
w
promoting organic organic exports through through appropriate policy policy interventions.
Greater participation in the global and regional value chains (RVCs and GVCs): • Focus is on increasing participat ion in high value segments of RVCs and GVCs to increase India’s exports, in recognition of
timelines, of which 51 are TFA-plus activities.
the fact that products manufactured through GVCs account
New Logistics Division:
for two-thirds of world trade in manufactured manufactured Goods.
• A new Logistics Division has been created in the Department
• This would be facilitated by a focus on automating port and
of Commerce to develop and co-ordinate integrated
customs operations, allowing green channel clearances and
development of the logistics sector.
bench marking the turnaround time of ships with the best
• These steps would improve improve India’s ranking in the Logistics Performance Index (LPI). (LPI) .
global practices.
Leveraging Leveraging services for increasing exports:
State-of-the-art Trade Analytics:
• New Services division division has been set up in DGFT to examine
• A State-of-the-Art Trade Analytics division has been set up in
EXIM policies and procedures from the point of view of “Services”.
DGFT for data based policy actions. • The initiative envisages processing trade information from
• The
very
successful
Global
Exhibition
on
Services
DGCIS and other national and international databases
institutionalized as an annual event event to showcase India’s
related to India’s key export markets and identify specic
strengths in the Services.
policy interventions. interventions.
Export promotion schemes:
Exploring new export Markets:
• Scope and incentives incentives as a percentage percentage of exports under
• Focus on high potential regions like Africa, Latin America and the Caribbean region, to cover not just trade in goods and investment but also in capacity building, technical assistance and services such as healthcare and education.
Merchandise Exports from India Scheme (MEIS) and Service Exports from India Scheme(SEIS) has Scheme(SEIS) has been enhanced. • New Trade Infrastructure for Export Scheme (TIES) was launched in March 2017 to enhance export competitiveness
mining,
by bridging gaps in export infrastructure, creating focused
textiles, consumer goods, infrastructure development and
export infrastructure, rst mile and last mile connectivity for
construction would be focus areas.
export-oriented export-oriented projects.
• Sectors
like
agroprocessing, agroprocessing,
manufacturing,
Exploring new export products: • Focus is on increasing increasing exports of products which have become important in the world trade of late.
• Market Access Initiatives (MAI) Scheme to act as a catalyst to
promote exports on a focus product-focus country approach, so as to evolve specic markets and products through market studies/surveys.
• Promising product groups are: are: Medical devices/ equipment,
• Supplies of goods goods and and services services to Special Economic Zones to
technical textile, electronic component, project goods, defence
be treated as zero rated under GST so as to get the benet of
and hi-tech products, Ayush, diamond, gold and jewelry.
tax refund on the pattern of actual exports.
Article
Current Affairs MADE EASY January, 2018
Simplification of procedures and processes:
Capacity building:
• PAN is now now being used as IEC. Procedure Procedure for application application for
• In the last two years over 50,000 entrepreneurs have been
IEC being further simplied.
trained under the Niryat Bandhu program implemented program implemented by DGFT, thus complementing the Startup India and Skill India initiatives.
data showed that India’s exports went up by just 1.2% in the second quarter of the current fiscal.
ANALYSIS Laudable: • The much awaited mid-term review review of FTP has not notified notified any new schemes, however, has realigned the policy visa-vis GST and at t he same time provided relief to exporters through enhancement of benefits under MEIS/SEIS. • The focus of initiatives seems to be on MSMEs, agro sector and small exporters. • Specific procedural relaxation and trade facilitation measures have been taken to assist exporters. • Further, the commitment to use data analytics for continuous monitoring of trade performance and take real time policy
• Exports are an important driver of economic growth and will also help create much needed jobs for India’s growing workforce. They played an important role in transforming countries such as South Korea and China in recent decades. • Therefore, India will need to work on increasing competitiveness to expand its exports share in the world market. • It is often argued that India stands to gain as labourintensive manufacturing is moving out of China due to rising wages and an ageing population. But this is not happening in a big way, and India is losing out to other Asian countries such as Bangladesh and Vietnam which are becoming more competitive and are capturing the lowend manufacturing space being vacated by China. • The latest Economic Survey (2016-17) (2016-17) also highlighted how how
• Intervention as needed is proactive approach which
India is losing out in labour-intensive sectors like apparel
hopefully will be leveraged to gain greater share of global
and footwear, and why it is important to focus on these
trade.
sectors.
• Overall it is a welcome realignment which hopefully will provide relief to exporters and improve the export
• Thus India will will have to work on multiple levels to increase its competitiveness.
outlook and at the same time promote trust based trade partnership.
Way ahead: • First, it will need to improve logistics to increase efficiency, efficiency, both in terms of the time and costs involved. The trade policy review shows that the government is addressing this issue. • Second, India has a large number of small enterprises, enterprises, which are facing difficulty in international markets due to regressive labour laws. Firms in labour-intensive sectors will need more freedom to operate. Similarly, more flexibility in land acquisition will also help the manufacturing sector. • Third, while there is a threat of rising rising protectionism, India
Concerns: • However, at at a broader level, level, India needs structural structural changes to be able to attain higher and sustainable exports growth in the medium to long run, particularly in labour-intensive sectors. • At a time when the global economy is witnessing a synchronized recovery, the latest gross domestic product
needs to be prepared to protect its interests without compromising on its open trade policy. India should look for opportunities to reduce trade barriers at the regional and bilateral levels. • Fourth, it will be important to keep the currency competitive. competitive. This is not to suggest that India needs an undervalued currency, but the Reserve Bank of India (RBI) should not allow the rupee to appreciate sharply.
15
