INDIAN ECONOMY - CONCEPTS

(Source: http://www.arthapedia.in/index.php?title=Home_Page)

Abuse of Dominance
This is a widely known term and has been explicitly incorporated in competition legislation of
various countries. It refers to an anticompetitive business practice in which a dominant firm may
engage in order to maintain or strengthen its position in the market. Such business practices by
the firm may be considered restricting competition in the market. The different types of business
practices that are considered as being abusive vary across countries as well as on a case by case
basis. The business practices which have been contested in actual cases in different countries, not
always with legal success, have included the following but not limited to: charging unreasonable
or excess prices, price discrimination, predatory pricing, price squeezing by integrated firms,
refusal to deal/sell, tied selling or product bundling and pre-emption of facilities.
As part of liberalization and on recommendation of high powered Raghvan Committee, the
Competition Act, 2002 was enacted in India. Before the commencement of the 2002 Act, this
phrase was not relevant in Indian context. Now, abuse of dominance is covered under section 4
of the Competition Act, 2002. in India, which has come into force from May 20, 2009. Abuse of
dominance in Indian law has similar meaning as in other competition legislations. The said
provision is applicable to all enterprises including public sector enterprises and Government. The
said Act vests power in Competition Commission of India to investigate and inquire into
instances of abuse of dominance and correct/penalize enterprise behaviour and help establish a
competitive market. Commission has started receiving many cases relating to various aspects of
abuse of dominance.
Abuse is stated to occur when an enterprise or a group of enterprises uses its dominant position
(As per Competition Act 2002, dominant position is position of strength enjoyed by an enterprise
in a relevant market, which enables it to operate independently of competitive forces prevailing
in the relevant market; or affect its competitors or consumers or the relevant market in its
favour) in the relevant market in an exclusionary or/and an exploitative manner. Such practices
shall constitute abuse only when adopted by an enterprise enjoying dominant position in the
relevant market in India.
References
Competition Commission of India, Advocacy Booklet Series 5, Abuse of Dominance, March 2011

Agricultural Census
Agricultural Census, which is conducted every five years in India. It is the largest countrywide
statistical operation undertaken by Ministry of Agriculture, for collection of data on structure of
operational holdings by different size classes and social groups. Primary (fresh data) and
secondary (already published) data on structure of Indian agriculture are collected under this
operation with the help of State Governments. The first Agricultural Census in the country was
conducted with reference year 1970-71.

Agricultural Census is carried out as a Central Sector Scheme under which 100% financial
assistance is provided to States/Union Territories. Agricultural Census operation is carried out in
three phases.
During Phase-I, a list of all holdings with data on area, gender and social group of the holder is
prepared with the help of listing schedule. During Phase-II detailed data on tenancy, land use,
irrigation status, area under different crops (irrigated and un-irrigated) are collected in holding
schedule. Phase-III, which is called as Input Survey, relates to collection of data of input use
across various crops, States and size groups of holdings, in addition to data on agriculture credit,
implements and machinery, livestock and seeds.
Eighth Agricultural Census with reference year 2005-06 and seventh Input Survey 2006-07 have
been undertaken in the country. The results of Agricultural Census 1995-96 & 2000-01, Input
Survey 1996-97 & 2001-02 and various reports of Census are available at http://agcensus.nic.in.
Data base for Agricultural Censuses from 1995-96 to 2005-06 may be accessed
athttp://agcensus.dacnet.nic.in/nationalholdingtype.aspx.

Agricultural Labourers
A person who works on another person's land for wages in money or kind or share is regarded as
an agricultural labourer. She or he has no risk in the cultivation, but merely works on another
person's land for wages. An agricultural labourer has no right of lease or contract on land on
which she/he works.

Agricultural Marketing Information Network (AGMARKNET)

Agricultural Marketing Information Network (AGMARKNET) was launched in March 2000 by
the Union Ministry of Agriculture. The Directorate of Marketing and Inspection (DMI), under
the Ministry, links around 7,000 agricultural wholesale markets in India with the State
Agricultural Marketing Boards and Directorates for effective information exchange. This egovernance portal AGMARKNET, implemented by National Informatics Centre (NIC),
facilitates generation and transmission of prices, commodity arrival information from
agricultural produce markets, and web-based dissemination to producers, consumers, traders, and
policy makers transparently and quickly.
The AGMARKNET website (http://www.agmarknet.nic.in) is a G2C e-governance portal that
caters to the needs of various stakeholders such as farmers, industry, policy makers and academic
institutions by providing agricultural marketing related information from a single window. The
portal has helped to reach farmers who do not have sufficient resources to get adequate market
information. It facilitates web- based information flow, of the daily arrivals and prices of
commodities in the agricultural produce markets spread across the country. The data transmitted
from all the markets is available on the AGMARKNET portal in 8 regional languages and
English. It displays Commodity-wise, Variety-wise daily prices and arrivals information from all
wholesale markets. Various types of reports can be viewed including trend reports for prices and
arrivals for important commodities. Currently, about 1,800 markets are connected and work is in
progress for another 700 markets. The AGMARKNET portal now has a database of about 300
commodities and 2,000 varieties.

Directorate of Marketing and Inspection (DMI) has liaison with the State Agricultural Marketing
Boards and Directorates for Agricultural Marketing Development in the country. Agricultural
Produce Market Committee (APMC) displays the prices prevailing in the market on the notice
boards and broadcasts this information through All India Radio etc. This information is also
supplied to State & Central Government from important markets. The statistics of arrival, sales,
prices etc. are generally maintained by APMCs.
Future development involves linking all the agricultural wholesale markets in the country and
establishing strategic alliances with government and non-government organisations to
disseminate information to the farmers who operate in these markets. The database developed
under AGMARKNET would also be linked to other agricultural databases, for instance, on area,
production, yield of crops, land use, cost of cultivation, agriculture exports and imports, and so
on, to evolve a data warehouse. This would provide a sound base for planning demand-driven
agriculture production. AGMARKNET is also expected to play a crucial role in enabling ecommerce in agricultural marketing.
The information being disseminated through the AGMARKNET portal includes:

Prices and Arrivals (Daily Max, Min, Modal, MSP; Weekly/ monthly prices/arrivals
trends; Future prices from 3 National commodity exchanges)
Grades and Standards
Commodity Profiles (Paddy/Rice, Bengal Gram, Mustard-Rapeseed, Red Gram,
Soybean, Wheat, Groundnut, Sunflower, Black Gram, Sesame, Green Gram, Potato, Maize,
Jowar, Cotton, Grapes, Chilies, Mandarin Orange etc)
Market Profiles (Contact details, rail/road connectivity, market charges, infrastructure
facilities, revenue etc.)
Other Reports (Best Marketing Practices, Market Directory, Scheme Guidelines, DPRs of
Terminal Markets etc.)
Research Studies
Companies involved in Contract Farming
Schemes of DMI for strengthening Agricultural Marketing Infrastructure

This portal helps in reducing the information asymmetry in agricultural prices and thus is of
immense use to stakeholders.
References
1. http://agmarknet.nic.in/index.html
2. http://www.Agricoop.nic.in

Agricultural Regions of India

There are five agricultural regions in the country viz ;

Rice region: This extends from the eastern part to include a very large part o the northeastern and south-eastern India with another strip along the western coast.
Wheat region: This extends to most of the northern, western and central India.

Millet-Sorghum region: This covers Rajasthan, Madhya Pradesh and the Deccan
Plateau in the centre of the Indian peninsula.
Temperate Himalayan Region: This region is spread over Kashmir, Himachal Pradesh,
Uttarakhand and some adjoining areas. Here potatoes are as important as a cereal crops
(which are mainly maize and rice) and the tree-fruits form a large part of agricultural
production.
Plantation crops region: In Assam and the hills of Southern India tea is produced.
Coffee is produced in the hills of the western peninsular India. Rubber is grown in Kerala
and some of the North-Eastern States like Tripura. Spices grown in Kerala, parts of
Karnataka and Tamil Nadu.

References
1. Ministry of Agriculture write-ups

Appraisal of Plan Schemes (Union Government)

The Union Government has constituted a mechanism of appraisal of public investment projects
before they are approved by the Cabinet or the designated competent authority. Schemes
involving public expenditure, which have been included in the Annual Plan of a Ministry are
detailed in a project report (DPR) based on the guidelines laid down by the Department of
Expenditure, Ministry of Finance.
(http://finmin.nic.in/the_ministry/dept_expenditure/plan_finance2/guideline_formulation_app_ap
prov_01042010.pdf )
When the project or scheme is complex, Ministries employ technical consultants to prepare the
DPRs in consultation with the concerned Ministry. The DPR justifies the need for the
project/scheme, considers all alternative approaches that can be used, and proposes the best
possible way to achieve the targets, while at the same time ensuring value for money in public
expenditure.
The Project Appraisal and Management Division (PAMD) of Planning Commission scrutinizes
this DPR to see whether the scheme is financially viable. Inputs on the technical feasibility of the
scheme are provided by the concerned technical divisions in Planning Commission. Concurrently
and independently, the Plan Finance II Division in Department of Expenditure also appraises the
technical feasibility and financial viability of the scheme. Care is taken to ensure that the design
of the scheme is robust by studying the level of preparedness of the implementing agency to
execute the scheme within the proposed timeframe, the break-up and basis of the cost estimates
made, the sources of financing considered, the phasing of investment required and the rate
of return expected on this investment. Both these appraisal agencies do a sensitivity analysis on
the critical parameters of the scheme to ascertain the degree of risk involved.
The Union Government has delegated financial powers to Ministries to appraise and approve
relatively smaller scaled projects. However larger and more complex projects or those which
involve setting up of an autonomous body are appraised either in the Public Investment Board
(PIB) or the Expenditure Finance Commission (EFC) where Secretary, Expenditure chairs a
meeting of all stakeholder Ministries. In this meeting the appraisal reports of PAMD and Plan

Finance II are discussed and a final view is taken on whether the project/scheme may be
recommended (with or without conditions) to the Cabinet for consideration and approval.
The PIB and EFC have a similar function viz. appraisal of plan projects/schemes involving
public expenditure. However, in PIB, cases ( mostly from Public Sector Undertakings) which
have a healthy financial return (where the Financial Internal Rate of Return is above a threshold
level of at least 12 per cent) are considered while the EFC considers cases, where the financial
return may not be high but where the projects/schemes have considerable social welfare benefits
and the Economic Internal Rate of Return (EIRR) is very high.
Public investment projects of the Railways are appraised by the Expanded Board of Railways,
under the Chairman, Railway Board. Scientific Ministries have also been delegated the power to
appraise their schemes under the chairmanship of the concerned Secretary of the Ministry.
Planning Commission and Department of Expenditure are also represented during the appraisal
process. Profitable Public sector undertakings/enterprises (Navratnas and Mini ratnas) also have
greater flexibility in their investment decisions but if they require budgetary support, they will
have to go through the PIB process.
PIB/EFC also examine prior approved cases where cost estimates have escalated considerably
during the project implementation. In such cases, the revised cost estimates are appraised for
obtaining approval from the competent authority.
References
For other exemptions, financial delegation, composition of PIB/EFC and for further details, a compendium serves as
a ready reckoner. (http://finmin.nic.in/the_ministry/dept_expenditure/plan_finance2/CompofImpCirc.pdf)

Appropriation
According to Article 114 of the Indian constitution, no money can be withdrawn from the
Consolidated Fund of India to meet specified expenditure except under an appropriation made by
Law. Similarly, State (sub-national) Governments can also draw from their Consolidated Funds
only after an appropriation act is passed. Every year, after budgetary estimates are approved, an
Appropriation Bill is passed by the Parliament/state legislature and then it is presented to the
President/Governor. After the assent by the President/governor to the bill, it becomes an Act.
However, if during the course of the financial year, the funds so appropriated are found to be
insufficient, the Constitution provides for seeking approval from the Parliament or State
Legislature for supplementary grants.
Appropriation Accounts present the total amount of funds (original and supplementary)
authorised by the Parliament/State legislature in the budget vis-a-vis the actual expenditure
incurred against each head of expenditure. The Office of the Comptroller and Auditor General of
India reports to the Union and State Legislatures any discrepancies that occur between the
amounts appropriated for a particular head of expenditure and what was actually spent at the end
of the financial year. These reports provide an indication of unrealistic budget estimates made by
various departments. Any expenditure in excess of what was approved requires regularization by
the Parliament/State Legislature.

Some expenditure of Government (e.g. public debt repayments, expenditure incurred on the
Judiciary etc.) is not voted by the Legislature and such expenditure is Charged on Consolidated
Fund under Article 112 (3) of the Constitution and is called Charged Appropriation.
All other expenditure is required under Article 113 (2) of the Constitution to be voted by the
Legislature and is called voted grant.

Assigned Revenue
The term is used to refer to various tax/duty/cess/surcharge/levy etc., proceeds of which are
(traditionally) collected by State Government (on behalf of) local bodies viz.,
Panchayat/Municipality and (subsequently) adjusted with/assigned to them. Collection of such
revenue is governed by relevant Act(s) administered by Panchayat/Municipality.
Typical examples of assigned revenue include entertainment tax, surcharge on stamp duty, local
cess/surcharge on land revenue, lease amount of mines and minerals, sale proceeds of social
forestry plantations etc. State Finance Commissions recommend devolution of assigned revenue
to local bodies on objective criteria, which may be specified by them in specific context.

Association of State Road Transport Undertakings (ASRTU)

Association of State Road Transport Undertakings (ASRTU) came into existence on 13th
August, 1965 with the objective of providing a forum for exchange of ideas on best practices of
State Road Transport Undertakings (SRTUs). With 58 members, approximately 1, 15,000 buses
and serving 65 million passengers a day, ASRTU constitutes the backbone of mobility for the
urban and rural population across India. ASRTU plays an important role in promoting affordable
mode of public transport for socio-economic development of country. Public SRTUs are
backbone of country and thus ASRTU is committed to provide all necessary help to them in their
production, quality monitoring and to address to their common problems. Recently, ASRTU
conferred Productivity Award for Year 2008-09 to the State Express Transport Corporation
(Tamil Nadu) for highest performance in Vehicle Productivity.

AYUSH
AYUSH signifies a combination of alternative system of Medicine, which was earlier known as
Indian System of Medicine. AYUSH includes Ayurveda, Yoga and Naturopathy, Unani, Siddha
and Homeopathy. The objective of AYUSH is to promote medical pluralism and to introduce
strategies for mainstreaming the indigenous systems of medicine. In India, at the Union
Government level, AYUSH activities are coordinated by Department of AYUSH under Ministry
of Health & Family Welfare. Most of these medical practices originated in India and outside, but
got adopted in India in the course of time.

Back-to-Back Loans
State Governments in India cannot access external sources of finance directly. The 12th Finance
Commission recommended the transfer of external assistance to State Governments in India by

the Union Government on a Back-to-Back basis. This recommendation was accepted by the
Government of India for general category states and the arrangement came into effect from April
1, 2005. For special category states ( Northeastern states, Uttarakhand, Himachal and J&K),
external borrowings are in the form of 90 per cent grant and 10 per cent loan from the Union
Government.
Passing loans on Back-to-Back basis to State Governments implies that States would face
identical terms and conditions (including concessional interest rates, grace period and maturity
profile, commitment charges and amortization schedules) on account of their access to finance
from bilateral and multilateral sources, as is faced by the Union Government.
This arrangement entails exposure of States to uncertain movements in international rates of
interest (as multilateral agencies viz. IBRD benchmark their interest rates to a reference rate viz.
the LIBOR) and currency exchange rates. As per the Back-to-Back loan transfer arrangement,
states would have to face currency risk since principal repayments and interest payments on such
loans to external agencies are designated in foreign currencies. In case of adverse exchange rate
movement(s) larger rupee provisions may be required to meet debt service obligations that may
negatively impact the fiscal health of the state concerned.
Thus, direct exposure to interest risk and currency risk carry implications for debt service burden
and therefore for the fiscal status of sub national Governments in India. Capacity building in
finance departments of State Governments is required to ensure that debt is prudently managed.

Base Effect
The base effect refers to the impact of the rise in price level (i.e. last years inflation) in the
previous year over the corresponding rise in price levels in the current year (i.e., current
inflation): if the price index had risen at a high rate in the corresponding period of the previous
year leading to a high inflation rate, some of the potential rise is already factored in, therefore a
similar absolute increase in the Price index in the current year will lead to a relatively lower
inflation rates. On the other hand, if the inflation rate was too low in the corresponding period of
the previous year, even a relatively smaller rise in the Price Index will arithmetically give a high
rate of current inflation. For example:

Jan

2007
100

Price Index
2008
2009
120
140

2010
160

2008
20

Inflation
2009
2010
16.67
14.29

The index has increased by 20 points in all the three years 2008, 2009, 2010. However, the
inflation rate (calculated on year-on-year basis) tends to decline over the three years from 20% in
2008 to 14.29% in 2010. This is because the absolute increase of 20 points in the price index in
each year increases the base year price index by an equivalent amount, while the absolute
increase in price index remains the same. Remember, year-on-year inflation is calculated as:
(Current Price Index Last years Price Index)
Current
Inflation
Rate =

---------------------------------------------------------------------

* 100

Last years Price Index

Basic Road Statistics of India (BRSI)

The Basic Road Statistics of India is a premier publication on the road sector providing
comprehensive information on different categories of road in the country, at the National, State
and Local (municipalities and panchayat) levels. It is brought out regularly every year by
Transport Research Wing (TRW) of the Ministry of Road Transport & Highways. It is vital to
have comprehensive data on road infrastructure to assist in policy planning and investment
decision. The latest publication Basic Road Statistics of India provides detailed data spread
over 11 Sections comprising of a Section each on Road Length (Total and Surfaced) All India
and State-wise, National Highways, State Highways, Other Public Works Department Roads,
Zilla Parishad Roads, Village Panchayat Roads, CD/Panchayat Samiti Roads, Urban Roads,
Project Roads, Plan Outlay and Expenditure on Roads and Miscellaneous information on
National Highways & PMGSY. Annexed tables list out major terms and definitions relevant to
the road sector.

Basic Port Statistics of India (BPSI)

The Basic Port Statistics of India is a premier publication which is brought out every year by
Transport Research Wing. It intends to provide comprehensive and analytical descriptions of the
different facets of the maritime transport activity. It highlights the volume and composition of
seaborne trade across the major ports (12) and minor ports (199) of India in the backdrop of
global and domestic macro developments. The major ports in India are administered by the
central shipping ministry while minor ports are administered by relevant department or ministries
of the coastal states.
The latest publication of Basic Port Statistics of India, 2008-09 provides detailed data spread
over three sections, comprising section-I pertaining to Macro Economic Development &
Performance of Indian Ports and the section-II deals with Tables on vital port statistics, current
port statistics, time series statistics, international port statistics and general statistics and sectionIII consist of Appendices.
The contents of the latest publication highlighted that India has a coast-line of around 7,517 kms
with 12 major ports which handle about 71% of the maritime cargo traffic of the country in
2008-09. Amongst the major ports, Kandla Port accounted for the highest share of 13.6% in the
total cargo traffic at all major ports during 2008-09. According to the commodity composition of
the total traffic at Indian ports, POL and its product form the single largest commodity,
constituting 36.6% of the total seaborne traffic followed by ore (17.3%) and coal (13.2%) in
2008-09.

Bid Rigging
Bid rigging is a widely known term across the world. Bidding, as a practice, is intended to enable
the procurement of goods or services on the most favourable terms and conditions. Invitation of
bids is resorted to both by Government (and Government entities) and private bodies

(companies, corporations, etc.). But the objective of securing the most favourable prices and
conditions may be negated if the prospective bidders collude or act in concert. Such collusive
bidding called bid rigging contravenes the very purpose of inviting tenders and is inherently
anticompetitive. If bid rigging takes place in Government tenders, it is likely to have severe
adverse effects on its purchases and on cost effectiveness of public spending and wastes public
resources. It is therefore important that the procurement process is highly competitive and not
affected by practices such as collusion, bid rigging, fraud and corruption. All over the world, bid
rigging or collusive bidding is treated with severity in the law as reflected by the presumptive
approach.
Collusive bidding or bid rigging may occur in various ways by which firms coordinate their bids
on procurement or project contracts. Origin of bid rigging is as old as system of procurement.
However, an apt codification on the same may be the Sherman Act, 1890 of the United States,
which is considered the first codified law to look into agreements leading to bid rigging.
Governments are most often the target of bid rigging. Bid rigging is one of the most widely
prosecuted forms of collusion. Bid rigging may take various forms such as bid suppression,
complimentary bidding, bid rotation, and sub contracting etc.
In India, the Competition Act, 2002 specifically prohibits collusive bidding (direct or indirect)
under Section 3 (3) d. It is one of the four horizontal agreements that shall to be presumed to
have appreciable adverse effect on competition (AAEC). The explanation to sub-section (3) of
Section 3, of the Competition Act, 2002 defines bid rigging as any agreement, between
enterprises or persons referred to in sub-section (3) engaged in identical or similar production or
trading of goods or provision of services, which has the effect of eliminating or reducing
competition for bids or adversely affecting or manipulating the process for bidding.
Reducing collusion in public procurement requires strict enforcement of competition laws and
the education of public procurement agencies at all levels of government to help them design
efficient procurement processes and detect collusion.
References
1. Competition Commission of India, Advocacy Booklet Series 4, Provision relating to Bid Rigging, March
2011

Broad Based Fund

Broad based fund means a fund established or incorporated outside India, which has at least 20
investors with no single individual investor holding more than 49 percent of the shares or units of
the fund. If the broad based fund has institutional investor(s), then it is not necessary for the fund
to have 20 investors. Further, if the broad based fund has an institutional investor who holds
more than 49 percent of the shares or units in the fund, then the institutional investor must itself
be a broad based fund.
In India, the following entities proposing to invest on behalf of broad based funds, are eligible to
be registered as FIIs:
(1).Asset Management Companies (2).Investment Manager/Advisor (3).Institutional Portfolio
Managers (4).Trustee of a Trust and (5).Bank

Budget Making Exercise in a Federal Set up

Within the Five-Year Plan for each year an Annual Plan is drawn up detailing the plan of action
during the year. Around October-November every year Planning Commission circulates a
detailed proforma to the Central Ministries and State Governments requesting for information on
the progress made in implementing plan schemes and the allocation proposed for implementing
the schemes in the ensuing plan year. On receipt of the information the Central Ministries are
invited to the Planning Commission to discuss their proposals after which the head of the subject
division in the Planning Commission and the nodal officer representing the Ministry sign a
statement showing the plan outlay for the year. Once this exercise is completed the consolidated
Statement of Plan outlays of all Central Ministries is forwarded to the Ministry of Finance which
earmarks the planned allocation for the respective Ministries at the time of announcement of the
Union Budget in February every year. There may only be minor variations in the approved
outlay of Planning Commission and the financial allocation made by the Ministry of Finance.
As regards the State Governments, the consolidated proforma forwarded by the Planning
Commission is filled in and forwarded to the Planning Commission. The State Plan Division in
Planning Commission circulates the proposals to the respective Subject Divisions for comments
on the State Plan proposals. This is followed by Working Group meetings between the Subject
Division Head and the officers implementing the scheme/subject in the State after which the
Subject division head recommends the outlay proposed for a respective subject say, agriculture,
social welfare etc to the State Plan Division. The Working Group meetings are followed by
Wrap-Up meeting chaired by the Member in charge of a State with the State Government
officers either on the same day or the next day to finalise the outlays. Once the plan proposals of
the State are discussed then the Briefing meeting is held between the Deputy Chairman of
Planning Commission and the Chief Minister of the concerned State wherein the Annual Plan
outlay for the State is announced.

Cabinet Committee
In a parliamentary democracy, a Cabinet Minister with the title of Prime Minister is the
Executive head of the Government, while the Head of State is a largely ceremonial monarch or
president. The Executive branch of the Government has sole authority and responsibility for the
daily administration of the State bureaucracy.
The Prime Minister selects the team of Ministers in the Cabinet and allocates portfolio. In most
cases, the Prime Minister sets up different Cabinet Committees with select members of the
Cabinet and assigns specific functions to such Cabinet Committees for smooth and convenient
functioning of the Government.
A Cabinet Committee can be either set up with a broad mandate or with a specific mandate.
Many a times, when an activity/agenda of the Government acquires prominence or requires
special thrust, a Cabinet Committee may be set up for focussed attention. In all areas delegated to
the Cabinet Committees, normally the decision of the Cabinet Committee in question is the
decision of the Government of the day. However, it is up to the Prime Minister to decide if any
issue decided by a Cabinet Committee should be re-opened or discussed in the full Cabinet.

The Parliament of India (Sansad /

) is the federal and supreme legislative body of India. It

consists of two houses the Lower House House of the People called Lok Sabha (
)and the Upper House- Council of States called Rajya Sabha.(

).

Though the political party /coalition that have the absolute majority ( i.e at least one seat more
than 50 percent of total seats contested and decided) in Lok Sabha forms the Government, the
Prime Minister and the members of the Cabinet can be from either House of Parliament. In 1961,
the Government of India Transaction of Business Rules (TBR), 1961 were framed, which interalia prescribed the procedure in which the Executive arm of the Government would conduct its
business in a convenient and streamlined manner.
In terms of the TBR, 1961, inter-alia, there shall be Standing Committees of the Cabinet as set
out in the First Schedule to the TBR, 1961, with the functions specified therein. The Prime
Minister may, from time to time, amend the Schedule by adding to or reducing the numbers of
such Committees or by modifying the functions assigned to them. Every Standing Committee
shall consist of such Ministers as the Prime Minister may from time to time specify.
Conventionally, while Ministers with Cabinet rank are named as members of the Standing
Committees of the Cabinet, Ministers of State, irrespective of their status of having Independent
Charge of a Ministry/Department, and others with rank of a Cabinet Minister or Minister of
State are named as special invitees.
At present there are 11 (eleven) Standing Committees of the Cabinet. These are the
Appointments Committee of the Cabinet (ACC), the Cabinet Committee on
Accommodation(CCA), the Cabinet Committee on Economic Affairs (CCEA) , the Cabinet
Committee on Management of Natural Calamities (CCMNC), the Cabinet Committee on
Parliamentary Affairs,the Cabinet Committee on Political Affairs (CCPA), the Cabinet
Committee on Prices (CCP), the Cabinet Committee on Security (CCS), the Cabinet Committee
on World Trade Organisation Matters (CCWTO), the Cabinet Committee on Infrastructure
(CCI), and the Cabinet Committee on Unique Identification Authority of India related issues
(CCUID).
While three of the Cabinet Committees, the ACC, CCA and the Cabinet Committee on
Parliamentary Affairs deal with internal housekeeping and functioning of the Government, four
Cabinet Committees have very limited mandates, i.e, CCMNC is for managing natural
calamities, CCP is for regulating prices of essential commodities, CCWTO is for matters relating
to WTO, and CCUID is for matters relating to UID.
Prominent Cabinet Committees whose functioning is of general interest are the Cabinet
Committee on Economic Affairs (CCEA), the Cabinet Committee on Infrastructure (CCI), the
Cabinet Committee on Political Affairs (CCPA), and the Cabinet Committee on Security (CCS).
The Second Schedule to TBR 1961, lists the items of Government business where the full
Cabinet, and not any Standing Committee of the Cabinet should take a decision. However, to the
extent there is a commonality between the cases enumerated in the Second Schedule and the
cases set out in the First Schedule, the Standing Committees of the Cabinet shall be competent to
take a final decision in the matter, except in cases where the relevant entries in the respective
Schedules themselves preclude the Committees from taking such decisions. Also, any decision
taken by a Standing Committee may be reviewed by the Cabinet.

Cabinet Committee on Economic Affairs (CCEA)

CCEA has a mandate to review economic trends on a continuous basis, as also the problems and
prospects, with a view to evolving a consistent and integrated economic policy framework for
the country. It also directs and coordinates all policies and activities in the economic field
including foreign investment that require policy decisions at the highest level.
Matters regarding fixation of prices of agricultural products as well as reviewing progress of
activities related to rural development including those concerning small and marginal farmers are
in CCEAs competence.
Price controls of industrial raw materials and products, industrial licensing policies including
industrial licensing cases for establishment of Joint Sector Undertakings, reviewing performance
of Public Sector Undertakings including their structural and financial restructuring are also
within the purview of CCEA, as are all matters relating to disinvestment including cases of
strategic sale, and pricing of Government shares in Public Sector Undertakings (except to the
extent entrusted to an Empowered Group of Ministers).
The CCEA also lays down priorities for public sector investment and considers specific
proposals for investment of not less than specific levels (Rs. 3 Billion at present) as revised from
time to time. It is important to note that the increase in the prices of essential commodities or
bulk goods under any form of formal or informal control is decided by the CCEA, even as the
CCP monitors the price behaviour of essential commodities, takes decision on supply, imports
and exports of essential commodities and prices for articles sold through the public distribution
system.
CCEA facilitates finalisation of factual reports on the accomplishments of the Ministries,
Agencies and Public Sector Undertakings involved in implementation of prioritised schemes or
projects for evaluation by the Prime Minister. The CCEA also considers cases of increase in the
firmed up cost estimates/revised cost estimates for projects etc. in respect of the business
allocated to the CCEA.

Cabinet Committee on Infrastructure (CCI)

CCI is one of the new Standing Committee of the Cabinet for focussed and speedy decisions for
infrastructure. Prior to setting up of the CCI, infrastructure development was conventionally, and
by implication included in the general mandate of CCEA/ Cabinet. CCI considers and takes
decisions in respect of all infrastructure related proposals costing more than specified levels (Rs.
3 Billion at present) specifically those concerning Energy, Railways, Roads, and National
Highways, Ports, Airports, Telecommunications, Information Technology, Irrigation, Housing
and Urban Development with particular emphasis on rural housing and augmentation of facilities
in urban slums.
The CCI also considers and decides fiscal, financial, institutional and legal measures that are
required to enhance investment in the infrastructure sector, including grant of requisite approvals
to facilitate private sector investment in specific projects.

The CCI both lays down parameters and targets for performance for all infrastructural sectors
and reviews the progress of infrastructural projects. CCI considers cases of increase in the firmed
up cost estimates/revised cost estimates for projects etc. in respect of the business allocated to
CCI as well.

Cabinet Committee on Political Affairs (CCPA)

CCPA primarily deals with problems relating to Centre-State relations in the context of the
Federal structure of the country and Constitutional provisions.
However, CCPA also considers economic and political issues that have to be judged with a
wider perspective. It is in this background that economic issues with political implications
sometimes get discussed in the CCPA and not in the CCEA.
CCPA is enjoined to deal with policy matters concerning foreign affairs that do not have external
or internal security implications, as matters with such implications are required to be dealt with
by the CCS.

Carriage by Road Act, 2007

The Carriage by Road Act, 2007 is an Act of the Parliament of India which provides for the
regulation of common carriers of goods by roads. The Act was published on 29th September
2007.
The Act states that no person shall engage in the business of common carrier, after the
commencement of the Act, unless a certificate of registration has been granted to him. Persons
engaged in the business of common carrier before the commencement of the Act, were required
to either apply for a registration within 90 days from the date of commencement of the Act or
cease to engage in such business on the expiry of 180 days from the date of commencement of
the Act.
The Act defines a common carrier as a person engaged in the business of collecting, storing,
forwarding or distributing goods to be carried by goods carriages under a goods receipt or
transporting for hire of goods from place to place by motorized transport on road. It also includes
a goods booking company, contractor, agent, broker and courier agency engaged in the door-todoor transportation of documents, goods or articles utilizing the services of a person, either
directly or indirectly, to carry or accompany such documents, goods or articles.
The Act mandates that every consignor shall execute a goods forwarding note (GFN) which
would include a declaration about the value of the consignment and goods of dangerous and
hazardous nature. Every common carrier is liable to the consignor for the loss or damage to any
consignment in accordance with GFN.
In exercise of the powers conferred by the Act, the Central Government of India made the
Carriage by Road Rules 2011.
Carriage by Road Rules, 2011

In exercise of the powers conferred by the Carriage by Road Act, 2007, the Central Government
of India made the Carriage by Road Rules, 2011. These Rules relate to the regulation of common
carriers of goods by roads. The Rules came into force on 28th February 2011.
Conditions for grant of registration
A person applying for registration under Carriage by Road rules shall comply with the following
conditions:
1. The applicant should produce registration certificates of two commercial vehicles
registered in his name or in the name of an Organisation or in the name of a partner or
proprietor or director, or a contract letter or work
order for carrying out functions as a common carrier, from a registered company;
1. The applicant should have net worth of minimum rupees five lakhs of his own or of any
of the proprietor or partner or director. In case of applications for certificate of
registration for providing service at a higher risk, the net worth of the applicant or of any
of its proprietor or partner or director shall be minimum rupees twenty lakhs.
2. In case common carriers are proprietorship firms or partnership firms, the proprietors or
partners should not have been blacklisted or deregistered earlier.
Grant or renewal of certificate of registration
The registering authority shall grant or renew the certificate of registration within a period of 30
days after
1. Receiving the application
2. Receiving the fees specified
3. Satisfying that the applicant has complied with all the conditions required for grant of
registration.
Every holder of a certificate of registration needs to maintain a record of the transactions in a
register, updated on a quarterly basis. The summary of the entries are to be submitted to the
registering authority. Every consignor needs to execute a goods forwarding note (GFN), carrying
details of the goods, at the time of booking his goods. On receipt of GFN from the consignor for
booking of goods to be transported, every common carrier shall issue a goods receipt.
Liability for loss of or damage to any consignment
Liability of the common carrier is limited to ten times the freight paid or payable, provided that
the amount so calculated does not exceed the value of the goods as declared in GFN. In case of
partial damage to the goods, the evaluation of damage may be done by an independent
Government approved valuer or surveyor selected by the consignor out of the list notified by the
common carrier and the cost of such evaluation is to be borne by the common carrier.The
liability for loss of documents sent along with the consignment order should not exceed rupees
five hundred. In case of perishable goods, the consignor or the consignee should select the
Government approved valuer or surveyor within a period of 24 hours from the time of report of
the loss or deterioration of the goods, failing which the common carrier shall be free to select the
said valuer or surveyor. The delivery of the consignment by the common carrier is treated as
prima facie evidence of delivery of the goods as described in the GFN unless notice of the

general nature of loss of, or damage to, the goods is given in writing, by the consignee to the
common carrier at the time of handing over of the goods to the consignee. The responsibility of
the common carrier is limited to the transit period, from the date of taking over the goods in his
or her charge from the consignor to the date of arrival at the destination point plus three calendar
days. The date of arrival of the consignment is taken as the day on which the goods physically
arrive at the destination or the day when the consignee or consignor is informed of the arrival of
the goods at the destination, whichever is later. The liability of the common carrier is to be
calculated on the actual freight collected or due or ninety per cent of total charges excluding the
taxes shown on goods receipt, whichever is higher.

Cash based Accounting System Versus Accrual Accounting System

The Indian Government accounts are prepared on a cash based accounting system. This system
recognizes a transaction when cash is paid or received. However it does not give a realistic
account of government's financial position because it lacks an adequate framework for
accounting for assets and liabilities, and depicting consumption of resources. Moreover capital
expenditure (expenditure on the creation of new assets) under the cash system is brought to
account only in the year in which a purchase or disposal of an asset is made. This is not an
effective way to track assets created out of public money. The present system does not reflect
accrued liabilities arising from the gap between commitments and transactions of government on
the one hand and payments made. The Twelfth Finance Commission recommended introduction
of accrual accounting in Government. Government has accepted the recommendation in principle
and asked Government Accounting Standards Advisory Board (GASAB) in the office of the
Comptroller and Auditor General of India to draw a roadmap for transition from cash to accrual
accounting system and to prepare an operational framework for its implementation. So far twenty
one State Governments have agreed in principle to introduce accrual accounting.
References
1. http://www.gasab.gov.in/about.asp

Cash Reserve Ratio (CRR)

Cash Reserve Ratio refers to the fraction of the total Net Demand and Time Liabilities (NDTL)
of a Scheduled Commercial Bank held in India, that it has to maintain as cash deposit with the
Reserve Bank of India (RBI). The requirement applies uniformly to all banks in the country
irrespective of an individual banks financial situation or size. In contrast, certain countries e.g.
China stipulates separate reserve requirements for large and small banks.
As per the RBI Act 1934, all Scheduled Commercial Banks (that includes public and private
sector banks, foreign banks, regional rural banks and co-operative banks) are required to
maintain a cash balance on average with the RBI on a fortnightly basis to cater to the CRR
requirement. With effect from December 28, 2002 all banks are required to maintain a minimum
of 70 per cent of the required average daily CRR on all days of the fortnight. Non Bank
Financial Corporations (NBFCs) are outside the purview of this reserve requirement.
Traditionally, the amount held to cater to the CRR requirement was stipulated to be no lower
than 3 percent and no higher than 20 percent of the total NDTL held in India. However, the RBI
(amendment) Act, 2006 provides for removal of the floor and ceiling with respect to setting the

CRR and authorizes the RBI to set the ratio in keeping with the broad objective of maintaining
monetary stability in the economy.
Presently, banks are not paid any interest on behalf of the RBI for parking the required cash. If a
bank fails to meet its required reserve requirements, the RBI is empowered to impose
a penalty by charging a penal interest rate.
Historically, the CRR was mooted as a regulatory tool. However, over the years and especially
after the liberalization of the Indian economy in the early 1990s, with the economy experiencing
substantial inflows of capital exerting stress on the leverage of the central bank to manipulate
liquidity conditions in the domestic money market, the CRR assumed importance as one of the
important quantitative tools aiding in liquidity management. In contrast to the Liquidity
Adjustment Facility (LAF), which aids liquidity management on a daily basis via changes in
repo and reverse-repo rates, changes in the CRR is aimed at the same in the medium term.
The CRR was reduced from a level of 8.5 percent in August 2008 to 6 percent in September,
2008 to ease liquidity in domestic markets on the face of the global financial crisis. The cut
continued through 2008 reaching a level of 5 percent in January 2009. The CRR was maintained
at this level throughout 2009 and eventually raised to 6 percent in April, 2010.
A country that uses the CRR aggressively to control domestic liquidity and target the monetary
roots of inflation is China. In the recent past the Peoples Bank of China has frequently raised the
reserve requirement for its banks primarily to rein in rising inflation. In the latest policy move,
the Bank raised the required reserve ratio by 50 basis points, to 21.5 percent for large banks
and19.5 percent for smaller ones, effective from June 20, 2011.
The RBI website (www.rbi.org.in) carries information on the prevailing policy rates including
CRR. Presently the CRR stands at 6 percent. Various publications by the RBI, including monthly
bulletins, discuss and analyze rationale behind changes and expected effects of CRR changes as
and when the need arises.
References
Central Bank Balances and Reserve Requirements, Simon Gray, IMF Working Paper No. WP/11/36, February,
2011.</p>

Central Plan Assistance

Financial assistance provided by Government of India to support States Five Year/intervening
annual plans is called Central Plan Assistance (CPA) or Central Assistance (CA). CPA or CA
primarily comprises (a) Normal Central Assistance (NCA), which is governed by modified
Gadgil-Mukherjee Formula, and is accordingly fixed (b) Additional Central Assistance (ACA),
which is provided for implementation of externally aided projects (EAPs), and for which
presently there is no ceiling (c) Special Central Assistance (SCA), which is provided for special
projects/programmes e.g., Western Ghats Development Programme, Border Areas Development
Programme etc. (In exceptional situations, Advance Central Assistance, may also be provided.)
CPA is provided, as per scheme of financing applicable for specific purposes, approved by
Planning Commission. It is released in the form of grants and/or loans in varying combinations,
as per terms & conditions defined by Ministry of Finance, Department of

Expenditure. http://finmin.nic.in/the_ministry/dept_expenditure/plan_finance/Plan_Finance/pfter
ms.asp.
Central Assistance in the form of ACA is provided also for various Centrally Sponsored
Schemes viz., Accelerated Irrigation Benefits Programme, Rashtriya Krishi Vikas Yojana etc.
and SCA is extended to states and UTs as additive to Special Component Plan (renamed
Scheduled Castes Sub Plan) and Tribal Sub Plan. Funds provided to States under Member of
Parliament Local Area Development Scheme @ Rs.5 crore per annum per MP also count as CA.

Central Road Research Institute (CRRI)

The Central Road Research Institute (CRRI) is a premier national research institute founded in
1948 with the objective of carrying out research and development project on design, construction
and maintenance of roads and runways economically. It provides technical and consultancy
services to various user organisations in India and abroad. it is registered with the World Bank
and Asian Development Bank to provide consultancy service and to meet the specialised training
for the highway. The institute has also professional linkage with World Road Association,
International Road Federation (IRF) and Transport Research Laboratory (TRL), U.K for research
and consultancy services. It imparts a popular training course on Road Development Planning
and Management (RDP).

Central Sector and Centrally Sponsored Schemes

In Indias developmental plan exercise we have two type of schemes viz; central sector and
centrally sponsored scheme. The nomenclature is derived from the pattern of funding and the
modality for implementation. Under Central sector schemes, it is 100% funded by the Union
government and implemented by the Central Government machinery. Central sector schemes are
mainly formulated on subjects from the Union List. Under Centrally Sponsored Scheme a certain
percentage of the funding is borne by the States in the ratio of 50:50, 70:30, 75:25 or 90:10 and
the implementation is by the State Governments. Centrally Sponsored Schemes are formulated in
subjects from the State List to encourage States to prioritise in areas that require more attention.

Charged Expenditure
In India's democratic system, the government cannot spend from the Consolidated Fund unless
the expenditure is voted in the lower house of Parliament or State Assemblies. However
according to Article 112 (3) and Article 202 (3) of the Constitution of India, the following
expenditure does not require a vote and is charged to the Consolidated Fund. They include
salary, allowances and pension for the President as well as Governors of States, Speaker and
Deputy Speaker of the House of People, the Comptroller General of India and Judges of the
Supreme and High Courts. They also include interest and other debt related charges of the
Government and any sums required to satisfy any court judgment pertaining to the Government.

Competition Commission of India

A competition regulator is generally a statutory authority with the mandate to enforce

competition law (also called antitrust law in some countries such as USA) and may sometimes
also enforce consumer protection laws. Competition regulators may regulate anti-competitive
agreements including cartels as well as abuse of dominant position in the markets. They also
regulate certain aspects of mergers and acquisitions of business and often undertake advocacy
also to promote competition culture. There are more than hundred such regulators in the world
with USA and European Commission being two major jurisdictions, among others.
Competition Act, 2002 was passed in January 2003. Competition Commission of India (CCI)
was set up in October 2003 to implement this law. However, legal challenge prevented full
constitution and enforcement and only advocacy function was notified. CCI was duly established
on 1.3.2009 as an autonomous independent body comprising Chairperson and six members. An
appellate body called Competition Appellate Tribunal was also set up on 20.5.2009 with final
appeal to Supreme Court of India. CCI is thus, a fully empowered body today and Indian
Competition Law has fully come into force.
It is the duty of the Commission to eliminate practices having adverse effect on competition,
promote and sustain competition, protect the interests of consumers and ensure freedom of trade
in the markets of India. The Commission is also required to give opinion on competition issues
on a reference received from a statutory authority established under any law and to undertake
competition advocacy, create public awareness and impart training on competition issues.
References
1. Competition Commission of India website http://www.cci.gov.in/

Competition Law in India

Competition law is a specific law which has the objective of promoting/ maintaining competition
in the markets by regulating anti-competitive conduct. It is also known as antitrust law in the
United States. The history of competition law reaches back to the Roman Empire. Since the 20th
century, competition law has become global. Now, more than hundred countries have adopted
competition law as a natural corollary to embracing economic reforms and market economies.
Indias earlier Competition related law - Monopolies and Restrictive Practices Act, 1969 became
outdated after liberalization of economy in 1991. Competition Act, 2002 was passed in January
2003 with the objective of preventing practices having adverse effect on competition, promoting
and sustaining competition in markets, protecting the interests of consumers and ensuring
freedom of trade carried on market participant. Competition Commission of India (CCI) was set
up in October 2003 to implement the law. However, legal challenge prevented full constitution
and enforcement and only advocacy function was notified. Law was amended in 2007. Law is
being implemented by Competition Commission of India (CCI), which was constituted in 2009
as an autonomous independent body comprising Chairperson and six members. Appeal lies to
Competition Appellate Tribunal also set up in 2009 with final appeal to Supreme Court of India.
Section 3 & 4 relating to anti- competitive agreements and abuse of dominance notified w.e.f
20.5.52009 while Sections 5 & 6 relating to Mergers and Acquisitions notified w.e.f 1.6.2011.
Thus, Indian Competition Law has fully come into force. The Competition Act, 2002 (as
amended), [the Act] aims at protecting Indian markets against anti-competitive practices by

enterprises. The Act prohibits anti-competitive agreements, abuse of dominant position by

enterprises, and regulates entering into combinations (consisting of mergers, amalgamations and
acquisitions) with a view to ensure that there is no adverse effect on competition in India.
References
1. The Competition Act, 2002: An Overview
2. The Competition Act, 2002 (full Act)

Concessionaire
The term Concessionaire denotes someone who holds or operates a concession. In a public
private partnership project, which is a contractual arrangement entered between a public entity
and a private entity, the private entity which is the holder of a concession is defined as the
concessionaire.
In India, typically a company incorporated under the provisions of the Companies Act, 1956 is
the concessionaire for most of the public private partnership projects in infrastructure. The
selection of the concessionaire is mostly through open competitive bidding.
References
1. http://www.infrastructure.gov.in/

Consolidated Fund of India

This term derives its origin from the Constitution of India.
Under Article 266 (1) of the Constitution of India, all revenues ( example tax revenue from
personal income tax, corporate income tax, customs and excise duties as well as non-tax revenue
such as licence fees, dividends and profits from public sector undertakings etc. ) received by the
Union government as well as all loans raised by issue of treasury bills, internal and external
loans and all moneys received by the Union Government in repayment of loans shall form a
consolidated fund entitled the 'Consolidated Fund of India' for the Union Government.
Similarly, under Article 266 (1) of the Constitution of India, a Consolidated Fund Of State ( a
separate fund for each state) has been established where all revenues ( both tax revenues such as
Sales tax/VAT, stamp duty etc..and non-tax revenues such as user charges levied by State
governments ) received by the State government as well as all loans raised by issue of treasury
bills, internal and external loans and all moneys received by the State Government in repayment
of loans shall form part of the fund.
The Comptroller and Auditor General of India audits these Funds and reports to the Union/State
legislatures when proper accounting procedures have not been followed.

Consumer Price Index

Consumer Price Index is a measure of change in retail prices of goods and services consumed by
defined population group in a given area with reference to a base year. This basket of goods and
services represents the level of living or the utility derived by the consumers at given levels of
their income, prices and tastes. The consumer price index number measures changes only in one
of the factors; prices. This index is an important economic indicator and is widely considered as
a barometer of inflation, a tool for monitoring price stability and as a deflator in national
accounts. Consumer price index is used as a measure of inflation in around 157 countries. The
dearness allowance of Government employees and wage contracts between labour and employer
is based on this index. The formula for calculating Consumer Price Index is Laspeyres index
which is measured as follows;
Total cost of a fixed basket of goods and services in the current period * 100
Total cost of the same basket in the base period
The origin of Consumer Price Index can be traced to the period after first world war when there
was a sharp rise in prices and cost of living. The erosion in the real wages of the workers led to a
demand by the workers for compensation. This led to the conduct of socio-economic surveys
among the working classes as a preliminary to the measurement of cost of living. Consumer
price index numbers were known as Cost of Living Index Numbers prior to July 1955. The
Sixth International Conference of Labour Statisticians recommended the change in nomenclature
from Cost of Living Index to Consumer Price index. The Cost of living index is a more broader
term which includes not only changes in prices but several other factors like change in
consumption habits and standard of living.
Presently the consumer price indices compiled in India are CPI for Industrial workers CPI(IW),
CPI for Agricultural Labourers CPI(AL) & Rural Labourers CPI(RL) and CPI ( Urban) and
CPI(Rural). Consumer Price Index for Urban Non Manual Employees was earlier computed by
Central Statistical Organisation. However this index has been discontinued since April 2008.The
CPI(IW) and CPI(AL& RL) compiled are occupation specific and centre specific and are
compiled by Labour Bureau. This means that these index numbers measure changes in the retail
price of the basket of goods and services consumed by the specific occupational groups in the
specific centres. CPI(Urban) and CPI(Rural) are new indices in the group of Consumer price
index and has a wider coverage of population. This index compiled by Central Statistical
Organisation tries to encompass the entire population and is likely to replace all the other indices
presently compiled.
References
1. http://www.labourbureau.gov.in/
2. http://www.mospi.nic.in/

Consumer Price Index (Urban) and Consumer Price Index(Rural)

The CPI(IW) and CPI(Al & RL) pertain to specific segment of population. Since these indices do
not cover all segments of population, it is difficult to ascertain the true variations in the price
level . To overcome this problem, a new index with a wider coverage is now being computed,
CPI(Urban) and CPI(Rural) by Central Statistics Office under Ministry of Statistics and
Programme Implementation.

This series of CPI has two components, one a representative of the entire urban population, viz.
CPI (Urban), and another for the entire rural population, viz. CPI (Rural) These indices reflect
the changes in the price levels of various goods and services consumed by the urban and rural
population respectively. The indices are compiled at State/UT and all-India levels and are based
on 2010 as base year. CPI (urban) covers 310 towns while the span of CPI(rural) is 1181
villages. Index Numbers for both rural and urban areas and also combined have been started
from January 2011 index onwards. Provisional indices based on the data available are first
released with the time lag of 30 days. Revised and final numbers with complete data for all India
and also for all the States/UTs will be released with a time lag of two months.

Consumer Price Index for Agricultural Labourers and Rural Labourers

(CPI(AL) & CPI(RL))
Labour Bureau has been compiling CPI Numbers for Agricultural Labourers since September,
1964.The base of CPI(AL) was 1960-61=100. This series of CPI Numbers was then replaced by
CPI for (i) Agricultural and (ii) Rural Labourers with base 1986-87=100 from November, 1995
onwards . CPI for Agricultural and Rural labourers on base 1986-87=100 is a weighted average
of 20 constituent state indices and it measures the extent of change in the retail prices of goods
and services consumed by the agricultural and rural labourers as compared with the base period
viz 86-87. This index is released on the 20th of the succeeding month. CPI-AL is basically used
for revising minimum wages for agricultural labour in different States.

Consumer Price Index for Industrial Workers CPI(IW)

This index is the oldest among the CPI indices as its dissemination started as early as in 1946.
The history of compilation and maintenance of Consumer Price Index for Industrial workers
owes its origin to the deteriorating economic condition of the workers post first world war which
resulted in sharp increase in prices. As a consequence of rise in prices and cost of living, the
provincial governments started compiling Consumer Price Index. The estimates were however
not satisfactory. In pursuance of the recommendation of Rau Court of enquiry, the work of
compilation and maintenance was taken over by government in 1943. Since 1958-59, the
compilation of CPI(IW) has been started by Labour Bureau ,an attached office under Ministry of
Labour & Employment.
Consumer Price Index Numbers for Industrial workers measure a change over time in prices of a
fixed basket of goods and services consumed by Industrial Workers. The target group is an
average working class family belonging to any of the seven sectors of the economy- factories,
mines, plantation, motor transport, port, railways and electricity generation and distribution . CPI
(IW) is currently calculated at base 2001=100 for 78 centres and prices are collected from 289
markets across these 78 centres. The previous base periods of the index have been
1944,1949,1960 and 1982=100. The 2001 index is a more representative index than 1982 series
CPI(IW) as its coverage of centres, markets and sample size for coverage of working class
family income & expenditure survey is much more wider.. The index has a time lag of one
month and is released on the last working day of the month. It is used for wage indexation and
fixation of dearness allowance for government employees.

Consumer Price Index for Urban Non Manual Employees (CPI(UNME))

The need for an all Indian middle class cost of living index was felt on several occasions in
connection with the fixation and adjustments of emoluments of Central Government employees.
The Central Statistical Organisation carried out a family living survey of urban middle class
population during 1958-59 to facilitate construction of middle class cost of living indices. On the
basis of this survey data, a cost of living index number named as CPI(UNME) on base1960=100
was compiled and published since 1961.
This index depicts the changes in the level of average retail prices of goods and services
consumed by the urban segment of the population. The target group of this index was urban
families who derived major portion of their income from non manual occupations in the nonagricultural sector.This index had a limited use as it was used for determining dearness
allowances of employees of some foreign companies working in India in service sectors such as
airlines, communications, banking, insurance and other financial services. Release of Centrewise monthly CPI (UNME) on the basis of 1984-85 =100 has been discontinued since April
2008 as per the recommendation of National Statistical Commission because of outdated base
year and also deployment of field investigators for collection of price data for a broad based CPI
(Urban) index. The Commission also decided that release of all-India linked CPI (UNME)
would continue till CPI (Urban) is brought out. The monthly linked all India CPI (UNME) was
being compiled by linking to CPI (IW) with base 2001=100 and taking CPI (UNME) as weights.
This index was released with a time lag of two moths, usually during the third week of the
month. The release of all-India linked CPI(UNME) has been discontinued with effect from
January 2011.
References
1. http://www.labourbureau.gov.in/
2. http://www.mospi.nic.in/

Contingency Fund of India

This term derives its origin from the Constitution of India.
The Contingency Fund of India established under Article 267 (1) of the Constitution is in the
nature of an imprest (money maintained for a specific purpose) which is placed at the disposal of
the President to enable him/her to make advances to meet urgent unforeseen expenditure,
pending authorization by the Parliament. Approval of the legislature for such expenditure and for
withdrawal of an equivalent amount from the Consolidated Fund is subsequently obtained to
ensure that the corpus of the Contingency Fund remains intact. The corpus for Union
Government at present is Rs 500 crore (Rs 5 billion) and is enhanced from time to time by the
Union Legislature. The Ministry of Finance operates this Fund on behalf of the President of
India.
Similarly, Contingency Fund of each State Government is established under Article 267(2) of the
Constitution this is in the nature of an imprest placed at the disposal of the Governor to enable
him/her to make advances to meet urgent unforeseen expenditure, pending authorization by the
State Legislature. Approval of the Legislature for such expenditure and for withdrawal of an
equivalent amount from the Consolidated Fund is subsequently obtained, whereupon the

advances from the Contingency Fund are recouped to the Fund. The corpus varies across states
and the quantum is decided by the State legislatures.
References
1. http://www.finmin.nic.in/the_ministry/dept_eco_affairs/budget/ContingencyFundIndiaAct1950.pdf

Coordinated Action on Skill Development (CASD)

Skill development is a dynamic process requiring continuous upgradation of skills for existing as
well as new entrants in the workforce to remain relevant and employable. Government of India
and State Governments have been implementing number of policies / programmes for skill
development. To give impetus to the efforts and harmonization of skill initiatives of different
players Government of India initiated a Coordinated Action on Skill Development in 2008. The
action aims at creation of pool of skilled manpower with adequate skills to take advantage of the
demographic dividend which India enjoys vis--vis other ageing economies. The Coordinated
Action has three tier institutional structure viz. Prime Ministers National Council on Skill
Development as an apex body assisted by National Skill Development Coordination Board in
Planning Commission and National Skill Development Corporation under the Ministry of
Finance. While PMs National Council is mandated to lay down policies, core governing and
operating principles for skill development, the Board is entrusted with the task of coordinating
skill efforts of Central Ministries / Departments to bring synergy and avoid duplication of efforts
and the Corporation is facilitating private sector participation in the task of skill development.
This coordinated action is expected to ensure access to skill development opportunities to all
irrespective of any divide and achieve the target of creating 500 million skilled manpower by
2022.

Cropping seasons of India- Kharif & Rabi

The agricultural crop year in India is from July to June. The Indian cropping season is classified
into two main seasons-(i) Kharif and (ii) Rabi based on the monsoon. The kharif cropping season
is from July October during the south-west monsoon and the Rabi cropping season is from
October-March (winter). The crops grown between March and June are summer crops. Pakistan
and Bangladesh are two other countries that are using the term kharif and rabi to describe
about their cropping patterns. The terms kharif and rabi originate from Arabic language
where Kharif means autumn and Rabi means spring.
The kharif crops include rice, maize, sorghum, pearl millet/bajra, finger millet/ragi (cereals),
arhar (pulses), soyabean, groundnut (oilseeds), cotton etc. The rabi crops include wheat, barley,
oats (cereals), chickpea/gram (pulses), linseed, mustard (oilseeds) etc.

Cultivators
If the Main worker is engaged in cultivation of land owned or held from Government or held
from private persons or institutions for payment in money, kind or share. Cultivation includes
effective supervision or direction in cultivation. A person working on another person's land for

wages in cash or kind or a combination of both (agricultural labourer) is not treated as cultivator.
Cultivation involves ploughing, sowing, harvesting and production of cereals and millet crops
such as wheat, paddy, jowar, bajra, ragi, etc., and other crops such as sugarcane, tobacco,
ground-nuts, tapioca, etc., and pulses, raw jute and kindred fibre crop, cotton, cinchona and other
medicinal plants, fruit growing, vegetable growing or keeping orchards or groves, etc. and does
not include the plantation crops like tea, coffee, rubber, coconut and betel-nuts (areca).

Debt Consolidation and Relief Facility (DCRF)

The Twelfth Finance Commission (TFC) had recommended a Debt Consolidation and Relief
Facility (DCRF) during its award period (01.04.2005 to 31.03.2010) to States.
This facility provided for (i) Consolidation of central loans from Ministry of Finance contracted
till 31.3.2004 and outstanding as on 31.3.2005 for a fresh tenure of twenty years at an interest
rate of 7.5% per annum and (ii) Debt waiver to states based on their fiscal performance. The
facility is subject to the condition that states enact their Fiscal Responsibility and Budgetary
Management (FRBM) Acts as recommended by the Commission. Under the scheme, twenty-six
states out of twenty eight states (except Sikkim and West Bengal), which had enacted their Fiscal
Responsibility and Budget Management Acts, had availed of the facility of consolidation of their
loans. Those states which had improved their fiscal performance could also get their eligible debt
waived.
The Thirteenth Finance Commission (FC-XIII) has extended the DCRF, limited to consolidation
of their loans only, to the states of Sikkim and West Bengal during 2010-15, provided these
states put in place their FRBM Acts as stipulated by FC-XIII. Sikkim and West Bengal have now
enacted their Fiscal Responsibility Legislations.

Decentralization and Rural Governments in India

Decentralization can be defined as transfer or dispersal of decision making powers, accompanied
by delegation of required authority to individuals or units at all levels of organization even if
they are located far away from the power centre.
In the context of the present discussion, decentralization signifies the devolution of powers and
authority of governance of the Union Government and State Governments to the sub-state level
organizations i.e. Panchayats in India.
History and Evolution
History of decentralization in India is, as a matter of fact, the history of evolution of Panchayati
Raj System in the country.
During the period of British domination of India there was no particular urge for economic and
social development except only those activities necessary for safeguarding the rule. Naturally,
the issue of decentralization was not in the agenda of the rulers, though local government
institutions in the form of Union Boards, District Boards etc. were established as per law.
In the course of the freedom movement it became clear that after independence Indias
nationhood would evolve within a democratic political and institutional setting. Some leaders
believed that it should be a representative democracy much in the mould of western countries.

But Mahatma Gandhis development discourse hinged on a village based participatory

democracy embedded in his vision of the Panchayati Raj. Gandhi advocated for a democratic
polity that would have its foundation in thousands of self-governing village communities.
Gandhi felt that real development of India can take place only through its political system of
Gram Swaraj in which the State Government would only exercise such powers which are not
within the scope and competence of the lower tiers of participatory governance institutions.
Rural local governments, in the form of Panchayats, were included in the chapter on Directive
Principles of the State Policy (Article 40). It stated that the states shall take steps to organize
village Panchayats and endow them with such powers and authority as may be necessary to
enable them to function as units of self government.
Immediately after independence and especially after the launch of the first 5-year plan, the then
Government of India launched massive development projects on one hand and Community
Development (CD) Programmes and National Expansion Services for rural development, on the
other. Mechanics of workings of Panchayats and their significance in local governance received
serious boost with the setting up of the Balwant Rai Mehta Committee (constituted to study the
impact of CD Programme and National Extension Service) in 1957. The committee observed that
the countrys development cannot progress without the co-location of responsibility and power at
even the lower tiers of Government. Community development objectives can materialize only
when the Community understands its problems, realizes its responsibilities, exercises necessary
powers through chosen representatives and maintains a constant and intelligent vigil on the local
administration. The committee further observed that the character of the development
programmes should change from Governments programme with peoples participation to
peoples programme with Governments participation.
Journey towards political and administrative decentralization started with the recommendations
of the Mehta Committee. All the states enacted Panchayat Acts and by 1960 Panchayats were
established throughout India. But these steps could hardly change ground realities as laws were
weak and inexplicit. Local administrations resisted devolution of functions and powers, regular
elections to Panchayati institutions were not held.
The country experienced significant political changes during mid-1970s, with which the process
of resurrection and strengthening of Panchayati Raj System regained momentum. Many State
Governments delegated authorities and schematic funds to the Panchayats for implementing
various development programmes. But in the absence of appropriate statutes defining the role,
functions, duties, authorities and powers, the Panchayats were not successful enough to ensure de
facto involvement of people in development programmes. In most cases, Panchayats came about
to be nothing more than the State Governments agency for implementation of a few
programmes, and delivery of a few services.
Under-performance with regard to poverty alleviation, development and even social assistance
programmes to reach and benefit target groups (i.e. the rural poor) disconcerted decision makers
both within and outside Government. Demands for suitable empowerment of Panchayats in order
to mould them into effective self governments started to gain momentum. It was argued that
provisions of Article 40 were not enough to ensure development of village Panchayats the way it
was desired. Instead of leaving the issue entirely at their discretion, the states had to be bound by
some constitutional mandate.

This led to the 73rd amendment of the Constitution in 1992, given effect from April 24, 1993.
This land-mark amendment of the Constitution declared the Panchayats as units of self
government, directed the states to devolve functions of 29 subjects directly related to social and
economic development of an area, made provisions for resource sharing between the Panchayati
Raj Institutions (PRIs) and Governments, regular elections to local bodies, reservation of socially
disadvantaged classes and women etc.
In order to make sure that the people can have a say in the process of local governance. The
institution of Gram Sabha was given high importance. Consultation with the Gram Sabha on
all important matters including planning and implementation of development programmes was
made a necessary requirement. The amendment, to a great extent, paved the way
for decentralization of governance and transforming village Panchayats as institutions of self
government.
Effectiveness
Almost two decades have elapsed since the 73rd amendment of the Constitution. Critics often
argue the 73rd amendment, though very significant, left several things relating to Panchayats to
the states discretion. Government of Indias due emphasis on the subject was evident from the
fact that in the year 2004 the Ministry of Panchayati Raj was again constituted. It held seven
Round Tables with State Ministers of Panchayats and compiled, as a series of recommendations,
measures for effective devolution of authority to the Panchayats and removal of obstacles in the
way of their proper functioning.
It is widely recognized that effective decentralization is dependent on existence of the following
necessary conditions:
a) Strong political commitment from higher level authorities within the Government.
Activity mapping which was supposed to be done by states as per resolution of the State
Panchayat Ministers round table has been done by quite a few states, but implementation has
often remained incomplete. Transfer of functionaries has also remained mostly symbolic.
b) Autonomy of the local bodies in decision making and implementation of local schemes:
Since Panchayats implement state and union government schemes they are required to adhere to
the guidelines without any authority to deviate even a little as per necessities emanating from
local conditions. In the absence of Panchayats own financial resources they can hardly
undertake programmes on their own in line with local requirements. It is here
that decentralization of political decision making needs to be complimented by measures to
ensure fiscal autonomy for PRIs so that such institutions can muster necessary financial
resources on their own to be truly self-reliant in local decision-making and its implementation.
It is however true that under the govt. sponsored schemes the schemes and / or beneficiaries are
selected by the Panchayats in the Gram Sabha meetings. But often such meetings are captured by
the village elites and the capacity of common villagers to register their claims gets limited.
c) Availability of the internally generated resources at the local level:
In the federal system of governance that is existent in India, almost all the sources of tax or non
tax revenue come under the jurisdictions of the State and Union Governments. This leaves little
scope for local governments to generate resources on their own. Their own revenue generation
capacity remains limited vis-a-vis their requirements and expenditure obligations. In view of this

the constitution mandated for setting up of the State Finance Commissions that would help
determine the devolution of states revenue to the local governments.
In this connection a few experiments towards effective decentralization in India can be recalled:
i) In the mid-1980s the West Bengal Government initiated decentralized planning process. The
districts were asked to prepare district plans which were later integrated for preparing the state
plan. The objective of this effort of the State Planning Board was to involve Panchayats in the
planning process.
ii) Peoples plan initiative of Kerala during 1990s generated lot of enthusiasm. It was possible to
garner support of all political parties, educated citizens and government officials. Personalities
like EMS Namboodiripad, AK Antony were involved in it.
iii) West Bengal undertook another experiment of village level planning, in mid 1990s under the
programme Community Convergent Action, later followed by the Strengthening
Rural Decentralizationprogrammes. This met with moderate success and has become of the
model of village level planning in the state involving villagers in the Gram Sansad meeting.
iv) Planning Commission of India advised the states to prepare the 11th Five year plan on the
basis of village level plans prepared in the Gram Sabhas. This was expected to give a boost
towardsdecentralization.

Deemed Export Benefit Scheme

Deemed Export Scheme, which has been in operation for more than two decades, is largely an
Indian concept. Deemed Exports refers to those transactions in which goods supplied do not
leave country, and payment for such supplies is received either in Indian rupees or in foreign
exchange. The Deemed export benefit include rebate on duty chargeable on imports or excisable
material used in the manufacture of goods which are supplied to the eligible projects.
Deemed Export Benefit Scheme benefits are availed of by units in Power, Petroleum refinery,
fertilizer and Nuclear Power Projects. They are also availed by supply of goods to projects
financed by multi-lateral or bilateral agencies.
The policy aims to create a level playing field for the domestic industry vis--vis direct import by
providing duty free inputs or exemption/refund of duty paid on goods manufactured in India.
Deemed Export Scheme is primarily an instrument for import substitution. It helps in creating
manufacturing capability, value addition and employment opportunities in country.

Demand for Grants

According to Article 113 of the Indian Constitution, estimates of expenditure from the
Consolidated Fund of India in the Annual financial Statement are to be voted in the Lok Sabha.
These expenditures are submitted in the lower house of Parliament in the form of Demand for
Grants. Conventionally, one Demand for Grant is presented in respect of one Ministry or
Department, though more than one Demand may also be presented according to the nature of
expenditure.

For Union Territories without Legislature a separate Demand is presented for each Union
territory.
Each Demand gives the totals of voted and charged expenditure and also the grand total of
the amount of expenditure for which the demand is presented. This expenditure is then given
under different Major and Minor heads of account. The break-up of expenditure is also provided
in Plan and Non-Plan basis.
The demands include the total provisions required for a service, i.e. Provisions on account of
revenue expenditure capital expenditure, grants to States and UTs and also loans and advances
related to that service.

Demographic Dividend (India)

One of Indias competitive advantages is its demographic dividend. Demographic dividend
occurs when the proportion of working people in the total population is high because this
indicates that more people have the potential to be productive and contribute to growth of the
economy. According to the United National population research, during the last four decades the
countries of Asia and Latin America have been the main beneficiaries of the demographic
dividend. Advanced countries of Europe, Japan and USA have an ageing population because of
low birth rates and low mortality rates. Neither the least developed countries nor the countries of
Africa have as yet experienced favourable demographic conditions according to the research by
UN population division. Chinas one child policy has reversed the demographic dividend it
enjoyed since the mid 1960s according to a World Bank global development report.
Falling birth rates reduce the overall expenditure required to provide basic necessities for the
under 14 age group (which is yet to be productive) and increased longevity ensures that a large
proportion of the population are within the 15-59 age group (working population). Dependency
ratio refers to the proportion of non -working poplation on the working population. In India this
ratio is around 0.6 according to the World Bank.
However, reaping the demographic dividend requires focused policy action. A recent UNESCAP
survey warns there are no guarantees the "dividend" will automatically translate to economic
growth. Countries need to put in place the appropriate "social and economic policies and
institutions" to absorb the rapidly growing labour force. Reforms in the health and education
sector, financial inclusion and adequate employment opportunities are essential pre-requisites to
ensure that Indias young population is truly an asset.
The Planning Commission of India, in its 12th Plan discussions, indicates that while the
demographic dividend accounts for India having worlds youngest work force with a median
age way below that of China and OECD Countries, the global economy is expected to witness a
skilled man power shortage to the extent of around 56 million by 2020. Thus, the demographic
dividend in India needs to be exploited not only to expand the production possibility frontier but
also to meet the skilled manpower requirements of in India and abroad. To reap the benefits of
demographic dividend, the Eleventh Five Year Plan had favored the creation of a
comprehensive National Skill Development Mission. Various strategies for the 12th Plan
improved access to quality education, better preventive and curative health care, enhancing skills

and faster generation of employment are being finalized to ensure greater productivity of Indian
workers.
References
1. http://www.chinadaily.com.cn/china/2007-03/25/content_835793.htm
2. http://www.unescap.org/survey2007/backgrounders/demographic_dividend.asp
3. For a working group report on various aspects of Indias population please
see http://planningcommission.nic.in/reports/wrkpapers/wp_hwpaper.pdf
4. For a debate on demographic dividend initiated by Kaushik Basu, Chief Economic Adviser
see http://news.bbc.co.uk/2/hi/6911544.stm

Dumping
When goods are exported to another country at a price which is less than what it is sold for in the
home country or when the export price is less than the cost of production in the home country,
then those goods have been dumped.
Home Market Price Export Sales Price = Margin of dumping
The Department of Commerce in the Union Ministry of Commerce and Industry has an Antidumping Unit which investigates cases where the domestic industry (domestic producers)
provide evidence that dumping has taken place by producers abroad. They also defend cases
where allegations of dumping are brought against Indian exporters by foreign governments.
There is a well established process which is followed where questionnaires are sent to all
stakeholders and evidence is collected in a time-bound fashion to either prove or disprove that
dumping has taken place.
If the good is alleged to be dumped from a non-market country ( a country where there are
considerable distortions to the market through government subsidies ) then the Anti dumping
cell will calculate what the normal price of the product should be in the home market. The
normal price will reflect the market price of the product had it been produced in the exporting
country without these subsidies. If necessary, the price of such a commodity in a similar market (
say a neighbouring country at the same level of development as the exporting country) will be
considered as the normal price.
If there is evidence of dumping then the Government of India will levy an anti-dumping duty on
that commodity for a period of five years and will review the need for continuation of duty
thereafter.
References
1. http://commerce.nic.in/traderemedies/ad_product.asp?id=10
2. http://commerce.nic.in/traderemedies/ad_guidelines.asp?id=4

Effective Revenue deficit

Effective Revenue deficit is a new term introduced in the Union Budget 2011-12. While
revenue deficit is the difference between revenue receipts and revenue expenditure, the present

accounting system includes all grants from the Union Government to the state
governments/Union territories/other bodies as revenue expenditure, even if they are used to
create assets. Such assets created by the sub-national governments/bodies are owned by them and
not by the Union Government. Nevertheless they do result in the creation of durable assets.
According to the Finance Ministry, such revenue expenditures contribute to the growth in the
economy and therefore, should not be treated as unproductive in nature. In the current Union
Budget (2011-12) a new methodology has been introduced to capture the effective revenue
deficit, which excludes those revenue expenditures (or transfers) in the form of grants for
creation of capital assets. If this methodology is taken into account, the effective revenue deficit
(revised estimates) for 2010-11 is only 2.3 per cent as against the revenue deficit of 3.4 per cent
of GDP. The effective revenue deficit for 2011-12 is projected at 1.8 per cent as against the
revenue deficit estimates of 3.4 per cent.
It may be noted that even though some grants may be allocated towards the creation of assets,
financial allocation does not always result in physical outcomes.
Source
1. Union Budget Documents 2011-12.

Equalization
The concept of equalization is considered to be a guiding principle for fiscal transfers as it
promotes equity as well as efficiency in resource use. Equalization transfers aim at providing
citizens of every state a comparable standard of service provided their revenue effort is also
comparable. In other words, equalization transfers neutralize deficiency in fiscal capacity but not
in revenue effort. Under such an approach, transfers are determined on normative criteria in
contrast to gap filling based on projected historical trend of revenue and expenditure.
Twelfth Finance Commission made use of the concept and recommended Equalisation Grants
to achieve partial equalization of expenditure of services in two sectors, namely education and
health across different states. Since full equalisation of expenditure would have required steep
step up in grants, the Commission restricted itself to partial equalization. The grants were fixed
on the basis of two-stage normative measure of equalisation. In the first stage, states with low
expenditure preference (i.e. states which had lower expenditure on education/health as
proportion of total revenue expenditure) were identified and benchmarked to average
expenditure on education/health (as proportion of adjusted total revenue expenditure) incurred by
respective groups, i.e., special and generalcategory states. In the second stage, states which had
lower per capita expenditure than the group average, even after adjustment made in first stage,
were identified and grants to the extent of 15 per cent of the difference between per capita
expenditure of the state on health and average per capita expenditure of the group and to the
extent of 30 percent of the difference between per capita expenditure of the state on health and
average per capita expenditure of the group were provided.
Accordingly, equalization grants were provided under education to eight States and under health
to seven States, where level of revenue expenditure was lower relative to average
expenditurehttp://fincomindia.nic.in/ShowContentOne.aspx?id=8&Section=1.

Escrow Account
An escrow account in simple terms is a third party account. It is a separate bank account to hold
money which belongs to others and where the money parked will be released only under
fulfilment of certain conditions of a contract. The term escrow is derived from the French term
escroue meaning a scrap of paper or roll of parchment, an indicator of the deed that was held
by a third party till a transaction is completed. An escrow account is an arrangement for
safeguarding the seller against its buyer from the payment risk for the goods or services sold by
the former to the latter. This is done by removing the control over cash flows from the hands of
the buyer to an independent agent. The independent agent, i.e, the holder of the escrow account
would ensure that the appropriation of cash flows is as per the agreed terms and conditions
between the transacting parties.
Escrow account has become the standard in various transactions and business deals. In India
escrow account is widely used in public private partnership projects in infrastructure. RBI has
also permitted Banks (Authorised Dealer Category I) to open escrow accounts on behalf of Non
Resident corporates for acquisition / transfer of shares/ convertible shares of an Indian company.
References
1. http://www.rbi.org.in/

Essential Commodities Act (ECA)

The Essential Commodities Act, 1955 was enacted to ensure the easy availability of essential
commodities to consumers and to protect them from exploitation by unscrupulous traders. The
Act provides for the regulation and control of production, distribution and pricing of
commodities which are declared as essential. The Act aims at maintaining/increasing
supplies/securing equitable distribution and availability of these commodities at fair prices. The
enforcement/ implementation of the provisions of the Act lies with the State/UT Governments.
The list of essential commodities is reviewed from time to time with reference to their
production and supply and in the light of economic liberalization in consultation with the
concerned Ministries/Departments administering these commodities. Currently, the restrictions
like licensing requirement, stock limits and movement restrictions have been removed from
almost all agricultural commodities. Wheat, pulses and edible oils, edible oilseeds and rice are
the exceptions, where States have been permitted to impose some temporary restrictions in order
to contain price increase of these commodities.
References
1. http://consumeraffairs.nic.in
2. http://mofpi.nic.in

Estimates of Crop Production

India being a diverse country the cropping pattern varies across States. The Ministry of
Agriculture has a detailed exercise to arrive at the crop production estimates. The Ministry of
Agriculture comes out with five estimates of crop production.

The First Advance Estimate of area and production of kharif crops is announced in September
when the South-west monsoon season comes to a close and sowing would have begun in most
States. The National Conference of Agriculture for Rabi Campaign is held around this time when
the States come up with rough estimates of their respective kharif crops. These estimates are
validated on the basis of inputs from the proceedings of Crop Weather Watch Group (CWWG)
meetings, and other feedback such as relevant availability of water in major reservoirs,
availability/supply of important inputs including credit to farmers, rainfall, temperature,
irrigation etc.
The Second Advance Estimate is announced in January by which time the estimates of the
kharif crops would under go revision and the area and production figures announced for kharif
crops is called the second assessment. By this time the first estimate of the rabi crops is also
announced based on the feedback received from the States where sowing for rabi crops would
have commenced during November- December.
The Third Advance Estimates is announced in March last /April first week. At this time the
National Conference on Agriculture for Kharif campaign is convened and the second estimate of
kharif crops and the first estimate of rabi crops are further firmed up/validated with information
available with State Agricultural Statistical Authorities (SASAs), remote sensing data available
with Space Application Centre, Ahmedabad as well as the proceedings of the Crop Weather
Watch Group meetings held every week in the Ministry.
The Fourth Advance Estimates are announced in June/July when the National Workshop on
Improvement of Agricultural Statistics is held. By this time the rabi crop harvest is also over and
SASAs are in a position to supply the estimates of both kharif and rabi seasons as well as the
likely assessment of summer crops which are duly validated with information available from
other sources.
The Final Estimate for the preceding crop year is announced in December/January. The main
reason for almost four advance estimates before arriving at the final estimate is due to the large
variations in crop seasons across the country and the resulting delay in the compilation of yield
estimates based on crop cutting experiments. Agriculture is a State subject and the Central
Government depends on the State Governments for accuracy of these estimates. For this purpose
State Governments have set up High Level Coordination Committees (HLCC) comprising, interalia, senior officers from the Department of Agriculture, Economics & Statistics, Land Records
and NSSO (FOD), IASRI, DES from Central Government for sorting out problems in
preparation of these estimates in a timely and orderly manner.

External Debt
At a point in time, Gross External Debt, is defined as the outstanding amount of those actual
current liabilities, that require payment(s) of principal and/or interest by the debtor, in the future
as per the terms laid out in the contract between the debtor and the creditor and that are owed
to non-residents by the residents of the economy.
The definition of gross external debt includes debt incurred by both the Government and the
private sector(s) of the economy but does not take into account contingent liabilities that are
liabilities arising in the event of specific occurrences covered by the debt contract viz. default by
a debtor on the principal and/or interest of a credit.

In India, (Gross) External Debt is classified primarily into the following heads:
(i) Original and Residual (Remaining) Maturity; Original Maturity is defined as the period
encompassing the precise time of creation of the financial liability to its date of final maturity
while Residual (or Remaining) Maturity includes short term debt by Original Maturity of up to
one year and long-term debt repayment by Original Maturity falling due within the twelve
month period following a reference date.
(ii) Long and Short Term Debt; Long Term Debt is defined as debt with an Original Maturity
of more than one year while Short Term Debt is defined as debt repayments on demand or with
an Original Maturity of one year or less.
Long-Term debt is further classified into (a) Multilateral Debt (b) Bilateral Debt (c) IMF
signifying SDR allocations to India by the IMF (c) Export Credit (d) (External) Commercial
Borrowings (e) NRI Deposits and (d) Rupee Debt. Short Term Debt is classified into (a) Trade
Credits (of up to 6 months and above 6 months and up to 1 year) (b) Foreign Institutional
Investors (FII) Investment in Government Treasury-Bills and Corporate Securities (c)
Investment in Treasury-bills by foreign Central Banks and International Institutions etc. and (iv)
External Debt liabilities of the Central Bank and Commercial Banks.
(iii) Sovereign (Government) and Non-Sovereign Debt; Sovereign Debt includes (a) External
Debt outstanding on account of loans received by the Government of India (GoI) under the
External Assistance programme and the civilian component of Rupee Debt (b) Other
Government debt comprising borrowings from the IMF, defence debt component of Rupee Debt
and foreign currency defence debt and (c) FII investment in Government Securities. All
remaining components of External Debt get categorized as Non-Sovereign External Debt.
Multilateral Debt includes debt from Multilateral Creditors that primarily are Multilateral
Institutions such as the International Development Association (IDA), International Bank for
Reconstruction and Development (IBRD), Asian Development Bank (ADB) etc. Bilateral Debt
includes debt from sovereign countries with whom sovereign and non-sovereign entities enter
into one-to-one loan arrangements. Japan and Germany are the two major bilateral creditors in
the case of India.
Apart from the above classifications, publications disseminating data on External Debt also
provide information on the borrower-wise, instrument-wise and currency composition of such
Debt.
References
1. http://www.finmin.nic.in

Factory
Under the Factories Act 1948, factory means any space where ten or more workers are working
or were working on any day in the preceding 12 months. They should be engaged in a
manufacturing activity with the aid of power. Alternatively, when twenty or more workers are
working in such a process without power, such a space would also be a factory. It excludes a
mine , a mobile operation unit of armed forces, a railway running shed, hotel, restaurant or any
eating place.

Finance commission
The Finance Commission in India is constituted, usually, once in five years. It is a constitutional
body created to address issues of vertical and horizontal imbalances of federal finances in India.
The constitutional mandate of the Finance Commission is (a) to decide on the proportion of tax
revenue to be shared with the States and (b) the principles which should govern the grants-in-aid
to States. In addition to the core mandate, the Finance Commission is also entrusted with the
responsibility to make recommendations on various policy issues, as and when they arise. The
Finance Commission also tender advice to the President on any other matter referred to it in the
interest of sound public finance. The recommendations made by the Finance Commission are
advisory in nature and, hence, not binding on the Government. So far, 13 Finance Commissions
have been constituted and the last one was constituted in November 2007, which submitted its
report to the Government in December 2009. Their recommendations are presently being
implemented and cover a period from 2010-15.
The scope of the Finance Commission broadened over time as they were assigned several other
issues on government finances, particularly those relating to augmentation of State Consolidation
Funds to supplementing the resources of local bodies
Vertical imbalances refer to the mismatch between the revenue raising capacity and expenditure
needs of the centre and the states. Horizontal imbalances exist because of the inability of some
States to provide comparable services due to inadequate capacity to raise funds.
Individual States in India also set up State Finance Commissions.
References
1. http://www.rbi.org.in/scripts/PublicationsView.aspx?id=13169

Financial Stability
The notion of financial stability leads to issues of measurement, issues of choice of instruments
to achieve the objective of financial stability and issues on the degree of activism that central
banks should adopt in pursuing this objective.
Monetary stability (say maintaining low and stable inflation) leads to financial stability,
although, such complementarity hold in the long run, need not hold in the short-run. Monetary
stability is an important precondition for financial stability. Reduction in inflation enables
inflation expectations to stabilize. Low and stable inflation expectations increase confidence in
the domestic financial system. Globally, central banks are concerned with both price stability and
financial stability.
A stable macroeconomic environment - with low and stable inflation, sustained growth and low
interest rates - can generate excessive optimism about the future economic prospects and often
the risks are downplayed. However, macroeconomic stability need not necessarily always place
an economy in financial stability, therefore, focused attention is required to achieve financial
stability.

Contextually, financial stability in India means

(a) ensuring uninterrupted settlements of financial transactions (both internal and external),
(b) maintenance of a level of confidence in the financial system amongst all the participants and
stakeholders and
(c) absence of excess volatility that unduly and adversely affects real economic activity.
Three highlighted structural aspects of financial stability are:
(a). Vulnerabilities to real sector shocks
(b). Political system stability
(c). The size, nature and structure of the economy, level of development and socio political
conditions
The sources of financial disturbances are unpredictable due to increased integration of financial
markets. Contagions, progressive opening up of economies to external flows, sharp movements
in exchange rates for emerging economies need to resort to borrowing in foreign currencies, all
contribute to financial instability. Forces affecting financial stability, include:
(a). boom in credit to private sector, both investment and consumption, A particular form of
boom and bust cycle is generated by the end of hyperinflation episodes.
(b). highly regulated systems have also suffered crises.
(c). Direct effects of fiscal difficulties.
(d). crisis in one country has a direct effect on economic conditions.
(e). Terms of trade shocks and movements in real exchange rates.
(f). Political instability, unrest, civil conflict.
(g). Policy-induced distortions, government influence over public sector banks;
In financial markets, the herd mentality catches up fast, making markets volatile. There is need to
pursue a multifaceted approach towards ensuring financial stability through
(a) payments system oversight,
(b) contingency planning against market disruption,
(c) lender of last resort (LOLR),
(d) share in procedures for financial regulation and
(e) analysis and communication through reports. Overall, a continuous assessment of the health
of the financial sector is essential and its ability to withstand various shocks is important.
In the pursuit of financial stability, effective regulatory and supervisory initiatives along with a

calibrated approach to financial sector liberalization are critical. The pancha-sutra or five
principles are
(a) cautious and appropriate sequencing of reform measures;
(b) introduction of norms that are mutually reinforcing;
(c) introduction of complementary reforms across sectors (most importantly, monetary, fiscal
and external sector);
(d) development of financial institutions; and,
(e) development of financial markets. The reforms have aimed at enhancing productivity and
efficiency of the financial sector, improving the transparency of operations and made the
financial system capable of withstanding idiosyncratic shocks.
Challenge to Indian regulators is to enhance efficiency while avoiding instability. This leads to a
role for the regulators to adopt / and develop market-oriented financial system while maintaining
independence and credibility and remain accountable to Government, which being the ultimate
risk-bearer and sovereign in law-making.
Therefore, the relationship between a regulator and Government must emphasise on:
(a). Operational Autonomy
(b). Harmony with the government policies, due to dense linkage between fiscal and financial
sectors
(c). Coordination with government in bringing about structural changes in respect of public
ownership and legislative framework.
References
1. [Financial Stability: Indian Experience][1]: Dr. Y V Reddy( 2004) 2. [The pursuit of financial stability][2]: Dr. K
J Udeshi, Deputy Governor (2005)

Financial Closure
Financial closure is defined as a stage when all the conditions of a financing agreement are
fulfilled prior to the initial availability of funds. Financial closure is attained when all the tie ups
with banks/financial institutions for funds are made and all the conditions precedent to initial
drawing of debt is satisfied.
In a Public Private Partnership (PPP) project, financial closure indicates the commencement of
the Concession Period. The date on which financial closure is achieved is the appointed date
which is deemed to be the date of commencement of concession period.
In order to give a uniform interpretation for the term financial closure, Reserve Bank of India has
provided the following definition. For Greenfield projects, financial closure has been defined
as "a legally binding commitment of equity holders and debt financiers to provide or mobilise
funding for the project. Such funding must account for a significant part of the project cost which

should not be less than 90 per cent of the total project cost securing the construction of the
facility".
References
1. http://www.rbi.org.in
2. http://www.infrastructure.gov.in

Financial Inclusion
Access to safe, easy and affordable credit and other financial services by the poor and vulnerable
groups, disadvantaged areas and lagging sectors is recognized as a pre-condition for accelerating
growth and reducing income disparities and poverty. In view of this, Financial Inclusion has
been identified as a key dimension of the overall strategy of Towards Faster and More Inclusive
Growth envisaged in the eleventh Five Year Plan (2007-12).
Defining financial inclusion is considered crucial from the viewpoint of developing a conceptual
framework and identifying the underlying factors that lead to low level of access to the financial
system. Review of literature suggests that there is no universally accepted definition of financial
inclusion.Sometimes, it is easier to define a phenomenon, by stating what it is not, i.e., define
financial exclusion (rather than inclusion). Financial inclusion is generally defined in terms of
exclusion from the financial system. A target group is considered as financially excluded if they
do not have access to mainstream formal financial services such as banking accounts, credit
cards, insurance, payment services, etc.
Government of India had constituted a committee in 2006 under the chairmanship of Dr. C.
Rangarajan to study the pattern of exclusion from access to financial services across region,
gender and occupational structure and to identify the barriers confronted by vulnerable groups in
accessing credit and financial services and recommend the steps needed for financial inclusion.
The committee submitted its report in January 2008. The committee has given a working
definition of financial inclusion as;Financial inclusion may be defined as the process of
ensuring access to financial services and timely and adequate credit where needed by
vulnerable groups such as weaker sections and low income groups at an affordable cost.

Various facets of Financial Inclusion

The essence of financial inclusion is in trying to ensure that a range of appropriate financial
services is available to every individual and enabling them to understand and access those
services.
In order to achieve a comprehensive financial inclusion, a slew of initiatives have been taken by
Government of India, RBI and NABARD. Some of the important initiatives include; SHG-Bank
Linkage programme, opening of No Frills Accounts, mobile banking, Kisan Credit Cards (KCC)
etc.Despite the marked progress made in the direction of financial inclusion, the problem of
exclusion still persist. For achieving the current policy stance of inclusive growth the focus on
financial inclusion is not only essential but a pre-requisite. And for achieving comprehensive
financial inclusion, the first step is to achieve credit inclusion for the disadvantaged and
vulnerable sections of our society.

Financial Sector Legislative Reforms Commission (FSLRC)

Financial Sector Legislative Reforms Commission (FSLRC) was set up by the Indian
Government in pursuance of the announcement made in Union Budget 2010-11, to help
rewriting and harmonizing the financial sector legislation, rules and regulations so as to address
the contemporaneous requirements of the sector. The resolution notifying the FSLRC was issued
on March 24, 2011. FSLRC has a two year term.
The Commission is chaired by Supreme Court Justice (Retired) B. N. Srikrishna, and has ten
members with expertise in the fields of finance, economics, law and other relevant fields. The
secretariat is placed at National Institute of Public Finance and Policy (NIPFP). Secretariat
consists of a Secretary at the level of Joint Secretary to the Government of India and other
officials and support staff.
Context
The establishment of the FSLRC is the result of a realisation that the institutional foundation
(laws and organizations) of the financial sector in India needs to be looked afresh to assess its
soundness for addressing the emerging requirements in a rapidly changing world. Today, India

has over 60 Acts and multiple Rules/ Regulations that govern the financial sector. Many of them
have been written several decades back. For example, the RBI Act and the Insurance Act are of
1934 and 1938 vintage respectively and the Securities Contract Regulation Act, which governs
securities transactions, was legislated in 1956 when derivatives and statutory regulators were
unknown in the financial system. A Large number of amendments were, therefore, made in these
Acts and regulations at different points of time to address various needs. But these have also
resulted in their fragmentation, often adding to the ambiguity and complexity of regulations in
the financial sector.
The piecemeal amendments have resulted in unintended outcomes including regulatory gaps,
overlaps, inconsistencies and regulatory arbitrage. The fragmented regulatory architecture has
also led to loss of scale and scope that could be available from a seamless financial market with
all its attendant benefits of minimising the intermediation cost. For instance, complex financial
intermediation by financial conglomerates of today falls under purview of multiple regulators.
Various Expert Committees have also pointed out these discrepancies and recommended the
need for revisiting the financial sector legislations to rectify them.
It was therefore proposed to set up the Financial Sector Legislative Reforms Commission
(FSLRC), which would, inter-alia, evolve a common set of principles for governance of financial
sector regulatory institutions. The Commission would examine financial sector legislations,
including subordinate legislations. The Commission would also examine the case for greater
convergence of regulations and streamline regulatory architecture of financial markets.
Terms of Reference of the Commission
1) Examining the architecture of the legislative and regulatory system governing the
Financial sector in India, including:
a) Review of existing legislation including the RBI Act, the SEBI Act, the IRDA Act,
the PFRDA Act, FCRA, SCRA, FEMA etc., which govern the financial sector
b) Review of administration of such legislation, including internal structures and external
structures (departments and ministries of governing), if required;
c) Review of inter-play of jurisdictions occupied by various regulators;
d) Review of jurisdiction of departments within each regulator, and consider need for
segregation / combination, and such other streamlining;
e) Review of issues relating to conflict of interest of regulators in the market;
f) Review of the manner in which subordinate legislation is drafted and implemented;
g) Review of eligibility criteria for senior officers in regulatory authorities and issues
relating to tenure, continuity, and means of tapping and retaining lessons learnt by each
authority;
h) Examine a combined appellate oversight over all issues concerning users of financial
legislation.
2) Examine if legislation should mandate statement of principles of legislative intent
behind every piece of subordinate legislation in order to make the purposive intent of the
legislation clear and transparent to users of the law and to the Courts.
3) Examine if public feedback for draft subordinate legislation should be made
mandatory, with exception for emergency measures.

4) Examine prescription of parameters for invocation of emergency powers where

regulatory action may be taken on ex parte basis.
5) Examine the interplay of exchange controls under FEMA and FDI Policy with other
regulatory regimes within the financial sector.
6) Examine the most appropriate means of oversight over regulators and their autonomy
from government.
7) Examine the need for re-statement of the law and immediate repeal of any out-dated
legislation on the basis of judicial decisions and policy shifts in the last two decades of
the financial sector post-liberalisation.
8) Examination of issues of data privacy and protection of consumer of financial services
in the Indian market.
9) Examination of legislation relating to the role of information technology in the
delivery of financial services in India, and their effectiveness.
10) Examination of all recommendations already made by various expert committees set
up by the government and by regulators and to implement measures that can be easily
accepted.
11) Examine the role of state governments and legislatures in ensuring a smooth interstate financial services infrastructure in India.
12) Examination of any other related issues.
MEMBERS:
1) Justice B.N Srikrishna: Chairman
2) Smt. K.J. Udeshi: Member (Chairman, Banking Codes & Standards Board of India)
3) Dr. PJ Nayak: Member (Chairman, Morgan Stanley India Company Pvt. Ltd.)
4) Shri C. Achuthan: Member (passed away in September 2011; No member has been
substituted for Mr. C. Achuthan)
5) Shri Yezdi H. Malegam: Member (S.B.Billimoria & Company)
6) Justice Debi Prosad Pal: Member
7) Prof. Jayanth R. Varma: Member (Professor (Finance and Accounting), Indian
Institute of Management, Ahmedabad)
8) Dr. M. Govinda Rao: Member (Director, NIPFP)
9) Shri Dhirendra Swarup : Member Convener
10) Joint Secretary (Capital Markets), Department of Economic Affairs, Ministry of
Finance: Nominee Member
11) Shri CKG Nair: Secretary

Financial Stability and Development Council

In pursuance of the announcement made in the Union Budget 201011 and with a view to
strengthen and institutionalize the mechanism for maintaining financial stability and enhancing
inter-regulatory coordination, Indian Government has setup an apex-level Financial Stability and
Development Council (FSDC), vide its notification dated 30th December, 2010. The first
meeting of the Council was held on 31st December, 2010.

FSDC has replaced the High Level Coordination Committee on Financial Markets
(HLCCFM), which was facilitating regulatory coordination, though informally, prior to the
setting up of FSDC. The technical committee under HLCCFM for RBI regulated entities, though
at a modest level, had set up a Financial Conglomerate Monitoring Mechanism since 2004. The
secretariat of HLCCFM was in Ministry of Finance (Capital Market Division, Department of
Economic Affairs).
Composition
The Chairman of the FSDC is the Finance Minister of India and its members include the heads of
the financial sector regulatory authorities (i.e, SEBI, IRDA, RBI, PFRDA) , Finance Secretary
and/or Secretary, Department of Economic Affairs (Ministry of Finance), Secretary, (Department
of Financial Services, Ministry of Finance) and the Chief Economic Adviser. The Joint Secretary
(Capital Markets Division, Department of Economic Affairs, Ministry of Finance) is the
Secretary of the Council.
A sub-committee of FSDC has also been set up under the chairmanship of Governor RBI. The
Sub-Committee discusses and decides on a range of issues relating to financial sector
development and stability including substantive issues relating to inter-regulatory coordination.
As a result of the deliberations of the Sub-Committee of the FSDC held on August 16, 2011, two
Technical Groups were set up a Technical Group on Financial Inclusion and Financial Literacy
and an Inter Regulatory Technical Group.
The Inter Regulatory Technical Group is chaired by an Executive Director of RBI and comprises
of ED level representatives from the SEBI, IRDA and PFRDA. The Group will meet once every
two months. It will discuss issues related to risks to systemic financial stability and inter
regulatory coordination and will provide essential inputs for the meetings of the Sub-Committee.
The Technical Group on Financial Inclusion and Financial Literacy is headed by the Deputy
Governor of RBI and comprises of representatives of all Regulators and Ministry of Finance.
In addition, an Inter-Regulatory Forum for Monitoring of Financial Conglomerates has also been
set up under the aegies of FSDC
Mandate
Without prejudice to the autonomy of regulators, this Council would monitor macro prudential
supervision of the economy, including the functioning of large financial conglomerates. It will
address inter-regulatory coordination issues and thus spur financial sector development. It will
also focus on financial literacy and financial inclusion. What distinguishes FSDC from other
such similarly situated organizations across the globe is the additional mandate given for
development of financial sector.
Background and History
In the wake of the financial crisis of 2008, the issue of financial stability as also the means and
institutions to secure the same has become an important question across countries globally.
Since April 2009, India is a member of the international agency looking into the issue,
namely, Financial Stability Board, a recast of the erstwhile Financial Stability Forum . HLCCFM

was constituted vide a demi official letter dated 24th May 1992 written by the then Secretary
(Economic Affairs, Ministry of Finance), Dr. Montek Singh Ahuluwalia to the then RBI
Governor, S Venkitaramanan. HLCCFM was the forum to deal with inter-regulatory issues
arising in the financial and capital markets, as India follows a multi-regulatory regime for
financial sector. It functioned under the Chairmanship of Governor (RBI), with Chairman (SEBI)
Secretary (Economic Affairs, Ministry of Finance), Chairman (Insurance Regulatory and
Development Authority) and Chairman (Pension Fund Regulatory Development AuthorityPFRDA) as members.
However, it was an informal body and had its own limitations despite being a good mechanism.
In the absence of formal instruments, clear specifications as to its functions/powers and an
empowered secretariat to nominate and follow up on the decisions of the HLCCFM, its
effectiveness has been limited. The markets that are regulated by members of the HLCCFM have
dramatically changed since 1992. Over time, markets have become more complex and converged
and are becoming increasingly integrated. In such a scenario, if the regulators do not take an
integrated and holistic view, it was felt that outcomes will be sub-optimal.
Various Governmental Committees, as given below, have also recommended such an approach
to regulation:
a. RBIs Advisory Group on Securities Market Regulation (RBI-AGSMR 2001);
b. High Level Expert Committee on Making Mumbai an International Financial Centre
(MIFC 2007);
c. Committee on Financial Sector Reforms (CFSR 2008);
d. Committee on Financial Sector Assessment (CFSA 2009).
The Raghuram Rajan Report (CFSR) had touched upon the need to have a regulatory mechanism
for financial stability. The report suggested the creation of a statutory body called Financial
Sector Oversight Agency (FSOA) to do the macro prudential supervision of the economy, to
monitor the functioning of large, systemically important, financial conglomerates and to address
and defuse inter-regulatory conflicts. The committee envisioned a council approach with all the
chiefs of regulatory bodies as members and Finance Secretary as a permanent invitee. The
Committee had also recommended strengthening the capacity of the Deposit Insurance and
Credit Guarantee Corporation (DICGC) to both monitor risk and resolve a failing bank, instilling
a more explicit system of prompt corrective action and making deposit insurance premia more
risk-based.
The other report on financial sector namely the Making Mumbai an International Financial
Center (MIFC) report had underlined the need for macroeconomic stability for a credible
international financial centre to function in the country. The report of the Committee on
Financial Sector Assessment (CFSA) which was a joint effort of RBI and Ministry of Finance,
Government of India, says stability assessment and stress testing of the financial institutions need
to be conducted on a more systemic basis, to capture the second round and contagion risks. For
this purpose, CFSA had recommended setting up of an inter-disciplinary Financial Stability Unit.
Accordingly various regulators had set up their own Financial Stability Units. RBI set up the unit
on July 17, 2009. The CFSA report emphasised that in the interest of financial stability, there is a
need for strengthening inter-regulatory co-operation and information-sharing arrangements, both
within and across borders among the regulators. The committee had identified that there is no

legislation specifically permitting regulation of financial conglomerates and holding companies

in India and perhaps through an amendment of the act, RBI could be empowered to do the same.
The Finance Minister held a meeting with the Regulators and officials of Ministry of Finance on
the creation of Financial Stability & Development Council on 12th October 2010. The discussion
paper had been circulated by the Ministry of Finance to all stake holders. It was agreed that with
a view to strengthen and institutionalize the mechanism for maintaining financial Stability and
Development, Government would set up the apex Council. The council was notified on 30th
December 2010.
Global Efforts in managing Financial Stability
Financial stability is indeed a sunrise area and clarity is yet to emerge on target variables and
policy instruments to be used in this regard and the institutions responsible for monitoring the
same. Many countries have vested these powers with the central bank considering their expertise
in supervising large banks and monetary stability. As of end-2005, almost fifty central banks
were publishing Financial Stability Reports, and many others were considering publication.
Despite the central banks growing interest in financial stability, direct references to financial
stability as a central banks objective, are rare to find in the basic central bank legislation. Only
about 3 percent of the central bank laws surveyed by the IMF official (2007) had an explicit legal
responsibility for financial stability. If financial stability is included, it is more likely to be found
among tasks than among objectives. Financial stability is often bundled together with other
standard tasks, such as the support for smooth functioning of the payment system, regulation
and supervision of the banking system, or lender-of-the-last resort functions. Financial stability
and the central banks role in it is more commonly specified in other documents, such as mission
statements or memoranda of understanding (if there is an integrated financial supervisory agency
outside the central bank). Central banks typically explain their interest in the stability and general
health of the financial system by their monetary policy objectives, payment system functions,
bank supervision role, and lender of last resort role.
Entrusting financial stability to central banks may be a good beginning in a crisis situation.
However, as seen in the financial crisis of 2008, systemic risk arises not just from the banking
sector, but from other financial firms like investment banks or insurance companies which are
outside the jurisdiction of the Central Bank and potentially from non-financial firms too. For
instance, central banks may be able to constrain banks from extending loans to the real estate
sector to prevent an asset price build up. However, this does not preclude firms like large
insurance companies from taking greater exposures in the real estate segment. Hence, financial
stability requires comprehensive prudential supervision. Moreover, potentially the regulator of
the banking sector may have an incentive to cover up regulatory failures by using public money
to rescue a failing bank. Such incentive issues (and moral hazards) arise if the task of financial
stability is assigned to any of the sectoral regulators. For example, in US, Fed is assigned the task
of financial stability. However, a separate body called Federal Deposit Insurance Corporation
(FDIC) is in charge closing down banks. On account of these conflict of interest issues, many
jurisdictions have created a separate body consisting of representatives of various regulators to
deal with financial stability. This is also essential to ensure coordinated counter cyclicality of
respective policy initiatives of different regulators. For instance, even if the central bank decides
to raise capital requirements for banks during a boom phase as a counter cyclical measure, it can
only lead to diversion of funds from banks to non-banking sectors. Hence, all regulators need to
move together while implementing counter cyclical policies. BIS , observed in this regard that

"prudential tools that target financial stability need to be calibrated at the level of the financial
system but implemented at the level of each regulated institution" which is essentially the task of
individual regulator.
The attempt across the globe was to generate early warning signals and to formulate necessary
plans for rescuing the situation. This is more like a disaster management system for the
economy, just as there is one for tackling natural calamities. In US, an attempt was made to
create on a war footing Emergency Economic Stabilization Acts, making available new
resources and talent specialised in implementing emergency measures as well as generating early
warning indicators, legal expertise related to foreclosures, mortgages etc.
In general, there are two models in operation for handling issues related to financial stability:
1. A single agency model, where central bank or a new national agency takes charge of systemic
stability.
2. A council approach where central bank, other financial sector regulators and fiscal authorities
supported by a strong secretariat looks into it.
In US, the central bank- Fed- is now given greater supervisory authority over any institution that
poses a threat to the financial system and if necessary to ensure control of them if they fail,
including foreign groups owning a large or risky US subsidiary. Feds new role will be
supplemented by a new Council of regulators, which is nothing but a refined version of existing
Presidents Working Group, which consisted of the heads of Treasury, SEC, CFTC and Fed. The
new Council will have representation from 8 regulators including the newly created Consumer
Protection Agency and is headed by the Treasury Secretary. It will advise the Fed on its new
role. A website has already been made functional to bring in more transparency with respect to
the emergency actions taken to restore financial stability.
European Union (EU), based on the Larosiere working group report has set up European
Systemic Risk Board as a reputational body to be in charge of macro prudential oversight and
to enhance effectiveness of early warning mechanisms (i.e. ESRB will not be conceived as a
body with legal personality and binding powers but rather as a body drawing its legitimacy from
its reputation for independent judgments, high quality analysis and sharpness in its conclusions.)
But it has powers to access all the necessary information. Banking on the expertise of central
banks, European Central Bank (ECB) acts as the secretariat of the ESRB and thus will be headed
by ECB president. ESRB is meant to cooperate closely with European System of Financial
Supervisors (ESFS -a network of national financial supervisors) and where appropriate, provide
the European Supervisory Authorities (created by the transformation of existing three
committees CEBS, CEIOPS and CESR respectively for banking supervision, insurance and
occupational pension, and securities regulation) with information on systemic risks required for
the achievement of their tasks. ESFS would look into large cross border financial institutions.
In 2010 the UK Government outlined plans for reform of its regulatory framework, including the
creation of an independent Financial Policy Committee at the Bank of England and a new
prudential regulator as a subsidiary of the Bank. The Bank of England will thus be given new
powers to protect and enhance financial stability. The Government will create a new Financial
Policy Committee (FPC) within the Bank, which will look at the wider economic and financial
risks to the stability of the system. In anticipation of the legislation to create the Financial Policy
Committee (FPC), as outlined in the Governments consultation document A new approach to
financial regulation: building a stronger system, the UK Government and the Bank announced

the establishment of an interim Financial Policy Committee on 17 February 2011. The interim
FPC will undertake, as far as possible, the forthcoming statutory FPCs macro-prudential role.
The initial task is to carry out preparatory work and analysis into potential macro-prudential
tools. This Committee will be equipped with specific macro-prudential tools it can use to address
risks and vulnerabilities it identifies.
Memorandum of understanding which establishes a framework for co-operation between
Treasury, the Bank of England and the Financial Services Authority (the FSA) in the field of
financial stability can be seen here. It sets out the role of each authority, and explains how they
work together towards the common objective of financial stability in the UK.

Fiscal Consolidation
Fiscal Consolidation refers to the policies undertaken by Governments (national and subnational levels) to reduce their deficits and accumulation of debt stock.
Key deficits of government are the revenue deficit and the fiscal deficit. The gains from the
economic reforms introduced in India in early nineties could not be sustained for a much longer
period. Deficits were widening and by 1999-2000 the combined fiscal deficit (of centre and
states) almost reached levels of the crisis year 1990-91. Sustainability of debt too was
becoming a major issue. In December 2000, Government of India introduced the Fiscal
Responsibility and Budget Management (FRBM) Bill in the Parliament as it was felt that
institutional support in the form of fiscal rules would help in setting the agenda for the future
fiscal consolidation programme. The Twelfth Finance Commission recommended in November
2004 that state governments too enact their fiscal responsibility legislations. However, states like
Karnataka, Kerala, Punjab, Tamil Nadu and Uttar Pradesh had already enacted their fiscal
responsibility legislation even before the Commission recommended so.
Implementation of Fiscal Responsibility and Budget Management (FRBM) legislation at national
as well as at sub-national levels in India during the period 2005-10 helped both the Union and
the States to achieve considerable correction in their respective fiscal position, which was weak
prior to 2005. The global slowdown in 2008-09 and 2009-10 however adversely affected the
achievement of targets specified in the legislation. The Thirteenth Finance Commission (FCXIII) has proposed a roadmap of fiscal consolidation for both centre and states. It has specified a
combined debt target of 68 % for the Centre and States, to be met by 2014-15. For the Centre, a
target of elimination of revenue deficit has been set by 2013-14 and fiscal deficit is to be brought
down to 3 % by the same year. For States, the Commission has recommended a fiscal road map
for each state depending on its current deficit and debt levels. Accordingly, States are required to
eliminate revenue deficit and reduce fiscal deficit to 3 % of their GSDP, in stages, and in a
manner that all states would achieve these targets latest by 2014-15. [By the end of 2009-10, the
estimated debt of Centre and States was around 79 % of GDP and consolidated fiscal deficit of
Centre and States at 9.5 %, during this year].The Medium Term Fiscal Policy Statement
presented along with the Union Budget 2011-12, takes forward the process of fiscal
consolidation of the Centre further. While the suggested roadmap of the 13th FC puts the fiscal
deficit targets at 5.7 % and 4.8 % of GDP for the years 2010-11 and 2011-12 respectively, it has
now been estimated at 5.1 % and 4.6 % respectively. The recommended debt target for 2014-15
of the 13th FC award period which is 44.8 % of GDP is expected to be achieved in the year
2011-12 itself (estimated at 44.2%). However, there seems to be problems in achieving the

Revenue Deficit targets. Revenue expenditure of the Central Government also includes releases
made to States and other implementing agencies for implementation of Government Schemes
and programmes, amounting to about 1.6% of GDP. Leaving this out, the effective revenue
deficit is about 1.8%, which is being endeavoured to be eliminated in the medium-term.
References
1.
2.
3.
4.

http://www.it.iitb.ac.in/~deepak/deepak/courses/eco/pdf/fiscal_consolidation.pdf
http://fincomindia.nic.in/ShowContentOne.aspx?id=8&Section=1
http://fincomindia.nic.in/ShowContentOne.aspx?id=28&Section=1
http://indiabudget.nic.in/ub2011-12/frbm/frbm2.pdf

Fiscal Responsibility and Budget Management (FRBM) Act

Fiscal Responsibility and Budget Management (FRBM) became an Act in 2003. The objective of
the Act is to ensure inter-generational equity in fiscal management, long run macroeconomic
stability, better coordination between fiscal and monetary policy, and transparency in fiscal
operation of the Government.
The Government notified FRBM rules in July 2004 to specify the annual reduction targets for
fiscal indicators. The FRBM rule specifies reduction of fiscal deficit to 3% of the GDP by 200809 with annual reduction target of 0.3% of GDP per year by the Central government. Similarly,
revenue deficit has to be reduced by 0.5% of the GDP per year with complete elimination to be
achieved by 2008-09. It is the responsibility of the government to adhere to these targets. The
Finance Minister has to explain the reasons and suggest corrective actions to be taken, in case of
breach.
FRBM Act provides a legal institutional framework for fiscal consolidation. It is now mandatory
for the Central government to take measures to reduce fiscal deficit, to eliminate revenue deficit
and to generate revenue surplus in the subsequent years. The Act binds not only the present
government but also the future Government to adhere to the path of fiscal consolidation. The
Government can move away from the path of fiscal consolidation only in case of natural
calamity, national security and other exceptional grounds which Central Government may
specify.
Further, the Act prohibits borrowing by the government from the Reserve Bank of India, thereby,
making monetary policy independent of fiscal policy. The Act bans the purchase of primary
issues of the Central Government securities by the RBI after 2006, preventing monetization of
government deficit. The Act also requires the government to lay before the parliament three
policy statements in each financial year namely Medium Term Fiscal Policy Statement; Fiscal
Policy Strategy Statement and Macroeconomic Framework Policy Statement.
To impart fiscal discipline at the state level, the Twelfth Finance Commission gave incentives to
states through conditional debt restructuring and interest rate relief for introducing Fiscal
Responsibility Legislations (FRLs). All the states have implemented their own FRLs.
Indian economy faced with the problem of large fiscal deficit and its monetization spilled over to
external sector in the late 1980s and early 1990s. The large borrowings of the government led to
such a precarious situation that government was unable to pay even for two weeks of imports
resulting in economic crisis of 1991. Consequently, Economic reforms were introduced in 1991

and fiscal consolidation emerged as one of the key areas of reforms. After a good start in the
early nineties, the fiscal consolidation faltered after 1997-98. The fiscal deficit started rising after
1997-98. The Government introduced FRBM Act, 2003 to check the deteriorating fiscal
situation.
The implementation of FRBM Act/FRLs improved the fiscal performance of both centre and
states. The States have achieved the targets much ahead the prescribed timeline. Government of
India was on the path of achieving this objective right in time. However, due to the global
financial crisis, this was suspended and the fiscal consolidation as mandated in the FRBM Act
was put on hold in 2007-08.The crisis period called for increase in expenditure by the
government to boost demand in the economy. As a result of fiscal stimulus, the government has
moved away from the path of fiscal consolidation. However, it should be noted that strict
adherence to the path of fiscal consolidation during pre crisis period created enough fiscal space
for pursuing counter cyclical fiscal policy.
References
1.
2.
3.
4.
5.

GoI, Chapter 2, Public Finance, Economic Survey, 2003-04, pp-18-44

Gazette of India, FRBM Act, 2003, No. 39 of 2003, Ministry of Law and Justice.
http://www.financialexpress.com/printer/news/121273/
GoI, Chapter-3 , Public Finance, Economic Survey, 2010-11, pp-40-68
Patnaik, P., (2006) What is Wrong With Sound Finance Economic and Political Weekly, Nov 4, pp 45604564.
6. Simone, A.S. and Petia Topalova (2009), Indias Experience with Fiscal Rules: an Evaluation and the Way
Forward, IMF Working Paper 175, Aug.

Five Year Plans

India has adopted the five-year plan model which was practiced in the earlier communist Soviet
Union. The Five-Year Plan exercise is a detailed work plan. To begin with an Approach Paper is
prepared to identify the growth target and the sectors to be prioritised in the five year plan. After
the Approach Paper is discussed and finalised in the highest policy making body viz; the
National Development Council, the subject divisions in Planning Commission representing the
different Central Ministries set up Working Groups wherein subject experts, state government
officials and central government officials are Members and they discuss and chart out the course
of action to be implemented in the next five years. The Working Groups are mainly headed by
the Head of Division of the concerned subject in the Central Ministry. After the Working Groups
submit their Reports, Steering Committees chaired by the Members of Planning Commission
examine these Reports and may support/reject/add to the recommendations made in the Working
Group Reports. After this exercise the officers of Planning Commission utilise these Reports and
the inputs received from the discussions held with State Government officials during plan
discussions start drafting the chapters that form part of the Five Year Plan document. Once all
subject divisions prepare their chapters, the Plan Coordination Division consolidates these
chapters and the First draft the five year plan document is circulated among Members, to the
Deputy Chairman, discussed in the Full Planning Commission meeting after which it is again
placed before the National Development Council which approves the plan document. This plan
document is the referral guide for officers in the Planning Commission as well as the Central
Ministries in scheme formulation and implementation for the next five years. India has so far

completed XI Five Year Plans and the preparation of the XII Five Year Plan document is
presently underway.

Flagship Programmes
Flagship programmes derive their origin from the term flagship which is the main or most
important ship of a country's navy and is symbolic of the main thrust of the nation's
developmental policy. The Eleventh Plan Document lists out the various flagship programmes.
In India's federal system of government, both the Union and State Governments have a defined
role to play in achieving developmental goals. The Govt. of India in recognition of the role
played by infrastructure in poverty removal has taken up massive all India programmes for
development of physical infrastructure (rural housing, rural roads, rural electrification, irrigation,
drinking water, urban infrastructure etc. Human capital formation, mainly to promote education
and health care under different flagship programmes have also been initiated.
The major Flagship programmes of the Government of India are:
Bharat Nirman: The objective of the Bharat Nirman Programme is to give top priority to rural
infrastructure by setting time-bound goals under various schemes to develop rural housing, rural
roads, irrigation, rural drinking water and rural electrification. The Programme imposes a
responsibility on sub-national governments to create these facilities in a transparent and
accountable manner.
National Rural Health Mission: The main aim of NRHM is to provide accessible, affordable,
accountable, effective, and reliable primary health care, especially to poor and vulnerable
sections of the population. The programme sets standards for rural health care and provides
financial resources from the Union Government to meet these standards.
Mahatma Gandhi National Rural Employment Guarantee Programme: The Act was
notified on 7 September 2005 and is aimed at providing livelihood security through employment
for the rural poor.
Sarva Siksha Abhigyan: This programme was started with the objective of providing
elementary education for all children in the age group of 614 years by 2010.
Mid-day meal Scheme: The MDM Scheme launched in 1995 aims to give a boost to
universalization of primary education by increasing enrolment, retention, and attendance and
simultaneously impacting upon nutritional status of students in primary classes.
References
1. http://pcserver.nic.in/flagship/
2. http://pib.nic.in/archieve/flagship/flgprg.asp

Food Safety and Standards Act, 2006

Food Safety and Standards Act, 2006 is an integrated food law that lays down standards and
guidelines for consumer safety, protection of consumer health and regulation of the food sector
.It seeks to harmonise Indian standards with the international standards like CODEX [1] and

facilitates international trade in food articles. The Act lays down general provisions for food
additives and processing of articles as well.
Food Safety and Standards Act received the assent of the President on 23rd August, 2006 and
came into effect on 5th August, 2011. It is a comprehensive legislation for the sector and
subsumes the then existing acts and standards like Prevention of Food Adulteration Act(PFA) of
1954 ,Fruit Products Order of 1955, Meat Food Products Order of 1973, Vegetable Oil Products
(Control) Order of 1947, Edible Oils Packaging (Regulation)Order of 1988, Solvent Extracted
Oil, De- Oiled Meal and Edible Flour (Control) Order of 1967, Milk and Milk Products Order of
1992 and also any order issued under the Essential Commodities Act, 1955 relating to food . [2]
Food Safety and Standards Authority of India (FSSAI) has been created under the Act. FSSAI
regulates the food sector by laying down guidelines and standards to be followed by food
businesses. It also specifies procedures for accreditation of laboratories and provides advice to
central and state government in matters relating to food safety. Ministry of Health and Family
Welfare is responsible for implementation of the Act. The Act deals with administrative
mechanism at the state level. It also provides for setting up of Food Safety Appellate tribunal for
adjudication and trails under food standard offence.
The law is significant in ensuring quality food to the consumer. It protects consumer interest by
prohibiting misleading advertisement and penalising adulteration. In other words, the Act seeks
to enhance quality of food related information to consumers and also by setting standards which,
when effectively enforced by Commissioners in the States would result in increased consumer
welfare.
The law also addresses contemporary challenges facing the sector like provisions related to
Genetically Modified (GM) crops, functional food, international trade in food items etc. Besides,
it is a single reference point for food related matters.
1. http://codexindia.nic.in/cit.htm[1]
2. http://www.thehindu.com/todays-paper/article2323850.ece[2]

References
1. http://www.fssai.gov.in/AboutFSSAI/introduction.aspx
2. http://mofpi.nic.in/images/fsnstds.pdf
3. http://www.thehindubusinessline.in/bline/2010/07/19/stories/2010071950541100.htm

Food Processing in India

Food Processing refers to various techniques and operations by which raw foodstuffs are
transformed into food that are suitable for consumption, cooking, or storage. It consists of
processes like the basic preparation of foods, the alteration of a food product into
another form (as in making preserves from fruit), and preservation and packaging techniques.
(The official definition may be seen in page 2 of [1] Data Bank on Economiic Parameters off the
Food Processiing Sector.)

Processing of food has lot of advantages over raw food like longer shelf life, increased
availability to farm produce and improved availability of the product throughout the year.
On one hand, India food processing sector has strong base because of the abundant production of
raw food articles, aromatic and medicinal plants. On the other hand the level of food processing
is not up to the mark as lot of wastage in post production handling and management take place.
This can be seen both when compared with the total potential of the sector and also vis-a-vis
other developed countries [1]
The food sector engages maximum population and contributes significant portion of national
income and consumer expenditure. Also, the demand for ready to eat food products by working
and middle class in India is increasing and catering the same can help improve the lot of farmers
in India and help Indian agriculture realise the desired growth rate of 4%. Hence, even as foreign
fast food majors like McDonald's, Domino's and KFC are widening their network in the country,
it's a matter of time that Indian food industry makes its presence felt globally. The next Indian
food revolution will be about health, convenience and customisation.
In order to realise this, food processing in Indian economic context is considered as a sunrise
industry. It serves as a crucial link between Agriculture and Industry. Hence, the growth of this
sector helps in the growth of agriculture sector through backward linkages and also to the
industry sector of which it is itself an important constituent and therefore to the overall GDP
growth.
The average rate of growth of food processing sector during the first four years of the 10th Plan
Period was @13.25 per cent at the current prices and @6.75 per cent at 1999-2000 prices. Indias
food processing sector was growing at about 6% four years ago and is now expanding at nearly
15% annually, according to the Ministry of Food Processing Industries.
However, Indias share in export of processed food in global trade is only 1.5 %; whereas the
size of the global processed-food market is estimated at Rs. 190 trillion and nearly 80 per cent of
agricultural products in the developed countries get processed and packaged.
Structure of Food Processing Industry in India:-The food processing sector contributes 14%
of manufacturing GDP with a share of 2, 80,000 crores. Of this, the unorganized sector
contributes more than 70% of the production in terms of volume and 50% in terms of value [2]
Opportunities for the sector: Immense opportunities are because of both demand and supply
side factors.
Demand side factors lead to increased willingness of the consumer to spend on the processed
food articles thus increasing the demand for the same in the market like large disposable income,
increased urbanisation, changing age profile with large share of young population having ability
to spend and changing lifestyle, food habits, needs for convenience and health consciousness
among the consumers.
Supply side factors affect the amount of availability of processed food in the market and thereby
impacting the supply of the same like abundant production, ongoing retail revolution, varied
cuisine that India offers with its rich cultural background, pool of manpower that can prove huge
asset for the sector after provision of proper skills, scientific talent and testing and certification
labs in place with emphasis on following International norms like codex.

Constraints faced by the sector:-Despite the opportunities, the food processing sector in India
is still in nascent stage due to some constraints like production and procurement of quality raw
materials for processing, lack of farmer processors linkages both backward and forward,
appropriate infrastructure for instance warehouses, cold chain, grading centres and marketing
channels, inadequate quality control, inefficient supply chain, high inventory carrying cost, high
taxation, high packaging cost, high cost of finance, fragmented capacity, problems of wastage,
lower capacity utilisation, poor economies of scale etc.
The Policy Action of the Government of India:-Indian government notified an integrated food
law on 24th August 2006 i.e. Food Safety and Standards Act providing single window to food
processing sector.
The Ministry of Food Processing Industries was set up in July, 1988 to give an impetus to
development of food processing sector in India. The Ministry has taken Policy Initiatives for
development of the food processing industry [3]
In order to make this sector vibrant, coordinated action both on the part of government at
various levels and the industry is required. Public investment in providing critical infrastructure
storage, integrated cold-chain infrastructure (with only 5,386 stand-alone cold storages which
together have a capacity of 23.6mt) and processing infrastructure must step up.
Industry at the same time should come up with new processing technologies, new products,
innovative packing, such that nutritional value, natural flavour, aroma of the raw food is retained
along with the need for convenience, attractiveness and choice of the end user can be met
through processed product. R&D through PPP could be explored. The awareness and education
of the consumer with regards to the qualities of the processed food stuffs becomes equally
important .Also, linkages between industry and the farmers should be developed and for this
contract farming and other such arrangements can be made that could ensure the quality of farm
produce. On farm processing and value addition should be encouraged.
References
1.
2.
3.
4.
5.
6.

http://mofpi.nic.in/images/ar10-11.pdf
http://mofpi.nic.in/ContentPage.aspx?CategoryId=122 ; http://mofpi.nic.in/images/ar10-11.pdf
http://india.gov.in/sectors/commerce/food_processing.php
Annual Report of Ministry of Food Processing Industries, 2010-2011
The Food Industry in India and Its Logic, Rahul Goswami, EPW October 9,2010
Report of working group on food processing sector, MOFPI (2006)

Food Security
The food security legislation is going to be one of the watershed legislation in the parliamentary
democracy of India as it would made availability/access to food a Right of the people. There
are many compelling factors - economic, social, political as well as ethical reasons for having
such a legal guarantee of protection from hunger. The origin of this concept can be traced to
Fundamental Right of Life with dignity as enshrined in Article 21 of Indian constitution. The
President of India addressing the Indian Parliament on 4 June 2009 affirmed that the Government
of India proposes to enact a newlaw - the National Food Security Act (NFSA) - that will provide
a statutory basis for a framework which assures food security for all.

There has been a plethora of definition of food security that has been extended from time to time
by different international agencies. The anchoring definition, however, was arrived in the Rome
Declaration during the World Food Summit held in 1996 at Rome. It states:
Food security exists when all people, at all times, have physical and economic access to
sufficient, safe and nutritious food to meet their dietary needs and food preferences for an active
and healthy life.
The concept of food and nutrition security/insecurity has been conceptualized in diverse and
overarching manner. However, the following three aspects (the 3 As) underlie most
conceptualizations of food security.
1. Availability it refers to the physical availability of foodstocks in desired quantities. This
depends on the domestic production, changes in stocks, and imports along with the
distribution of food across territories.
2. Access this is determined by the bundle of entitlements. This aspect of the definition
captures Amartya Sens thinking on the issue. This refers peoples initial endowments,
i.e. what they can acquire (especially in terms of physical and economic access to food)
and the opportunities open to them to achieve entitlement sets. This can be achieved
either through their own endeavors or through intervention of the State or both.
3. Absorption it is defined as the ability to biologically utilise the food consumed. This is
related to several factors such as nutritional knowledge, safe drinking water, and
availability of stable and sanitary physical and environmental conditions. All this allows
effective biological absorption of food in a human body.
Similar definition has been given by the World Bank also which identifies food availability, food
access and food use as the three pillars of food security.
The World Food Summit goal is to reduce the number of undernourished people by half,
between 199092 and 2015. Similar target has been set by the Millennium Development Goal 1
(target 1C) to halve the proportion of people who are suffering from hunger by 2015 as
compared to 1990.
The Global Hunger Index (GHI) brought out by IFPRI in 2010 has shown improvement over the
1990 GHI as it fell by almost one-quarter. But still, the index for hunger in the world remains at
a level characterized as serious. India ranks 67 out of 122 countries in GHI in the world.
Earlier, it had a rank of 66 in the list of 88 countries (GHI, 2008). The total number of
undernourished people in the world was estimated to have surpassed 1 billion (1023 million in
2009) and expected to decline by to 925 million in 2010. Developing countries account for 98
percent of the worlds undernourished people. Out of these, two-thirds live in just seven
countries (Bangladesh, China, the Democratic Republic of the Congo, Ethiopia, India, Indonesia
and Pakistan) and over 40 percent live in China and India alone. This is an alarming situation.
Hunger deaths amidst piles of rotting food grains in FCIs storage are a matter of concern.
However, to attain the goal of food security multi-pronged strategies needs to be adopted. Food
security is, thus, not only about having a bumper crop production but also to make it available
and affordable to the masses for fulfilling their nutritional requirement and living a dignified and
healthy life.
Keeping this in mind, the Finance Minister in budget speech 2009-10 has initiated the work on
National Food Security Act which seeks to ensure that every family living below the poverty line

in rural or urban areas will be entitled by law to 25 kilos of rice or wheat per month at Rs.3 a
kilo. Carrying forward the agenda the FM in his Budget speech 2011-12, informed that the
government, after detailed consultations with all stakeholders including State Governments, is
close to finalisation of National Food Security Bill (NFSB). However, the recommendations
from National Advisory Council (NAC) and Prime Ministers Economic Advisory Council
(PMEAC) differed on the coverage of beneficiaries. The NAC wants legal entitlement extended
to 90% (46% would come in Priority Category) of rural households and 50% (28% would come
in
Priority
Category)
of
urban
households
(available
at: http://nac.nic.in/foodsecurity/explanatory_note.pdf). On the other hand, the Rangarajan
Committee had raised concerns over the availability of grain for such a large cover. The
Empowered Group of Ministers (EGoM) on Food has approved the Food Security Bill. The bill
is expected to be introduced in the Parliament in 2011.
In addition to it the National Development Council (NDC) in its meeting on May, 2007 adopted
a resolution to launch Food Security Mission comprising rice, wheat and pulses to increase the
production of rice by 10 million tons, wheat by 8 million tons and pulses by 2 million tons by the
end of the Eleventh Plan (2011-12). Accordingly, a Centrally Sponsored Scheme, 'National Food
Security Mission', has been launched from 2007-08 to operationalize the above mentioned
resolution.
References
1.
2.
3.
4.

http://www.ifpri.org/publication/2010-global-hunger-index
http://www.fao.org/docrep/013/i1683e/i1683e.pdf
http://www.fao.org/docrep/003/w3613e/w3613e00.HTM
http://www.mssrf.org/fs/report%20on%20the%20state%20of%20food%20insecurity%20in%20rural%20in
dia.pdf
5. http://indiabudget.nic.in/ub2009-10/bs/speecha.htm
6. http://indiabudget.nic.in/bspeecha.asp

Foreign Institutional Investor (FII)

Foreign Institutional Investor (FII) means an institution established or incorporated outside India
which proposes to make investment in securities in India. They are registered as FIIs in
accordance withSection 2 (f) of the SEBI (FII) Regulations 1995. FIIs are allowed to subscribe to
new securities or trade in already issued securities. This is just one form of foreign investments
in India, as may be seen from the graph below:

FII Vs FDI: International standards and Indian definition

According to IMF and OECD definitions, the acquisition of at least ten percent of the ordinary
shares or voting power in a public or private enterprise by non-resident investors makes it
eligible to be categorized as foreign direct investment (FDI). (see OECD benchmark definition)
In India, a particular FII is allowed to invest upto 10% of the paid up capital of a company,
which implies that any investment above 10% will be construed as FDI, though officially such a
definition does not exist. However, it may be noted that there is no minimum amount of capital
to be brought in by the foreign direct investor to get the same categorised as FDI.
In India, FDI and FII are defined in Schedule 1 and 2 respectively of the Foreign
Exchange Management (Transfer or Issue of Security by a Person Resident Outside India)
Regulations
2000.
(Original
notification
is
available
at http://rbi.org.in/Scripts/BS_FemaNotifications.aspx?Id=174 Subsequent
amendment
notifications are available at http://rbi.org.in/Scripts/BS_FemaNotifications.aspx)
Myths about FIIs
There are certain myths / beliefs about FIIs which are not necessarily true.
Myth -1:- FIIs do not invest in unlisted entities. They participate only through stock exchanges
Myth -2:- FIIs cannot invest at the time of initial allotment. Foreign investors investing in initial
allotment of shares (say IPOs or when a group of entities come together to float a company) are
categorized as FDIs

Truth on 1 and 2:- As per Section 15 (1) (a) of the SEBI FII Regulations, 1995, a Foreign
Institutional Investor (FII) may invest in the securities in the primary and secondary markets
including shares, debentures and warrants of companies unlisted, listed or to be listed on a
recognized stock exchange in India. In fact FIIs are very active in the over the counter (OTC)
markets and in the IPOmarket in India.
Myth 3:- FDI has more direct involvement in technology, management etc while FIIs are
interested in capital gain and momentary price differences. Generally direct investment involves
a lasting interest in the management of an enterprise and includes reinvestment of profits. In
contrast, FIIs do not generally influence the management of the enterprise.
Truth on 3:- To some extant this notion is true and is emphasized in policy documents. For
instance, consolidated FDI Policy of Department of Industrial Policy and Promotion (DIPP)
states that foreign Direct Investment, as distinguished from portfolio investment (FII), has the
connotation of establishing a lasting interest in an enterprise that is resident in an economy
other than that of the investor.
However, of late, there have been occasions where FIIs come together to influence decisions in
companies where they hold shares. The difference between FDI and FII, except for the fact that
the latter necessarily has to be an institution (FDI can come from an individual also), rather lies
in the registration or approval process and to some extent in the individual investment limits or
lock-in conditions specified for each category.
Globally also, the acquisition of at least ten percent of the ordinary shares or voting power in a
public or private enterprise by non-resident investors makes it eligible to be categorized as FDI,
rather than the purpose of the investments, as intimated or stated by the investing foreigner due
to difficulty in assessing it and also for statistical consistency.
Regulation of FIIs
The regulations for foreign investment in India have been framed by the Reserve Bank of India
in terms of Sections 6 and 47 of the Foreign Exchange Management Act, 1999 and notified vide
Notification No. FEMA 20/ 2000-RB dated 3rd May 2000 viz. Foreign Exchange Management
(Transfer or issue of Security by a person Resident outside India) Regulations 2000, as amended
from time to time. In line with the said regulations, since 2003, the Securities and Exchange
Board of India (SEBI) has been registering FIIs and monitoring investments made by them
through the portfolio investment route under the SEBI (FII) regulations 1995. SEBI acts as the
nodal point in the registration of FIIs.
Who can get registered as FII?
Following foreign entities / funds are eligible to get registered as FII:
1. Pension Funds
2. Mutual Funds
3. Investment Trusts

4. Banks
5. Insurance Companies / Reinsurance Company
6. Foreign Central Banks
7. Foreign Governmental Agencies
8. Sovereign Wealth Funds
9. International/ Multilateral organization/ agency
10. University Funds (Serving public interests)
11. Endowments (Serving public interests)
12. Foundations (Serving public interests)
13. Charitable Trusts / Charitable Societies (Serving public interests)
Thus it may be seen that sovereign wealth funds (SWFs) are also regulated under FII
regulations only, and no separate regulation exists for SWFs. Further, following entities
proposing to invest on behalf of broad based funds, are also eligible to be registered as FIIs:
1.
2.
3.
4.
5.

Asset Management Companies

Investment Manager/Advisor
Institutional Portfolio Managers
Trustee of a Trust
Bank

Foreign individuals can register as sub-accounts of FII to make investments in Indian securities.
What FIIs can do?
A Foreign Institutional Investor may invest only in the following:i.

ii.
iii.
iv.
v.
vi.
vii.
viii.

securities in the primary and secondary markets including shares, debentures and
warrants of companies unlisted, listed or to be listed on a recognised stock exchange in
India; and
units of schemes floated by domestic mutual funds including Unit Trust of India, whether
listed on a recognised stock exchange or not
units of scheme floated by a collective investment scheme
dated Government Securities
derivatives traded on a recognised stock exchange
commercial paper
Security receipts
Indian Depository Receipt

FIIs are allowed to trade in all exchange traded derivative contracts subject to the position
limits as prescribed by SEBI from time to time. Clearing Corporation monitors the open
positions of the FII/ sub-accounts of the FII for each underlying security and index, against the
position limits, at the end of each trading day.

How do they invest?

A SEBI registered FII (as per Schedules 2 of Foreign Exchange Management (Transfer or Issue
of Security by a Person Resident Outside India) Regulations 2000) can invest/trade through a
registered broker in the capital of Indian Companies on recognised Indian Stock Exchanges. FIIs
can purchase shares / convertible debentures either through private placement or through offer
for sale.
An FII can also invest in India on behalf of a sub-account (means any person outside India on
whose behalf investments are proposed to be made in India by a FII) which is registered as a subaccount under Section 2 (k) of the SEBI (FII) Regulations, 1995.
Also, an FII can issue off-shore derivative instruments (ODIs) to persons who are regulated by
an appropriate foreign regulatory authority and after compliance with Know Your Client (KYC)
norms.
Every FII/sub-account is required to appoint a domestic Indian custodian to hold in custody its
Indian securities. Custodian of Securities is a registered and regulated entity by SEBI. The
FII/sub-account is also required to ensure that the domestic custodian it has appointed monitors
the investments made by it in India, reports its transactions in securities to SEBI on a daily basis
and preserve records of transactions for a specified period. The FII/sub-account is also required
to suitably enable the custodian to furnish reports pertaining to its activities, to SEBI, as and
when required by SEBI.
Authorized dealer banks (i.e. the bank which is authorized by RBI to deal in foreign currency)
can offer forward cover (i.e, to minimize the impact of currency fluctuations, banks offer them
the option to sell / purchase foreign currency on a fixed future date at a rate specified today) to
FIIs to the extent of total inward remittances of liquidated investments.
FII investment limits
Investment by individual FIIs/ sub-accounts (excluding foreign corporates and individuals)
cannot exceed 10 per cent of paid up capital of a company. Investment by foreign corporates or
individuals registered as sub accounts of FII cannot exceed 5 per cent of paid up capital. All FIIs
and their sub-accounts taken together cannot acquire more than 24 per cent of the paid up capital
of an Indian Company. An Indian Company can raise the 24 per cent ceiling to the Sectoral Cap /
Statutory Ceiling, as applicable, by passing a resolution by its Board of Directors followed by
passing a Special Resolution to that effect by their General Body. The list of such companies
who have passed a Special Resolution in this regard can be seen from the RBI website.
Progression of allowable limit of FIIs investment in Debt Instruments is given below:

FIIs investment in Debt Instruments [In US$ Billion]

2006 2007 2008 2009 2010

2011

2011 (Nov) 2012 (June)

(March)
20
Corporate
Bond

0.5# 1.5# 3#

15# (15#
5**)

Govt.
Securities

1.75* 3.2* 5*

5*

40

45

+ (15# + 25 (20#
**)
25**)

10

10

(5* + 5^) (5* + 5^)

15

46
+ (20# + 25** +1
##)
20

(10* + 5^) (10* + 10^^)

Notes:
* G-Sec Old: The limit can be invested in securities without any residual maturity criterion.
^ G-Sec LT: The limit can be invested in securities with residual maturity of five years.
^^ G-Sec LT: The limit can be invested in securities with residual maturity of three years.
# Corporate Debt Old: The limit can be invested in securities without any residual maturity/lockin criterion.
** Incremental limit of US$ 5 billion would be invested in securities with residual maturity of
over five years issued by companies in infrastructure sector.
## A separate sub-limit of USD 1 billion has been created for QFIs investment in corporate
bonds and mutual fund debt schemes.
** Distribution of USD 25 Billion limit is as under:
i.
ii.
iii.

US$10 billion investment in Infrastructure Debt Funds (IDF) (a) Lock-in period of 1
Year (b) Residual maturity of at least 15 months.
US$ 12 Billion for FII investment in in long term infrastructure bonds (a) Lock-in
period of 1 Year (b) Residual maturity of at least 15 months.
USD 3 billion for QFI Investment in MF debt schemes which hold at least 25% of their
assets (either in debt or equity or in both) in the infrastructure sector.

Monitoring Foreign Investments

The Reserve Bank of India monitors the ceilings on FII investments in Indian companies on a
daily basis. For effective monitoring of foreign investment ceiling limits, the Reserve Bank has
fixed cut-off points that are two percentage points lower than the actual ceilings. The cut-off
point, for instance, is fixed at 22 per cent for companies in with 24 per cent ceiling. Once the
aggregate net purchases of equity shares of the company by FIIs reach the cut-off point, which is
2% below the overall limit, the Reserve Bank cautions all designated bank branches so as not to
purchase any more equity shares of the respective company on behalf of FIIs without prior
approval of the Reserve Bank. The link offices are then required to intimate the Reserve Bank
about the total number and value of equity shares/convertible debentures of the company they
propose to buy on behalf of FIIs. On receipt of such proposals, the Reserve Bank gives
clearances on a first-come-first served basis till such investments in companies reach the
investment limit or the sectoral caps/statutory ceilings as applicable. On reaching the aggregate
ceiling limit, the Reserve Bank advises all designated bank branches to stop purchases on behalf

of their FIIs. The Reserve Bank also informs the general public about the `caution and the `stop
purchase in these companies through a press release.
Data on FII
The data on FII investments can be obtained from three sources, SEBI, Stock Exchanges and
RBI. The figures may vary across these sources.
Custodians on a daily basis, report to SEBI the investments made by the FIIs on the previous
day/s.
The
details
can
be
accessed
here. http://www.sebi.gov.in/sebiweb/investment/statistics.jsp?s=fii
All figures reported to SEBI are about investment details and FIIs are necessarily required to
invest in Rupees. Thus all figures are in Rupees on SEBI website. The USD figure mentioned on
the SEBI data is for representational purpose only- i.e., the USD rate is taken from RBI website
and the conversion is done automatically by the software.
SEBI data on FIIs thus, represents only investments activity; it does not indicate the actual flow
of money out of India or into India. Hence, SEBI always mentions investment activity of FIIs
and never states that it is reporting inflow or outflow of funds.
The RBI data, on the other hand, represents the actual flow of money in and out of India. As per
Schedule II of FEMA Notification no. 20, the FIIs can maintain a non-interest bearing foreign
currency account and a non-interest bearing Special Non-Resident Rupee account where the cash
balances can be kept without any caps. It has been observed that FIIs keep balances in these
accounts without making investments at times. These balances reflect the amounts received from
abroad as well as divestments proceeds accruing to the FIIs from their investments in India. In
terms of the regulations issued under FEMA for investment into the Portfolio Investment
Scheme, RBI has not placed any restriction on the amount being kept on these accounts.
Accordingly, there is no one to one correspondence between foreign capital flows on account of
FIIs and investments made by FIIs in any particular period of time.
The Foreign Institutional Investors (FII) related provisional figures reported on the websites of
National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) are also not comparable to
the FII Investment Figures published on the SEBI website for the following reasons:
1. The FII data reported on the BSE-NSE website is provisional trade data reported on the
trade date (T day) as per the trades posted by the brokers in the exchanges trading
system.
2. The FII investment data as reported on SEBI website is confirmed trade data provided by
custodian of securities after confirmation of transactions on behalf of FII, to the stock
exchange(s).
3. The FII investment data on SEBI website is provided by custodians of securities after
their confirmation on T+1 basis.
4. The provisional trade data reported by NSE/BSE on their website is limited only to
transactions in secondary market, whereas the custodian reporting to SEBI includes the
following transaction types:
Purchase and sale in secondary market

Purchase and sale of mutual fund units in secondary market

Purchase in primary market
Preferential allotment
Purchase through rights issue
Conversion of debentures into equity shares
Receipt of bonus shares
Redemption of debenture /units of mutual funds
Lodging shares in terms of open offer
Repurchase of units by mutual fund
Buyback of shares by company
Payment of allotment/call money
Square off - on account of short delivery received
Square off and auction- on account of short delivery given
Consolidation sub division of securities.

Forward Markets Commission (FMC)

The Forward Markets Commission (FMC) is a statutory body set up under the Forward Contracts
(Regulation) Act, 1952. It functions under the administrative control of the Department of
Consumer Affairs, Ministry of Consumer Affairs, Food & Public Distribution, Govt. of India. It
has its headquarters at Mumbai and one regional office at Kolkata. The Commission comprises
of a Chairman, and two Members. It is organized into five administrative divisions to carry out
various tasks.
Forward Markets Commission provides regulatory oversight in order to ensure financial integrity
(i.e. to prevent systematic risk of default by one major operator or group of operators), market
integrity (i.e. to ensure that futures prices are truly aligned with the prospective demand and
supply conditions) and to protect & promote interest of consumers /non-members. The Forward
Markets Commission performs the role of a market regulator. After assessing the market
situation and taking into account the recommendations made by the Board of Directors of the
Commodity Exchange, the Commission approves the rules and regulations of the Exchange in
accordance with which trading is to be conducted. It accords permission for commencement of
trading in different contracts, monitors market conditions continuously and takes remedial
measures wherever necessary by imposing various regulatory measures.
At present, there are 21 exchanges including three 'national level' exchanges which have been
recognized for conducting futures/forward trading in India. The three national exchanges are (i)
Multi-commodity Exchange of India Limited (MCX) Mumbai, (ii) National Commodity and
Derivatives Exchange Limited(NCDEX), Mumbai and (iii) National Multi-commodity Exchange
of India Limited(NMCE) Ahmedabad. These on-line national commodity exchanges have been
organized for conducting forward/futures trading activities in all commodities, to which section
15 of the Forward Contracts (Regulation) Act, 1952 is applicable, and other commodities subject
to the approval of the Forward Markets Commission.

Functions of the Forward Markets Commission as defined in the FCRA, 1952 are as
follows:
(a) To advise the Central Government in respect of the recognition or the withdrawal of
recognition from any association or in respect of any other matter arising out of the
administration of the Forward Contracts (Regulation) Act 1952.
(b) To keep forward markets under observation and to take such action in relation to
them, as it may consider necessary, in exercise of the powers assigned to it by or under
the Act.
(c) To collect and whenever the Commission thinks it necessary, to publish information
regarding the trading conditions in respect of goods to which any of the provisions of the
act is made applicable, including information regarding supply, demand and prices, and
to submit to the Central Government, periodical reports on the working of forward
markets relating to such goods;
(d) To make recommendations generally with a view to improving the organization and
working of forward markets;
(e) To undertake the inspection of the accounts and other documents of any recognized
association or registered association or any member of such association whenever it
considerers it necessary.
(f) To perform such other duties and exercise such other powers as may be assigned to
the Commission by or under this Act, or as may be prescribed.
Powers of the Commission as indicated in Section 4 A of the F.C.(R) Act, 1952:

The Commission shall, in the performance of its functions, have all the powers of a
civil court under the Code of Civil Procedure, 1908 (5 of 1908), while trying a suit in
respect of the following matters, namely:
(a) Summoning and enforcing the attendance of any person and examining him on oath;
(b) requiring the discovery and production of any document;
(c) receiving evidence on affidavits;
(d) requisitioning any public record or copy thereof from any office;
(e) any other matters which may be prescribed.

The powers of approving memorandum and articles of association and Bye-laws;

powers to direct to make or to make articles (Rules) or Byelaws; powers to suspend
governing body of recognized association, and, powers to suspend business of
recognized association.

References
http://www.fmc.gov.in
http://india.gov.in/sectors/consumer_affairs/index.php?id=6
http://fcamin.nic.in

http://www.mcxindia.com
http://www.ncdex.com
http://www.nmce.com

Functions of Planning Commission

The functions of Planning Commission includes formulation of five-year plans, finalisation
of plan discussions of the Central Ministries and States/UTs annually and conveying the plan
requirement to the Ministry of Finance, clearance/grant of In-Principle approval for starting
Central Sector/Centrally Sponsored Schemes, appraisal of the Central Sector/Centrally
Sponsored Scheme before the scheme is cleared by the Expenditure Finance Committee under
the Ministry of Finance.
Functions of Project Appraisal and Management Division in Planning Commission.
The Project Appraisal and Management Division (PAMD) in Planning Commission is the
division that examines and appraises all new Central Sector/Centrally Sponsored
Schemes/projects before they are cleared by the FPC or Ministry of Finance or the subject
Ministry which is dependent on the financial upper limit of the proposal. When an existing
scheme is proposed to be revised even then the comments of PAMD is ascertained. PAMD
prepares the Appraisal Report after seeking the comments of the Subject Division on the
proposal.
Infrastructure Division in Planning Commission
The Government of India in 2004 approved a new funding pattern in plan implementation viz;
Public Private Partnership. The Public Private Partnership in Infrastructure Projects was
managed by the PMs Secretariat on Infrastructure set up in 2004 in Planning Commission. In
July 2009 the Cabinet Committee on Infrastructure (CCI) under the chairmanship of Prime
Minister was set up to fast track implementation of infrastructure projects. This Committee clears
infrastructure projects costing more than Rs.150 crores. The Infrastructure Division examines
and appraises Infrastructure Projects proposed to be implemented through Public Private
Partnership. The Infrastructure Division has framed the guidelines for examining these projects.

Gadgil-Mukherjee Formula
Up to 3rd Five Year Plan (FYP) [1961-66] and during Plan Holiday (1966-69), allocation of
Central Plan Assistance was schematic and no formula was in use. The Gadgil Formula
comprising (i) Population [60%] (ii) Per Capita Income (PCI) [10%] (iii) Tax Effort [10%] (iv)
On-going Irrigation & Power Projects [10%] and (v) Special Problems [10%] was used during
4th FYP (1969-74) and 5th FYP (1974-78).
However, since item (iv) was perceived as being weighted in favour of rich states, the formula
was modified by raising the weightage of PCI to 20%. The National Development Council
(NDC) approved the modified Gadgil formula in August 1980. It formed the basis of allocation
during 6th FYP (1980-85), 7th FYP (1985-90) and Annual Plan (AP) 1990-91. Following

suggestions from State Governments, the modified Gadgil Formula was revised to Population
(55%), PCI [25% {20% by deviation method and 5% by distance method}], Fiscal Management
(5%) and Special Development Problems (15%). However, it was used only during AP 1991-92.
Due to reservations of State Governments on revision, a Committee under Shri Pranab
Mukherjee, then Deputy Chairman, Planning Commission was constituted to evolve a suitable
formula. The suggestions made by the Committee were considered by NDC in December 1991,
where following a consensus, the Gadgil-Mukherjee Formula was adopted. It was made the basis
for allocation during 8th FYP (1992-97) and it has since been in use. After setting apart funds
required for (a) Externally Aided Projects and (b) Special Area Programme, 30% of the balance
of Central Assistance for State Plans is provided to the Special Category States. The remaining
amount is distributed among the non-Special Category States, as per Gadgil-Mukherjee Formula.
Gadgil-Mukherjee Formula
I

Criteria

Weight

Remarks

II Population (1971)

60%

Per capita Income

25%

a) Deviation method

20%

Covering states with per capita SDP below

national average

b) Distance method

5%

For all states

III Performance in Tax Effort, Fiscal 7.5%

Management and Progress in respect of
National objectives

Tax policy [2.5%], Fiscal Management

[2.0%], National
objectives [3%] comprising population
control (1.0%), elimination of illiteracy
(1.0%), timely completion of Externally
Aided Projects (0.5%)
and land reforms (0.5%)

IV Special Problems

7.5%

Goods and Services Tax

The Finance Minister in the Budget Speech 2011-12, informed that a model legislation for the
Central and State GST is being drafted. He also elaborated about the steps taken by the
government to introduce GST like; establishment of a strong IT infrastructure, significant
progress on the GST Network (GSTN). The National Securities Depository Limited (NSDL) has
been selected as technology partner for incubating the National Information Utility that will
establish and operate the IT backbone for GST. By June 2011, NSDL will set up a Pilot portal in
collaboration with eleven States prior to its roll out across the country.
The other ground work done for implementation of GST is the unification of rate structure in
goods and services by keeping the standard rate of Central excise duty and services tax at 10%.
The Constitution of India does not vest power on the centre and states to levy tax on supply of

goods and services to the Centre and the States. The 115th Amendment Bill was introduced in
the Parliament which seeks to insert Art. 246 (A) that give the Parliament and State Legislatures
power to make laws with respect of goods and services tax. GST is expected to be rolled out by
April 2012.
Adam Smith, father of economics, has laid down four cannons of taxation which are equality,
certainty, convenience and economy. A tax can be tested on these four criteria. The ongoing tax
reform in India is an endeavour in this direction. The Good and Services Tax (GST) is one such
effort. It would subsume under it many indirect taxes levied by the Central and State
government. It aims at unification of taxation system and removal of any cascading of taxes (tax
on tax). At every stage, from production to retail, the purchaser of any goods and services will
only pay the GST charged by the immediate seller. This will reduce the burden of tax and benefit
the consumer. As such the tax seems to achieve the cannons of certainty and convenience.
The tax unification process has been going on in India for some time now. There have been
efforts to improve upon the Central excise duty and States sales tax regime starting with the
introduction of MODVAT in 1986. CENVAT, at the central level, is a valued added tax that
provides credit on tax paid on inputs was an improvement over Central excise duty. At state
level, the state VAT was an improvement over sales tax regime. However, there have been some
problems associated with the present taxation system like; the CENVAT is confined only to the
manufacturing stage and it has not included several Central taxes. Similarly, the State VAT is
paid on the value of goods that includes the CENVAT already paid. It is thereby a tax on tax.
There is also burden of Central Sales Tax (CST) on the inter-state movement of goods. Further,
setting-off service tax has been a difficult proposition especially at the state level and taxes like
luxury tax, entertainment tax etc are still out of the purview of State level VAT. The GST is thus
an overarching and overhauling effort in the Indian taxation system to unify the process and
reduce the multiplicity of taxes.
It is proposed that there would be a dual GST model comprising of Central GST and State GST.
This was done as by keeping in mind the fiscal federalism of this country as both the levels of
government have the constitutional mandate to levy and collect specific taxes. CGST and SGST
would be levied on every transaction of goods and services. This would, however, not include
the exempted items and the transaction which are below the prescribed threshold limit. SGST
would be applicable only if both the buyer and seller are located within the state. CGST does not
have any such restriction regarding location.
An Empowered Committee has suggested a two-rate structure under the GST. Lower rate would
be charged for necessary item and items of basic importance and a standard rate for goods. This
may be for both CGST and SGST. The committee was of the view that for services there may be
a single rate for both CGST and SGST.
References
1. Budget Speech 2011-12: http://www.indiabudget.nic.in/bspeecha.asp
2. Discussion Paper by Empowered committee http://finmin.nic.in/GST/index.asp
3. Thirteenth Finance Commission, Chapter 5, Goods and Services Tax, pp-6376 http://www.fincomindia.nic.in/ShowContentOne.aspx?id=28&Section=1

Green Building
With the growing population, India has to not only provide adequate housing, commercial
buildings, infrastructure, institutions etc. to cater to the basic shelter needs and the growing
aspirational needs of people but also to ensure that the process is environmentally sustainable. In
recent times, there has been a greater consciousness about environmental degradation and
alternatives to cement are being actively considered. Materials which use less water and other
natural resources and require less energy to be maintained are increasingly being preferred by
Government town planners in India. The Ministry of New and Renewable Energy has developed
an organization called Green Rating for Integrated Habitat Assessment (GRIHA) along with
TERI to ensure that more and more Green Buildings are created. Clear parameters have been
defined to indicate what constitutes a green building.
References
1. http://www.grihaindia.org
2. http://www.mnre.gov.in
3. http://ncict.net/Parameters/Parameters.aspx

Gross Budgetary Support (GBS)

The Gross Budgetary Support (GBS) is an important component of the Central Plan of the
Government of India.
The Government's support to the Central plan is called the Gross Budgetary Support. The GBS
includes the tax receipts and other sources of revenue raised by the Government. In the recent
years the GBS has been slightly more than 50% of the total Central Plan. The Planning
Commission aggregates and puts forward the demand by various administrative Ministries in a
consolidated form to the Finance Ministry for the budgetary support required from the
Government. This demand is vetted and then approved by the Finance Ministry. The share of the
GBS in Central Plan has been rising since 2008-09.

Guarantee Redemption Fund

Guarantees are contingent liabilities that may have to be invoked if an event covered by the
guarantee occurs. Since guarantees result in increase in contingent liability, they should be
examined with as much due diligence as a proposal for a loan, taking into account, the creditworthiness of the borrower, the amount and risks sought to be covered by a sovereign guarantee,
the terms of the borrowing, the justification and public purpose to be served, probabilities that
various commitments will become due and possible costs of such liabilities, etc.
Article 292 of the Constitution of India extends the executive power of the Union to the giving of
guarantees on the security of the Consolidated Fund of India, within such limits as may be fixed
by Parliament. Article 293 provides that the legislature of a State can fix limits on borrowing by
a State as well as limits on guarantees to be given by it. Articles 292 and 293 refer, respectively,
to borrowings by the Government of India and borrowings by the States. In article 292, a limit on
the borrowing as well as on guarantees to be given by the Union government can be fixed by
Parliament by law. Similarly article 293 provides that the legislature of a State can fix limits on

borrowing by a State as well as limits on guarantees to be given by it. Article 299 of the
Constitution provides that all contracts made in the exercise of the executive power of the Union
shall be made expressly indicating that the contract has been made on behalf of the President.
The Ninth Finance Commission observed that in order that the capital stock of the country might
be maintained intact, there should be adequate provision for depreciation and loan should be
repaid out of the amortization/sinking fund. The Tenth Finance Commission recommended the
establishment of sinking funds for overall fiscal discipline. Eleventh Finance Commission also
emphasized the need for setting up of Sinking Fund in each State for the amortization of debt.
On the recommendations of Twelfth Finance Commission that all States should set up sinking
funds / guaranteed redemption fund for amortization of all loan including loans from banks,
liabilities on account of NSSF, etc through earmarked guarantee fees, fifteen States have set up
Guarantee Redemption Fund and twenty States Consolidated Sinking Fund. This fund is
maintained outside the consolidated fund of the States and the public account and is not to be
used for any other purpose, except for redemption of loans. This ensures good fiscal governance.
Reports of the Finance Commissions
1. http://www.fincomindia.nic.in/
2. http://www.fincomindia.nic.in/writereaddata/html_en_files/11threport.pdf
3. http://rbidocs.rbi.org.in/rdocs/Publications/PDFs/STF28032011.pdf
References
1. http://finmin.nic.in/the_ministry/dept_eco_affairs/budget/govern_guarantee_policy.pdf

Guillotine
Each year, after the Budget is presented in the floor of the Lok Sabha by the Finance Minister,
the House has the opportunity to discuss the financial proposals contained in it. The process of
deliberations on the Budget sets off with a general discussion followed by the Vote on Account,
debating and voting on the Demands for Grants and finally, consideration and passing of the
Appropriation and Finance Bills.
Guillotine refers to the exercise vide which the Speaker of the House, on the very last day of the
period allotted for discussions on the Demands for Grants, puts to vote all outstanding Demands
for Grants at a time specified in advance. The aim of the exercise is to conclude discussions on
financial proposals within the time specified.
All outstanding Demands for Grants must be voted by the House without discussions once the
guillotine is invoked.
Once the pre-specified time for invoking the guillotine is reached, the member who is in
possession of the house at that point in time, is requested by the Speaker to resume his or her seat
following which Demands for Grants under discussion are immediately put to vote. Thereafter,
all outstanding Demands are guillotined.
Invoking the guillotine ensures timely passage of the Finance Bill and the conclusion of debates
and discussions on the years Budget.

Headline inflation
In general, reflects the rate of change in prices of all goods and services in an economy over a
period of time. Every country has its own set of commodity basket to track inflation. While some
countries use Wholesale Price Index (WPI) as their official measure of inflation and some others
use the Consumer Price Index (CPI). The International Monetary Fund (IMF) statistics reveals
that, while 24 countries use WPI as the official measure to track inflation, 157 countries use CPI.
Conceptually these two measures of inflation stress different stages of price realization as well as
composition: while WPI measures the change in price level at wholesale market, CPI measures
the change in price level at retail level.
In India, headline inflation is measured through the WPI which consists of 676 commodities
(services are not included in WPI in India). It is measured on year-on-year basis i.e., rate of
change in price level in a given month vis a vis corresponding month of last year. This is also
known as point to point inflation.
In India, there are three main components in WPI Primary Articles (weight: 20.12%), Fuel &
Power (weight: 14.91%) and Manufactured Products (weight: 64.97). Within WPI, Food
commodities (from which Food Inflation) have a combined weight of 24.31%. This includes
Food Articles in the Primary Articles (14.34%) and Food Products in the Manufactured
Products category (9.97%). Food Inflation is also calculated on year-on-year basis.
Apart from WPI, CPI is also computed to capture inflation in India. In particular, four categories
of CPI are computed for Industrial Workers (CPI-IW), Urban Non-Manual Employees (CPIUNME), Agricultural Labourers (CPI-AL) and Rural Labourers (CPI-RL). However, WPI is
considered as the preferred measure of headline inflation due to its wider coverage. To overcome
this lacuna, the Central Statistical Organization (on 18th February 2011) has introduced a new
series of CPI (with 2010=100 as the base year), which would be calculated for all-India as well
as States/UTs with separate categorization for rural, urban and combined (rural + urban).

Health and Well being

Health constitutes an integral part of human development. As per World Health Organization
(WHO) Constitution, the objective is to attain the highest possible level of health by all people.
The Alma-Ata Declaration of 1978 noted that Health for All could contribute both to a better
quality of life and also a global peace and security.
The broad objectives, which encompass a health system, are:

Improve the health status of the population by lowering mortality and morbidity rates
Protect the population against the financial risks of health problems
Respond to citizens demands and needs.

Taking into account these broad objectives, the major vision of Government of India has been
enunciated in the National Health Policy (2002), which is to achieve acceptable standards of
health care for the people of the country. The other main objectives include reducing mortality
and overall disease burden through universal access to primary health care services for all
sections of society, strengthening secondary and tertiary health care by developing human
resources for health and at the same time bringing about population stabilization in the country.

Health and Well-being Indicators

Anaemia
Anemia is characterized by low level of hemoglobin in the blood. Hemoglobin is necessary for
transporting oxygen from the lungs to other tissues and organs of the body. Anemia in younger
children is a matter of serious concern as it can result in impaired cognitive performance
behavioral development as well as increased mortality from infectious diseases. In India, anemia
is a serious health problem and affects men, women and children. A main reason for Anemia is
non-availability of adequate food for women and children. This has morbidity implications in the
context of rising food price.
Morbidity
Morbidity indicates a state of departure from a normal physical or mental well being of a
individual. Morbidity rate refers to the number of individuals affected by illness during a given
period (prevalence rate) or the number of newly appearing cases of diseases per unit of time
(incidence rate). As per National Sample Survey Organisation (NSSO), morbidity rates refers to
the proportion of Ailing Persons, measured as the number of persons reporting ailment during a
15 day per period per 1000 persons for broad age groups.
Mortality
Mortality rate is an indicator of number of deaths in a population or sub population, scaled to
size of the population per unit of time. Mortality varies access the various sub groups of
population. The main indicators of mortality are:
Maternal Mortality Ratio (MMR) refers to the number of maternal deaths per 100,000 women
of reproductive age in a year.
Child Mortality Rate (CMR) refers to the number of deaths of children less than 5 years of age
per 1000 live births.
Infant Mortality Rate (IMR) refers to the number of deaths of children less than one year of
age per 1000 live births.
Neo natal Mortality Rate refers to the number of deaths of children less than 28 days per 1000
live births.
Peri-natal Mortality Rate refers to the sum total of neo-natal death and foetal deaths (still
births) per 1000 live births.

Hindu rate of growth

The term secular rate of growth (which connotes long term trend growth) is well established in
literature of development economics. (It is also used in the sense of a religious belief, practice
and process of the State). In distinctive contrast, Hindu rate of growth was coined to refer to the
phenomenon of sluggishness in growth rate of Indian economy (3.5 per cent observed
persistently during 1950s through 1980s).
The term, which owes to Professor Raj Krishna, Member, Planning Commission, captured
popular imagination and was used synonymously to describe inadequacy of Indias growth
performance. However, of late, the term has lost its relevance and appeal as economic reforms

and liberalization in India since 1990s manifested in tripling of growth rate of Indian economy
from this paltry level.

Household Industry Workers

Household Industry is defined as an industry conducted by one or more members of the
household at home or within the village in rural areas and only within the precincts of the house
where the household lives in urban areas. The larger proportion of workers in the household
industry consists of members of the household. The industry is not run on the scale of a
registered factory which would qualify or has to be registered under the Indian Factories Act.
Household Industry relates to production, processing, servicing, repairing or making and selling
(but not merely selling) of goods. It does not include professions such as a Pleader, Doctor,
Musician, Dancer, Astrologer, Dhobi, Barber, etc., or merely trade or business, even if such
professions trade or services are run at home by members of the household.

Import Tariffs, Open General License, Restricted List and Negative List
Import Tariff: A tariff is any tax or fee collected by a government. An import tariff is a tax
imposed on goods to be imported. Though tariff is used in a non-trade context, it is commonly
applied to a tax on imported goods.
There are two broad ways in which tariffs are normally levied namely, specific tariffs and ad
valorem tariffs. A specific tariff is levied as a fixed charge per unit of imports. Whereas an ad
valorem tariff is levied as a fixed percentage of the value of the imported items/commodity.
Open General License (OGL): As per ITC (HS) classification, there is no terminology called
Open General License (OGL). However, in India, during the EXIM policies of 70s and 80s the
freely imported/exported items were still used to be monitored based on the licence issued under
OGL. Today OGL is no more required. All these items and the sensitive import items are
monitored byDirectorate General of Commercial Intelligence and Statistics
(DGCI&S), Kolkata, without the need of a separate licence. As on date, importability or the
exportability of items in India is classified into three categories namely, (a) Prohibited items, (b)
Restricted items including items reserved for STEs or requiring permission etc., and (c) Freely
importable.
Restricted List and Negative List: In the context of export and import, negative list normally
implies the list of items which are not permitted to be freely imported or exported. However, in
the context of Free Trade Agreement (FTA), the "negative list" would mean that barring the
services and goods listed, everything else could be taxed, making the exempted goods and
services cheaper. In other words, item on which no concessions (no reduction in import tariffs)
would be allowed. Therefore, an articulated negative list will clearly bring out the intentions of
the policy makers as to what precisely is outside the tax concession net.

Inclusive Growth
The agenda for inclusive growth was envisaged in the Eleventh Plan document which intended to
achieve not only faster growth but a growth process which ensures broad-based improvement in

the quality of life of the people, especially the poor, SCs/STs, other backward castes (OBCs),
minorities and women and which seeks to provide equality of opportunity to all. Bringing these
excluded sections of the society into the mainstream of the society so that they are able to reap
the benefits of faster economic growth is the kind of inclusion which is being envisioned in the
concept of inclusive growth.
Inclusive growth means economic growth that creates employment opportunities and helps in
reducing poverty. It means having access to essential services in health and education by the
poor. It includes providing equality of opportunity, empowering people through education and
skill development. It also encompasses a growth process that is environment friendly growth,
aims for good governance and a helps in creation of a gender sensitive society. Special efforts to
increase employment opportunities are essential as it is a necessary condition for bringing about
an improvement in the standard of living of the people. Mahatma Gandhi National Rural
Employment Guarantee Act (MGNREGA), one of the largest social safety network in India, has
improved the standard of living of people and has been able to check migration to a great extent.
Apart from this, the Government has launched various flagship programmes like Sarva Siksha
Abhiyan (SSA), National Rural Health Mission (NRHM), Bharat Nirman etc. to bring about
improvement in the area of education, health and infrastructure thereby making growth more
inclusive.
The growth story of Indian economy has been remarkable in the recent years. During 2005-06 to
2007-08 it has achieved an average growth rate of 9.47%, though declined somewhat afterwards
in the wake of global financial crisis. Even then it was able to maintain a decent average growth
rate of 7.76% for the period 2008-09 to 2010-11. Further, it is expected that the growth is likely
to average 8.2% for the Eleventh Five Year Period (2007-12) which is less than the targeted 9%
but above 7.7% achieved during the Tenth Five Year plan. India has comfortable level of
investment and savings rate to steer such a growth rate.
But in terms of Human Development Index, India is lagging behind China, Sri Lanka and many
other African and Latin American countries. India has a rank of 119 in the HDI ranking done by
the UNDP (Human Development Report 2010). Similarly in terms of other indicators like
poverty, unemployment and regional disparities India has lot more to do. The HDR 2010, has
also come up with a new parameter to measure poverty called Multidimensional Poverty Index
(MPI) replacing Human Poverty Index (HPI). Indias performance is dismal in this regard poorer
than China, Sri Lanka, Kenya and Indonesia as about 41.6 per cent of Indias population (in
terms of $ 1.25 a day) lives below the poverty line. Thus, there is a need to broadbase the
economic growth, increase participation of people and share the benefits of the growth process in
order to make it more inclusive. Reducing rural-urban gap, gender discrimination and achieving
higher level of human development will also bring about inclusiveness. Inclusive growth can
hardly ignore the environmental concerns. Indias effort in this regard is commendable as India
is one of the lowest Greenhouse Gas (GHG) emitters in the world and still India has announced
that, by proactive policies, it will reduce the emissions intensity of its GDP by 20-25 percent
over the 2005 levels by the year 2020. Indias Twelfth Five Year Plan (to be launched on 1st
April, 2012) will also focus on achieving a low carbon inclusive growth as one of its targets.
References

1.
2.
3.
4.
5.
6.

http://www.planningcommission.nic.in/plans/planrel/fiveyr/11th/11_v1/11v1_ch1.pdf
http://hdr.undp.org/en/
http://www.indiabudget.nic.in/index.asp
http://www.planningcommission.nic.in/reports/genrep/Inter_Exp.pdf
http://www.planningcommission.nic.in/plans/planrel/12appdrft/pc_present.pdf
http://siteresources.worldbank.org/INTDEBTDEPT/Resources/4689801218567884549/WhatIsInclusiveGrowth20081230.pdf
7. http://www.adb.org/Documents/ERD/Working_Papers/WP098.pdf
8. http://www.igidr.ac.in/pdf/publication/WP-2008-019.pdf.

Indian Roads Congress (IRC)

Indian Roads Congress (IRC) was set up by the Government of India in December, 1934 on the
recommendations of Jayakar Committee with the objective of promoting and encouraging the
science for building and maintenance of roads. It also provides a national forum for sharing of
knowledge and pooling of experience on the entire range of subjects dealing with the
construction and maintenance of roads and bridges. IRC has now about 13,500 members
comprising of engineers of all ranks from Central and State Governments, Engineering Services
of Army, Border Roads Organization, Road Research Institutes, Engineering Colleges, Local
Bodies and private enterprises.

Indigenous Systems of Medicines: Ayurveda, Siddha, Unani, Yoga,

Homeopathy and Naturopathy
Ayurveda: The doctrine of Ayurveda aims to keep structural and functional entities in a
functional state of equilibrium, which signifies good health. Any imbalance due to internal and
external factor causes disease and restoring equilibrium through various techniques, procedures,
regimes, diet and medicine constitute treatment. The philosophy of Ayurveda is based on the
theory of Pancha bhootas (five element theory) of which all the objects and living bodies are
composed of.
Siddha: Siddha system of medicine emphasize that medical treatment is oriented not merely to
disease, but also has to take into account the patient, environment, age, habits, physical
condition. Siddha literature is in Tamil and it is largely practiced in Tamil speaking parts of India
and abroad.
Unani: Unani System of medicine is based on established knowledge and practices relating to
promotion of positive health and prevention of diseases. Although Unani system originated in
Greece, passed through many countries, Arabs enriched it with their aptitude and experience and
the system was brought to India during Medieval period. Unani System emphasise the use of
naturally occurring, most herbal medicines, though it uses ingredients of animal and marine
origin.
Homeopathy: Homeopathy is a system of medicine, which believes in a specialized method of
treatment of curing diseases by administration of potency drugs, which have been experimentally
proved to possess the power of producing similar artificial systems on human beings.
Yoga and Naturopathy: Yoga is a way of life, which has the potential for improvement of
social and personal behavior, improvement of physical health by encouraging better circulation

of oxygenated blood in the body, restraining sense organs and thereby inducing tranquility and
serenity of mind. Naturopathy is also a way of life, with drugless treatment of diseases. The
system is based on the ancient practice of application of simple laws of nature. The advocates of
naturopathy focus on eating and living habits, adoption of purification measures, use of
hydrotherapy, baths, massage etc.

Informal Sector /Unorganised sector

In Indian official statistical documentation there is no mention of informal sector. It is also not
being used by the National Accounts Statistics (NAS). In fact, NAS uses organized and
unorganized sector. However, informal/unorganized sector has a predominant place in the Indian
economy in terms of its contribution to the GDP and employment. The predominant role of this
sector can hardly be ignored as the NSS survey report on Informal Sector and Conditions of
Employment in India, 2004-05 shows that out of the total workers, nearly 82 per cent in the
rural areas and 72 per cent in the urban areas were engaged in the informal sector. The
Government realizing criticality of the development of this sector established the National
Commission for Enterprises in the Unorganized Sector (NCEUS) in 2004 as an advisory body.
The aim of the Committee is to bring about improvement in the productivity and generation of
large scale employment opportunities on a sustainable basis, particularly in the rural areas.
NCEUS has estimated that in 2005 there were 423 million informal workers in India of which
395 million belonged to the informal sector. The remaining 28 million were informal workers in
the formal sector.
In the survey conducted by NSSO, NSSO defines the informal sector enterprises comprise of all
unincorporated proprietary and partnership enterprises. However, National Accounts Statistics
(NAS) defines the unorganised sector in addition to the unincorporated proprieties or partnership
enterprises, includes enterprises run by cooperative societies, trust, private and limited
companies. The informal sector can therefore, be considered as a sub-set of the unorganised
sector.
However, in a detailed report titled Report on Definitional and Statistical Issues Relating to the
Informal Economy was submitted in 2008 in which the Commission has recommended that the
Informal Sector be defined as The unorganized sector consists of all unincorporated private
enterprises owned by individuals or households engaged in the sale and production of goods and
services operated on a proprietary or partnership basis and with less than ten total workers.
The unorganised sector refers to those enterprises whose activities or collection of data is not
regulated under any legal provision or do not maintain any regular accounts. For instance, the
units that are not registered under the Factories Act, 1948 form the unorganised composition of
the manufacturing sector. Organised sector is the sector which comprises enterprises regarding
which statistics are available from the budget documents or reports etc.
The issue of defining the concept of informal economy has remained debatable over the years.
It has been extensively discussed since the beginning of the 1970s - Keith Hart (1971) referred to
informal income opportunities for the urban poor in Ghana and the ILO report on Kenya (1972)
defined the informal sector by the characteristics of the economic units. From early days of the
concept, discussions on adopting the definition by the characteristics of the job or by the
characteristics of the establishment have created different views on this issue. The Fifteenth

International Conference of Labour Statisticians held in January 1993 at Geneva adopted a

Resolution on informal sector statistics which was subsequently endorsed by the UN Statistical
Commission in February, 1993.
The Seventeenth International Conference of Labour Statisticians held in 2003 discussed the
concept of informal employment and provided guidelines for an expanded definition of the
concept. But it should be clear that this new concept of informal employment is not intended to
replace the concept of informal sector. As a matter of fact, the informal sector, as a part of
informal employment will allow to highlight this part of informal employment which is
generated by the formal sector in its attempt to cut labour costs for achieving more
competitiveness in the globalisation process.
The importance of the sector is evident from the fact that more than 50% of the GDP comes from
this sector. Different estimates have been arrived at following different methodologies. For
instance according to CSO; the share of unorganized sector has been varying between 57-60%
since 1993-94. Whereas, according to the Kolli & Hazra study, it is the share of unorgainsed
sector in NDP is 58.5%, of which 47.7% is informal in the year 2001-02. Though a very large
labour force is engaged in this sector, they earn comparatively low wage and do not have any
social security. In this regard, NCEUS has submitted a scheme for a universal social security
cover called National Minimum Social Security to all eligible workers over a period of five
years.
References
1. http://nceuis.nic.in/Challege_in_Employment_in_Development_in%20India.pdf
2. Rajiv Sharma and Sunita Chitkara, Paper No. 6, Expert Group on Informal Sector Statistics (Delhi Group),
Informal Sector in the Indian System of National Accounts, CSO.
3. http://nceuis.nic.in/
4. http://www.uneca.org/statistics/statcom2008/documents/InformalSector.pdf
5. http://mospi.nic.in/jacques_charmes_7th.htm
6. http://www.ilo.org/wcmsp5/groups/public/@dgreports/@integration/@stat/documents/meetingdocument/w
cms_087568.pdf
7. http://www.ilo.org/wcmsp5/groups/public/@ed_emp/@emp_policy/documents/meetingdocument/wcms_1
25979.pdf
8. http://www.financialexpress.com/news/around-half-the-gdp-comes-from-the-informal-sector/355611/
9. http://www.thehindu.com/news/national/article929913.ece
10. http://nceuis.nic.in/Final_Booklet_Working_Paper_2.pdf

Infrastructure
Infrastructure, in general, is understood as the elementary structure or service required for an
economy to function. It is recognised as the vital ingredient for economic development. In India,
there existed no uniform definition of the term as different organisations used to include different
sectors or industries or areas under infrastructure. For instance, as on date, there are almost 14
definitions of infrastructure, as given by various organisations. To move towards a uniform
definition, the Cabinet Committee on Infrastructure on 1 March 2012 approved the framework
for using a harmonised master list of infrastructure sub sectors.
The interpretation of the term infrastructure as given by some of the organisations
/commissions is detailed here.

National Statistics Commission

The National Statistical Commission headed by Dr C. Rangarajan identified six characteristics of
infrastructure sector, namely (a) Natural Monopoly (b) High Sunk Costs (c) Non-tradability of
output ( Non tradable good or service is one which is produced and sold at the same location )
(d) Non-rivalness in consumption ( Non-rivalness implies that the cost of providing a good or
service to an additional individual is zero ) (e) Price exclusion (Price exclusion means that the
enjoyment of benefits is contingent on payment of user charges) and (f) Externalities. Based on
the above features (except b, d and e), the Commission recommended the following sectors for
inclusion in infrastructure in the first stage: (1) Railway tracks, signalling system, stations (2)
Roads, bridges, runways and other airport facilities (3) Transmission & Distribution of electricity
(4) Telephone lines, telecommunications network (5) Pipelines for water, crude oil, slurry,
waterways, port facilities and (6) Canal networks for irrigation, sanitation or sewerage. On the
basis of characteristics mentioned at b, d and e, the following were recommended for inclusion in
infrastructure in the second stage: (1) Rolling stock on railways (2) Vehicles, aircrafts (3) Power
generating plants (4) Production of crude oil, purification of water and (5) Ships and other
vessels. The Commission recommended that the list should be finalised by the Ministry of
Statistics and Programme Implementation on the basis of the characteristics identified above for
defining infrastructure.
The India Infrastructure Report
Dr Rakesh Mohan Committee in The India Infrastructure Report included Electricity, Gas,
Water Supply, Telecom, Roads, Industrial Parks, Railways, Ports, Airports, Urban Infrastructure
and Storage as infrastructure.
Central Statistics Office
The Central Statistics Office outlines six broad sectors as infrastructure; Transport,
Energy/Power, Drinking Water Supply and Sanitation, Irrigation, Communication and Storage.
Reserve Bank of India
RBI has brought out a definition of infrastructure from the perspective of infrastructure lending
and list of items included under infrastructure sector appears at Annex I of its Master circular on
exposure norms.
For the purpose of external commercial borrowing funds, RBI has defined infrastructure to
include power, telecommunication, railway, roads including bridges, sea port and airport,
industrial parks , urban infrastructure (water supply, sanitation and sewage projects), mining.
Exploration & refining and cold storage or cold room facility, including farm level pre-cooling
for preservation or storage of agriculture & allied produce, marine products & meat.
Insurance Regulatory and Development Authority (IRDA)
The IRDA (Registration of India Companies) (Second Amendment) Regulations, 2008 has
defined the term Infrastructure Facility. The details can be accessed at;

http://www.irda.gov.in/ADMINCMS/cms/frmGeneral_NoYearList.aspx?DF=RL&mid=4.2
Income Tax Department
Infrastructure facility is defined in Section 80-IA of Income Tax Act to include roads, including
a toll road, bridge or a rail system; a highway project including housing or other activities being
an integral part of the highway project; a water supply project, water treatment system, irrigation
project, sanitation and sewerage system or solid waste management system; port, airport and
inland waterways; electricity, telecom and industrial park/SEZ.
SEBI
Schedule X of SEBI (ICDR) Regulations 2009 outlines the facilities identified as infrastructure
sector.
Economic Survey
Economic Survey considers power (electricity generation), coal production, petroleum
production (crude oil & refinery throughput), cement production, telecommunications, roads,
ports, civil aviation and railways as infrastructure sector.
Empowered Sub-Committee of the Committee on Infrastructure
The Empowered Sub-Committee of the Committee on Infrastructure has given the following
definition of infrastructure
i.
ii.
iii.
iv.
v.
vi.
vii.
viii.
ix.
x.
xi.
xii.

Electricity (including generation, transmission and distribution) and R&M of power

stations,
Non-Conventional Energy (including wind energy and solar energy),
Water supply and sanitation (including solid waste management, drainage and sewerage)
and street lighting,
Telecommunications,
Roads & bridges,
Ports,
Inland waterways,
Airports,
Railways (including rolling stock and mass transit system),
Irrigation (including watershed development),
Storage,
Oil and gas pipeline networks

Harmonised Master List of Infrastructure and its Sub Sectors

In view of the varying definitions, the Cabinet Committee on Infrastructure has now brought out
a harmonised master list of 5 main infrastructure sectors and 29 infrastructure sub sectors. This is
a guide to all agencies involved in the field of infrastructural development or financing in India.

This is a flexible list to enable each financing agency to draw up its own list of subsectors out of
the master list, with proper justification for inclusion/non-inclusion of a particular sub sector.
Any new sub sector will be included in the master list only if it satisfies the six characteristics of
infrastructure (namely natural monopoly, high sunk costs and asset specificity, non-tradability of
output, non-rivalness in consumption, possibility of price exclusion, and presence of
externalities) and after one or more of the three parameters (namely its importance to the scheme
of economic development, its ability to contribute to human capital and the specific
circumstances under which it has developed in India) has been evaluated. The harmonised master
list of 29 infrastructure sub sectors can be viewed at the following link.
http://pib.nic.in/newsite/erelease.aspx?relid=80634
References
1.
2.
3.
4.

http://www.infrastructure.gov.in/
http://www.rbi.org.in/
http://www.irda.gov.in/
http://www.sebi.gov.in/

Integrated Transport System

Integrated transport system refers to a multi-modal transport system where different modes of
transport are efficiently linked with each other. This translates into the smooth movement of
freight over various modes of transport like roads, railways, ports, coastal shipping, inland water
and civil aviation. Different modes of transport differ in their capital intensity and technical and
operational capabilities. The capacity of each mode of transport has to be developed to meet its
specific demand viewed within the total demand for all modes of transport. While different
modes of transport compete with each other, they also supplement each other. For instance, roads
may be a pre-requisite to provide the last mile connectivity for a rail connection to a remote
village in a hilly terrain.
Planning Commission set up a Task Force on Integrated Transport Policy in 2001 with the
objective of developing various modes of transport which would lead to an efficient, sustainable,
safe and regionally balanced transportation system. The policy highlights that besides providing
transport infrastructure and services, technological upgradation and modernisation too are
important. It identifies issues of each mode of transport and recommends steps needed to be
undertaken to address these. RITES studied the inter-modal transport mix in 2009 for Planning
Commission and found that the percentage share of rail, road (highways), coastal shipping,
airways, inland water and pipelines in 2007-08 in terms of tonne-kilometres was 36.06, 50.12,
6.08, 0.02, 0.24 and 7.48, respectively. The importance of integrated transport solutions as
against individual transportation and distribution services is brought forth by the Planning
Commissions Report of the Working Group on Logistics, 2010-11. The report emphasises the
important role of containerisation in the movement of cargo through a multi-modal transport
system, by reducing overall costs and improving the cost competitiveness. The low share of
containerised tonnage as a proportion of total traffic handled by Indian ports and of total
domestic traffic carried by railways during 2008-09 at 14.32 per cent and 20 per cent,
respectively, is ascribed to the costly and inadequate delivery systems.

Internal and Extra Budgetary Resources (IEBR)

IEBR is an important part of the Central plan of the Government of India and constitutes the
resources raised by the PSUs through profits, loans and equity.
The global economic slowdown has affected the profits of the PSUs and has hampered their
resource generation capacities. In 2009-10 the Total Central Plan Outlay was Rs.406, 912 crores.
It consisted of the Gross Budget Support (GBS) for the Central Plan to the tune of 218,901 crores
(53.8%) and IEBR of Central Public Sector Units (CPSUs) to the tune of 188,011 crores
(46.2%). The share of government support for the Central Plan Outlay for 2011-12 continues to
be high at 56.6% while the increase in IEBR has been marginal due to the global economic
slowdown.
The budgetary support to the Central Plans from 1985-86 to 2011-12 are given in the following
link: http://www.planningcommission.nic.in/data/datatable/1705/final_11.pdf

Internal Planning Commission (IPC)/Full Planning Commission (FPC)

Meetings
The Internal Planning Commission meeting is the meeting held under the chairmanship of the
Deputy Chairman, Planning Commission and attended by the Members of Planning
Commission. It is a weekly review meeting to take stock of the activities going on and also to
take up new tasks. The Full Planning Commission meeting is the one taken by the Chairman,
Planning Commission viz; the Prime Minister of India. This meeting is attended by the ex-officio
Members of Planning Commission viz; the Union Minister for Finance, Union Minister for
Home Affairs, Union Minister for Human Resources Development, Union Minister for
Agriculture, Union Minister for Industry and Commerce, Union Minister for Rural Development
among others. This meeting takes place once or twice a year to decide on policy matters of
national importance like Approach Paper to Five Year Plan, Five Year Plan Document, Mid-term
Appraisal of Five Year Plans. Plan schemes exceeding Rs.250 crores also require Full Planning
Commission approval, but this approval is taken through circulation if the FPC is not meeting
immediately.

Jhum (Shifting) Cultivation

Jhum (Shifting) cultivation is a primitive practice of cultivation in States of North Eastern Hill
Region of India and people involved in such cultivation are called Jhumia. The practice involves
clearing vegetative/forest cover on land/slopes of hills, drying and burning it before onset of
monsoon and cropping on it thereafter. After harvest, this land is left fallow and vegetative
regeneration is allowed on it till the plot becomes reusable for same purpose in a cycle.
Meanwhile, the process is repeated in a new plot designated for Jhum cultivation during next
year. Initially, when Jhum cycle was long and ranged from 20 to 30 years, the process worked
well. However, with increase in human population and increasing pressure on land, Jhum cycle
reduced progressively (5-6 years) causing problem of land degradation and threat to ecology of
the region at large.

Watershed Development Project in Shifting Cultivation Areas (WDPSCA) was taken up in seven
States of North Eastern Region with 100% SCA as per directions of National Development
Council (NDC) in 1994-95. Recently, under National Afforestation Programme, problem of
jhum cultivation was given special focus. Mid-term appraisal of Eleventh Five
Year Plan mentions that as per report of Ministry of Rural Development, only 6.5 per cent of
households have been reportedly engaged in shiting cultivation in the country. The percentage of
area under jhum cultivation is 9.5 in North-Eastern region, while it is 0.5 per cent for central
tribal belt.

Kisan Credit Card

Kisan Credit Card is a pioneering credit delivery innovation for providing adequate and timely
credit to farmers under single window. It is a flexible and simplified procedure, adopting whole
farm approach, including short-term, medium-term and long-term credit needs of borrowers for
agriculture and allied activities and a reasonable component for consumption needs.
Credit card and pass book or credit card cum pass book provided to eligible farmers facilitate
revolving cash credit facility. Any number of drawals and repayments within a limit, which is
fixed on the basis of operational land holding, cropping pattern and scale of finance can be made.
Each drawal has to be repaid within a maximum period of 12 months and the Card is valid for 3
to 5 years subject to annual review. Conversion/reschedulement of loans is permissible in case of
damage to crops due to natural calamities. Crop loans disbursed under KCC Scheme for notified
crops are covered under Rashtriya Krishi Bima Yojana (National Crop Insurance Scheme), to
protect farmers against loss of crop yield caused by natural calamities, pest attacks etc.
References
1. http://www.nabard.org/development&promotional/kisancreditcardmore.asp
2. http://www.statebankofindia.com/user.htm
3. http://www.bankofindia.com/kisan.aspx

Kudumbashree
Kudumbashree ( which means prosperity of the family) is one of the largest women-empowering
projects in the country and is a model for implementing various poverty implementing
programmes at the local self government level in Kerala. The programme has 37 lakh members
and covers more than 50% of the households in Kerala. The three pillars of this programme
are micro credit,entrepreneurship and empowerment of women. Kudumbashree perceives
poverty not just as the deprivation of money, but also as the deprivation of basic rights.
Kudumbashree was conceived as a joint programme of the Government of Kerala and NABARD
and is implemented through Community Development Societies (CDSs) of poor women, serving
as the community wing of Local Governments.
Kudumbashree is formally registered as the "State Poverty Eradication Mission" (SPEM), a
society registered under the Travancore Kochi Literary, Scientific and Charitable Societies Act
1955. It has a governing body chaired by the State Minister of LSG. There is a state mission with

a field officer in each district. This official structure supports and facilitates the activities of the
community network across the state.
A major problem in Kerala is the problem of Waste Management and Kudumbashree is actively
involved in solid waste management in cities in Kerala. Kudumbashree is also involved in a
variety of initiatives such as holistic health, rehabilitation of destitute families, special schools
etc.
References
1. http://www.kudumbashree.org

Labour Budget
Labour Budget (LB) under Mahatma Gandhi National Rural Employment Guarantee Act
(MGNREGA) 2005 refers to advanced labour estimate for execution of a shelf of works for the
next financialyear. The advance assessment of labour demand in a district takes into account
seasonality aspects along with the examination of employment and livelihood opportunities in
the respective rural areas. On the basis of LB estimates, the Central Government projects its
central liability towards the districts.
LB entails planning, approval, funding and project execution modalities under MGNREGA. Subsection 6 of Section 14 of MGNREGA mandates the District Programme Coordinator (DPC)
under MGNREGA to prepare in December every year a labour budget for the next financial year.
LB contains the details of anticipated demand from unskilled manual work in the district and the
strategy for engagement of workers in the works covered under the programme. LBs are
prepared in accordance with the provisions made in sections 13 to 16 of MGNREGA and
processes defined in Chapter 8, para 8.4 of Operational Guidelines of MGNREGA 2005. DPC
has to ensure a strict adherence to the principle of bottom-up approach from planning to approval
of the selected shelf of works by each of the gram sabha in village panchayats of the district.
District-wise LBs of all MGNREGA implementing States are provided to Government of India
latest by 31st January each year for the next financial year. Once financial requirement of the
districts is assessed through LB, the first instalment of central share (up to 50 % of the total cost
indicated in LB) is released to the district.

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. It has four regional offices at Ahmedabad, Chennai, Kolkata and
Kanpur with a sub regional office at Mumbai.
The foundations of Labour Bureau can be traced to the The Royal Commission on Labour in
1931 which emphasised the need for systematic collection of labour statistics relating to living,
working and socio-economic conditions of industrial labour. The rise in prices post world war II
also necessitated the need for setting up of a machinery for measuring change in prices for
compensation of wages of workers. The Rau Court of Enquiry was set up in 1940 to recommend

a statistical machinery for measuring change in prices. Accordingly the Directorate of Cost of
Living was set up at Shimla in 1941 for conducting Family Budget Enquiries and compiling
index numbers. Later in 1946 the directorate was renamed as Labour Bureau.
Labour Bureau collects and publishes statistics and related information on wages, earnings,
productivity, absenteeism, labour turn-over, industrial relations, working and living conditions
and evaluation of working of various labour enactments etc. Besides important economic
indicators like Consumer Price Index Numbers for Industrial, Agricultural and Rural Labourers;
wage rate indices and data on industrial relations, socio-economic conditions in the organised
and unorganised sector of industry etc are also released by the office.
The functions/activities of Labour Bureau can be classified under the following major heads:

Labour Intelligence: This consists of compilation and maintenance of Consumer Price

Index Numbers for Industrial Workers, Agricultural/Rural Labourers, Retail Price Index of
Selected Essential Commodities in Urban

Areas, Wage Rate Indices, Productivity Indices.

Labour Research: Labour research consist of conducting research studies and surveys on
labour related matters in organized and unorganized sector covering inter-alia SC/ST
Workers, Women Labour, Contract Workers etc. Quick

Employment Survey and Employment-Unemployment survey are also being conducted by

Labour Bureau.

Monitoring and evaluation studies: This entails collection, compilation and dissemination
of statistical information on various aspects of labour such as employment, wages and
earnings, absenteeism, labour turnover, social

security, welfare amenities, industrial relations, etc. based on statutory and voluntary returns
under different Labour Acts and surveys conducted.
References
1. http://www.labourbureau.gov.in/

Labour Force
The concept of Labour force also known as the economically active population is used by
NSSO in collection of data on employment and unemployment. An economically active person
is one who is engaged in some economic activity or seeks to engage him/herself in some
economic activity. Accordingly, to classify a person as belonging to labour force or not during a
reference period, first his/her activity status is determined. The NSSO defines following three
broad Activity Status:
i) Working (engaged in an economic activity) i.e. Employed,
ii) Seeking or available for work i.e. Unemployed,
iii) Neither seeking nor available for work.

All those persons who were either working or seeking or available for work during the
reference period are classified as being in the labour force. Those who are working are further
classified into following categories i) self employed ii) regular salaried/wage employees iii)
casual wage labour. Workers are part of the labour force.
A person seeking/available for work is the one who did not work due to lack of work but was
actively looking for work through various channels like employment exchanges, friends and
relatives etc. and was willing/available to work under the prevailing conditions of work and
remuneration. Such persons are also the part of labour force.
Persons who were neither working nor seeking/available for work during the reference period
are classified as being outside the labour force. These are students, rentiers, pensioners, those
engaged in domestic duties, recipients of remittances, too young persons, etc and casual
labourers not working due to sickness.

Labour Force Participation Rate

The Labour Force Participation Rate (LFPR), obtained by dividing the number of persons in the
labour force by total population, is an important parameter in employment projections and
formulation of employment strategies.
NSSO defines Labour force participation rate (LFPR) as the number of persons/person days in
labour force per thousand persons/person days.
LFPR = No. of persons/person days employed + No. of persons/person days unemployed x 1000
Total Population
The crucial issue, however, is the basis, or the decision rule, on which a person is classified as
belonging to the labour force. There are four different concepts used in India in this regard.
These are*:
a) Usual Principal Status (UPS)
b) Usual Principal and Subsidiary Status (UPSS)
c) Current Weekly Status (CWS), and
d) Current Daily Status (CDS).
References
1. http://nceuis.nic.in/working_paper_1.pdf

Liquidity Adjustment Facility (LAF)

Liquidity adjustment facility (LAF) is a monetary policy tool which allows banks to borrow
money through repurchase agreements. LAF is used to aid banks in adjusting the day to day
mismatches in liquidity.LAF consists of repo and reverse repo operations. Repo or repurchase
option is a collaterised lending i.e. banks borrow money from Reserve bank of India to meet
short term needs by selling securities to RBI with an agreement to repurchase the same at
predetermined rate and date. The rate charged by RBI for this transaction is called the repo rate.
Repo operations therefore inject liquidity into the system. Reverse repo operation is when RBI
borrows money from banks by lending securities. The interest rate paid by RBI is in this case is

called the reverse repo rate. Reverse repo operation therefore absorbs the liquidity in the system.
The collateral used for repo and reverse repo operations comprise of Government of India
securities. Oil bonds have been also suggested to be included as collateral for Liquidity
adjustment facility
Liquidity adjustment facility has emerged as the principal operating instrument for modulating
short term liquidity in the economy. Repo rate has become the key policy rate which signals the
monetary policy stance of the economy.
The origin of repo rates, one of the component of liquidity adjustment facility, can be traced to
as early as 1917 in U.S financial market when war time taxes made other sources of lending
unattractive . The introduction of Liquidity adjustment facility in India was on the basis of the
recommendations of Narsimham committee on banking sector reforms. In April 1999, an interim
LAF was introduced to provide a ceiling and the fixed rate repos were continued to provide a
floor for money market rates. As per the policy measures announced in 2000, the Liquidity
Adjustment Facility was introduced with the first stage starting from June 2000 onwards.
Subsequent revisions were made in 2001 and 2004. When the scheme was introduced, repo
auctions were described for operations which absorbed liquidity from the system and reverse
repo actions for operations which injected liquidity into the system. However in international
nomenclature, repo and reverse repo implied the reverse. Hence in October 2004 when revised
scheme of LAF was announced, the decision to follow the international usage of terms was
adopted.
Repo and reverse repo rates were announced separately till the monetary policy statement in
3.5.2011. In this monetary policy statement, it has been decided that the reverse repo rate would
not be announced separately but will be linked to repo rate. The reverse repo rate will be 100
basis points below repo rate. The liquidity adjustment facility corridor, that is the excess of repo
rate over reverse repo, has varied between 100 to 300 basis points. The period between April
2001 to March 2004 and June 2008 to early November 2008 saw a broader corridor ranging from
150-250 and 200-300 basis points respectively. During March 2004 to June 2008 the corridor
was narrow with the rates ranging from 100-175 basis points. A narrow LAF corridor is reflected
from November 2008 onwards. At present the width of the corridor is 100 basis points. This
corridor is used to contain any volatility in short term interest rates.
References
1. http://www.rbi.org.in/

Local Governance system in rural India (Panchayati Raj) and the 73rd
amendment of the Constitution
Institutions of local governance in the rural areas of India are referred to as Panchayats.
History
The history of legalized or institutionalized Panchayats (initiated by the British in different parts
of India in the later part of the 19th century) is not very old. However, the spirit, in which this is
viewed in independent India, is believed to be ancient. In the early ages, when the emperors rule
hardly reached remote corners of the kingdom, villages were generally isolated and

communication systems primitive, village residents gathered under the leadership of village
elders or religious leaders to discuss and sort out their problems. This practice of finding
solutions to local problems collectively, has found mention in ancient texts like Kautilyas
Arthshastra and in subsequent years, in Abul Fazals Ain-E-Akbari and are still prevalent in
different forms all over the country.
Rural local governments during the British rule were not given enough functions, authority, or
resources. Those were not truly representative and often dominated by government functionaries.
Mention of local governments in the Indian Constitution, as it was adopted in 1950, can be found
in the chapter on Directive Principles of State Policy, which stated that the states should enact
appropriate laws for constituting Panchayats enabling them to function as local governments. In
1957 a committee headed by Balawant Rai Mehta was set up to assess the success of the
Community Development Programmes and National Extension Services launched in 1951 and
1952 (as well as other programmes) during the first five year plan. One of the most significant
recommendations of the Committee was the observation that in order to make various
development initiatives meaningful by ensuring that the benefits reach the targeted beneficiaries,
revival of Panchayats were necessary. The Committee felt that it was possible only for the
Panchayats to involve the primary stakeholders, the people, with developmental activities.
In the wake of this recommendation many states enacted new Panchayat Acts thereby
substituting the old ones inherited from the British. It is in such a manner that the first generation
of Panchayats came into being in the country, with two tiers in some states, three tiers in many
and even four tiers in a few. First generation Panchayats, which were apolitical, were not very
successful for a variety of reasons. Most important of them were: ambiguous laws about exact
roles, functions and authority, insufficient manpower and a general lack of resources.
However, on the recommendation of the Ashok Mehta Committee (1977), most of the states
provided for political participation in Panchayat elections. This, coupled with decisions of
several states to involve Panchayats in the developmental initiatives and delivery of various
services to the rural people, made the Panchayats somewhat active and vibrant. Examples of
West Bengal, Kerala and Karnataka can be referred to in this respect.
Admittedly, even after this Panchayats did not evolve as peoples institutions and largely failed
to deliver what were expected of them. L.M. Singhvi Committee in 1985 opined that in order to
make the Panchayats effective, such institutions should be declared as units of local governments
and there should be Constitutional mandate on state governments to ensure that the Panchayats
function as such.
The 73rd Amendment of the Constitution, 1992
1992 was the most significant year in the history of Panchayats in India as the 73rd amendment
of the Constitution (amendment of Article 243) was passed by the Indian Parliament that
declared Panchayats as institutions of self government. (The 74th amendment done at the same
time relate to urban local bodies). These amendments came into force from April 24 1993.
The major features of the 73rd amendment can be enumerated as under:

There should be three tiers of Panchayats (District Panchayats, Block Panchayats i.e.
intermediary Panchayats and Village or Gram Panchayats) in states with over 25 lakh of

population. States with less than this population will have only two tiers omitting the
intermediary tier.
Panchayats declared as institutions of self governments (signifying that the status of
Panchayats is same in their respective areas, as that of the Union Government at the national
and State Governments at the state level).
States were mandated to devolve functions relating to 29 subjects (including agriculture,
land reforms, minor irrigation, fisheries, cottage and small scale industries, rural
communication, drinking water, poverty alleviation programmes etc.) to the Panchayats.
Panchayats were mandated to prepare plan(s) for economic development and social
justice and implement them.
States were asked to constitute a State Finance Commission every five years to determine
the Panchayats share of states financial resources as a matter of entitlement (just as the
Central Finance Commission determines how resources of the Central government should be
shared between the union and state governments).
Panchayat bodies must have proportionate representation of Scheduled Caste, Scheduled
Tribes and women. Such reservation should also apply in the cases of Chairpersons and
Deputy Chairpersons of these bodies.
There shall be State Election Commission in each state which shall conduct elections to
the local bodies in every five years.

(Note: This amendment is not applicable in some special areas and in the states like Nagaland,
Mizoram, etc. and in areas where regional councils exist).
Amendment of the Constitution necessitated large scale amendments in the Panchayat Acts of
individual states, though in states like West Bengal almost all the requirements of the
Constitutional amendment were already provided for in the Panchayat Act.
Almost all the states are presently having three tiers of Panchayats. At the lowest level is the
Gram Panchayat (GP, headed by Pradhan/Sarpanch/Mukhia). The intermediary level Panchayat
is called Block Panchayat/Panchayat Samiti/Taluka Panchayat (PS, headed by
President/Sabhapati). At the district level there is the District Panchayat/Zilla Parishad/Zilla
Panchayat (ZP headed by Chairman/ Sabhadhipati).
(Comments and assistance received from Shri Amalendu Ghosh IAS(R) in preparing this note is
gratefully acknowledged).</p>

Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA)

of 2005
This is a rural wage employment programme in India. It provides for a legal guarantee of at least
100 days of unskilled wage employment in a financial year to rural households whose adult
members are willing to engage in unskilled manual work at a pre-determined minimum wage
rate.
The objectives of the Act are:

to enhance the livelihood security of the rural poor by generating wage employment
opportunities; and

to create a rural asset base which would enhance productive ways of employment,
augment and sustain rural household income.

MGNREGA was initially implemented as National Rural Employment Guarantee Act (NREGA)
in 200 selected backward districts in India on February 2, 2006. It was extended to an additional
130 districts with effect from April 1, 2007. Later, the remaining 285 districts were covered from
April 1, 2008. The National Rural Employment Guarantee (Amendment) Act, 2009 renamed
NREGA as MGNREGA.
Section 4(1) of MGNREGA mandates the design and implementation of State-specific Rural
Employment Guarantee Schemes (REGS) to give effect to the provisions made in MGNREGA.
Section 6(1) empowers the Central Government to specify the wage rates for MGNREGA
beneficiaries. So far, the wage rates have been modified three times, the latest being on January
14, 2011 where the base minimum wage rate of Rs. 100 was indexed to inflation.
MGNREGA is unique in not only ensuring at least 100 days of employment to the willing
unskilled workers, but also in ensuring an enforceable commitment on the implementing
machinery i.e., the State Governments, and providing a bargaining power to the labourers. The
failure of provision for employment within 15 days of the receipt of job application from a
prospective household will result in the payment of unemployment allowance to the job seekers.
The implementation of MGNREGA largely depends on the active participation of three-tier
decentralized self governance units called Panchayat institutions. The panchayats are required to
estimate labour demand, identify works and demarcate work sites, prioritize works, prepare
village/block/district level development plans in advance for the continuous and smooth planning
and the execution of this wage employment programme. The Panchayats are responsible for
processing the registration of job seekers, issuance of job cards, receipts of applications for
employment, allotment of jobs, identification of work sites, planning, allocation and execution of
works, payment of wages and commencement of social audit, transparency and accountability
check at the grass-root level.
The implementation of MGNREGA has influenced the wage structure in rural areas as the
minimum wages for agricultural labourers across States have witnessed an upward trend between
2006 and 2010. The Act has broadened the occupational choices available to the agricultural
workers within their locality, thereby impacting rural-urban migration.
As against budget provision of Rs 39,100 crore in 2009-10, the amount actually spent under this
programme was Rs 33,539 crore. During 2010-11, a budget provision of Rs. 40,100 crore has
been made under this programme.

Mandi
Mandi in Hindi language means market place. Traditionally, such market places were for food
and agri-commodities. However, over time the coverage of mandis got widened to include
trading hubs for grains, vegetables, timber, gems and diamonds; almost every tradable was
included. .Mandis for animals like cattle, goats, horses, mules, camels and buffaloes, and poultry
are often organised as fairs. Thus the word mandi assumes the contours of a catch-all market
place where anything is bought and sold.

In a still predominantly rural India, mandis form part of the life-line infrastructure for the people.
In most of the states/provinces in India, the Agricultural Produce Marketing
Committee(APMC)[1] operates the wholesale market for agri-products. Wholesale markets are
segregated depending on the type of commodity handled: for instance, for grains, pulses,
vegetables, potato and onion, spices and condiments, fruits. The growing disenchantment with
the functioning of APMCs has led to relaxation of the APMC Rules and the emergence of direct
marketing in agri-commodities. These are often called farmers markets: inthe state of Andhra
Pradesh they are called Rythu bazaar[2] and in Tamil Nadu Uzhavar Sandhai[3] .These markets
enable the farmer to sell his produce directly to the consumers without the middlemen in the
APMCs. Minimising intermediation and the creation of a national common market are long
cherished policy goals of the government.
Tezi mandi or Futures markets
India is known for commodity forward and futures markets that existed for centuries though
standardised, regulated futures trading has a history of over a century only. Unregulated futures
markets are often called Satta Bazar.
Futures markets are auction markets in which participants buy and sell futures contracts for
delivery on a specified future date. Trading used to be carried out through open outcry- yelling
and hand signals- in a trading pits[4] .However, since the early 2000s most of the commodity
futures exchanges have migrated to the new technology platform of online or electronic trading.
The commodity futures markets are regulated by the Forward Markets Commission[5].
Market Imperfections and Prices
India is a huge agri-nation with shortages and surpluses. But a national common market is a far
cry. Further, there is also wide discrepancy in the prices at various levels. Price heterogeneity
could be largely because of information asymmetry existing in the markets; quite similar to the
market for lemons. However, the latent demand for the commodities ensures that Greshams law
does not prevail, and commodities, which are graded by quality, are sold at all prices. Owing to
this, food inflation in India did not quite follow the peaks and troughs experienced in the global
markets. The year 2008-09 was a watershed year in terms of the volatility in prices that was
witnessed in global prices; when global commodity markets went through a roller-coaster ride,
with prices sharply rising during the first half and having a free fall in the second half and
culminating in a recessionary phase. Although the Indian market was spared the volatility, it
became evident in 2010-11 that price levels of essential commodities had moved on to a higher
trajectory.
References
1.
2.
3.
4.
5.
6.

http://agricoop.nic.in/FINAL%20Model%20Rule%20as%20corrected%20on%2007%2011%2007.pdf
http://market.ap.nic.in/npage/rbz.htm
http://www.tnsamb.gov.in
Read more: http://www.investopedia.com/terms/f/futuresmarket.asp#ixzz1Zi2vUOER
http://www.fmc.gov.in
http://en.wikipedia.org/wiki/Gresham's_law#cite_note-0

Marginal Standing Facility

Marginal Standing Facility (MSF) is a new scheme announced by the Reserve Bank of India
(RBI) in its Monetary Policy (2011-12). It came into effect from 9th May 2011. MSF scheme is
provided by RBI where the banks can borrow overnight upto 1 per cent of their net demand and
time liabilities (NDTL) i.e. 1 per cent of the aggregate deposits and other liabilities of the banks.
The rate of interest for the amount accessed through this facility is fixed at 100 basis points (i.e.
1 per cent) above the repo rate for all scheduled commercial banks.
The MSF would be the last resort for banks once they exhaust all borrowing options including
the liquidity adjustment facility by pledging through government securities, which has lower rate
of interest in comparison with the MSF. The MSF would be a penal rate for banks and the banks
can borrow funds by pledging government securities within the limits of the statutory liquidity
ratio. The scheme has been introduced by RBI with the main aim of reducing volatility in the
overnight lending rates in the inter-bank market and to enable smooth monetary transmission in
the financial system.
Banks can borrow through MSF on all working days except Saturdays, between 3.30 and 4 30
p.m. in Mumbai where RBI has its headquarters. The minimum amount which can be accessed
through MSF is Rs.1 crore and in multiples of Rs.1 crore. ( Rs 1 crore = Rs 10 million). The
application for the facility can be submitted electronically also by the eligible scheduled
commercial banks. The banks used the facility for the first time in June 2011 and borrowed Rs.1
billion via the MSF.
Currently the MSF rate is 9.25 per cent, which is 1 per cent above the repo rate which is at 8.25
per cent. MSF represents the upper band of the interest corridor and reverse repo (7.25 per cent)
as the lower band and the repo rate in the middle. To balance the liquidity, RBI would use the
sole independent policy rate which is the repo rate and the MSF rate automatically adjusts to 1
per cent above the repo rate.
The ECB (European Central Bank) also offers standing facilities called marginal lending
facilities similar to the MSF introduced in India. The Federal Reserve has discount window
systems similar to Standing facilities. Like the MSF, the secondary credit facility made available
by the Federal Reserve to the depository institutions in USA is typically overnight credit on a
very short term basis at rates above the primary credit rate.
The effectiveness of standing facilities in reducing volatility have been examined by many
scholars and certain studies have pointed out that in the Federal Reserve System in the United
States, the design of the facility decreases a banks incentive to participate actively in interbank
market due to the perceived stigma from using such facility. This in turn reduces the
effectiveness of standing facility in reducing interest rate volatility.
References
Furfine,Craig (2003) Standing facilities and interbank borrowing: Evidence from the Feds new discount
window,Working Paper, Federal Reserve Bank of Chicago.
1.
2.
3.
4.

http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=6394&Mode=0
http://www.ecb.int/mopo/implement/sf/html/index.en.html
http://www.federalreserve.gov/monetarypolicy/discountrate.htm
http://www.chicagofed.org/digital_assets/publications/working_papers/2004/wp2004_01.pdf

Market Stabilization Scheme (MSS)

This scheme came into existence following a MoU between the Reserve Bank of India (RBI) and
the Government of India (GoI) with the primary aim of aiding the sterilization operations of the
RBI.
Historically, the RBI had been sterilizing the effects of significant capital inflows on domestic
liquidity by offloading parts of the stock of Government Securities held by it. It is pertinent to
recall, in this context, that the assets side of the RBIs Balance Sheet (July 1 to June 30) includes
Foreign Exchange Reserves and Government Securities while liabilities are primarily in the form
of High Powered Money (consisting of Currency with the public and Reserves held in the RBI
by the Banking System). Thus, any rise in Foreign Exchange Reserves resulting from the
intervention of the RBI in the Foreign Exchange Markets (with the intention, say, to maintain the
exchange rate on the face of huge capital inflows) entails a corresponding rise in High Powered
Money. The Money Supply in the economy is linked to High Powered Money via the money
multiplier. Therefore, on the face of large capital inflows, to keep the liabilities side constant so
as to not raise the Supply of Money, corresponding reduction in the stock of Government
Securities by the RBI is necessary.
The MSS was devised since continuous resort to sterilization by the RBI depleted its limited
stock of Government Securities and impaired the scope for similar interventions in the future.
Under this scheme, the GoI borrows from the RBI (such borrowing being additional to its normal
borrowing requirements) and issues Treasury-Bills/Dated Securities that are utilized for
absorbing excess liquidity from the market. Therefore, the MSS constitutes an arrangement
aiding in liquidity absorption, in keeping with the overall monetary policy stance of the RBI,
alongside tools like the Liquidity Adjustment Facility (LAF) and Open Market Operations
(OMO).
The securities issued under MSS, termed as Market Stabilization Scheme (MSS)
Securities/Bonds, are issued by way of auctions conducted by the RBI and are done according to
a specified ceiling mutually agreed upon by the GoI and the RBI. They possess all the attributes
of existing Treasury-Bills/Dated Securities and are included as a part of the countrys internal
Central Government debt.
The amount raised under the MSS does not get credited to the Government Account but is
maintained in a separate cash account with the RBI and are used only for the purpose of
redemption/buy back of Treasury-Bills/Dated Securities issued under the scheme.
However, following the global financial crisis of 2008, that necessitated fiscal stimulus
measures, an amendment to the original MoU between the RBI and the GoI in February 2009
allowed the Government to convert a portion of the MSS funds into normal government
borrowing for financing its stimulus expenditure requirements.
Treasury-Bills/Securities issued under MSS are matched by equivalent cash balances that are
held by the Government with the RBI. Such payments are not made from the MSS account just
as receipts due to premium or accrued interest on these Securities are not credited to it.
As and when MSS securities are issued by the RBI as well as the annual ceiling, when decided,
is notified through a press release. For the fiscal year 2010-11 the annual ceiling for such
securities outstanding stand at Rs. 50,000 crore, with a review due when the outstanding reaches
the threshold of Rs. 35,000 crore.

References
1. http://www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=9886
2. http://www.rbi.org.in/scripts/PublicationReportDetails.aspx?TYPE=PERIOD&PARAM1=11/12/2003&PA
RAM2=13/12/2003

Member of Parliament Local Area Development Scheme (MPLADS)

MPLADS is a Plan Scheme fully funded by Government of India. Under the scheme, each
Member of Parliament (MP) has the choice to suggest to the District Collector works to the tune
of Rs.5 crore per annum to be taken up in her/his constituency, as per eligibility. Rajya Sabha
MP can recommend works in one or more districts in the State from where she/he has been
elected. Nominated Members of Lok Sabha and Rajya Sabha may select any one or more
districts from any one State in the Country for implementation of work(s) of their choice under
the scheme.
Ministry of Statistics & Programme Implementation (MOS&PI) has issued guidelines on
Scheme Concept, implementation, and monitoring http://mplads.nic.in/. Progress of works being
implemented under the scheme is monitored by MOS&PI on regular basis.

Mezzanine Financing
Mezzanine financing is defined as a financial instrument which is a mix of debt & equity
finance. It is a debt capital that gives the lender the rights to convert to an ownership or equity
interest in the company. Mezzanine finance is listed as an asset on companys balance sheet. As
it is treated as equity in a companys balance sheet, it allows the company to access other
traditional sources of finance. In the hierarchy of creditors, mezzanine finance is subordinate to
senior debt but ranks higher than equity. The return on mezzanine finance is higher in relation to
debt finance but lower than equity finance. It is also available quickly to the borrower with little
or no collateral. The concept of mezzanine financing is just catching up in India. Mezzanine
financing is used mainly for small and medium enterprises, infrastructure and real estate. ICICI
Venture's Mezzanine Fund was the first fund in India to focus on mezzanine finance
opportunities.

Micro-finance
Micro-finance (MF) is a small-scale financial intermediation, inclusive of savings, credit,
insurance, business services and technical support provided to the needy borrower. The thrust of
the MF initiative is to channelize production and consumption credit in multiple doses based on
the absorption capacity of the prospective borrower. The presumption here is that the borrowers
possess basic financial literacy and requisite capacity to operate their self-determined economic
ventures profitably.
Evolution of Micro-Finance
The formal existence of MF was found in 1972. A charity based model (interest free loans where
repayment was based on peer pressure) of MF was evolved in Ireland. Later on, in Germany, a

thrift-based model was developed with establishment of saving funds. Bangladesh Grameen
model is based on the principle of trust and creditworthiness of poor with both, obligatory and
voluntary saving schemes. The Foundation for Development Cooperation (FDC) of Australia
evolved a research project, The Banking with the Poor (BWTP) network to link between
microfinance institutions with formal financial institutions.
Micro Finance and Indian Economy
There are four important MF models prevalent in India.
MF has become a movement in India. Simultaneously it has become a unique tool of
empowerment and capability enhancement.
Firstly, it has added millions of people to the banking system by developing the habit of thrift
and saving.
Secondly, it helps in poverty alleviation.
Thirdly, it encourages group and individual activities which provide livelihood on a regular
basis.
Fourthly, through MF, financial inclusion is possible with the common effort of Bank, NGOs,
Micro-Finance Institutions and other institutions.
Fifthly, it empowers women by making women not only economically, but socially and
politically as well.
References
1. Status of Micro-Finance in India 2009-10,
NABARD, http://www.nabard.org/pdf/Status%20of%20Micro%20Finance%202009-10%20Eng.pdf
2. http://www.nabard.org
3. http://www.rbi.org.in
4. http://www.indiamicrofinance.com
5. http://www.microfinancegateway.org/p/site/m/

Mid-Term Appraisal of Five Year Plans

The time duration for implementing a Five Year Plan as the nomenclature suggests is five years.
As the third year of implementation of the plan draws to a close, the process for evaluating three
years of implementation of the five-year plan and to recommend corrective measures for the
remaining two years of the plan starts. To ascertain the performance meetings are held with the
implementing officers at the Central and State level, subject experts are invited to give their
views and data on implementation is collected from the States after which the MTA document is
finalised. Major mid-course corrections usually does not take place. Minor interventions that
come to the notice of the Central Ministry are addressed then and there. Every Central Ministry
holds annual/biannual/quarterly conferences with their State counterparts to ascertain the
progress of implementation of the various schemes. These inputs are also made available for
preparation of the Mid-Term Appraisal document. The Mid-Term Appraisal document is made
available in the public domain after approval by the National Development Council.

Minimum Support Prices

Minimum Support Price (MSP) is a form of market intervention by the Government of India to
insure agricultural producers against any sharp fall in farm prices. The minimum support prices
are announced by the Government of India at the beginning of the sowing season for certain
crops on the basis of the recommendations of the Commission for Agricultural Costs and Prices
(CACP). MSP is price fixed by Government of India to protect the producer - farmers - against
excessive fall in price during bumper production years. The minimum support prices are a
guarantee price for their produce from the Government. The major objectives are to support the
farmers from distress sales and to procure food grains for public distribution. In case the market
price for the commodity falls below the announced minimum price due to bumper production
and glut in the market, govt. agencies purchase the entire quantity offered by the farmers at the
announced minimum price.
Minimum support prices are currently announced for 24 commodities including seven cereals
(paddy, wheat, barley, jowar, bajra, maize and ragi); five pulses (gram, arhar/tur, moong, urad
and lentil); eight oilseeds (groundnut, rapeseed/mustard, toria, soyabean, sunflower seed,
sesamum, safflower seed and nigerseed); copra, raw cotton, raw jute and virginia flu cured
(VFC) tobacco.
Such minimum support prices are fixed at incentive level, so as to induce the farmers to make
capital investment for the improvement of their farm and to motivate them to adopt improved
crop production technologies to step up their production and thereby their net income. In the
absence of such a guaranteed price, there is a concern that farmers may shift to other crops
causing shortage in these commodities.
Historical context
The emergence of agricultural Price Policy in India was in the backdrop of food scarcity and
price fluctuations provoked by drought, floods and international prices for exports and imports.
This policy in general was directed towards ensuring reasonable food prices for consumers by
providing food grains through Public Distribution System (PDS) and inducing adoption of the
new technology for increasing yield by providing a price support mechanism through Minimum
Support Price (MSP) system.
In recognition of the importance of assuring reasonable produce prices to the farmers, motivating
them to adopt improved technology and to promote investment by them in farm enterprises, the
Agricultural Prices Commission (renamed as the Commission for Agricultural Costs and Prices
in 1985) was established in 1965 for advising the Government on agricultural prices policy on a
continuing basis. The thrust of the policy in 1965 was to evolve a balanced and integrated
structure to meet the overall needs of the economy and with due regard to the interests of the
producers and the consumers. The first Commission was headed by Prof M L Dantwala and in its
final report the Commission suggested the Minimum Support Prices for Paddy.
Method of Calculation
In formulating the recommendations in respect of the level of minimum support prices and other
non-price measures, the CACP takes into account a comprehensive view of the entire structure of
the economy of a particular commodity or group of commodities. Other Factors include cost of

production, changes in input prices, input-output price parity, trends in market prices, demand
and supply, inter-crop price parity, effect on industrial cost structure, effect on cost of living,
effect on general price level, international price situation, parity between prices paid and prices
received by the farmers and effect on issue prices and implications for subsidy. The Commission
makes use of both micro-level data and aggregates at the level of district, state and the country.
Supply related information - area, yield and production, imports, exports and domestic
availability and stocks with the Government/public agencies or industry, cost of processing of
agricultural products, cost of marketing - storage, transportation, processing, marketing services,
taxes/fees and margins retained by market functionaries; etc. are also factored in.
References
1. Commission for Agricultural Costs and Prices - http://cacp.dacnet.nic.in/
2. Economic Survey, various years http://www.indiabudget.nic.in

Model Concession Agreement

Model Concession Agreement (MCA) forms the core of public private partnership (PPP) projects
in India. The MCA spells out the policy and regulatory framework for implementation of a PPP
project. It addresses a gamut of critical issues pertaining to a PPP framework like mitigation and
unbundling of risks; allocation of risks and returns; symmetry of obligations between the
principal parties; precision and predictability of costs & obligations; reduction of transaction
costs and termination. The MCA allocates risk to parties best suited to manage them.
The Model Concession Agreements for various sectors like National Highways, State Highways,
Urban Rail Transit System and Ports are available. The details regarding the MCAs for different
sectors and its overview can be accessed at http://infrastructure.gov.in/publications.htm
References
1. http://www.infrastructure.gov.in/

Models of Microfinance in India

The four most important Micro Finance models prevalent in India are:
Model I - individuals or group borrowers are financed directly by banks without the
intervention/facilitation of any Non-Government Organisation (NGO).
Model II - borrowers are financed directly with the facilitation extended by formal or informal
agencies like Government, Commercial Banks and Micro-Finance Institutions (MFIs) like
NGOs, Non BankFinancial Intermediaries and Co-operative Societies;
Model III - financing takes place through NGOs and MFIs as facilitators and financing agencies;
Model IV - is the Grameen Bank Model, similar to the model followed in Bangladesh.
In India, Model II of MF constitutes three-fourths of total micro-financing where activity/joint
liability/Self-Help Groups are formed and nurtured by facilitating agencies and are linked
directly with banks for the purpose of receiving credit.

References
1. http://www.rbi.org.in/scripts/PublicationsView.aspx?Id=10932
2. http://www.rbi.org.in
3. http://www.nabard.org

Monetary Policy Dilemmas: Some RBI Perspectives (Dr. D. subbarao,

Governor, RBI)
Monetary policy making is both an art and science. Textbooks typically simplify monetary
policy analysis by classifying the various shocks into demand and supply shocks. Under such
textbook abstractions, monetary policy actions are unambiguous. If inflation is high, raise
interest rates. If inflation is below target, reduce interest rates. But real world problems are too
complex to fit template solution of text books. In particular, it is difficult to segregate the shocks
neatly into the two boxes of demand shocks and supply shocks and this complicates monetary
management.
This blog addresses some of the complexities and dilemmas in the management of monetary
policy. In particular, I will focus on two topical issues. First, how should monetary policy deal
with shocks which are a combination of both demand and supply factors? And, second, is there
any inconsistency between the central bank injecting liquidity while pursuing a tight monetary
policy?
What is the appropriate monetary policy response to complex growth-inflation dynamics?
India recovered from the crisis sooner than even other emerging economies, but inflation too
caught up with us sooner than elsewhere. Inflation, as measured by the wholesale price index
(WPI), which actually went into negative territory for a brief period in mid-2009, started rising in
late 2009, and it has remained around 9- 10 per cent since January 2010 reflecting both supply
and demand pressures. Supply pressures stemmed from elevated domestic food prices and rising
global prices of oil and other commodities. The source of demand pressures was an economy
with low per capita income which recovered sharply from the crisis. The supply pressures and
demand pressures collided triggering a wider inflationary process.
In response to the inflationary pressures, the Reserve Bank began to reverse its accommodative
monetary policy as early as October 2009. We have been criticized for our anti-inflationary
stance, ironically from two different directions.
From one side, we have been criticized for being hawkish on inflation. The argument has been
that our inflation is driven largely by supply shocks, particularly, since mid-2010, by high oil and
other commodity prices, and that monetary policy should not respond to such inflation. We will
only end up hurting growth. The criticism from the other side has been that the Reserve Bank has
been soft on inflation, the baby step approach we followed - of increasing policy interest rates by
25 basis points (bps) each time - was not deterrent enough, and that the persistence of inflation is
a result of our delayed response. Both these critiques cannot obviously be right at the same time.
Let me offer a response to them and in the process explain the rationale for our anti-inflationary
stance.

Monetary Policy Too Hawkish

My response to the doves is as follows. Admittedly, monetary policy is best suited to contain
inflationary pressures stemming from the aggregate demand side. In that case, the policy
prescription is clear. If inflation is high, tighten monetary policy; and if inflation is low, loosen
monetary policy. Monetary policy options in the face of supply shocks are less straight forward.
Whether monetary policy is effective in dealing with supply shocks is therefore a matter of both
academic debate and policy contention. The conventional wisdom is that if inflation expectations
are well anchored, monetary policy need not react to supply shocks. This premise is based on
two assumptions; first that the supply shocks are purely temporary, and second that supply
shocks are the only ones driving inflation. These assumptions do not always hold. In the real
world, oftentimes supply shocks lead to a permanent trend upward shift in prices. Also,
sometimes, demand pressures combine with supply shocks to stoke inflationary pressures.
A good illustration of the first assumption - mean reverting supply shocks - not holding comes
from the world prices of oil which have trended up on a long period basis. International crude oil
prices recorded an annual average increase of around 17 per cent during the 2000s as against
only a modest increase of 2 per cent during the 1990s and a decline of 3 per cent during the
1980s. This obviously is the outcome of structural changes in supply and demand for oil.
Monetary policy has to recognize these underlying trends and respond to them. If it looks upon
these trends as pure transient supply shocks and ignores them, it runs the risk of destabilizing
inflation expectations.
And now about the second assumption - of supply shocks not usually acting alone to stoke
inflation. The shifting drivers of inflation in India over the past year and a half offer a good
illustration. The increase in global commodity prices coincided with rapidly rising demand at
home. GDP grew at 8.5 per cent last year (2010/11), faster than the trend growth rate which is
now estimated to be of the order of 8 per cent. In an environment of rapid growth and high
capacity utilization, corporates regained pricing power and were able to pass through the increase
in input prices to higher output prices thus fuelling generalized inflationary pressures.
Similar dynamics were at play on the food front. Rising incomes, especially toward proteinbased foods, have resulted in a shift in dietary habits away from cereals and toward protein-based
foods. This is a structural change and monetary policy will be misled if it treats this as a one-off
supply shock. Given the high share of food in the various consumer price indices (46%-70%),
persistent supply pressures on the food front can fuel inflation expectations; and in the face of
growing demand pressures, rising inflation expectations can trigger a wage-price spiral. Recent
reports that real wages of rural labour have gone up markedly suggest that such a wage-price
spiral may already be under way.
To summarize, the inflation that we have experienced over the last two years - 2010 and 2011 is a result of a combination of supply shocks that had a trend impact on prices as well as demand
pressures. Given the nature of the inflation drivers and their combined impact, clearly there is a
significant role for monetary policy in combating inflation. Our monetary policy stance is guided
by this understanding, and is aimed at restraining demand and anchoring inflation expectations.
The argument of our critics that monetary policy has no role because inflation is a result of
imported commodity prices would have been valid if the increase in commodity prices was a
pure and transient supply shock or if there were no demand pressures. That clearly was not the
case in India.

Monetary Tightening Hurts Growth

Another argument made in this line of criticism is that monetary policy tightening is hurting
growth. I believe a much more nuanced evaluation of our policy stance is necessary. Evidence
from empirical research suggests that the relationship between growth and inflation is non-linear.
At low inflation and stable inflation expectations, there is a trade-off between growth and
inflation. But above a certain threshold level of inflation, this relationship reverses, the trade-off
disappears, and high inflation actually starts taking a toll on growth. Estimates by the Reserve
Bank using different methodologies put the threshold level of inflation in the range of 4% - 6%.
With WPI inflation ruling above 9 per cent, we are way past the threshold. At this high level,
inflation is unambiguously inimical to growth; it saps investor confidence and erodes medium
term growth prospects. The Reserve Banks monetary tightening is accordingly geared towards
safeguarding medium term growth even if it means some sacrifice in near term growth.
Monetary Policy Behind the Curve
Now let me turn to the criticism from the opposite side - that the Reserve Bank was slow in
closing the monetary spigots, that our baby step approach was inadequate to tame the
inflationary pressures, and that we had to tighten aggressively lately to make up for lost time.
This criticism fails to appreciate the context - the nature of domestic inflation and global
uncertainty - in which we were operating. The calibration of our monetary tightening was guided
by the changing drivers of inflation over the course of fiscal year 2010/11. Early on in the year,
inflation pressures had their origin in food prices, and accordingly our monetary policy response
was aimed at containing the spillover risk to non-food inflation. Note that policy rates had gone
down to historically low levels during the crisis, and an abrupt adjustment would have disrupted
the market. Our judgement, therefore, was that tightening should be done gradually, in small
steps, so as to allow time for the banks and the private sector to adjust to a higher interest rate
environment.
The inflation scenario changed beginning August 2010 when global commodity prices surged
higher than anticipated. Global oil prices came under further pressure starting January 2011
because of political developments in the Middle East and North-Africa. Also, as I had indicated
earlier, because of the narrowing of the output gap, producers were able to pass on higher input
prices to higher output prices leading to inflationary pressures getting generalized as evidenced
by the increase in non-food manufactured product inflation from 5.3 per cent per cent in August
2010 to 8.5 per cent in March 2011. We responded to these changes in underlying drivers of
inflation by tightening more aggressively in May 2011 and again in July 2011.
The second factor relevant in the behind the curve debate is that we also had to contend with an
uncertain global recovery. Even as there was some talk of spring shoots in April 2010, the
optimism did not last; soon thereafter, the Greek sovereign debt crisis and unemployment
concerns in the US revived concerns about the pace and shape of global recovery. These
uncertainties increased both in nature and size as time passed with the euro area sovereign debt
problem not only spreading but proving to be intractable, the US recovery stalling and the
Japanese economy assaulted by an unprecedented natural disaster. Our baby step approach
during 2010 was accordingly a delicate balancing act between supporting recovery at home
amidst growing global uncertainty and containing inflation pressures.

If the above factors are reckoned with, the behind-the-curve argument loses potency. Between
March 2010 and October 2011, we raised the policy interest rate (the repo rate) by 375 bp. The
effective tightening was even more, 525 bp, as the operational policy rate shifted from reverse
repo rate (absorption mode) to repo rate (infusion mode).
As the above discussion shows, every monetary policy action involves complex judgement. The
supply shocks we confront in the real world are different from pure text book versions;
oftentimes they coincide with rising demand pressures. We had to balance growth-inflation
concerns. On top of that, monetary policy actions need to be forward looking even in the face of
external uncertainty. This in essence was the dilemma of monetary policy decisions.
How do you justify liquidity injection in the midst of a tightening cycle?
The conventional tools of monetary policy are controls over the volume of money (liquidity) and
the price of money (policy interest rate). Typically an expansionary stance would involve easing
both the rate and volume, and conversely, a contractionary stance would involve tightening both
of them. Occasionally, there arise situations when the price and volume instruments are deployed
in opposite directions - for example, injecting liquidity amidst a rate tightening cycle - that call
for both cautious judgement and extra effort at communication.
In understanding the motive force for liquidity adjustment by a central bank, it must be noted
that a growing economy requires the central bank to inject primary liquidity to meet the
requirement for currency and credit. Even if the central bank is in a tightening mode, it needs to
provide primary liquidity, albeit the volume of liquidity injection in such a scenario would surely
be less than the injection if the monetary policy were in a neutral or easing mode. The injection
of central bank liquidity can come about only through an expansion of the reserve (base) money.
In the first instance, liquidity injection happens through the overnight borrowing by banks under
the Liquidity Adjustment Facility (LAF). If the liquidity shortage is of a durable nature, the
central bank needs to meet that need through outright open market operations (OMOs) by buying
government securities.
As we progressed with monetary tightening through 2010, the LAF window shifted from a
surplus (absorption) mode to a deficit (injection) mode. This was consistent with our antiinflationary stance since a deficit liquidity situation would improve monetary transmission. We
had also indicated clearly that it would be the endeavour of the Reserve Bank to maintain the
absorption or injection through the LAF window at about 1 per cent of the net demand and
time liabilities (NDTL) of banks. However, towards the second half of 2010, systemic liquidity
tightened further pushing the injection through the LAF window beyond 1 per cent of NDTL.
This was due to a combination of structural and one-off factors. Recognizing that the deficit in
systemic liquidity was of a durable nature, the Reserve Bank conducted outright OMOs to inject
liquidity of a durable nature during November 2010-January 2011. Again, as liquidity conditions
tightened beginning early November 2011, partly reflecting intervention operations in the foreign
exchange market, we conducted OMOs during November-December 2011.
The liquidity injection through OMOs during late 2010 and early 2011 happened at a time when
we were tightening policy rates to combat inflation. Similarly, the more recent injection of
liquidity during November-December 2011 occurred when the monetary policy stance remained
tight. These were seemingly contrarian actions, and many observers may have seen them as
being conflicting and incoherent. We realized that there was a communication challenge here - to
explain to the market that we remained committed to bringing inflation down, that our action in

injecting liquidity was not inconsistent with our anti-inflation stance, that we continued to hold
that liquidity should be in a deficit mode in a monetary tightening cycle, but that we were
injecting liquidity only to ease the excessive deficit in order to ensure that flow of credit for
productive purposes was not choked.
Informed market participants did, of course, understand the rationale for our actions. But we
recognized the importance of communicating the rationale to the public at large. If people got
confused policy signals and believed thereby that the central banks commitment to inflation
control was not credible, inflation expectations would get unhinged and that would erode the
effectiveness of our anti-inflation strategy. We, therefore, went the extra mile to communicate
the rationale at a non-technical level.
While we have injected durable liquidity through outright OMOs so far, we have other
instruments to do the same. These include the statutory liquidity ratio (SLR) and the cash reserve
ratio (CRR). We have preferred OMOs to the alternatives since OMOs do not require a change in
the monetary policy stance. On the other hand, the CRR and the SLR straddle the divide between
liquidity and monetary management. Indeed, in advanced economies, which dont rely on
instruments such as the CRR and the SLR, repo operations/OMOs remain the only instrument of
liquidity injection.
To summarise, liquidity injection by the central bank can take place and is indeed necessary even
as monetary policy is in a tightening mode. However, there are communication challenges for the
central bank in articulating the need for liquidity injection in a tightening phase.

Most-favoured-nation (MFN)
Under the World Trade Organisation (WTO) agreements, countries cannot normally discriminate
between their trading partners. If any country grants one country a special favour such as a lower
customs duty rate for one of their products the same would need to be extended to all other WTO
members. This principle is known as most-favoured-nation (MFN) treatment.
MFN is so important a principle that it is the first article of the General Agreement on Tariffs
and Trade (GATT), which governs trade in goods. MFN is also a priority in the General
Agreement on Trade in Services (GATS) (Article 2) and the Agreement on Trade-Related
Aspects of Intellectual Property Rights (TRIPS) (Article 4). Together, those three agreements
cover all three main areas of trade handled by the WTO.
Some exceptions, however, are allowed under WTO regime. For example, countries can set up a
free trade agreement that applies only to goods traded within the group discriminating against
goods from outside. Or they can give developing countries special access to their markets. Or a
country can raise barriers against products that are considered to be traded unfairly from specific
countries. And in services, countries are allowed, in limited circumstances, to discriminate. But
the agreements only permit these exceptions under strict conditions. In general, MFN means that
every time a country lowers a trade barrier or opens up a market, it has to do so for the same
goods or services for all its trading partners whether developed or developing.

Motor Vehicles Act 1988

Motor Vehicles Act 1988 is an act of the Parliament of India which regulates all aspects of road
transport vehicles. The Act came into force from 1st July, 1989.
The Motor Vehicles Act 1988 defines motor vehicle or vehicle as any mechanically
propelled vehicle adapted for use upon roads whether the power of propulsion is transmitted
thereto from an external or internal source.
The Act provides in detail the legislative provisions regarding licensing of drivers/conductors,
registration of motor vehicles, control of motor vehicles through permits, special provisions
relating to state transport undertakings, traffic regulation, insurance, liability, offences and
penalties, etc.
The Act mandates that no person/owner shall drive motor vehicles unless the vehicle is
registered. A certificate of registration in respect of motor vehicles shall be valid only for a
period of fifteen years from the date of issue of such a certificate and shall be renewable. The
suspension of registration of motor vehicles can be made by the registering authority on the
conditions that the use of motor vehicles in public place would constitute danger to the public;
using motor vehicles without a valid permit and using vehicles without rectifying mechanical
defects, etc. The cancellation of registration of motor vehicles can be made by the registering
authority if the suspension of registration continues without interruption for a period of not less
than six months.
For exercising the legislative provisions of the Act, the Government of India made the Central
Motor Vehicles Rules 1989.

Motor Vehicle Taxation

The right to levy taxes on goods and passengers carried by road is conferred on the States by
the Seventh Schedule of the Constitution of India (Entry 56, List II -State List). However, taxes
on vehicles, whether mechanically propelled or not, suitable for use on roads, including
tramcars which figure in the State List (Entry 57, List II - State List)] are subject to the
provision of Entry 35 of List III - Concurrent List which states that Mechanically propelled
vehicles including principles on which taxes on such vehicles are to be levied. Therefore, while
States have exclusive powers to levy passenger and goods taxes, their power to tax motor
vehicles is subject to the general regulatory provisions of Central laws on the subject.
Motor vehicle taxes are levied in all States and Union Territories (UT), except the UT of
Lakshadweep. There are wide variations in the existing motor vehicle tax rates, the bases of
motor vehicle taxes and the frequency of motor vehicle tax collection across States/UTs. For
instance, while Karnataka has one of the highest motor vehicle tax rates of 18 per cent on cars
costing more than Rs. 20 lakh, the motor vehicle tax rate in the State of Haryana is 2 per cent, if
the value of the cars is less than Rs. 5 lakh.
To facilitate seamless movement in the country, the issue of bringing about uniformity in motor
vehicle taxation across all States and UTs was discussed by the Union Minister for Road
Transport & Highways with the Transport Ministers of various States and UTs at the 34th
meeting of the Transport Development Council on 13th February 2012. Following this,

an Empowered Group of Ministers, consisting of transport ministers of some States/UTs has

been set up to discuss the issue of rationalization of motor vehicle taxes.

National Action Plan on Climate Change (NAPCC)

The Action Plan was released on 30th June 2008. It effectively pulls together a number of the
governments existing national plans on water, renewable energy, energy efficiency agriculture
and others bundled with additional ones into a set of eight missions. The Prime Ministers
Council on Climate Change is in charge of the overall implementation of the plan. The plan
document elaborates on a unique approach to reduce the stress of climate change and uses the
poverty-growth linkage to make its point.
Emphasizing the overriding priority of maintaining high economic growth rates to raise living
standards, the plan identifies measures that promote development objectives while also yielding
co-benefits for addressing climate change effectively. It says these national measures would be
more successful with assistance from developed countries, and pledges that Indias per capita
greenhouse gas emissions will at no point exceed that of developed countries even as we pursue
our development objectives.
Plan in a Nutshell
The guiding principles of the plan are:

Inclusive and sustainable development strategy to protect the poor

Qualitative change in the method through which the national growth objectives will
be achieved i.e. by enhancing ecological sustainability leading to further mitigation
Cost effective strategies for end use demand side management
Deployment of appropriate technologies for extensive and accelerated adaptation, and
mitigation of green house gases
Innovative market, regulatory and voluntary mechanisms to promote Sustainable
Development
Implementation through linkages with civil society, local governments and publicprivate partnerships
International cooperation, transfer of technology and funding

National Missions
The core of the implementation of the Action plan are constituted by the following eight
missions, that will be responsible for achieving the broad goals of adaptation and
mitigation, as applicable.

National Solar Mission: The NAPCC aims to promote the development and use of
solar energy for power generation and other uses with the ultimate objective of
making solar competitive with fossil-based energy options. The plan includes:
Specific goals for increasing use of solar thermal technologies in urban areas,
industry, and commercial establishments; a goal of increasing production of photo-

voltaic to 1000 MW/year; and a goal of deploying at least 1000 MW of solar thermal
power generation. Other objectives include the establishment of a solar research
centre, increased international collaboration on technology development,
strengthening of domestic manufacturing capacity, and increased government funding
and international support.
National Mission for Enhanced Energy Efficiency: Current initiatives are expected to
yield savings of 10,000 MW by 2012. Building on the Energy Conservation Act
2001, the plan recommends: Mandating specific energy consumption decreases in
large energy-consuming industries, with a system for companies to trade energysavings certificates; Energy incentives, including reduced taxes on energy-efficient
appliances; and Financing for public-private partnerships to reduce energy
consumption through demand-side management programs in the municipal, buildings
and agricultural sectors.
National Mission on Sustainable Habitat: To promote energy efficiency as a core
component of urban planning, the plan calls for: Extending the existing Energy
Conservation Building Code; A greater emphasis on urban waste management and
recycling, including power production from waste; Strengthening the enforcement of
automotive fuel economy standards and using pricing measures to encourage the
purchase of efficient vehicles; and Incentives for the use of public transportation.
National Water Mission: With water scarcity projected to worsen as a result of
climate change, the plan sets a goal of a 20% improvement in water use efficiency
through pricing and other measures.
National Mission for Sustaining the Himalayan Ecosystem: The plan aims to
conserve biodiversity, forest cover, and other ecological values in the Himalayan
region, where glaciers that are a major source of Indias water supply are projected to
recede as a result of global warming.
National Mission for a Green India: Goals include the afforestation of 6 million
hectares of degraded forest lands and expanding forest cover from 23% to 33% of
Indias territory.
National Mission for Sustainable Agriculture: The plan aims to support climate
adaptation in agriculture through the development of climate-resilient crops,
expansion of weather insurance mechanisms, and agricultural practices.
National Mission on Strategic Knowledge for Climate Change: To gain a better
understanding of climate science, impacts and challenges, the plan envisions a new
Climate Science Research Fund, improved climate modeling, and increased
international collaboration. It also encourages private sector initiatives to develop
adaptation and mitigation technologies through venture capital funds.
The NAPCC also describes other ongoing initiatives, including:

Power Generation: The government is mandating the retirement of inefficient coalfired power plants and supporting the research and development of IGCC and
supercritical technologies.
Renewable Energy: Under the Electricity Act 2003 and the National Tariff Policy
2006, the central and the state electricity regulatory commissions must purchase a
certain percentage of grid-based power from renewable sources.

Energy Efficiency: Under the Energy Conservation Act 2001, large energy
consuming industries are required to undertake energy audits and an energy labeling
program for appliances has been introduced.

Implementation
Ministries with lead responsibility for each of the missions are directed to develop objectives,
implementation strategies, timelines, and monitoring and evaluation criteria, to be submitted to
the Prime Ministers Council on Climate Change. The Council will also be responsible for
periodically reviewing and reporting on each missions progress. To be able to quantify progress,
appropriate indicators and methodologies will be developed to assess both avoided emissions and
adaptation benefits.
References
http://pmindia.nic.in/Climate%20Change.doc
http://pmindia.nic.in/climatebody.htm

National Development Council (NDC)

The National Development Council or the Rashtriya Vikas Parishad was set up on 6th August
1952 to strengthen and mobilise the effort and resources of the nation in support of the plan, to
promote common economic policy in all vital spheres, and to ensure the balanced and rapid
development of all parts of the country. The Council which was re-constituted on October 7,
1967 is the highest decision making authority in the country in the area of development matters.
It is a constitutional body with representation from both the Centre and States. The Council is
headed by the Prime Minister and all Union Cabinet Ministers, State Chief Ministers,
representatives of Union Territories; Members of Planning Commission are its members. The
Secretary/ Member-Secretary of Planning Commission functions as the Secretary of the Council
and all administrative assistance is rendered by Planning Commission.
The functions of NDC are (i) to prescribe guidelines for formulation of the National Plan,
including assessment of resources for the Plan (ii) to consider the National Plan as formulated by
the Planning Commission (iii) to consider important questions of social and economic policy
affecting national development and (iv) to review the working of the Plan from time to time and
to recommend such measures as are necessary for achieving the aims and targets set out in the
National Plan. The prime function of the Council is to act as a bridge between the Union
government, Planning Commission and the State Governments. It is a forum not only for
discussion of plans and programmes but also social and economic matters of national importance
are discussed in this forum before policy formulation. It is a very democratic forum where the
States openly express their views. No resolution is passed by the Council. The practice is to have
a complete record of the discussion and gather out of its general trends pinpointing particular
conclusions. Sub-Committees under the Chairmanship of Union Cabinet Minister/State Chief
Minister are also formed under the NDC to deliberate on policy areas requiring wide-range of
consultations.

The NDC ordinarily meets twice a year. So far 55 meetings of the NDC have been held. The last
meeting of the NDC was held in July 2010 where the Mid-Term Appraisal Report of the XI Five
Year Plan was discussed. In the next meeting of the NDC the Approach Paper to the XII Five
Year Plan is to be discussed. On the occasion of the 50th meeting of the NDC Planning
Commission released a voluminous resourceful publication on the Summary Record of the 50
meetings of NDC.
References
1. http://planningcommission.nic.in/reports/genrep/50NDCs/vol1_1to14.pdf

National Food Processing Mission

India cannot afford any waste of food grains, milk, poultry, fish, fruits and vegetables due to lack
of adequate processing facilities. Ministry of Food Processing Industries has launched a new
scheme called National Mission on Food Processing (NMFP) during 12th Plan (2012-13) for
implementation through States / UTs. The basic objective of NMFP is to promote the growth of
food processing industries in the country, by creating a National Mission at the Centre and State
Missions in the various States/UTS. Better planning, supervision and monitoring of various
schemes is expected through this decentralised approach. Food procesors in the private sector
and co-operative sector will be encouraged and incentivised to increase capital outlay, use new
technology , upgrade skills etc. Self help groups will be encouraged to become viable
commercial entities. The other objectives are to raise the standards of food safety and hygiene to
the globally accepted norms; to facilitate food processing industries to adopt HACCP and ISO
certification norms; to augment farm gate infrastructure, supply chain logistic, storage and
processing capacity and to provide better support system to organized food processing sector.
State food processing missions have been created to implement the schemes.
References
1. http://mofpi.nic.in/Schemes_MOFPI/NMFP_Guidelines290812.pdf

National Food Security Mission (NFSM)

The National Food Security Mission (NFSM) was launched in 2007-08 with a view to enhancing
the production of rice, wheat, and pulses by 10 million tonnes, 8 million tonnes, and 2 million
tonnes respectively by the end of the Eleventh Plan (viz. March 2012). The Mission aims to
increase production through area expansion and productivity; create employment opportunities;
and enhance the farm-level economy (i.e. farm profits) to restore confidence of farmers. The
approach is to bridge the yield gap in respect of these three crops through dissemination of
improved technologies and farm management practices while focusing on districts which have
high potential but relatively low level of productivity at present.
The NFSM has three components (i) National Food Security Mission - Rice (NFSM-Rice); (ii)
National Food Security Mission - Wheat (NFSM-Wheat); and National Food Security Mission Pulses (NFSM Pulses).
To achieve the envisaged objectives, the Mission is mandated to adopt following strategies:

Speedy implementation of programmes through active engagement of all the

stakeholders at various levels.
Promotion and extension of improved technologies i.e., seed, Integrated Nutrient
Management including micronutrients (like iron, cobalt, copper etc), soil
amendments, Integrated Pest Management (IPM) and resource conservation
technologies along with capacity building of farmers.
Flow of fund would be closely monitored to ensure that interventions reach the target
beneficiaries on time.
The proposed interventions would be integrated with the targets fixed for each
identified district in the existing District Plan (formulated as a part of national Five
Year Plans).
Constant monitoring and concurrent evaluation for assessing the impact of the
interventions for a result oriented approach by the implementing agencies.

The NFSM is presently being implemented in 476 identified districts of 17 States of the
country. 20 million hectares of rice, 13 million hectares of wheat and 4.5 million hectares of
pulses are included in these districts that roughly constitute 50% of cropped area for wheat
and rice. For pulses, an additional 20% cropped area would be created. Total financial
implications for the NFSM will be Rs.48824.8 million during the XI Plan (2007-08 201112). Beneficiary farmers will contribute 50% of cost of the activities / work to be taken up
at their / individual farm holdings.
References
1.
2.

http://agricoop.nic.in/NFSM/NFSM.pdf
http://nfsm.gov.in/

National Highways Authority of India (NHAI)

The National Highways Authority of India was constituted on 15 July 1989 under section 3(1)
of the the National Highways Authority of India Act, 1988 mainly to survey, develop, maintain
and manage the National Highways of India. NHAI is a nodal agency of the Ministry of Road
Transport and Highways. The National Highways Development Project (NHDP) is, a project to
upgrade highways in India to a higher standard, managed by NHAI. NHAI also helps in
implementing Special Accelerated Road Development Programme for North Eastern Region
(SARDP-NE) for upgrading National Highways connecting state capitals to 2 lanes or 4 lanes in
north eastern region.

National Highways Development Programme

National Highways Development Programme (NHDP) was launched in 1998 with the objective
of developing roads of international standards which facilitate smooth flow of traffic. It
envisages creation of roads with enhanced safety features, better riding surface, grade separator
and other salient features. National Highways constitute only 2% of the total road length in the
country but carry 40% of the total traffic.

NHDP is being implemented by National Highways Authority of India (NHAI), an organisation

under the aegis of Ministry of Road, Transport and Highways. The programme is being
implemented in the following seven phases;

Phase I: Phase I consists of Golden Quadrilateral network comprising a total length of

5,846 km which connects the four major cities of Delhi, Chennai, Mumbai & Kolkata and
981 km of North-South and East-West corridor .NS-EW corridor connects Srinagar in the
north to Kanyakumari in the south and Silchar in the east to Porbandar in the west. Phase I
also includes improving connectivity to ports.
Phase II: Phase II covers 6,161 km of the NS-EW corridor (The total NS-EW corridor
consists of 7,142 km) and 486 km of other NHs.
Phase III: Four-laning of 12,109 km of high density national highways connecting state
capitals and places of economic, commercial and tourist importance.
Phase IV: Upgradation of 20,000 km of single-lane roads to two-lane standards with
paved shoulders.
Phase V: Six-laning of 6,500 km of four-laned highways.
Phase VI: Construction of 1,000 km of expressways connecting major commercial and
industrial townships.
Phase VII: Construction of ring roads, by-passes, underpasses, flyovers, etc. comprising
700 km of road network.

References
1. http://www.nhai.org/ (Annual Report 2011-12 , Ministry of Road Transport and Highways. Working Group
on Roads for the National Transport Development Policy Committee, Transport Research Wing, Ministry
of Road Transport & Highways.)

National List of Essential Medicines of India 2011

The List of Essential Medicine- final copy.pdf National List of Essential Medicines of India
2011 (NLEM 2011) is a list of medicines, prepared by the Ministry of Health and Family
Welfare, which are considered essential in India. The first such list was released in 1996. That
list was subsequently revised in 2003. The latest list prepared and released in 2011 addresses the
issues of changing disease prevalence in the country and the associated treatment modalities,
besides taking into consideration the new medicines which are now available.
World Health Organisation defines essential medicines as those that satisfy the priority health
care needs of the population. The medicines are selected with regard to the prevalence of disease,
efficacy, safety and comparative cost-effectiveness. These medicines are intended to be available
within the health systems in adequate amounts, in appropriate dosages, with assured quality.
In 2010-11, the National List of Essential Medicines 2003 (NLEM 2003) was reviewed by an
expert core committee in the context of contemporary knowledge of therapeutic products being
available. The committee was of the view that the list of essential medicines prepared by World
Health Organisation could not be adopted by India as such, but needed to be modified to suit
country-specific needs. The purpose of NLEM 2011 is to promote the rational usage of

medicines considering their cost, safety and efficacy. NLEM 2011 consists of 348 medicines,
spanning across 27 therapeutic segments. From NLEM 2003, 47 medicines were deleted and 43
added to arrive at NLEM 2011. NLEM 2011 presents the category of essential medicines, the
route of their administration and their dosage strengths.

National Road Safety Council (NRSC)

National Road Safety Council is an advisory body. It was established under section 215 of Motor
Vehicles Act, 1988 with the objective of improving road safety aspects in road transport sector.
The Council is chaired by the Honble Cabinet Minister of the Ministry of Road Transport and
Highways (MORTH). The official members of NRSC include the Ministers of State for
MORTH, Minister-in-charge of Road Transport in States/UTs, representatives from Ministry of
Home Affairs, Human Resource Development, Railways, Department of heavy Industry,
Ministry of Environment and Forests, Planning Commission, Secretary of MORTH, Chairman of
NationalHighways Authority of India, Director General of Roads Development of MORTH and
Joint Secretary (Transport). The non-official co-opted members include some Road Safety
Award winners, individuals nominated by the Honble Minister of MORTH, Government
institutions related to road construction, road safety and insurance and associations related with
road safety.
In the meeting of NRSC held in March 2011, MORTH formed five separate working groups on
the four Es of road safety, viz. Education, Engineering of Roads, Engineering of Vehicles,
Enforcement,
and
Emergency
Care.
The
five
working
groups
submitted
their recommendations in October 2011. Some of the major recommendations are:
Working Group on Education

The number of road accidents and fatalities should be reduced to half in the year 2020
with base year 2010 per 10,000 vehicles population. A Comprehensive Plan of Action
on the lines of Millennium Development Goals to bring down the road accidents.
A National Road Safety Policy and supporting laws to be formulated.
State and District Road Safety Councils need to be constituted.
50 per cent of all fines collected should be devoted to road safety activities.
A separate Road Safety Education and Awareness Fund needs to be created.
Working Group on Engineering of Roads

All National and State Highways should have signages.

Road Safety Audit for entire National Highways and State Highways network to be
completed.
Working Group on Engineering of Vehicles

Requirements related to passive safety, active safety and general safety to be

introduced in a planned manner.
Major improvements in vehicle designs are required with introduction of full vehicle
crash tests, EMC and high technology solutions for better visibility.

Introduce mandatory Inspection and Certification requirements for all categories of

vehicles.
Working Group on Emergency Care

Enunciate a National Accident Relief Policy and a National Trauma System Plan.
Deployment of a Pan-India Pre-Hospital Emergency Medical Care Network to ensure
a primary crash response time of 8 10 minutes.
Working Group on Enforcement

The penalty structure of Motor Vehicles Act, 1988 Act need to be increased.
All state police forces need to be empowered to check overloading.
There must be no exemption in wearing of helmet. Wearing of seat belt should be
compulsory for the driver and the front passenger and on national highways it should
be compulsory for even the passengers in the back seat.
All enforcement agencies may impress upon the courts of the concerned cities/states
that in graver cases of drunken driving, imprisonment must be provided to discourage
drunken driving.

MORTH is currently examining these recommendations to draw a decadal action plan on road
safety at the national, state and district levels.

National Rural Health Mission (NRHM) 2005-2012

National Rural Health Mission is the name of a flagship programme launched by Ministry of
Health and Family Welfare in 2005 to provide universal health care through a well functioning
health system throughout the country with special focus on eighteen states which have
unsatisfactory health indicators and/or weak public health infrastructure. The Mission is to be
implemented over a period of seven years (2005-2012). The nodal Ministry for implementation
of NRHM is Ministry of Health and Family Welfare.
The NRHM aims to provide accessible, affordable, equitable and qualitative health care to rural
population by rejuvenating the health delivery system. The Mission seeks to reduce the Infant
Mortality Rate (IMR) to 30 per thousand live births by 2012, Maternal Mortality Rate (MMR)
to100 per thousand live births by 2012 and Total Fertility Rate to 2.1 by 2012. It also aims at
mainstreaming the Indian systems of medicine to facilitate health care. The Mission envisages
raising the public spending on health from 0.9 percent of GDP to 2-3 percent of GDP. It seeks to
address the inter-state and inter-district disparities. It provides support to the states for
strengthening of the health care system in rural areas by making provisions for physical
infrastructure, human resources, equipment, emergency transport, drugs, diagnostics and other
support. It covers all programmes in the health sector except HIV/AIDS, Mental Health and
cancer.
The Mission adopts a synergistic approach by relating health to determinants of good health viz.
nutrition, sanitation, hygiene and safe drinking water. The core strategies of the Mission for
achieving its objectives are enhancing the capacity of the Panchayati Raj Institutions (PRI) to
own, control and manage public health services; involvement of female health activist to
promote access to improved healthcare at household level; strengthening of existing primary

health care through better staffing; provision of untied fund to all the health facilities; preparation
of health plans at various levels (viz. village, district); and decentralization of planning to district
level etc.
One of the key components of the Mission is the female health activist known as Accredited
Social Health Activist (ASHA). She is the interface between the community and the health
facility and is the first line of assistance for any health related demand. There shall be one ASHA
for every village with a population of 1000. Her work includes creating awareness among the
community on health and its social determinants, providing primary medical care for minor
aliments and first aid for minor injuries, mobilizing the community towards local health
planning, motivating women to give birth in hospitals, bringing children for immunization,
assisting the Gram Panchayat in preparation of comprehensive village health plan, etc. She is
paid on the basis of performance (incentive) for the task she undertakes. The success of NRHM,
to a large extent, depends on the performance of ASHA.
In Indian Constitution health is a state subject. The Constitution places public health and
sanitation, hospitals and dispensaries in the state list and family welfare in the Concurrent list.
The Central government can only intervene to assist the state governments through Centrally
Sponsored Schemes and policy formulations. However, main responsibility of infrastructure and
manpower building rests with the state governments. Thus the outcome of health sector is largely
contingent on funding and maintenance of public health system by the states.
The public health care system became dysfunctional mainly due to lack of funding by the states.
The lack of proper monitoring of public health delivery was responsible for large scale
absenteeism of doctors from PHCs. The shortcomings of public health care system paved way
for the growth of private sector health care. The unregulated private health care resulted in
increase in cost of medical care thereby making the poor poorer. Further the distribution of
health care was skewed, inaccessible and inequitable across region, gender and caste.
The NRHM was launched with the vision to undertake architectural correction of the health
system. NRHM marked a paradigm shift as compared with the earlier approach. It emphasized
on decentralized planning, output and outcome base approach, pro-poor focus, community
participation, dedicated health functionary (ASHA) at the village level for better utilization of
health services and integration of health care with other determinants of health like sanitation,
nutrition and education, women empowerment and social empowerment of vulnerable groups,
etc.
References
1. http://164.100.52.110/NRHM/Documents/NRHM_The_Progress_so_far.pdf
2. http://164.100.52.110/NRHM/Documents/5_Years_NRHM_Final.pdf
3. GoI, NRHM, 2005-12, Mission Document, MoH&FW
4. http://203.193.146.66/hfw/PDF/asha.pdf

National Small Savings Fund

Small Saving schemes have been always an important source of household savings in India.
Small savings instruments can be classified under three heads. These are: (i) postal deposits
[comprising savings account, recurring deposits, time deposits of varying maturities and monthly

income scheme(MIS)]; (ii) savings certificates [(National Small Savings Certificate VIII (NSC)
and Kisan Vikas Patra (KVP)]; and (iii) social security schemes [(public provident fund (PPF)
and Senior Citizens Savings Scheme(SCSS)].
A National Small Savings Fund (NSSF) in the Public Account of India has been established
with effect from 1.4.1999. A new sub sector has been introduced called National Small Savings
Fund in the list of Major and Minor Heads of Government Accounts. All small savings
collections are credited to this Fund. Similarly, all withdrawals under small savings schemes by
the depositors are made out of the accumulations in this Fund. The balance in the Fund is
invested in Central and State Government Securities. The investment pattern is as per norms
decided from time to time by the Government of India.
The Fund is administered by the Government of India, Ministry of Finance (Department of
Economic Affairs) under National Small Savings Fund (Custody and Investment) Rules, 2001,
framed by the President under Article 283(1) of the Constitution. The objective of NSSF is to delink small savings transactions from the Consolidated Fund of India and ensure their operation in
a transparent and self-sustaining manner. Since NSSF operates in the public account, its
transactions do not impact the fiscal deficit of the Centre directly. As an instrument in the public
account, the balances under NSSF are direct liabilities and constitute a part of the outstanding
liabilities of the Centre. The NSSF flows affect the cash position of the Central Government.
Historical context
Prior to April 1999, deposits and withdrawals by subscribers were made from the public account
and interest payments to subscribers and interest receipts from the States were recorded in the
revenue account of the Consolidated Fund of India. Disbursement of loans against small savings
made to the States and repayment of such loans were recorded in the capital account of the
Consolidated Fund of India. All the payments against the cost of operating the fund were also
debited from the Consolidated Fund.
The Committee on Small Savings (Chairman: Shri. R.V. Gupta), which submitted its report in
February 1999, examined and identified some lacunae in the prevailing accounting procedure of
the small savings like (i) There was no formal transfer of funds collected under small savings in
the Public Account to the Consolidated Fund. (ii) Loans to the States/Union Territories were
made out of the Consolidated Fund without corresponding receipts. (iii) Transactions in small
savings could not be segregated for the purpose of analysing their financial viability.(iv) The onlending to States from the small savings collections was treated as part of Central Governments
expenditure and added to Central Governments fiscal deficit. Therefore, other things remaining
the same, an increase in small savings collections led to an increase in fiscal deficit.
In the light of the above, the Committee recommended creation of a separate Fund called the
National Small Savings Fund (NSSF) within the Public Account. NSSF would formalise the
Central Governments use of small savings collections accruing in the Public Account to finance
its fiscal deficit. Further, NSSF was expected to lend transparency to the accounting system,
enable an easy examination of the income and expenditure of small savings process, bring into
sharp focus the asset-liability mismatch and pave the way for correction.
Operation of NSSF
All deposits under small savings schemes are credited to NSSF and all withdrawals by the
depositors are made out of accumulations in the Fund. The collections under the small saving

schemes net of the withdrawals are the sources of funds for the NSSF. NSSF invests the net
collections of small savings in the special State Government securities (SSGS) as per the sharing
formula decided by the Government of India. The remaining amount is invested in special
Central Government securities (SCGS) with the same terms as that for the States. These
securities are issued for a period of 25 years, including a moratorium of five years on the
principal amount. The special securities carry a rate of interest fixed by GoI from time to time.
The rate of interest has remained unchanged at 9.5 per cent per annum since April 1, 2003. The
NSSF is also permitted to invest in securities issued by IIFCL.
The income of NSSF comprises of the interest receipts on the investments in Central, State
Government and other securities. While the interest rate on the investments on the Central and
State share of net small saving collection is as per the rates fixed from time to time, the interest
rate on the reinvestment of redeemed amounts are at market rate for 20 year Government
Securities. The expenditure of NSSF comprises interest payments to the subscribers of Small
Savings and PPF Schemes and the cost of operating the schemes, also called management cost.
Bibliography
1. http://www.indiapost.gov.in/SMALLSAVINGSSCHEMES.pdf
2. http://finmin.nic.in/reports/Report_Committee_Comprehensive_Review_NSSF.pdf

National Transport Development Policy Committee (NTDPC)

To provide an efficient, reliable, safe and sustainable transport system in the country, integrating
different modes of transport, the Government of India set up the National Transport
Development Policy Committee (NTDPC) in the year 2010, under the chairmanship of Dr.
Rakesh Mohan. The objective of NTDPC was to provide a long-term transport policy for the
country up to the year 2029-30.
Besides secretaries of Ministries of Civil Aviation, Coal, Petroleum & Natural Gas, Power,
Railways, Road Transport & Highways, Shipping, Urban Development and Department of
Financial Services, the members of NTDPC include former Secretaries and senior officials of
Government of India and senior executives of private sector transport companies.
The Committee has its headquarters in Munirka, New Delhi and is serviced by Planning
Commission.
Various Working Groups were set up under the NTDPC. The following Working Group reports
are available on the website of NTDPC:
Working
Groups
on Civil
Aviation, North-Eastern
Shipping, Railways, Roads and Urban Transport.

Region, Ports

Most of these reports have stressed on:

hiking investment in the transport sector explore the possibility of PPP,

the need for augmenting public transport,
upgradation of technology for integration, enforcement and traffic management
inter-modal coordination

&

capacity augmentation

development of multi-modal hubs

seamless freight and passenger movement

application of information technology

New National Permit System
To facilitate uninterrupted movement of goods vehicles across the country, the New National
Permit System was made effective from 8.5.2010 in accordance with Central Motor Vehicle
Rules, 1989, as amended on 7.5.2010. An electronic system of grant of national permits for
goods carriages, developed by Ministry of Road Transport and Highways, in consultation with
National Informatics Centre, was implemented on 15.9.2010. The new system enables the permit
holder to operate throughout the country on payment of a consolidated fee of Rs. 15,000/.
The transporters apply for a new national permit or renewal of old national permits in terms of
the forms specified in the amended Central Motor Vehicle Rules. The transport authorities verify
the content of the application and other relevant documents regarding the age of the vehicle, its
fitness, insurance and taxes paid, and collect an authorisation fee. On verification of the
application and other papers, the transport authorities upload the data on the national permit web
portal and advise transporters to pay a consolidated fee. The consolidated fee can be deposited at
any branch of State Bank of India. The transport authorities compile the information on permits
issued/renewed on a monthly basis and submit to Transport Commissioners/Principal Secretaries
of their States/Union Territories (UTs). The States/UTs forward the information to the Ministry
of Road Transport and Highways. On verification of information received from the States/UTs,
the funds are released to the States/UTs through Reserve Bank of India on a monthly basis. The
share of States/UTs in the consolidated fee is fixed according to the notification dated 28.7.2010.

Non-Resident Indian Deposits (NRI Deposits)

Foreign Exchange Management (Deposit) Regulations, 2000 permits Non-Resident Indians
(NRIs) to have deposit accounts with authorized dealers and with banks authorized by the
Reserve Bank of India (RBI). These accounts include:
1. Foreign Currency Non-Resident (Bank) account (FCNR(B) account)
2. Non-Resident External account (NRE account)
3. Non-Resident Ordinary Rupee account (NRO account)
FCNR(B) accounts can be opened by NRIs and Overseas Corporate Bodies (OCBs) with an
authorized dealer. The accounts can be opened in the form of term deposits. Deposits of funds
are allowed in Pound Sterling, US Dollar, Japanese Yen and Euro. Rate of interest applicable to
these accounts are in accordance with the directives issued by RBI from time to time.
NRE accounts can be opened by NRIs and OCBs with authorized dealers and with banks
authorized by RBI. These can be in the form of savings, current, recurring or fixed deposit
accounts. Deposits are allowed in any permitted currency. Rate of interest applicable to these
accounts are in accordance with the directives issued by RBI from time to time.
NRO accounts can be opened by any person resident outside India with an authorized dealer or
an authorized bank for collecting their funds from local bonafide transactions in Indian Rupees.

When a resident becomes an NRI, his existing Rupee accounts are designated as NRO. These
accounts can be in the form of current, savings, recurring or fixed deposit accounts.
There were two more NRI deposit accounts in operation, viz. Non-Resident (Non-Repatriable)
Rupee Deposit Account and Non-Resident (Special) Rupee Account. An amendment to Foreign
Exchange Management (Deposit) Regulations, in 2002, discontinued the acceptance of deposits
in these two accounts from 1st April 2002 onwards.
Repatriation of funds in FCNR(B) and NRE accounts is permitted. Hence, deposits in these
accounts are included in Indias external debt outstanding. While the principal of NRO deposits
is non-repatriable, current income and interest earning is repatriable. Account-holders of NRO
accounts are permitted to annually remit an amount up to US$ 1 million out of the balances held
in their accounts. Therefore, deposits in NRO accounts too are included in Indias external debt.
References
1. Foreign Exchange Management (Deposit) Regulations,
2000 http://www.rbi.org.in/scripts/BS_FemaNotifications.aspx?Id=159
2. http://www.rbi.org.in/scripts/NotificationUser.aspx?Mode=0&Id=5812
3. http://www.rbi.org.in/scripts/NotificationUser.aspx?Mode=0&Id=5797
4. http://www.rbi.org.in/scripts/NotificationUser.aspx?Mode=0&Id=582

Non Plan Expenditure

The Indian development process is centrally planned through a series of 5 year plans. At the
beginning of each Plan, funds are estimated for approved plan schemes and every financial year
(starting April 1), after a series of deliberations with stakeholders, the Planning Commission (in
consultation with the Finance Ministry) allocates funds to various Central Ministries and to subnational governments to implement these plans. There are, however a large number of heads of
expenditure which are not allocated by the Planning Commission.
Expenditure, which does not come under the purview of the Planning Commission is called nonplan expenditure. This includes both developmental and non-developmental expenditure. Part of
the expenditure is obligatory in nature e.g. interest payments, pensionary charges and
devolution/statutory transfers to States, which are recommended by the Finance Commission.
A part of the expenditure is an essential obligation of the State, e.g. Defence and internal
security. Then, there are special responsibilities of the Centre like external affairs, co-operation
with other countries and currency and mint. Expenditure on maintaining the assets created in
previous Plans is also treated as Non-plan expenditure. Similarly, expenditure on continuing
services and activities at levels already reached in a Plan period is classified as Non-plan
expenditure in the next Plan period, e.g. continuing research projects and operating expenses of
power stations. Expenditure on salaries as well as explicit subsidies provided by the Government
also form part of non-plan expenditure. Thus, as more Plans are completed, in addition to the
interest on borrowings to finance the Plan, a large amount of expenditure on operation and
maintenance of facilities and services created gets added to Non-plan expenditure.
The Committee on Non Plan Expenditure (CNE) in the Department of Expenditure (Ministry of
Finance), chaired by Secretary (Expenditure) approves annual allocations towards non plan
expenditure based on the inter-se priorities.

In the Central budget of 2011-12, non plan expenditure accounted for nearly 65 per cent of the
total expenditure. Of this, defence expenditure accounted for a quarter of the non plan
expenditure. In sub- national government budgets, also non plan expenditure accounts for a
major share of total expenditure.
In sub-national governments annual financial statements also expenditure is divided into plan
and non plan expenditure just as it is done in the case of the Union Government.

Non-Workers
As defined in Census of India are persons who did not at all work during the reference period
was treated as non-worker. They constitute Students who did not participate in any economic
activity paid or unpaid, household duties who were attending to daily household chores like
cooking, cleaning utensils, looking after children, fetching water etc. and are not even helping in
the unpaid work in the family farm or cultivation or milching, dependant such as infants or very
elderly people not included in the category of worker, pensioners those who are drawing pension
after retirement and are not engaged in any economic activity. Beggars, vagrants, prostitutes and
persons having unidentified source of income and with unspecified sources of subsistence and
not engaged in any economically productive work during the reference period. Others, this
category includes all Non-workers who may not come under the above categories such as
rentiers, persons living on remittances, agricultural or non-agricultural royalty, convicts in jails
or inmates of penal, mental or charitable institutions doing no paid or unpaid work and persons
who are seeking/available for work.
References
1. http://www.censusindia.gov.in/Metadata/Metada.htm#2j

NORKA
A large number of Indians work abroad and remit much of their earnings back into the country to
take care of their families or to acquire assets. Kerala is a state where non residents contribute
significantly to the states resources. Keeping this important revenue channel in mind, the
Government of Kerala launched the department of Non-resident Keralites' Affairs (NORKA) in
1996 to redress the grievances of Non-resident Keralites. NORKA is the first of its kind formed
in an Indian state.
NORKA makes efforts to solve the grievances raised in petitions for remedial action on threats
to the lives and property of those who are left at home, tracing of missing persons abroad,
compensation from sponsors, harassment from sponsors, cheating by recruiting agents,
educational facilities for children of NRKs, introduction of more flights, etc. It provides
assistance to stranded Keralites through follow up action initiated on all the petitions.
NORKA has established NORKA Roots that acts as an interface between the Non-Resident
Keralites and the Government of Kerala. Some important objectives are creation of a heritage
village for parents of non residents, cultural exchange programmes, promotion of Malayalam
language, employment mapping, maintaining a data base etc.

References
1. http://www.norka.gov.in
2. http://www.norkaroots.net

Organisation of Derivatives Market in India

Various models exist for the regulation of derivative products across the globe. In some
countries, all financial markets including those for commodity derivatives and securities
derivatives are organised under one regulator. Certain countries keep money market operations
exclusively under Central Bank and all the other segments of financial markets under a separate
regulator. Some countries have a very fragmented system of regulation with separate regulators
for each class of product. In many jurisdictions, the market for non-standardised contracts or
better known as over the counter marketor negotiated market are not under any specific
regulators.
Derivatives instruments in India are regulated by the Reserve Bank of India, Securities and
Exchange Board of India (SEBI) and Forward Markets Commission (FMC).
The framework for regulating derivative transactions is provided in the various Acts of
Government of India such as Securities Contracts (Regulation) Act, 1956, Reserve Bank of India
Act, 1934,Forward Contracts (Regulation) Act 1952 and related Rules, Regulations, Guidelines,
Circulars etc.
Exchange traded equity derivatives market is regulated by Securities and Exchange Board of
India (SEBI) while the Forward Markets Commission (FMC) regulates the exchange traded
commodity derivatives market in India. Reserve Bank of India (RBI) as well as SEBI jointly
regulates the exchange traded foreign currency and interest rate futures. The foreign currency,
interest rate and credit derivatives traded in the over the counter (OTC) market is under the
jurisdiction of RBI and is permitted as long as at least one of the parties in the transaction is
regulated by RBI.To understand the size of each segment, the turnover in various derivative
contracts over the past three years across the segments is given below. As may be seen, the OTC
turnover as a percentage of exchange traded securities derivatives turnover has decreased over
the years.

Exchange traded securities derivatives turnover (in

Rs. crore)
Commodities
Estimated
derivatives
turnover in the
(based on notional value of the products)
Turnover (in Rs. OTC Markets#
Interest crore)
(in Rs Crore)
Equity
Currency
Year
Rate
Derivatives Derivatives
Futures
2009-10

17,663,665

45,397

2,973

77,64,754.05

30,22,101

2010-11

29,248,221

8,406,355

62

11,948,942.35

4,886,816

2011-12

31,349,732

9,897,286

3,959*

18,126,103.78

5,123,763

133.44%

69.54%

% increase in 77.48%

21701.63% 33.17%

3 years

Other Workers
All workers, i.e., those who have been engaged in some economic activity during the last one
year, but are not cultivators or agricultural labourers or in Household Industry, are 'Other
Workers (OW)'. The type of workers that come under this category of 'OW' include all
government servants, municipal employees, teachers, factory workers, plantation workers, those
engaged in trade, commerce, business, transport banking, mining, construction, political or social
work, priests, entertainment artists, etc. All those workers other than cultivators or agricultural
labourers or household industry workers are 'Other Workers'.

Out of pocket expenditure

Households, in general, avail healthcare services from public as well as private health care
facilities, depending on their accessibility and affordability to these facilities. In Public Health
Institutions, Government incurs expenditure for providing healthcare infrastructure as well as
payment of salaries for medical staff, while in private sector hospitals, the service providers
charge directly from households for their services. Although the services provided by Public
Health Institutions, particularly Primary Health Centres / Government hospitals are accessible to
the public, mostly free of cost, in practice, there are various instances, where households have to
pay out of pocket expenditure. The expenses that the patient or the family pays directly to the
health care provider, without a third-party (insurer, or State) is known as Out of Pocket
Expenditure (OOP). These expenses could be medical as well as non-medical expenditure. Out
of Pocket Medical expenditure could be payments towards doctors fees, medicine, diagnostics,
operations, charges for blood, ambulance services etc, while non-medical expenditure include
money spent towards travelling expenses, lodging charges of escort, attendant charges, etc.
Out-of-pocket expenditure (OOP) on healthcare forms a major barrier to health seeking
behaviour. The poor sections do not have any form of financial protection and are forced to make
OOP payments when they fall sick. Often, these households have to resort to borrowings or sell
assets to meet this expenditure. In literature, Catastrophic Out of Pocket Expenditure is defined
as that level of out of pocket expenditure which exceeds some fixed proportion of household
income or households capacity to pay. As per National Health Accounts (NHA) of India (200405), 71.13% of Total Health Expenditure in India is considered to be Out of Pocket
Expenditure by the individuals / households. NHA takes into account only out of pocket
towards medical expenditure.

Participatory Notes (PNs)

A Participatory Note (PN or P-Note) in the Indian context, in essence, is a derivative instrument
issued in foreign jurisdictions, by a SEBI registered Foreign Institutional Investor (FII) or its
sub-accounts or one of its associates, against underlying Indian securities. The underlying Indian
security instrument may be equity, debt, derivatives or may even be an index. Further, a basket

of securities from different jurisdictions can also be constructed in which a portion of the
underlying securities is Indian securities or indices.
PNs are also known as Overseas Derivative Instruments, Equity Linked Notes, Capped Return
Notes, and Participating Return Notes etc.
The investor in PN does not own the underlying Indian security, which is held by the FII who
issues the PN. Thus the investors in PNs derive the economic benefits of investing in the security
without actually holding it. They benefit from fluctuations in the price of the underlying security
since the value of the PN is linked with the value of the underlying Indian security. The PN
holder also does not enjoy any voting rights in relation to security/shares referenced by the PN.
Rationale for issuance of PNs
One of the primary reasons for the emergence of an Off-shore Derivative market is the
restrictions on foreign investments. For eg, a foreign investor intending to make portfolio
investments in India was required to seek FII registration for which he is required to meet certain
eligibility criteria. Lack of full Capital Account Convertibility further enhances the entry barriers
from the perspective of a foreign investor. However, Since January 2012, Indian government has
taken a decision to give direct access to such prospective foreign individual investors who were
hitherto banned to invest in equity of Indian companies.
The off-shore derivative market allows investors to gain exposure to the local shares without
incurring the time and costs involved in investing directly. In return, the foreign investor pays the
PN issuer a certain basis point(s) of the value of PNs traded by him as costs. For instance,
directly investing in the Indian securities markets as an FII, has significant cost and time
implications for the foreign investor. Apart from seeking FII registration, he is required to
establish a domestic broker relationship, a custodian bank relationship, deal in foreign
exchange and bear exchange rate fluctuation risk, pay domestic taxes and/or filing tax return,
obtain or maintain an investment identity etc. These investors would rather look for derivatives
alternatives to gain a cost-effective exposure to the relevant market.
Besides reducing transactions costs, PNs also provide customized tools to manage risk, lower
financing costs, and enhance portfolio yields. For instance, PNs can also be designed for longer
maturities than are generally available for exchange-traded derivative.
PNs also offer an important hedging tool to a foreign investor already registered as an FII. For
example; an FII may wish to obtain long exposure to a particular Indian security. The FII can
hedge the downside exposure to the listed security, already purchased by purchasing a cash
settled put option. Although the Indian exchanges offer options contract, these contracts have a
maximum life period of three months, beyond which the FII shall have to rollover its positions
i.e. purchase a fresh option contract. Alternatively, it can avail of a PN which can be customized
to cater to its hedging requirements.
Although PNs are privately negotiated Over-The-Counter (OTC) contracts, the terminology,
terms and conditions used in these contracts are standardized and uniform, just as in the case of
exchange-traded derivative contracts.
Potential investors who would like to take direct Indian exposure in future, may make initial
investments through the PN route so as to get a flavor of future anticipated returns.

Further, trading in ODI/PNs gives an opportunity to offshore entities to have a commission based
business model. This route provides ease to subscribers as it bypasses the direct route which may
be resource heavy for them. All the above-said points make it a good avenue to take exposure in
Indian securities.
PNs are thus issued, inter-alia, to provide access to a set of foreign investors who intend to
reduce their overall costs and the time involved in making investments in India. In other words,
the attraction of investing in PNs is primarily one of efficiency (from an infrastructure and time
perspective) for which they are willing to forego certain benefits of directly holding the local
securities (e.g title and voting rights) whilst also assuming other risks.
Regulation of PNs
PNs are market instruments that are created and traded overseas. Hence, Indian regulators cannot
ban the issue of PNs. However, they can only be regulated, and they are indeed being regulated
by the securities market regulator in India, SEBI. When a PN is traded on an overseas exchange,
the regulator in that jurisdiction would be the authority to regulate that trade.
Participatory Notes have been used by FIIs since FIIs were permitted to invest in the Securities
Market. They were not specifically dealt with under the regulations until 2003. According to
Regulation 15(A) of the Securities and Exchange Board of India (SEBI) Regulations, 1995,
which was inserted later in 2004 and further amended in 2008 with the objective of tightening
regulations in this regard, PNs can be issued only to those entities which are regulated by the
relevant regulatory authority in the countries of their incorporation and are subject to compliance
of "Know Your Client" norms. Down-stream issuance or transfer of the instruments can also be
made only to a regulated entity. Further, the FIIs who issue PNs against underlying Indian
securities are required to report the issued and outstanding PNs to SEBI in a prescribed format.
In addition, SEBI can call for any information from FIIs under Regulation 20(A) of the SEBI
(FII) Regulations concerning off-shore derivative instruments issued by it, as and when and in
such form as SEBI may require.
In order to monitor the investment through these instruments, SEBI, vide circular dated October
31, 2001, advised FIIs to submit information regarding issuance of derivative instruments by
them, on a monthly basis. These reports require the communication of details such as name and
constitution of the subscribers to PNs, their location, nature of Indian underlying securities etc.
FIIs cannot issue PNs to non-resident Indians (NRIs) and those issuing PNs are required to give
an undertaking to the effect.
SEBI has also mandated that Qualified Foreign Investors, the recently allowed foreign investor
class, shall not issue PNs.
SEBI in consultation with the Government had decided in October 2007, to place certain
restrictions on the issue of Participatory Notes (PNs) by FIIs and their sub-accounts. This
decision was taken with a view to moderate the surge in foreign capital inflows into the country
and to address the know-your-client concerns for the PN holders. However, it was found that
such restrictions were ineffective. Therefore, SEBI in October 2008 reviewed its earlier decision
and decided to remove these restrictions in the light of the above factors. Rather more attention is
given to effective disclosures.

What Concerns are raised related to Participatory Notes?

Being derivative instruments and freely tradable, PNs can be easily transferred, creating multiple
layers, thereby obfuscating the real beneficial owner. It is in this respect that concerns about the
identity of ultimate beneficial owner and the source of funds arises.
For the reason that such instruments are issued outside India, these transactions are outside the
purview of SEBI surveillance and it is the FII which acts as mini-exchange overseas. The actual
transactions in the underlying are executed by the FIIs only at its discretion, as and when
necessary and there is no one-to-one correspondence between transactions in the underlying
instruments and issuance of PNs.
The ex-post reporting requirement enjoined upon the FII in respect of PNs on a monthly basis
effectively keeps the transactions in PNs out of the real time market surveillance mechanism and
beyond the enforceability jurisdiction of SEBI.
There are also concerns that some of the money coming into the market via PNs could be the
unaccounted wealth camouflaged under the guise of FII investment. However, this has not been
proved so far. SEBI has indeed been successful in taking action against FIIs who are noncompliant and those who have misreported off shore derivatives. (See SEBI's orders against the
two FIIs issued onDecember 9, 2009 (Barclays) and January 15, 2010 (Societe Generale))
Data on PNs
FIIs which have been granted FII registration after ensuring that they meet the eligibility criteria
as laid down in the Securities And Exchange Board Of India (Foreign Institutional Investors)
Regulations, 1995 are known to be issuing derivative/ financial instruments against underlying
Indian securities. As per the PN reports being filed with SEBI, it is observed that PNs are issued
by large financial sector conglomerates which not only have strong presence in the global
investment banking arena but also have asset management arms which invest across a number of
securities markets globally. These entities are originally incorporated in well-regulated and
developed jurisdictions like the US, UK etc. Further, these entities also possess the financial
wherewithal to issue PNs, complemented by skilled personnel who are adept at risk management
and financial engineering activities.
The year wise data on PNs are available here
International comparisons
PN like products are not necessarily used to invest in restricted markets but also reported to be
available in the open developed / advanced economies like Japan, Hong Kong, Singapore,
Australia, USA and UK. In response to market manipulation concerns, in December 1999,
Taiwan Securities and Futures Commission had amended its FII regulations to require periodic
disclosure by FIIs of all offshore derivative activities linked to local shares, but this requirement
was subsequently removed in June 2000 (Source: Ashok Lahiri Committee Report). Chinas
Securities Regulatory Commission requires entities to file reports related to these products with
minimal reporting requirements that emphasize only on the quota utilized by them. Other Asian
countries like Hong Kong, Singapore and Japan have reportedly no restrictions or requirements

on PNs. Malaysia, Indonesia and Philippines which are restricted markets though, are heard to be
having no reporting requirements in this regard.

Passenger Kilometre (PKM)

Passenger Kilometre (PKM) is a measure of movement of passengers by a mode of transport,
like roads, railways, airways or waterways. It is calculated as:
PKM = TPC x TDC
Where,
TPC is Total Passengers Carried measured in terms of number of passengers and,
TDC is the Total Distance Covered measured in kilometres
Out of the various modes available in India, passenger movement by road transport is the
highest, followed by railways. Estimates indicate that the share of road transport sector in
passenger movement vis-a-vis railways has increased manifold: from 15.4 per cent in 1950-51 to
87.4 per cent in 2005-06 (the latest year for which estimates are available with Ministry of Road
Transport & Highways). In terms of BPKMs, passenger movement by roads more than doubled
from 2,075.5 BPKMs in 2000-01 to 4,251.7 BPKMs in 2005-06. The Working Group on Road
Transport for the Eleventh Five Year Plan had projected BPKMs performed by roads. Assuming
four variants of GDP growth rates for the Eleventh Five Year Plan at 7 per cent, 8 per cent, 8.5
per cent and 9 per cent, the Working Group had projected BPKMs by roads to increase further to
9,892; 10,872; 11,390 and 11,927, respectively, by 2011-12.
References
1. Road Transport Year
Book http://www.morth.nic.in/writereaddata/sublink2images/RoadTransport2006_07_Book292768426.pdf
2. Working Group Report on Road Transport for the Eleventh Five Year Plan (200712) http://www.planningcommission.nic.in/aboutus/committee/wrkgrp11/wg11_roadtpt.pdf
3. Indian Railways Year
Book http://www.indianrailways.gov.in/railwayboard/uploads/directorate/stat_econ/Stat_0910/Year%20B
ook%202009-10-Sml_size_English.pdf
4. Mid-term Appraisal: Eleventh Five Year Plan (200712) http://www.planningcommission.nic.in/plans/mta/11th_mta/chapterwise/chap16_transpost.pdf

Poverty, Poverty Line, Below and Above poverty line (APL, BPL)
In India, Planning Commission estimates the number and proportion of people living below the
poverty line at national and State levels, separately for rural and urban areas. It makes poverty
estimates based on a large sample survey of household consumption expenditure carried out by
the National Sample Survey Organization (NSSO) after an interval of approximately five years.
The Commission has been estimating the poverty line and poverty ratio since 1997 on the basis
of the methodology spelt out in the report of the Expert Group on 'Estimation of Number and
Proportion of Poor' (popularly known as Lakdawala Committee Report).

Poverty is a social as well as a multidimensional phenomenon. According to the World Bank,

poverty is pronounced deprivation in wellbeing. Amartya Sen in his capability approach
perhaps gave the broadest meaning to well-being. According to him well-being comes from a
capability to function in society. Poverty arises when people lack key capabilities due to
inadequate income or education, or poor health, or insecurity, or low self-confidence, or a sense
of powerlessness, or the absence of rights such as freedom of speech.
The Human Development Report (2010) pioneered the Multidimensional Poverty Index (MPI)
which is grounded in the capability approach and an innovative effort to complement the income
based poverty indices. It includes an array of dimensions from participatory exercises among
poor communities and an emerging international consensus. The MPI shows the share of
population that is multidimensionally poor adjusted by the intensity of deprivation in terms of
living standards, heath and education.
Some Estimates:
Global Estimates: Based on new internationally comparable data, World Bank has found that
poverty levels across the globe have declined, with 1.4 billion people (one in four) in the
developing world living below US$1.25 a day in 2005, down from 1.9 billion (one in two) in
1981. In other words, global poverty rates fell from 52% in 1981 to 26% in 2005.
Estimates for India: World Bank estimates for India also indicate a continuing decline in
poverty. The revised estimates suggest that the percentage of people living below $1.25 a day in
2005 (which based on Indias PPP rate) decreased from 60% in 1981 to 42% in 2005. Even at
a dollar a day poverty declined from 42% to 24% over the same period.
In India there are two methods of estimation namely Uniform Recall Period (URP) and Mixed
Recall Period (MRP). On the basis of NSS 61st Round (July 2004 to June 2005) consumer
expenditure data, the poverty ratio is estimated at 28.3 per cent in rural areas, 25.7 per cent in
urban areas, and 27.5 per cent for the country as a whole in 2004-05 using uniform recall period
(URP). In URP, consumer expenditure data for all the items are collected for a 30-day recall
period.
Whereas based on mixed recall period (MRP) for the same period, the poverty ratios are 21.8 per
cent in rural areas, 21.7 per cent in urban areas, and 21.8 per cent for the country as a whole. In
MRP, consumer expenditure data for five non-food items, namely clothing, footwear, durable
goods, education, and institutional medical expenses, are collected for a 365-day recall period
and the consumption data for the remaining items are collected for a 30-day recall period.
The poverty line in India is income based. The poverty line was originally fixed in terms of
income/food requirements in 1978. It was stipulated that the calorie standard for a typical
individual in rural areas were 2400 calorie and was 2100 calorie in urban areas. Then the cost of
the grains (about 650 gms) that fulfill this normative standard was calculated. This cost was the
poverty line. In 1978, it was Rs. 61.80 per person per month for rural areas and Rs. 71.30 for
urban areas. Since then the Planning Commission calculates the poverty line every year adjusting
for inflation. The poverty line in monetary terms (i.e. Rs. Per capital per month) during 2005-06
has been estimated at Rs. 368 in rural area and Rs. 560 in urban area as compared to Rs. 328 in
rural area and Rs. 454 in urban area in 2000-01. The state specific poverty lines have also been
estimated by the planning commission for the year 2004-05 in monetary terms (Rs. Per capital
per month) (available at:http://planningcommission.nic.in/news/prmar07.pdf).

Methodology for estimating BPL: The methodology of estimating poverty and the
identification of BPL households have been a matter of debate. Two committees under the
chairmanship of Prof. Suresh D. Tendulkar and Dr. N.C. Saxena have submitted their reports on
methodology for estimation of poverty and methodology for conducting BPL census in rural
areas, respectively. Further, an Expert Group under the chairmanship of Prof. S.R. Hasim has
been set up to recommend methodology for identification of BPL families in urban areas.
References
1.
2.
3.
4.

http://indiabudget.nic.in/index.asp
http://planningcommission.nic.in/news/index.php?news=prbody.htm
http://siteresources.worldbank.org/INTPA/Resources
http://hdr.undp.org/en/media/HDR_2010_EN_Chapter5_reprint.pdf

Primary, Secondary and Tertiary HealthCare

Primary Healthcare
Primary healthcare denotes the first level of contact between individuals and families with the
health system. According to Alma Atta Declaration of 1978, Primary Health care was
to serve the community it served; it included care for mother and child which included family
planning, immunization, prevention of locally endemic diseases, treatment of common diseases
or injuries, provision of essential facilities, health education, provision of food and nutrition and
adequate supply of safe drinking water. In India, Primary Healthcare is provided through a
network of Sub centres and Primary Health Centres in rural areas, whereas in urban areas, it is
provided through Health posts and Family Welfare Centres. The Sub centre consists of one
Auxiliary Nurse Midwife and Multipurpose Health worker and serves a population of 5000 in
plains and 3000 persons in hilly and tribal areas. The Primary Health Centre (PHC), staffed by
Medical Officer and other paramedical staff serves every 30000 population in the plains and
20,000 persons in hilly, tribal and backward areas. Each PHC is to supervise 6 Sub centres.
Secondary Health Care
Secondary Healthcare refers to a second tier of health system, in which patients from primary
health care are referred to specialists in higher hospitals for treatment. In India, the health centres
for secondary health care include District hospitals and Community Health Centre at block level.
Tertiary Health Care
Tertiary Health care refers to a third level of health system, in which specialized consultative
care is provided usually on referral from primary and secondary medical care. Specialised
Intensive Care Units, advanced diagnostic support services and specialized medical personnel on
the key features of tertiary health care. In India, under public health system, tertiary care service
is provided by medical colleges and advanced medical research institutes.

Public Accounts
This term derives its origin from the Constitution of India.
Besides the normal receipts and expenditure of Government which relate to the Consolidated
Fund, certain other transactions enter Government Accounts, in respect of which Government
acts more as a banker. Transactions relating to provident funds, small savings, other deposits,
etc., are a few examples. The public monies thus received are kept in the Public Account set up
under Article 266(2) of the Constitution and the connected disbursements are also made there
from.
Similarly, Receipt and disbursement in respect of certain transactions such as small savings,
provident funds, reserve funds, deposits, suspense, remittances etc which do not form part of the
Consolidated Fund of the state, are kept in the Public Account are not subject to vote by the State
Legislature.

Public Debt
Article 292 of the Indian Constitution states that the Government of India can borrow amounts
specified by the Parliament from time to time. Article 293 of the Indian Constitution mandates
that the State Governments in India can borrow only from internal sources. Thus the Government
of India incurs both external and internal debt, while State Governments incur only internal debt.
As per the recommendations of the 12th Finance Commission, access to external financing by
the States for various projects is facilitated by the Central Government, which provides the
sovereign guarantee for these borrowings. From April 1, 2005, all general category states borrow
from multi-lateral and bilateral agencies ( World Bank, ADB etc.) on a back-to-back basis viz.
the interest cost and the risk emanating from currency and exchange rate fluctuations are passed
on to States. In the case of special category states ( North-eastern states, Himachal, Uttarakhand
and J&K), external borrowings of state governments are given by the Union Government as 90
per cent loan and 10 per cent grant.
This note explains the coverage of the Public Debt of the Central Government of India.
In India, total Central Government Liabilities constitutes the following three categories;
[i] Internal Debt.
[ii] External Debt.
[iii] Public Account Liabilities.
Public Debt in India includes only Internal and External Debt incurred by the Central
Government. Internal Debt includes liabilities incurred by resident units in the Indian economy
to other resident units, while External Debt includes liabilities incurred by residents to nonresidents.
The major instruments covered under Internal Debt are as follows:

Dated Securities: Primarily fixed coupon securities of short, medium and long term
maturity which have a specified redemption date. These are the single-most important

component of financing the fiscal deficit of the Central Government (around 91 % in 201011) with average maturity of around 10 years.

Treasury-Bills: Zero coupon securities that are issued at a discount and redeemed in face
value at maturity. These are issued to address short term receipt-expenditure mismatches
under the auction program of the Government. These are primarily issued in three tenors,
91,182 and 364 day.
14 Day Treasury Bills.

Securities issued to International Financial Institutions: Securities issued to

institutions viz. IMF, IBRD, IDA, ADB, IFAD etc. for Indias contributions to these
institutions etc.

Securities issued against Small Savings: All deposits under small savings schemes are
credited to the National Small Savings Fund (NSSF). The balance in the NSSF (net of
withdrawals) is invested in special Government securities.

Market Stabilization Scheme (MSS) Bonds: Governed by a MoU between the GoI and
the RBI, MSS was created to assist the RBI in managing its sterilization operations. GoI
borrows under this scheme from the RBI, while proceeds from such borrowings are
maintained in a separate cash account with the latter and is not used only for redemption of
T-bills /dated securities raised under this scheme.

Analysis of Indias public debt is contained in quarterly reports published by the Ministry of
Finance available in the link http://finmin.nic.in/reports/Public_Debt_Management.asp .
Statistics and analysis related to public debt are also available at various publications of the
Reserve Bank of India at http://www.rbi.org.in

Public Private Partnership (PPP)

Project means a project based on a contract or concession agreement, between a Government or
statutory entity on the one side and a private sector company on the other side, for delivering a
service on payment of user charges. The rights and obligations of all stakeholders including the
government, users and the concessionaire flow primarily out of the respective PPP contracts.
Unlike private projects where prices are generally determined competitively and Government
resources are not involved, PPP projects typically involve transfer of public assets, delegation of
governmental authority for recovery of user charges, private control of monopolistic services and
sharing of risks and contingent liabilities by the Government. The justification for promoting
PPP lies in its potential to improve the quality of service at lower costs, besides attracting private
capital to fund public projects.
For creating a transparent, fair and competitive environment, the Government of India has been
relying increasingly on standardising the documents and processes for award and implementation
of PPP projects. Based on international best practices, a number of Model Concession
Agreements (MCAs) have been evolved for different sectors. The process of prequalification and
selection of bidders has also been standardised through adoption of model documents for a two-

stage selection comprising the Request for Qualification (RFQ) and Request for Proposals
(RFP). These documents can be adapted for meeting the specific requirements of individual
projects.
A poorly structured PPP contract can easily compromise user interests by recovery of higher
charges and provision of low quality services. It can also compromise the public exchequer in
the form of costlier or uncompetitive bids as well as subsequent claims for additional payments
or compensation. The process of structuring PPPs is complex and it is, therefore, necessary to
rely on experienced consultants for procuring financial, legal and technical advice in formulating
project proposals and bid documents for award and implementation of PPP projects in an
efficient, transparent and fair manner. Ministry of Finance, Government of India has notified the
guidelines to be followed by all Ministries and Departments of the Central Government, all
statutory entities under the control of Central Government and all Central Public Sector
Undertakings for selection of technical, legal and financial consultants for PPP projects.
References
1. http://www.infrastructure.gov.in

Public Sector Undertakings/Enterprises

adequate attention to R&D and human resource development resulted in a large number of public
enterprises showing a very low rate of return on the capital invested and the need for budgetary
support for day to day running. Several of them accumulated huge losses and ran up huge debts
which had to be written off /settled from time to time by the Government.
Reviewing the role of the public sector, the Industrial Policy ResAt the time of independence in
1947, Indian industry was ill-developed and required considerable policy thrust. The Second
Five year Plan (1956-61) and the Industrial Policy Resolution of 1956 provided the framework
for public sector undertakings/enterprises in India, which were expected to play a substantial role
in preventing the concentration of economic power, reducing regional disparities and ensuring
that planned development serves the common good. A list of 17 industrial sectors was reserved
for the public sector in Schedule A of the 1956 Resolution and no new units in the private sector
in these categories would be permitted. Another list of industries was included in Schedule B
where the Government actively encouraged public ownership. The Union Government and
various sub-national governments made considerable investment on setting up and running
public sector undertakings/enterprises.
Public Sector undertakings refer to commercial ventures of the Government where user fees are
charged for services rendered. The tariff/fees may be market based or subsidised. They are
usually fully owned and managed by the Government such as Railways, Posts, Defence
Undertakings, Banks etc. Public sector enterprises on the other hand refer to those companies
registered under the Companies Act, 1951,which are predominantly owned by Government and
which are managed by a Government appointed Chairman and Managing Director. Government
nominees represent the interests of the Government on the board of Public sector enterprises.
Public sector companies usually compete with private sector enterprises in the domestic as well
as international market.

Initially, the public sector was confined to core and strategic industries such as irrigation projects
(e.g. the Damodar Valley Corporation), Fertilizers and Chemicals (e.g. Fertilizers and
Chemicals, Travancore Limited) Communication Infrastructure (e.g. Indian Telephone
Industries), Heavy Industries (e.g. Bhilai Steel Plant, Hindustan Machine Tools, Bharat Heavy
Electricals, Oil and Natural Gas Commission etc.). Subsequently, however, the Government
nationalized several banks (starting with nationalization of the Imperial Bank of India which was
renamed State Bank of India in 1955) and foreign companies (Jessop & Co, Braithwaite & Co,
Burn & Co.).Later Public Sector companies started manufacturing consumer goods (e.g. Modern
Foods, National Textile Corporation etc) and providing consultancy, contracting, and
transportation services.
Investment decisions of PSUs are passed by the respective boards and then appraised and
approved by the adminsitrative ministry to which they are accountable (e.g. Shipping
Corporation of India is under the Department of Shipping in the Union Ministry of Surface
Transport) or the Public Investment Board under the Department of Expenditure, Union Ministry
of Finance and if the investment is beyond a certain threshold level or if a new public sector
company is being created, then the proposal has to be approved by Cabinet. Central public sector
enterprises are classified as mahratnas mini-ratnas and other enterprises depending on their
track record based on guidelines approved by the Government from time to time.
The internal (profits) and extra-budgetary resources (borrowed funds) of public sector
undertakings are factored into the preparation of the Annual Financial Statement (Budget) of the
Government. However, poor productivity, poor project management, over-manning, lack of
continuous technological upgradation, and inolution 1991 reduced the number of industrial
undertakings exclusively reduced to the public sector to just six areas which included strategic
industries like atomic energy, defence, coal, mineral oils etc. as well as railway transport. Efforts
were made to divest non strategic public sector industries and to increase private participation in
the equity of profitable public sector industries. At the same time a Board for Reconstruction of
Public Sector Enterprises has been set up to suggest ways to turn around sick and loss making
public sector enterprises.
Sub national governments also own and manage public sector undertakings and in most cases
they are loss making and require considerable budgetary support.
The audit of public sector undertakings is done by the Comptroller and Auditor General of India
while that of public sector enterprises is done first by Chartered Accountants and the
supplementary audit is done by the Comptroller and Auditor General of India.
References
1. http://dpe.nic.in
2. http://dipp.nic.in

Quarterly External Debt Statistics (QEDS) Database

QEDS refers to an online database launched by the World Bank and the International Monetary
Fund (IMF) in 2004 that reports external debt statistics of 106 economies worldwide. The
database provides timely data in a specific format that facilitates cross-country comparisons and

thus complements multilateral economic surveillance initiatives. The database is updated every
three months.
Creation of the QEDS database has been in keeping with initiatives under the Special Data
Dissemination Standards (SDDS) and the General Data Dissemination Standards (GDDS)
criteria established by the IMF in 1996 to improve the quality and availability of financial as well
as macroeconomic data across countries. Such an initiative is expected to support economic
decision-making that is better informed, spot potential vulnerabilities in the global economic
system and lead to better functioning of financial markets. At present, according to the World
Banks QEDS website, .. 62 countries have agreed to participate in the SDDS/QEDS database
while 44 Low Income Countries (LICs) to provide data to GDDS/QEDS database. Data
compiled in QEDS are based on methodologies, concepts, and presentation formats articulated in
the External Debt Statistics: Guide for Compilers and Users (Guide) 2003 and the International
Reserves and Foreign Currency Liquidity: Guidelines for a Data Template, 2001.
Participation of countries in the QEDS database is voluntary. The External Debt Management
Unit (EDMU) in the Ministry of Finance, Government of India has joined the QEDS initiative in
August 2006. EDMU has been compiling and supplying Indias external debt data on a quarterly
basis to the QEDS in the requisite format, including information encouraged through
supplementary tables.
Country data tables under QEDS can be accessed through the
linkhttp://web.worldbank.org/WBSITE/EXTERNAL/DATASTATISTICS/EXTDECQEDS/0,,co
ntentMDK:20721958~menuPK:4704607~pagePK:64168445~piPK:64168309~theSitePK:18054
15,00.html
References
1. http://wwwr.worldbank.org/qeds

Quick Employment Survey

The ' Quick Employment Survey ' is being conducted by Labour Bureau since January 2009 to
assess the impact of economic slowdown on employment in India. The economic slowdown
which had engulfed the world economy had its implications on the domestic economy. The
Indian economy showed signs of deceleration and grew at 7.8% in the first half year of 2008-09
against an average annual rate of growth of 8.6% in the preceding three years. .The Ministry of
Labour and Employment took a serious note of the economic slowdown and felt the need to
assess the impact of the crisis on employment .The need for collection of employment statistics
became imperative and Labour Bureau was entrusted with a work to carry out a quick survey in
industries/sector supposed to be badly affected by the slowdown.
The Quick Employment Surveys are quarterly surveys. The first survey was conducted in the
month of January, 2009 to study the impact of slowdown on employment during the quarter OctDec, 2008. The survey was conducted in seven important sectors of the economy viz. Textiles,
Metals, Automobiles, Gems & Jewellery, Transport, IT/BPO and Mining. The first quarterly
survey covered the construction sector .However due to non-cooperation of the sample units and
unavailability of reliable data, results could not be compiled and therefore the sector is not being
covered in the subsequent quarterly surveys. The second survey was conducted in the month of

April 2009 to study the impact on employment during the quarter Jan-March, 2009. In this
survey, two additional sectors namely leather and handloom/ power loom were covered whereas
mining sector covered during the first survey was excluded. Hence eight sectors are being
covered for this survey from then onwards. Ten quarterly surveys have been conducted so far
The Quick Employment Survey tries to capture changes in level of employment in two
categories- Direct and contract covering both manual and nonmanual workers. The trend in
exporting and non exporting units is also captured. The reports and the results of the surveys may
be viewed at www.labourbureau.gov.in.

Railway Budget
The Indian Railways is a departmental commercial undertaking of the Union Government of
India. From 1 April 1950, a separate Railway Budget is being presented to the Parliament prior
to presentation of the General Budget every year. Though the Railway Budget is presented to the
Parliament separately, the figures relating to the receipts and expenditure of the Railways are
also shown in the General Budget, as Railway Budget forms part of the total budget of the
Government of India.
The Railway Minister, while presenting budget estimates for the next financial year, gives an
overview of the performance of the Indian Railways during the previous year. Priority areas for
the Ministry in the coming year are stressed. Issues relating to new lines, creation of rail
infrastructure, investment in rolling stock, safety and security issues, staff welfare and changes in
tariffs of passenger and freight trains are discussed. Along with the Railway budget, an outcome
and performance budget for the previous year is presented to the Parliament where details on
financial outlays as well as physical outcomes are given.
The presentation of the Railway Budget is a continuation of the legacy left behind by the British
Empire, where Railway finances were separated from General finances. Railway Budget is an
instrument of Parliamentary Financial Control and at the same time, an important management
tool.
http://www.indianrailways.gov.in/railwayboard/view_section.jsp?id=0,1,304,366,539

Public Debt Management of the Union Government in India

Objectives of Public Debt Management in India
See the definition of public debt in India here.
The overall objective of the Central Governments debt management policy, as laid out by the
Central Government in November 2010 is to meet Central Governments financing needs at the
lowest possible long term borrowing costs and also to keep the total debt within sustainable
levels. Additionally, it aims at supporting development of a well-functioning and vibrant
domestic bond market.
Apart from this declared objectives, timely availability of resources for Government is ensured in
a non-disruptive manner for the market. Various institutional arrangements are also put in place
accordingly.

India is not formally using the IMF / World Bank Medium Term Debt Strategy and Debt
Sustainability Analysis. (See the IMF Guidelines here). Many countries across the globe follow /
target Medium Term Public Debt Strategy specifying the debt targets to be met and the strategies
for achieving the same. In India, such a framework / document is not in existence. However, in
the Medium Term Fiscal Policy Statement laid before the Parliament, a two year target for
outstanding liabilities is incorporated. In the Fiscal Policy Strategy Statement laid before the
Parliament, Government outlines the prudent debt management strategies so as to ensure that the
public debt remains within sustainable limits and does not crowd out private borrowing for
investment.
As per the Fiscal Policy Strategy Statement of 2012-13 the public debt management policy of the
Government is driven by the principle of gradual reduction of public debt to GDP ratio. This is
with the objective of further reducing the debt servicing risk and to create fiscal space for
developmental expenditure. On the financing side, the Government policy focuses on the
following principles
i.
ii.
iii.
iv.

greater reliance on domestic borrowings over external debt,

preference for market borrowings over instruments carrying administered interest rates,
consolidation of the debt portfolio and
development of a deep and wide market for Government securities to improve liquidity in
secondary market.

Finance Minister in his Budget Speech for 2010-11 had indicated his intention to bring out a
status paper giving detailed analysis of the governments debt situation and a road map for
curtailing the overall public debt. Accordingly, a paper was brought out in November 2010,
titled Government Debt: Status and Road Ahead with detailed analysis on status of Central
Government debt. At the same time, it also charts out a well calibrated roadmap for reduction in
the overall debt as percentage of GDP for the general government during the period 2010-11 to
2014-15.
Accounting of Debt and risk measurements
For all practical purposes India runs a Single Treasury Account. Both cash flow
method and accrual accounting methods (see comparison between the two methods here) are
used for measuring the cost of public debt. Risk of the debt portfolio is measured in terms of
different parameters which include future cash flows and level of projected deficit and
borrowings. Based on the different scenarios, internal limits are defined.
Meetings with Primary Dealers (investors who take government securities in bulk and then
redistribute to their clients) are generally held twice a year, or more depending on the market
conditions. Issuance plans and debt strategy are discussed in general terms with the investors.
Institutions responsible for management of public debt
The jurisdiction of various institutions responsible for public debt management is given below:
1. Reserve Bank of India Domestic Marketable Debt i.e., dated securities, treasury
bills and cash management bills.

2. Ministry of Finance (MOF); Office of Aid and accounts Division external debt
3. Ministry of Finance; Budget Division and Reserve Bank of India Other
liabilities such as small savings, deposits, reserve funds etc.
For monetary and fiscal coordination, there is a cash and debt management committee
which meets regularly. The members comprise of officials from RBI and MOF. The Central
Governments Budget for 2007-08 announced setting up an autonomous debt Management
Office (DMO) and, in the first phase, a Middle Office was set up in September 2008 in the
Ministry of Finance to facilitate the transition to a full-fledged DMO. The Middle Office
would be merged into the Debt Management Office (DMO), when it is established. The
functionalities presently carried out by RBI and Ministry of Finance will be undertaken by
the Middle Office in a phased manner to ensure a smooth transition from the existing
arrangements. The responsibilities of the Middle Office can be seen here.
To take forward the process of financial sector legislative reforms, the Government has
proposed to move the Public Debt Management Agency of India Bill, 2012 in the
Parliament.

Rajiv Gandhi Equity Savings Scheme (RGESS)

Rajiv Gandhi Equity Saving Scheme (RGESS), is a tax saving scheme announced in the Union
Budget 2012-13 (para 35), designed exclusively for the first time retail / individual investors in
securities market, who invest up to Rs. 50,000 and whose annual taxable income is below Rs. 10
lakh (around US$ 18500). The investor would get a 50% deduction of the amount invested from
the taxable income for that year.
The Scheme is named after the former Prime Minister of India Shri. Rajiv Gandhi. The broad
provisions of the Scheme and the income tax benefits under it have already been incorporated as
a new Section -80CCG- of the Income Tax (IT) Act, 1961, as amended by the Finance Act, 2012
. This means that the allowed tax deduction will be over and above the Rs. 1 Lakh limit
permitted under Section 80 C of the IT Act, making it thus attractive for the middle class
investors.
Honourable Finance Minister, Mr. Chidambaram announced the launch of the Scheme on 21
September 2012. The notification is expected in two weeks time.
Objective of the Scheme
The Scheme intends to encourage the flow of savings and improve the depth of domestic capital
markets, as stated in the Budget Speech by the then Finance Minister Shri Pranab Mukherjee.
However, it also aims to promote an equity culture in India. This is also expected to widen the
retail investor base in the Indian securities markets and further the goal of financial stability and
financial inclusion.
Investment Options under the Scheme
Under the Scheme, those stocks listed under the BSE 100 or CNX 100, or those of public sector
undertakings which are Navratnas, Maharatnas and Miniratnas would be eligible. Follow-on
Public Offers (FPOs) of the above companies would also be eligible under the Scheme. IPOs of

PSUs, which are getting listed in the relevant financial year and whose annual turnover is not
less than Rs. 4000 cr for each of the immediate past three years, would also be eligible.
One of the main objectives of the scheme is to promote an equity culture in India. Accordingly,
in the Union Budget 2012-13, it was specified that the scheme would be available only for
investing directly in equities. Further, subsequent to the budget announcement, Income Tax Act,
1962 has been amended vide the Finance Act, 2012[i] to include a new section 80CCG with
effect from 1.4.2012. The investment referred to at 3 (iii) of 80CCG is about investment to be
made in listed equity shares, thereby limiting the ambit to direct equity investment.
Notwithstanding the above, within the limited scope of the Scheme, it is provisioned in the
interest of providing diversification and consequent minimization of losses to the investor that
investments in Exchange Traded Funds (ETFs) and Mutual Funds (MFs) that have RGESS
eligible securities as their underlying, and listed and traded in the stock exchanges and settled
through a depository mechanism will also be eligible under RGESS. Investment in listed ETFs
and MFs are perceived as investment into a combination of listed equity for the purposes of 80
CCG.
Highlights of the Design of the Scheme
Even though the scheme was designed for new retail individual investors, its scope has been
expanded to those who have already opened a demat account, provided they have not transacted
in equity / derivatives till the notification of the Scheme.
The choice of investments have been restricted to the stocks included in BSE 100 or CNX 100
and to selected PSU stocks as they, generally, have shown relatively lower volatility, higher
liquidity, and there is adequate reporting and analysis available in the market. This has been done
with the intention of protecting the interest of the new investors.
Generally tax savings schemes are focused more on the quantum of investments. Here, perhaps
the emphasis is more on the entry of the investor. The Scheme, as such, is designed for only the
first time new investors. Since they can be new only in the first year of entering the market, the
benefits of the Scheme is limited to only one year for a particular beneficiary, i.e., the tax benefit
can be availed of only to the extent of investments made in the first financial year in which the
investor opts for the RGESS unlike other tax savings scheme where continued contributions are
made eligible for tax benefits. However, the Scheme is for all eligible investors for all the
coming years.
Generally the tax savings schemes are subject to lock-in conditions. In India, for instance,
the Equity linked Savings Scheme available for mutual funds subscriptions, are subject to 3 year
lock-in. The total lock-in period for investments under RGESS would also be three years
including an initial blanket lock-in period of one year, commencing from the date of last
purchase of securities under RGESS. However, after the first year, investors would be allowed to
trade in the securities in furtherance of the goal of promoting an equity culture and as a provision
to protect them from adverse market movements or stock specific risks as well as to give them
avenues to realize profits. Investors would, however, be required to maintain their level of
investment during these two years at the amount for which they have claimed income tax benefit
or at the value of the portfolio before initiating a sale transaction, whichever is less, for at least
270 days in a year. The calculation of 270 days includes those days pursuant to the day on which
the market value of the residual shares /units has automatically touched the stipulated value after
the date of debit. Thus the investor is allowed to take benefits of the appreciation of his RGESS

portfolio, provided its value, as on the previous day of trading, remains above the investment for
which they have claimed income tax benefit. The general principle under which trading is
allowed is that whatever is the value of stocks / units sold by the investor from the RGESS
portfolio, RGESS compliant securities of at least the same value are credited back into the
account subsequently so that the 270 day criteria is met.
In contrast to the general provision that tax saving investments are to be made in one go, in
RGESS, investments can be brought in installments in the year in which tax claims are made.
The Scheme has a PAN based monitoring mechanism. The day to day valuation of securities in
the RGESS portfolio, certification of new investors etc will be done by the depositories /
depository participants, thus making it easier for the small investors while ensuring electronic
monitoring of the Scheme by the Tax Authorities.
In case the investor fails to meet the conditions stipulated, the tax benefit will be withdrawn.
Differences with ELSS
Equity Linked Savings Scheme (ELSS) and RGESS are entirely different schemes: They pertain
to different asset classes with ELSS offering passive investment avenues. ELSS is meant for
indirect participation in the stock market, whereas RGESS aims at encouraging direct
participation in the stock market. The operational differences are given below:

Operational differences
ELSS

RGESS

Investments
are to be
Investments are in mutual funds which invests mostly in equity (80-100% in made
equity)
directly in
listed
equity

100% deduction (upto Rs. 1,00,000) is allowed under ELSS

Only 50%
deduction
(upto max.
of
Rs.
25,000) is
allowed
under
RGESS.

Separate
investment
limit
The ELSS benefit is coming under Section 80-C of the IT Act which has an
exclusively
aggregate limit of Rs. 1,00,000 for all such eligible instruments like LIC policy,
for RGESS
PPF etc
over
and
above the
Section 80

C Limit

Lock-in period of 3 years

Lock-in of
3-years.
However,
trading
allowed
after oneyear subject
to
conditions.

Since investments are in mutual funds, it is perceived to be less risky

Since
investments
are
in
equity / risk
/ ownership
capital, risk
is perceived
to be higher

Similar International Experiences

Fiscal incentives have been empirically established to encourage greater retail participation.
International experience in countries where such schemes were implemented supports this
notion. For example, Loi-Monory scheme introduced in France in 1978 was successful in
significantly improving retail participation; the proportion of French households investing in
listed securities rose from 7% to 17% during 1977-1982. Similar schemes were launched by
other European countries, most notably Belgium and West Germany. Such a scheme in Sweden
turned one sixth of the population into investors. All these exemplify the positive manner in
which people of relatively modest means will respond to fairer tax treatment [ii].

i) Finance Act is an Act proposed in each year to give effect to the financial proposals of the
Central Government in that financial year. It is through the Finance Act that amendments are
made to the Income Tax Act 1961 etc. At the time of presentation of the Annual Financial
Statement before Parliament, a Finance Bill is also presented in fulfillment of the requirement of
Article 110 (1)(a) of the Constitution, detailing the imposition, abolition, remission, alteration or
regulation of taxes proposed in the Budget. Finance Bill, once it is passed by the Parliament and
assented to by the President, becomes the Finance Act for that year.
ii) Shares for All steps towards a share-owning society by Sir Nicholas Goodison, Templeton
lecture 1986, Center for Policy Studies.

Rashtriya Krishi Vikas Yojana

The RKVY (National Agriculture Development Programme/Rashtriya Krishi Vikas Yojana) was
devised by the Ministry of Agriculture with the aim of achieving 4% annual growth in the
agriculture sector during the Eleventh Plan period (2007-08 to 2011-12). The main objective of
the Scheme is to incentivize States to increase public investment in Agriculture and allied sectors
by providing 100% Central Government grants for State Agricultural Plans. The States, under
RKVY, are required to prepare the Agriculture Plans for their districts based on agro-climatic
conditions, availability of technology and natural resources.
The Scheme is an incentive scheme; wherein there are no automatic allocations. The eligibility
of a state for the RKVY is contingent upon the state maintaining or increasing the State Plan
expenditure for Agricultural and Allied sectors. Each state needs to ensure that the baseline share
of agriculture in its total State Plan expenditure is at least maintained, and upon its doing so, it
will be able to access the RKVY funds. The base line would be a moving average and the
average of the previous three years will be taken into account for determining the eligibility
under the RKVY, after excluding the funds already received.
References
1. http://www.agricoop.nic.in
2. http://rkvy.nic.in

Rashtriya Swasthya Bima Yojana (RSBY)

RSBY is a cashless Smart Card based health insurance scheme for BPL families in the
unorganised sector launched in 2007-08. It provides health insurance cover of Rs. 30,000/- for a
family of five on a floater basis covering all pre-existing diseases, hospitalization expenses,
maternity benefit etc. The ambit of the scheme has been expanded to include MGNREGA
workers, railway porters, construction workers etc. The premium under the scheme is borne by
the Central and the State Government in the ratio of 75:25 (90:10 in case of J&K and NE States).
The beneficiary pays Rs. 30 at the time of enrolment. The uniqueness of the scheme lies in
the fact that it provides interoperability throughout the country to facilitate use by migrant
labour.
RSBY has made available state of the art health facility to the poorest of the poor who can
choose between public and private health service provider. The ILO and UNDP have selected the
scheme as one of the eighteen successful social protection floor schemes in the world. A number
of delegations from countries like Bangladesh, Nigeria, Ghana, Vietnam, Cambodia, Nepal and
Maldives have visited India to study the scheme and some have even taken a decision to
implement a variant in their own country.

Regional Rural Banks

Regional Rural Banks (RRBs) are financial institutions which ensure adequate credit for
agriculture and other rural sectors . Regional Rural Banks were set up on the basis of the
recommendations of the Narasimham Working Group (1975), and after the legislations of the

Regional Rural Banks Act, 1976. The first Regional Rural Bank Prathama Grameen Bank was
set up on October 2, 1975. At present there are 82 RRBs in India.
The equity of a regional rural bank is held by the Central Government, concerned State
Government and the Sponsor Bank in the proportion of 50:15:35. The RRBs combine the
characteristics of a cooperative in terms of the familiarity of the rural problems and a commercial
bank in terms of its professionalism and ability to mobilise financial resources. Each RRB
operates within the local limits as notified by Government. The main objectives of RRBs are to
provide credit and other facilities especially to the small and marginal farmers agricultural
labourers artisans and small entrepreneurs in rural areas with the objective of bridging the credit
gap in rural areas, checking the outflow of rural deposits to urban areas and reduce regional
imbalances and increase rural employment generation.
The RRBs have also been brought under the ambit of priority sector lending on par with the
commercial banks. Priority sector lending has been devised so that assistance from the banking
system flowed in an increasing measure to the vital sectors of the economy and according to
national priorities. Sectors like agriculture, small business, housing ,retail trade, education are
categorised as priority sector by Reserve Bank of India and a stipulated amount has to be lent to
these sectors by the banks. As per the guidelines, domestic banks have to ensure that forty
percent of their advances are accounted for the priority sector. Within the 40% priority target,
25% should go to weaker section or 10% of their total advances should go to the weaker section
.Weaker sections, under priority sector lending purposes, include scheduled castes, scheduled
tribes, small and marginal farmers, artisans and self help groups.
References
1. http://www.nabard.org/pdf/report_financial/Chap_V.pdf
2. http://www.rbi.org.in/scripts/AboutUsDisplay.aspx?pg=RegionalRuralBanks.htm

Regulation of Combinations
Worldwide term used for this concept is merger review/merger control, which is done by
competition regulators to prevent mergers and acquisitions that are likely to reduce competition
in the market and lead to higher prices, lower quality goods or services, or less innovation. Some
countries have voluntary regimes while most have mandatory regimes. Mandatory regime
implies that enterprises above defined thresholds in the concerned competition law have to
mandatorily notify the competition regulator for merger clearance.
The term 'combination' for the purposes of the Indian Competition Law, (Competition Act, 2002)
Act is defined very broadly, to include any acquisition of shares, voting rights, control or assets
or merger or amalgamation of enterprises, where the parties to the acquisition, merger or
amalgamation satisfy the prescribed monetary thresholds in relation to the size of the acquired
enterprise and the combined size of the acquiring and acquired. The thresholds are
unambiguously specified in the Act in terms of assets or turnover in India and abroad.
Entering into a combination which causes or is likely to cause an appreciable adverse effect on
competition within the relevant market in India is prohibited and such combination would be
void. The provisions relating to regulations of combinations (M&As) in the Act have into orce

from June 1, 2011. The main enforcement provisions of regulation of combinations are given
under sections 5, 6, 20, 29, 30 and 31 of the Act.
The review process for combination under the Act involves mandatory pre-merger notification to
the Commission of combinations that exceed the prescribed threshold. In case a notifiable
merger is not notified, the Commission has the option to inquire into it within one year of the
taking into effect of the merger. In case such an inquiry finds appreciable adverse effect on
competition, the Competition Commission of India may order de-merger which would involve
social and economic costs. The Commission is also authorized to impose a fine which may
extend to one per cent of the total turnover or the assets of the combination.
References
1. Competition Act, 2002, Advocacy Booklet Series 6, Provisions relating to Combinations.

Repeat House Rent Survey

Repeat house rent survey (RHRS) is a survey conducted to collect data on house rent and related
charges from a fixed sample of dwellings to measure the changes in rents for a fixed standard of
accommodation and amenities. The index calculated forms the house rent index which is a part
of the Consumer Price Index CPI (IW) with a weightage of 15.27% in the total index. Labour
Bureau which compiles the Consumer Price Index for Industrial workers conducts the repeat
house rent survey in six monthly intervals which are termed as rounds(January to June and
July to December). Every month is termed as sub rounds. All the dwellings covered in a sub
round are surveyed in the same sub round of every round. For the purpose of the survey, rent
along with repair and maintenance charges, service charges like water and taxes are included
while electricity charges and sweeper charges are excluded.
The unit of the survey is a dwelling which is classified as rented, self owned and rent free.
Rented dwelling is defined as the entire portion of the residential accommodation hired by the
family on payment. Rent free dwelling is defined as the entire portion of dwelling occupied by
the family which has been provided by the employer without charging any rent. Self owned
dwelling means a residential accommodation owned and occupied by the worker. The weightage
of the three types of dwelling rented, self owned and rent free in the house rent index are
75.46%, 9.49% and 15.05% respectively.
The housing index is compiled by Chain base method in which changes in rent is compared with
the previous periods rent and not with the base period as in case of other items of index. This
method of calculation takes care of depreciation aspect of housing.
References
1. http://www.labourbureau.gov.in/

Revenue Deficit
Revenue deficit is the gap between the consumption expenditure (revenue expenditure) of the
Government (Union or the State Governments) and its current revenues (revenue receipts). It
also indicates the extent to which the government has borrowed to finance the current

expenditure. Revenue receipts consist of tax revenues and non-tax revenues. Tax revenues
comprise proceeds of taxes and other duties levied. The expenditure incurred for normal running
of government functionaries, which otherwise does not result in creation of assets is called
revenue expenditure.
Examples of revenue expenditure are Interest Payments and Servicing of Debt, Pensions and
(Union governments) expenditure on Grants-in-Aid and contributions to States and Union
Territories (State Governments too incur expenditure towards Grants-in-Aid and contribution to
their Local Bodies). Even though some of these grants may be used for creation of assets, all
grants given by the Union Government to State Governments/Union Territories and other entities
are also treated as revenue expenditure. In the current Union Budget (2011-12) a new
methodology of capturing the effective revenue deficit has been worked out, which takes into
account those expenditures (transfers) in the form of grants for creation of capital assets.
Elimination of the revenue deficit has been a priority for Governments, both the Union and at the
State-levels, as a revenue deficit may pre-empt resources which otherwise would be available for
capital investments. Implementation of Fiscal Responsibility and Budget Management (FRBM)
legislation during the period 2005-10 has helped Governments to reduce their revenue deficits to
a considerable extent. The global slowdown in 2008-09 and 2009-10, however, affected the
consolidation process. The Thirteenth Finance Commission (FC-XIII) has proposed a target of
elimination of revenue deficit for the Union Government by 2013-14 and for State Governments
in stages, and in a manner that all States would eliminate these targets latest by 2014-15. The
revenue deficit target set by the Thirteenth Finance Commission for the Union Government for
the current fiscal year, viz 2011-12, is 2.3% of GDP. As against this, the Medium Term Fiscal
Plan of the Union Government has placed this figure at 3.4%.
Fiscal deficit is the difference between revenue receipts plus non-debt capital receipts on the one
side and total expenditure including loans, net of repayments, on the other. It measures the gap
between the government consumption expenditure including loan repayments and the anticipated
income from tax and non-tax revenues. It also indicates the borrowing requirements of the
government from all sources. The bigger the gap the more the government will have to borrow or
resort to printing money to make both ends meet. Indiscriminate borrowings will push the
economy into debt trap, while too much deficit financing may be inflationary. Increasing fiscal
deficit over a period of time means government expenditure is rising faster than its revenues.
Implementation of Fiscal Responsibility and Budget Management (FRBM) legislation during the
period 2005-10 has helped the Union and State governments to reduce their fiscal deficits to a
considerable extent. However, the expansionary fiscal stance of these governments during the
global slowdown years (2008-09 and 2009-10) resulted in fiscal deficit moving up significantly.
The Thirteenth Finance Commission (FC-XIII) has proposed a target of attaining a 3% fiscal
deficit (of GDP) for the federal government by 2013-14 and for State Governments in stages, and
in a manner that all states would attain 3 % fiscal deficit (of their Gross State Domestic Product)
latest by 2014-15. The fiscal deficit target set by the Thirteenth Finance Commission for the
Union Government for the current fiscal year, viz 2011-12, is 4.8% of GDP. As against this, the
Medium Term Fiscal Plan of the Union Government has placed this figure at 4.6%.

Road Accidents in India

"Road Accidents in India" is comprehensive publication on motor vehicle accidents in India
which is brought out annually by Transport Research Wing of the Ministry of Road Transport &
Highways. The latest issue Road Accidents in India : 2009 provides data/information inputs on
road accidents in terms of its magnitude, incidence, spatial spread and its impact for policy
initiatives undertaken by the government to prevent and mitigate its impact. The volume of latest
issue consists of 14 sections, which dwell on various facets of road accidents in India. The latest
issue highlighted that the magnitude of road accidents and fatalities in India is increasing day-byday. This is evident from the fact that every minute about one accident occur. Similarly, every
hour more than 14 deaths occur due to road accidents i.e. one death in every 4 minutes. Thus, the
total socio-economic cost from road accidents of India in 1999-2000 was estimated at 3 % of
GDP.

Road Transport Year Book (RTYB)

The Road Transport Year Book (RTYB) of India is a premier publication which is brought out
every year by Transport Research Wing of the Ministry of Road Transport & Highways. It
intends to present the comprehensive and analytical information in an overarching framework
covering different facets of road transport sector. It provides detailed data/ information on
category-wise registered motor vehicle population and motor vehicle taxation structure in
various States / Union Territories (UTs) in the country. RTYB is the repository of data on
registered motor vehicle of India which is of great importance for policy formulation and
investment decisions. It fulfills three-fold objectives of carrying out relevant analysis, assisting in
decision making process and plotting the future development of mobility.
The first issue of RTYB was brought out in 2005. The latest publication of Road Transport
Yearbook, 2007-09 is the fourth issue in the series. There were about 115 million registered
motor vehicles in India as on 31st March 2009. Out of this, the percentage share of twowheelers; cars, jeeps and taxis; good vehicles and buses were about 72%, 13.3%, 5.5% and 1.3%,
respectively. The total registered vehicles in the country grew at a Compound Annual Growth
Rate (CAGR) of 9.8% between 1991 and 2009. Personalized mode of transport, namely twowheelers and cars, has become dominant over other modes of transport, which is clear from the
fact that two wheelers and cars grew at a CAGR of 10.3% and 9.6%, respectively, which was
higher compared to growth in buses (8.7%) and goods vehicles (8.7%). The higher growth in
personalized motor vehicles reflects the rising trend of disposable income and availability and
easy access to auto finance in the backdrop of rising per capita incomes.
The state-wise distribution of registered vehicle population indicates that Maharashtra accounted
for the largest share (14,450,908) of the registered motor vehicle in the country as on March
2009. Among all States, Sikkim reported the lowest number (28,551) of total registered motor
vehicles. Amongst the metropolitan cites, Delhi had the largest (6,302,167) vehicle population
whereas Kochi reported the lowest number (303,436).

Rupee Denominated Debt

Rupee denominated debt refers to that part of Indias total external debt that is denominated in
Indias domestic currency, the Rupee.
In contrast to foreign currency denominated external debt, in case of rupee denominated debt
the currency risk (the risk arising from appreciation or depreciation of the nominal exchange
rate) is borne by the creditor and not by the borrower. The contractual liability (principal and
interest that is designated to be paid by the borrower as agreed upon in the debt contract) is
settled in foreign currency. Accordingly, the borrower always pays back the foreign currency
equivalent of the rupee denomination valued at the spot exchange rate prevailing at that point in
time. Thus, if the domestic currency appreciates vis--vis the foreign currency, the creditor
stands to gain vis--vis the borrower since he receives more dollars per unit of Rupee.
In India rupee denominated debt comprises the following categories;
(a) Rupee Debt; Includes the outstanding defense and civilian state credits extended to India by
the erstwhile Union of Soviet Socialist Republics (USSR). The repayment is primarily through
exports of goods to Russia.
(b) Rupee denominated Non-Resident Indian (NRI) Deposits including the Non-Resident
(External) Rupee Account (NR(E)RA) and Non-Resident Ordinary Rupee (NRO) account.
(c) Foreign Institutional Investors (FII) investment in Government Treasury-Bills and dated
securities (with such investments subject to a ceiling of US$ 10 billion annually); and
(d) FII investment in corporate debt securities (with such investments subject to a ceiling of US$
40 billion annually).
The Quarterly Reports on Indias external debt published by the Ministry of Finance and the RBI
as well as the Annual Status Report on Indias external debt (published by the Ministry of
Finance) available in the website http://www.finmin.nic.in contain information on Indias rupee
denominated external debt.
At end-March 2011, 19.5 percent of Indias total external debt and 12.4 percent of Indias
sovereign external debt is denominated in rupees. The difference in the two figures is accounted
for by the fact that the former encompasses all the four categories ((a) to (d)) listed above while
the latter takes into account only (a) and (c).

Sarathi
Sarathi is a software package introduced in 2011 by National Informatics Centre and Ministry of
Road Transport & Highways for the creation of a complete computerized database of driving
licenses, conductors licenses, driving school licenses and fees. Since State Transport
Departments adhere to State-specific regulations, besides Central Motor Vehicle Rules, Sarathi
has been customized State-wise.
Sarathi envisages improved information availability of licenses, improved service delivery and
access, plugging revenue leakages and enhancing transparency in the system. For the citizens,
Sarathi offers a system of online license application submission and processing, application
status tracking, fees payment and online renewal of licenses.

The database of Sarathi can be a useful tool for curbing traffic offences. This, in turn, would
reduce the socio-economic cost of road accidents in India which has been estimated at 3 per cent
of Gross Domestic Product by Planning Commission (Page 963, Tenth Five Year Plan, Volume
II).

Seasonality
Certain economic variables show a distinct pattern in their movement over a year. For instance,
prices of vegetables will fall in winter season every year, sales will pick up in Christmas, diwali
or any other festival season. These patterns, in general, can be decomposed into trend, cyclical
and seasonal patterns. If any economic variable follows regular and predictable changes which
persist every calendar year in a particular month or duration of months, then this type of pattern
is known as seasonal pattern. The presence of such pattern is known as seasonality in time series.
These are often short term, stable and predictable change that repeats over a one-year period.
The presence of seasonality in the economic variable can sometimes make it difficult to (a)
identify the exact nature of the phenomenon represented by the sequence of observations, and (b)
make any forecasts (i.e., predicting the future values of the economic variable). As such, it
becomes imperative that the time series (i.e., the data of any economic variable over a certain
period of years) is made free from any seasonality bias in the data. The process of removing this
bias in the data is known as de-seasonalisation.
There are several econometric tools available to detect seasonality. Sometimes even a simple
scatter plot can easily predict the existence of seasonal factors. On the other hand, ARIMA 12
(developed by census bureau of US), Census XI and Ratio to Moving Average are some of the
methods by which seasonality factor can easily be removed from the series. In India, the Reserve
Bank of India (RBI), releases every year in the month of September, seasonal factors for some of
the important items, which are very helpful in de-seasonalising WPI and IIP series.

Section 25 Company
Section 25 company is one of the popular forms of Non- Profit Organisation in India. Section 25
companies, under the Companies Act 1956, are companies formed for promoting commerce, art,
science, religion, charity or any other useful object. The profits accrued or any
other income obtained is used in promotion of its objectives and it prohibits payment of any
dividend to its members. It may be registered as a Company with limited liability without the
addition of words limited or private limited in its name. As per the Companies Act 1956, the
minimum share capital required by a public company is Rs Five lakh and by a private company
is Rs One lakh. However a Section 25 company is not required to have any minimum paid up
capital. Further this category of company is required to maintain book of accounts relating to a
period of four years only instead of eight years stipulated for other companies under the
Companies Act 1956. The list of Section 25 companies may be viewed at the following
link; http://www.mca.gov.in/MCA21/dca/RegulatoryRep/pdf/Section25_Companies.pdf
References
1. Companies Act 1956

Skewflation
Economists usually distinguish between inflation and a relative price increase. Inflation refers
to a sustained, across-the-board price increase, whereas a relative price increase is a reference
to an episodic price rise pertaining to one or a small group of commodities. This leaves a third
phenomenon, namely one in which there is a price rise of one or a small group of commodities
over a sustained period of time, without a traditional designation. Skewflation is a relatively
new term to describe this third category of price rise.
In India, food prices rose steadily during the last months of 2009 and the early months of 2010,
even though the prices of non-food items continued to be relatively stable. As this somewhat
unusual phenomenon stubbornly persisted, and policymakers conferred on how to bring it to an
end, the term skewflation made an appearance in internal documents of the Government of
India, and then appeared in print in the Economic Survey 2009-10, Government of India,
Ministry of Finance.
The skewedness of inflation in India in the early months of 2010 was obvious from the fact that
food price inflation crossed the 20% mark in multiple months, whereas wholesale price index
(WPI) inflation never once crossed 11%. It may be pointed out that the skewflation has gradually
given way to a lower-grade generalized inflation, with the economy in the middle of 2011
inflating at around 9% with food and non-food price increases roughly at the same level.
Given that other nations have faced similar problems, the use of this term picked up quickly,
with the Economist magazine (January 24, 2011), in an article entitled Price Rises in China:
Inflated Fears, wondering if China was beginning to suffer from an Indian-style skewflation.
The distinction between these different kinds of inflation is important because they call for
different kinds of policy response from the government. Usually, a high inflation, and in
particular core inflation, is taken as a sign of aggregate demand outstripping aggregate supply
and is met with monetary and fiscal policy tightening. On the other hand, a relative price increase
is often treated as the markets natural response to exogenous demand and supply shocks and
many economists would argue that they are best left with no government intervention. Such
relative-price signals are the markets way of informing consumers and producers what to
consume less and what to produce more. To impair these signals does more damage than good.
In terms of policy, skewflation does not fall into either of the above categories neatly. Given that
it is sector specific, it is not evident that it calls for monetary or fiscal policy action. On the other
hand, given its sustained nature, it is not possible for government to ignore it, since cause stress
to consumers.
It is possible to argue that a small amount of skewflation, for instance, up to 2% per annum,
centred in the food and non-tradeable sector, is a natural concomitant of high growth in an
emerging economy (see Economic Survey 2010-11, Government of India, Ministry of Finance).
This is because, as we know from the study of empirical patterns, the purchasing power parity of
poor nations tends to catch up with industrialized nations during periods of rapid growth in the
former countries. So a small skewflation, usually of up to 2%, may be natural for an economy
growing rapidly. However, if such inflation rises to higher levels, government is forced to think
of a policy cocktail, consisting of aggregate demand tightening, along with measures to improve
the production and supply of goods.

SME Exchange / Platform

SME exchange is a stock exchange dedicated for trading the shares of small and medium scale
enterprises (SMEs) who, otherwise, find it difficult to get listed in the main exchanges. The
concept originated from the difficulties faced by SMEs in gaining visibility or attracting
sufficient trading volumes when listed along with other stocks in the main exchanges. World
over, trading platforms / exchanges for the shares of SMEs are known by different names such as
Alternate Investment markets or growth enterprises market, SME Board etc.
Some of the known markets for SMEs are AIM (Alternate Investment Market) in UK, TSX
Ventures in Canada, GEM (Growth Enterprise Market) in Hong Kong, MOTHERS (Market of
the high-growth and emerging stocks) in Japan, Catalist in Singapore and the latest initiative in
China - Chinext. (For comparative statistics see World Federation of Exchanges).
In India, SME exchange is defined in Chapter XA of the Securities And Exchange Board Of
India (Issue Of Capital And Disclosure Requirements) Regulations as a trading platform of a
recognised stock exchange or a dedicated exchange permitted by SEBI to list the securities
issued in accordance with Chapter XA of SEBI (ICDR) Regulations and this excludes the Main
Board (which is in turn is defined as a recognized stock exchange having nationwide trading
terminals, other than SME exchange).
To be listed on the SME exchange, the post-issue paid up capital of the company should not
exceed Rs. 25 Crores. This means that the SME exchange is not limited to the Small and
Medium Scale enterprises which are defined under [1] The Micro, Small And Medium
Enterprises Development Act, 2006 as enterprises where the investment in plant and machinery
does not exceed Rs. 10 crores. As of now, to get listed in the main boards like, National Stock
Exchange, the minimum paid up capital required is Rs. 10 cr and that of Bombay Stock
Exchange is Rs. 3 cr. Hence, those companies with paid up capital between Rs. 10 cr to Rs. 25 cr
has the option of migrating to the Main Board / or to SME exchange. The companies listed on
the SME exchange are allowed to migrate to the Main Board as and when they meet the listing
requirements of the Main Board and there shall be compulsory migration of the SMEs from the
SME exchange, in case the post issue paid up capital is likely to go beyond Rs 25 crore limit.
Globally, most of these SME exchanges are still at an evolving stage considering the many
hurdles they are facing like, declining prices of listed stocks and their illiquidity, a gradual
reduction in new listings and decline in profits of the exchanges etc. For instance, AIM had three
predecessors; CATALIST succeeded SESDAQ with new regulations and listing requirements. In
most jurisdictions, idea of a separate exchange for SMEs have become unviable and hence tend
to be platforms of existing exchanges, perhaps cross-subsidized by the main board / exchange.
Similarly, in India, after the two previous attempts -Over the Counter Exchange of
India and Indonext - the market regulator, Securities and Exchange Board of India (SEBI) vide
its [2] circular dated May 18, 2010 has permitted setting up of a dedicated Stock exchange or a
trading platform for SMEs. The existing bourses in India, BSE and NSE went live on 13 March,

2012 with a separate trading platform for small and medium enterprises (SME). BSE has named
its SME platform as BSESME while NSE has named it as Emerge.
Unlike in India, many of these SME exchanges in various countries operate at a global level, due
to smallness of the market, allowing for listing by both domestic as well as foreign companies.
Though the names suggest that they are set up for SMEs, these exchanges hardly follow the
definition of SMEs in their respective jurisdictions. Also, many of them follow a Sponsorsupervised" market model, where sponsors or nominated advisors decide if the listing applicant
is suitable to be listed or not; i.e., generally no quantitative entry criteria like track record on
profitability or minimum paid up capital or net worth etc are specified to be listed in these
exchanges. Instead, they are designed as buyers beware markets for informed investors. SEBI
has also designed the SME exchanges in a similar format with provisions for market making for
the specified securities listed on the SME exchange.
As is the case globally, certain relaxations are also provided to the issuers whose securities are
listed on SME exchange in comparison to the listing requirements in Main Board, which interalia include, publication of financial results on half yearly basis, instead of quarterly basis,
making it available on their website rather than publishing it, option of sending a statement
containing the salient features of all the documents instead of sending a full Annual Report, no
continuous requirement of minimum number of shareholders though at the time of IPO there
needs to be a minimum of 50 investors etc. The existing eligibility norms like track record on
profits, net worth /net tangible assets conditions etc. have been fully relaxed for SMEs as is the
case globally. However, no compromise has been made to corporate governance norms.

Special Category States

Special Category States (SCS) have some common characteristics like international boundary,
hilly landscape, geographic and socio-economic backwardness with low capability to generate
adequate income from available resources etc. 11 states come under this category- seven States
of North-Eastern region, Sikkim, Jammu & Kashmir, Himachal Pradesh and Uttarakhand. Other
states are referred as General Category States (GCS). They are special in the sense that they have
special socio-economic, geographical problems, high cost of production with less availability of
useful resources and hence low economic base for livelihood activities.
Fiscal Position of these states: The SCS are highly dependent on the central grants from the
Union Government for meeting their financial requirements. These states show a revenue surplus
position because any expenditure that they make on creating assets out of grants from the centre
is not treated as revenue expenditure. This is contrary to the existing accounting standards which
treats all expenditure from grants as revenue expenditure.
Manipur, Nagaland, Sikkim and Uttarakhand have a fiscal deficit which is higher than 3 per cent
but less than 6 per cent ) of their GSDP and the 13th Finance Commission has indicated that they
have to make efforts to reduce the fiscal deficit to 3 per cent by 2013-14. Jammu and Kashmir
and Mizoram have higher fiscal deficits and require concerted efforts at reducing their debt stock
to achieve targets set by the 13th Finance Commission. The other states Arunachal, Meghalaya,

Assam, Tripura and Himachal have a fiscal deficit which is less than 3 per cent of GSDP and
therefore need to maintain their position to achieve the targets set out by the 13th Finance
Commission.
Although the 12th Finance Commission recommended that all states (including special category
states) should be permitted to borrow from the open market at market rates, the special
dispensation given to special category states continues for external loans. In the case of the
externally aided projects to SCS, the Union Government treats 90 per cent of the amount
borrowed as a grant and only the remaining 10 per cent is a loan. (For the general category states,
externally aided projects are funded on a back-to-back basis).
Why more Central Assistance for SCS: Human Development Index (HDI) is considered as a
better indicator of overall development of a state. Central grants are required to ensure/maintain
better education and health standards in these states as they may not be able to generate own
resources for this purpose due to their economic vulnerability.
http://wcd.nic.in/publication/GDIGEReport/Part2.pdf
SCS require more central assistance as some of the SCSs Debt-GSDP ratio is higher than
General Category States. High Debt GSDP ratio leads to fiscal vulnerability and poor
sustainability of debt related obligations.
http://fincomindia.nic.in/writereaddata/html_en_files/Report_of_12th_Finance_Commission/12f
creng.pdf
http://fincomindia.nic.in/writereaddata%5Chtml_en_files%5Ctfc/13fcreng.pdf
Thirteenth Finance commission has recommended a Performance Grant of Rs. 1500 crore to
three SCS, namely Assam, Sikkim and Uttarakhand in recognition of the efforts made by these
States to reduce their Non-Plan Revenue Deficit. Non Plan Revenue deficit = Non Plan
Revenue receipts Non Plan Revenue expenditure.
http://fincomindia.nic.in/writereaddata/html_en_files/report19.pdf
Planning Commission also publishes data regarding SCS central assistance as per Gadgil
formula, plan expenditure, fiscal status etc.
http://planningcommission.nic.in/data/central/index.php?data=centab
http://planningcommission.nic.in/data/datatable/1705/final_25.pdf
http://planningcommission.nic.in/plans/finres/index.php?state=frbody.htm
The North Eastern States out of SCS have been provided special incentives by the Ministry of
Development of North Eastern Region (DONER)
http://mdoner.gov.in/index2.asp?sid=242
http://mdoner.gov.in/index2.asp?sid=228
http://mdoner.gov.in/index2.asp?sid=269
http://mdoner.gov.in/index2.asp?sid=264
http://mdoner.gov.in/index2.asp?sid=224

Moreover, Ministry of Commerce and Industry had been formulated a separate policy named
as North East Industrial and Investment Promotion Policy (NEIIPP), 2007 (earlier known
as The North East Industrial Policy (NEIP), 1997) providing incentives for all industrial units
to expand industrialization and development activities in North Eastern states.
http://commerce.nic.in/pressrelease/pressrelease_detail.asp?id=1985
http://dipp.gov.in/incentive/NEIIPP_2007.pdf
http://dipp.nic.in/neiipp/Notification_NEIIPP_27July2007.pdf
The Special Incentives packages for Industrial Development of the States of J&K, Himachal
Pradesh and Uttarakhand are also implemented by DIPP, Ministry of Commerce and Industry.
http://dipp.nic.in/English/Schemes/package_jk.aspx
http://dipp.nic.in/English/Schemes/himachal.aspx

Special Component Plan (SCP) and Tribal Sub Plan (TSP)

Special Component Plan (SCP) and Tribal Sub-Plan (TSP) were initiated by government as
intervention strategies during seventies to cater exclusively to Scheduled Castes (SC) and
Scheduled Tribes (ST) respectively. Such plans are meant to ensure benefits to these special
groups by guaranteeing funds from all related development sectors both at State and Centre in
proportion to the size of their respective population. Government of India also extends Special
Central Assistance (SCA) to states and UTs as additive to SCP and TSP. (Ministry of Social
Justice & Empowerment provides 100% grant under Central Sector Scheme of SCA to SCP as
additive to SCP to States/UTs).
The nomenclature of SCP has since been changed to Scheduled Castes Sub-Plan (SCSP) on the
lines of TSP. The strategy of SCSP consists in important interventions through planning process
for social, educational and economic development of Scheduled Castes and also for
improvement in their working and living conditions.
TSP approach envisages integrated development of tribal areas wherein all programmes
irrespective of source of funding operate in unison to achieve the goal of bringing (tribal) area at
par with rest of the State and improve quality of life of tribals. It is geared towards taking up
family oriented income generating schemes, elimination of exploitation, human resource
development through education & training and infrastructure development. TSP programmes are
financed from (a) TSP funds from State /U.T Plans and Central Ministries/Departments, (b)
Special Central Assistance (SCA) to TSP (c) Grants under Article 275 (1) of the Constitution to
States/U.Ts (d) Funds through Central Sector Schemes/ Centrally Sponsored Schemes and (f)
Institutional Finance.
Guidelines issued by Planning Commission for formulation, implementation and monitoring of
SCP and TSP emphasize, inter-alia, on earmarking funds towards SCP and TSP in proportion to
population of SC and ST respectively, creating dedicated unit for proper implementation and
separate budget-head/sub-heads for making funds non divertible and approval for plans of
Central Ministries/Departments/State Governments being conditional on adherence to
implementation of SCP and TSP. Ministry of Social Justice & Empowerment and Ministry of
Tribal Affairs periodically review and monitor SCP and TSP respectively.

References
1.
2.
3.
4.

http://planningcommission.nic.in/sectors/sj/SCSP_TSP%20Guidelines.pdf
http://socialjustice.nic.in/scatoscp.php
http://tribal.nic.in/index2.asp?sublinkid=691&langid=1
http://tribal.nic.in/index2.asp?sublinkid=431&langid=1

Special Economic Zone (SEZ)

The first Export Processing Zone (EPZ) was set up in 1959 at Shannon, in Ireland. India is one of
the first countries in Asia to recognize the effectiveness of the Export Processing Zone (EPZ)
model in promoting export. India was inspired by China for setting up of SEZ. Asias First EPZ
was set up in Kandla in 1965.
Government of India first introduced the concept of SEZ in the export import policy 2000 with a
view to provide an internationally competitive and hassle free environment for exports. SEZ
refers to a specially demarcated territory usually known as deemed foreign territory with tax
holidays, exemption from duties for export and import, world level economic and social
infrastructure for production and augmentation of export activities within the territory along with
facilities like abundant and relatively cheap labour, strategic location and market access
etc. http://sezindia.nic.in/about-introduction.asp
After this, the existing FTZs/EPZs have been converted to SEZ. Difference between SEZ and
EPZ
http://pib.nic.in/archieve/lreleng/lyr2003/rmar2003/03032003/r030320034.html
http://www.differencebetween.com/difference-between-sez-and-vs-epz/#ixzz1TCLAcQyS
Details of SEZs established\notified prior to SEZ Act, 2005:
http://sezindia.nic.in/writereaddata/pdf/List_of_SEZs__approved_prior_to_the_SEZ_Act.pdf
Details of SEZs notified under SEZ Act, 2005:
http://sezindia.nic.in/writereaddata/pdf/Contact-details-SEZs-notified-under-SEZAct-2005.pdf
THE SPECIAL ECONOMIC ZONE ACT 2005: The act provides the umbrella legal
framework, covering all important legal and regulatory aspects for setting up of SEZs as well
units operating in SEZ. The guidelines of act, amendments and some instructions regarding
setting up of SEZ are given here:
http://sezindia.nic.in/writereaddata/pdf/SEZ%20Act,%202005.pdf
http://sezindia.nic.in/goi-policies-sra.asp
http://sezindia.nic.in/instructions.asp
The central government gives the special economic zones viz, special tax incentives for foreign
investments in the SEZs, greater independence on international trade activities, listed separately
in the national planning (including financial planning) and have province- level authority on
economic administration. For facilities and incentives provided to SEZ are
http://sezindia.nic.in/about-fi.asp
The major objectives of setting up a SEZ are to attract Foreign Direct Investment (FDI), earn
foreign exchange and contribute to exchange rate stability, boost the export sector especially non

traditional exports, to create employment opportunities, introduce new technology, develop

backward regions etc. by stimulating sectors as electronics, information technology, R & D,
tourism, infrastructure and human resource development that are regarded as strategically
important to the economy.
The guidelines for setting up a SEZ are given below as documented by govt. of India:
http://sezindia.nic.in/writereaddata/pdf/SEZ%20Act,%202005.pdf
Minimum requirements for setting up a SEZ are
http://www.sezindia.nic.in/develop-sez-happly.asp
List of operational SEZ in India
http://www.sezindia.nic.in/writereaddata/pdf/ListofoperationalSEZs.pdf
List of approved SEZs in India
List of Formal approvals
http://www.sezindia.nic.in/writereaddata/pdf/ListofFormalapprovals.pdf
List of valid in-principle approvals
http://www.sezindia.nic.in/writereaddata/pdf/Listofin-principleapprovals.pdf
State wise Distribution of SEZ
http://www.sezindia.nic.in/writereaddata/pdf/StatewiseDistribution-SEZ.pdf
Sector wise Distribution of SEZ
http://www.sezindia.nic.in/writereaddata/pdf/Sector-wise%20distribution-SEZ.pdf
Some SEZs in India are
Seepz Special Economic Zone
Kandla Special Economic Zone
Noida Special Economic Zone
Falta Special Economic Zone
Vishakhapatnam Special Economic Zone
Madras Special Economic Zone
Cochin Special Economic Zone.

State Finance Commissions

In India, decentralization reforms, aimed at empowering local people through local governments,
assumed significance in early 1990s. Though the Panchayats and the municipalities (rural local
bodies and the urban local bodies) existed even before the 73rd and 74th amendment of the
Constitution in the year 1993, these amendments provided an impetus to the decentralisation
process through a system of self-government for the panchayats and municipalities and devolve
greater powers, functions and authority to them. It also envisaged the panchayats and
municipalities as an institution of self-government. These amendments also underscored the
organic link in the public finances of the multi-layered federal polity in India. The devolution of
financial resources to these bodies was ensured through periodic constitution of the State
Finance Commissions (SFCs).
Articles 243 (I) and 243 (Y) of the Constitution spelt out the task of SFCs. Accordingly, SFCs
are required to recommend (a) the principles that should govern the distribution between the
State on the one hand and the local bodies on the other of the net proceeds of taxes, etc. leviable

by the state and the inter-se allocation between different panchayats and municipalities, (b) the
determination of taxes, duties, tolls and fees which may be assigned to, or appropriated by the
local bodies, and (c) grants-in-aid from the consolidated fund of the State to the local bodies.
SFCs are also required to suggest the measures needed to improve the financial position of the
panchayats and municipalities. The importance of the SFCs in the scheme of fiscal
decentralization is that besides arbitrating on the claims to resources by the state government and
the local bodies, their recommendations would impart greater stability and predictability to the
transfer mechanism.
So far, three SFCs have submitted their reports in most of the States. These cover different time
period. The convention established at the national level of accepting the principal
recommendations of the central finance commission without modification, is not being followed
in the states. Often, even the accepted recommendations are not fully implemented due to
resource constraints. There is no synchronization of the periods covered by the reports of SFCs
with that of the central finance commission, which affects the central finance commission in
assessing the resource required to state governments to supplement the resources of the
panchayats and municipalities.
References
1.
2.
3.
4.
5.
6.
7.
8.
9.

Reports of the Tenth, Eleventh, Twelfth and Thirteenth Finance Commission.

http://fincomindia.nic.in/ShowContentOne.aspx?id=16&Section=1
http://fincomindia.nic.in/ShowContentOne.aspx?id=28&Section=1
http://fincomindia.nic.in/ShowContentOne.aspx?id=28&Section=1(Annexure 10.2)
http://fincomindia.nic.in/ShowContentOne.aspx?id=8&Section=1
http://fincomindia.nic.in/writereaddata/html_en_files/11threport.pdf
http://fincomindia.nic.in/ShowContentOne.aspx?id=8&Section=1
RBIs Report on State Finances A study of Budgets 2010-11
http://rbidocs.rbi.org.in/rdocs/Publications/PDFs/7CHSF280311.pdf

Statutory Liquidity Ratio

The Statutory Liquidity Ratio (SLR) is a prudential measure under which (as per the Banking
Regulations Act 1949) all Scheduled Commercial Banks in India must maintain an amount in
one of the following forms as a percentage of their total DTL/NDTL;
[i] Cash.
[ii]
Gold;
[iii] Investments in un-encumbered Instruments that include;

or

(a)
Treasury-Bills
of
the
Government
of
India.
(b) Dated securities including those issued by the Government of India from time to time under
the market borrowings programme and the Market Stabilization Scheme (MSS).
(c) State Development Loans (SDLs) issued by State Governments under their market
borrowings
programme.
(d) Other instruments as notified by the RBI.
Traditionally the amount to be held thus was stipulated to be no lower than 25 percent and not
exceeding 40 percent of the banks total DTL. However, effective from January, 2007 the floor

of 25 percent on the SLR was removed following an amendment of the Banking Regulation Act,
1949.
In contrast to the CRR, under which banks have to maintain cash with the RBI, the SLR requires
holding of assets in one of the above three categories by the bank itself. For this purpose, while
gold held as a part of the SLR requirement is valued at a rate not exceeding the current market
rate, valuation of securities under category [iii] above is specified by the RBI from time to time.
Specification of cash and gold as permissible forms are primarily on the basis of these being safe
and liquid.
The SLR requirement facilitates a captive market for government securities which in turn implies
negligible refinancing risks in the case of a debt crisis. If a bank fails to meet its SLR obligation,
apenalty in the form of a penal interest payable is imposed.
SLR is also a tool for controlling liquidity in the domestic market via manipulating bank credit.
A rise in SLR locks up increasing portion of a banks assets in the above three categories and
may squeeze out bank credit.
In the wake of the global financial crisis, the SLR was reduced from 25 percent to 24 percent in
November, 2008. As of August, 2011 the SLR stands at 24 percent. The SLR status of securities
issued by the Government of India and the State Governments is indicated by the RBI in its press
releases at the time of issuance while updated list of SLR securities are available in the Database
on Indian Economy hosted in the website of the bank www.rbi.org.in.

Structure and Major Functions of Panchayati Raj Institutions (PRIs) in India

Though the basic structure of the PRIs is identical across the states of India, it is described via
different nomenclatures in different states. Panchayats in every state has its own characteristics
and even election procedures to these institutions are at variance.
A District Panchayat or Zilla Parishad is co terminus with the district. Each district has one Zilla
Parishad.
Similarly Block Panchayats or Panchayat Samitis are co terminus with blocks of the said district.
A Block may have several villages within it, but Gram Panchayats are not necessarily co
terminus with each village. Depending on the size of population (as a matter of fact, number of
voters) a Gramis defined under the law with a specific geographical area, which may consist of a
single village or a cluster of adjoining villages.
Members of Panchayats:
A. Zilla
Panchayat:
Each block Panchayat under a ZP elects one/two/three members directly (depending on number
of voters within it). Presidents of all the Block Panchayats are also ex-officio members of the ZP.
In some states the Member of Legislative Assembly (MLA) and Member of Parliament (MP) of
the district/constituency are also ex-officio members.
B.
Block
Panchayat
or Panchayat
Samiti:
Each GP under a Block Panchayat elects one/two/three members directly to the Block Panchayat.
GP pradhans are ex-officio members of the Block Panchayats.

C. Gram
Panchayat:
A Gram as defined under the Act (meaning a village or a cluster of villages) is divided into a
minimum of five constituencies (again depending on the number of voters the Gram is having).
From each of these constituencies one member is elected. Body of these elected members is
called the Gram Panchayat. Size of the GPs varies widely from state to state. In states like West
Bengal, Kerala etc. a GP has about 20000 people on an average, while in many other states it is
around 3000 only.
D. Gram
Sabha:
In most of the states, each constituency of the members of the Gram Panchayat is called
the Gram Sabha and all the voters of the same constituency are members of this body.
However, in some states this is called Ward Sabha/Palli Sabha etc. In West Bengal it is
called Gram Sansad (village parliament). Gram Sabha in West Bengal has a different meaning.
Here all the voters of the Gram Panchayat as a whole constitute the Gram Sabha.
Under the Constitution there can be only three tiers of the Panchayat. The Gram Sabha is not a
tier of the PR system. It does not have any executive function and operates as a recommending
body only.
Gram Sabhas hold meetings normally 2 to 4 times a year, but can meet as and when necessary. In
some states dates of these meetings are fixed (Madhya Pradesh, Gujarat etc.) while in others
dates are fixed by the Gram Panchayats. Issues to be discussed in the meetings can be wide
ranging but the essential agenda should include: Annual Action Plan and Budget, Annual
Accounts and Annual report of the GP, selection of beneficiaries for different social service
programmes (Indira Awas Yojana (IAY), Pension Schemes etc.), identification of schemes for
preparation of Annual Plan for development programmes (e.g. MGNREGS) of GP, consideration
of the Audit reports, analyses of GPs performance etc.
The diagram at the end of the note demonstrates the typical structure of the rural local
governance system in India, taking the example of West Bengal.
Functioning of Panchayats
As per the Constitution, Panchayats in their respective areas would prepare plans for economic
development and social justice and also execute them. To facilitate this, states are supposed to
devolve functions to Panchayats (29 subjects as mandated) and also make funds available for
doing these (as per State Finance Commissions recommendations). The functions of Panchayats
are divided among different Committees (as ministries are formed in state and union
governments), which are called Standing Committees/Sthayee Samitis/Upa Samitis etc. One of
the members remains in charge of each of such committees while the over-all charge rests with
the chairperson of the Panchayat. Panchayats are supported by a host of other of officials, the
number of which varies from state to state.
Apart from grants received from the government under the recommendation of the Finance
Commission, Panchayats receive schematic funds for implementation of schemes (MGNREGS,
BRGF, IAY etc.). They can also raise revenue by imposing taxes, fees, penalties etc. as per rule
of the state.
Diagram; Rural Local Governance System (Panchayati Raj Institutions or PRIs) in West
Bengal

Each GP member represents a specified geographical area and numbers of voters. This is called
Gram Sansad (village parliament).

NB-I: All the Panchayat Samitis within the geographical limit of a district come under the said
District Panchayat or Zilla Parishad.
NB-II:All the Gram Panchayats within the geographical limit of Panchayat Samiti come under it.
Panchayat Samiti and Development Block is co-Terminus.
NB-III:A Gram Panchayat will have at least five and maximum of 30 members. Each member
has a specified area and voters (constituency) that he represents which is called Gram Sansad
(village parliament)
GUS: Gram Unnayan Samiti (village development committee) is a small committee constituted
by Gram Sansad and chaired by the elected GP member of the same Gram Sansad. Its function is
to help the GP prepare village level plan execute them though social mobilization etc.

Sub-accounts
The Regulations for Foreign Institutional Investors (FIIs) in India defines "sub-account" to
include foreign corporates or foreign individuals and those institutions, established or
incorporated outside India and those funds, or portfolios, established outside India, whether

incorporated or not, on whose behalf investments are proposed to be made in India by a Foreign
Institutional Investor (FII).
Following could be a sub account:(i) broad based fund or portfolio which is broad based, incorporated or established outside India;
or
(ii) proprietary fund of a registered foreign institutional investor; or
(iii) foreign corporate; or
(iv) foreign individual; or
(v) university fund, endowment, foundation, charitable trust or charitable society who are
eligible to be registered as a foreign institutional investor.

Supplementary Grants
The Supplementary Grants are laid before the Parliament as per the article 115(1) (a) of the
Indian Constitution. It involves net cash out-go and technical supplementary proposal involving
gross additional expenditure, matched by savings of the Ministries/Departments or by enhanced
receipts or recoveries. This gives the details of additional expenditures by various Ministries/
Departments and is needed to be approved by the Parliament.
The Supplementary Grants are presented to Parliament in one, two or three batches depending on
the requirement of the Government.

Swavalamban
This is a social security scheme to popularize voluntary long-term retirement saving among lowincome earners in the unorganised sector. These low-income earners in the unorganised sector do
not usually realize the potential benefits of long-term retirement saving due to either low current
income or financial illiteracy. To encourage the people from the unorganised sector to
voluntarily save for their retirement, Central Government in its Budget Speech (FY 201011) introduced a scheme to contribute Rs.1,000 per year to each NPS account opened in the year
2010-11, where the unorganized income earner contributes an equivalent amount. This scheme
was initially planned to run till 2013-14. "Swavalamban is available for persons who join
National Pension Scheme, with a minimum contribution of Rs.1,000 and a maximum
contribution of Rs.12,000 per annum during the financial year 2010-11. In the Budget Speech
(FY 2011-12) the scheme has been extended till 2016-17. The exit norms were also relaxed
allowing exit at the age of 50 years instead of 60 years, or a minimum tenure of 20 years,
whichever occurs later. In the first year of operation ( FY 2010-11) the number of beneficiaries
reached 3,03,698.
There are at least five mutual advantages for Government and low-income earners in the
unorganised sector, which supports future continuance of Swavalamban on fiscally prudent
parameters. First, the government co-contribution is directly sent through electronic transfer
eliminating leakages. This ensures a long-term retirement savings are invested in different assets
with the potential of fetching adequate retirement income stream for low-income earners in the

unorganised sector. Second, the more an eligible person saves , upto the maximum amount of Rs
12,000 specified per annum, the more he is entitled to get from the Government as a cocontribution and this is an in-built incentive will help him to save more. . An incentive of Rs.
1000 can prompt households to save 1x to 12x, theoretically. At present, an analysis of countrywise data shows that for every Rupee 1 allocated by the Government for this scheme, there has
been a corresponding savings of 1.34. As more awareness of this scheme takes place, the savings
of the eligible people are likely to be many times the amount put aside by Government. In other
words, there is an in-built multiplier effect. Third, this pool of savings strengthens the options for
funding long-term investment. This means this pool of long-term savings of a twenty year tenure
could be used to finance long-term projects, infrastructure, for example. Fourth, at present
Government spends a lot of budgetary funds on social welfare of the elderly. In due course,
Swavalamban can reduce the requirement for such schemes as all savers under this scheme are
less likely to need further social security. Not the least, in strict economic terms, this makes more
better fiscal sense than lowering taxes since any increase in disposable income from tax cuts
tends to go towards consumption rather than result in increased savings.
Similar to Swavalamban there is a KiwiSaver scheme operational in New Zealand since 2007.
This scheme however is mandatory to all those who are employed for a period of one month or
more, with an optional exit possible during trial period 14days to 56 days.
Currently, all formal sector employees covered by the Employees Provident Fund Organization
are also covered by the Employees Pension Scheme, 1995 under which the Government of India
contributes 1.16% of their wages (subject to a monthly cap of Rs.6500) towards their pension.
Therefore, Swavalamban in National Pension System generates similar benefits to unorganised
sector employees, and has potential for reducing poverty among older strata of population after
the next twenty years or so, without causing undue stress on the budget.
References
1.
2.
3.
4.

Budget Speech of Union Finance Minister, 2010-11, paragraph 90

Budget Speech of Union Finance Minister, 2011-12, paragraph 106
Report of the Committee to Review Implementation of Informal Sector Pension (CRIISP)
http://www.kiwisaver.govt.nz/

Swayam Sidha Scheme

It is a flagship programme of the Ministry of Women and Child Development (WCD),
Government of India. It is an integrated women empowerment programme (IWEP) initiated in
2001 by merging Mahila Samriddhi Yojana and recasting Indira Mahila Yojana (IMY was the
first Self Help Group based womens empowerment programme of Ministry of WCD launched
in 1995-96) and including other sectoral programmes meant for women empowerment. The
objectives of the scheme include empowerment through creation of confidence and awareness
among members of SHGs regarding womens status, health, nutrition, education, sanitation and
hygiene, legal rights, economic upliftment and other social, economic and political issues;
strengthening and institutionalizing the savings habit among rural women and their control over
economic resources; improving access of women to micro credit; involvement of women in local
level planning; and convergence of services of Department of Women and Child Development
and other Departments. The long term objective of the scheme is to achieve an all round

empowerment of women, both social and economic empowerment. Directaccess to and control
over resources through income generating activities would be the main purpose of women SHGs
under Swayam Sidha.
The most important component of the programme is the formulation, implementation and
monitoring of block-specific composite projects for 4-5 years. The groups thus formed should be
on a self sustaining mode by the end of 5 years. To mobilize and sustain the groups, community
involvement is necessary. Towards this, innovative schemes are undertaken by State
Governments and the Central Government to engage the community and bring about
convergence of schemes.
Swayam Sidha Phase-2 which commenced in 2008 will be for 10 years duration and is a country
wide programme covering all blocks in the country. During the 11th Plan period of second phase
of Swayam Sidha, formation of SHGs, clusters and federations, income generation activities etc.
will be undertaken. During the latter part of phase II, during 12th Five Year Plan, strengthening
of clusters, group income generation activities etc. will be undertaken.
Swayam Sidha has resulted in tremendous improvement in the socio-economic status of rural
poor women and it has helped in providing skill enhancement to the poor women for income
generating activities. The evaluation report of an external agency in 2005 indicated that women
in Swayam Sidha Blocks have strengthened their social standing in society and the awareness of
social evils like alcoholism, dowry & female feticide is visible. Economic status of women has
definitely improved after joining the SHGs. Number of women members in Panchayat levels has
increased and some of them have been elected to local bodies.

Tonne Kilometre (TKM)

Tonne Kilometre (TKM) is a measure of freight carried by a mode of transport, like roads,
railways, airways or waterways. It is calculated as:
TKM = TLC x TDC
Where,
TLC
is
Total
Load
Carried
measured
in
TDC is the Total Distance Covered measured in kilometres

terms

of

tonnes

and,

In India, freight movement by the road transport sector is the largest, followed by railways. The
Mid-Term Appraisal of the Eleventh Five Year Plan (2007-12) notes the steady loss of freight
traffic carried by railways to roads. While the share of road transport sector vis-a-vis that of
railways was 38:62 in 1990-91, in 2006-07, this share changed to 61: 39. In terms of BTKMs,
freight movement by roads has increased by 55 per cent from 494.0 BTKMs during 2000-01 to
766.2 BTKMs in 2006-07 (the latest year for which estimated figures for BTKMs are available
with Ministry of Road Transport & Highways). The Working Group on Road Transport for the
Eleventh Five Year Plan had projected BTKMs performed by roads. Assuming four variants of
GDP growth rates for the Eleventh Five Year Plan at 7 per cent, 8 per cent, 8.5 per cent and 9 per
cent, the Working Group had projected BTKMs by roads to increase further to 1,113; 1,171;
1,200 and 1,231, respectively, by 2011-12.

References
1. Road Transport Year
Book http://www.morth.nic.in/writereaddata/sublink2images/RoadTransport2006_07_Book292768426.pdf
2. Working Group Report on Road Transport for the Eleventh Five Year
Plan http://www.planningcommission.nic.in/aboutus/committee/wrkgrp11/wg11_roadtpt.pdf
3. Indian Railways Year
Book http://www.indianrailways.gov.in/railwayboard/uploads/directorate/stat_econ/Stat_0910/Year%20B
ook%202009-10-Sml_size_English.pdf
4. Working Group Report on Shipping and Inland Water Transport for the Eleventh Five Year Plan (200712) http://www.planningcommission.nic.in/aboutus/committee/wrkgrp11/wg11_ship.pdf
5. Mid-Term Appraisal : Eleventh Five Year Plan (2007-12)
http://www.planningcommission.nic.in/plans/mta/11th_mta/chapterwise/chap16_transpost.pdf
6. Total Transport System Study conducted by RITES for Planning Commission.

Totally Sanitized Towns

National Urban Sanitation Policy adopted by Government of India envisions that all cities and
towns become totally sanitized, healthy and livable and ensures sustainable public health and
environmental outcomes for all their citizens. The Sanitation Components are Water Supply,
Excreta Disposal and Personal Hygiene, Liquid Waste Management, Solid Waste Management,
Home sanitation and Food Hygiene, Community Health and Environmental Hygiene. The salient
features of Totally Sanitized Towns are the following : towns must be free of open defecation,
elimination of manual scavenging, efficient drainage of waste water / storm water, recycling and
reuse of treated waste water, collection & full and safe disposal of solid waste, sustainable
services to the poor. In 2010, in a national ranking of 423 cities, Chandigarh stood first in
sanitation. These cities were colour coded to indicate different levels of sanitation achieved.
Cities coded red showed dangerously low sanitation standards.
References
1. http://www.urbanindia.nic.in/programme/uwss/FlyerRating.pdf
2. http://pib.nic.in/archieve/others/2010/may/d2010051103.pdf

Trade Union
Trade union is a voluntary organization of workers pertaining to a particular trade, industry or a
company and formed to promote and protect their interests and welfare by collective action.
Trade Union in India is the primary instrument for promoting the union of trade union movement
and championing the cause of working class in India. The Madras Labor Union was the first
organized Trade Union in India followed by a large number of trade unions in the Indian
industrial centers. The first organized trade union was formed in 1918 in Madras and was named
the Madras Labour Union. Since then they have spread in almost all the industrial centers of the
country. The All India Trade Union Congress (AITUC) is the oldest existing Trade Union in
India and till 1945 it remained the central trade union organization in India. As per latest data
available in Labour Bureaus report Trade Unions in India, in 2006 the total number of registered
trade unions in the country was 88440.

The Trade Union Act passed in 1926 gives legal status to the registered trade unions. The Trade
Union Act 1926, defines a trade union as any combination whether temporary or permanent,
formed primarily for the purpose of regulating the relations between workmen and employers or
between workmen and workmen or between employers and employers, or for imposing
restrictive conditions on the conduct of any trade and business and includes any federation of
two or more trade unions. The Act deals with the registration of trade unions, their rights, their
liabilities and responsibilities, funds utilization and seeks to protect them from civil or criminal
prosecution to enable them to carry on their legitimate activities for the benefit of the working
class. The Act is administered by the Ministry of Labour through its Industrial Relations
Division.
References
1. Labour Bureau, M/O labour and employment, 2010, Trade Unions in India, 2006 on 2.
2. http://labourbureau.nic.in/Trade_Unions_2006.pdf

Traditional Industries
The traditional industries of India include handloom, handicrafts, coir, cashew,beedi, tiles and
bricks and other household industrial activities carried out in the rural parts of the country. They
are labour intensive and rely on skills passed on from one generation to another generation.
However, they are mostly non-viable as they have not modernized themselves to cater to the
changing demand conditions and their marketing strategies are often not well planned or
executed. As a result, many of these industries depend on subsidies for survival and lack a
commercial orientation.
The Ministry of Micro, Small and Medium Enterprises is implementing the Scheme of Fund for
Regeneration of Traditional Industries (SFURTI) for regeneration of traditional industries
clusters from khadi, village and coir sectors. The Scheme envisages need-based assistance for
replacement of production equipment, setting up of common facility centres (CFC), product
development, quality improvement, improved marketing, training and capacity building, etc. 26
coir clusters have been approved from the coir producing States for their development under
SFURTI.
To develop coir industry, a new central sector scheme titled Scheme for Rejuvenation,
Modernisation and Technological Upgradation of Coir Industry has been launched in March
2008 to assist spinners and tiny household sector. Under this scheme, assistance is provided to
groups of spinners and tiny sector workers for replacement of outdated ratts/looms and for
constructing worksheds so as to increase production and earnings of such workers.
To promote the cashew industries sector, the Cashew Export Promotion Council of
India (sponsored by the Government in the Department of Commerce) is implementing a scheme
Modernisation and Diversification under the five year plan schemes of the Government to
provide assistance to exports for upgrading/modernizing their processing facilities.
References
1. http://msme.gov.in/msme_sfurti.htm

Vahan
Vahan is a software package introduced in 2011 by National Informatics Centre and Ministry of
Road Transport & Highways for the creation of a complete computerized database of vehicle
information available with Regional Transport Offices (RTOs) and District Transport Offices
(DTOs). Its functional modules include vehicle registration, vehicle fitness, taxation, permits and
enforcement. To address State-specific requirements, Vahan is customized State-wise. The
vehicular data of RTOs and DTOs is compiled in each State to create the State Register. The
State Registers of all States are compiled at the national level to generate the National Register.
Some uses of the data generated by Vahan include instant access of vehicle information, better
monitoring of inter-state revenue; checking duplication of registration; and linking to the
insurance companies database.

Viability Gap Funding (VGF)

Viability Gap Funding (VGF) Means a grant one-time or deferred, provided to support
infrastructure projects that are economically justified but fall short of financial viability. The lack
of financial viability usually arises from long gestation periods and the inability to increase user
charges to commercial levels. Infrastructure projects also involve externalities that are not
adequately captured indirect financial returns to the project sponsor. Through the provision of a
catalytic grant assistance of the capital costs, several projects may become bankable and help
mobilise private investment in infrastructure.
Government of India has notified a scheme for Viability Gap Funding to infrastructure projects
that are to be undertaken through Public Private Partnerships. It will be a Plan Scheme to be
administered by the Ministry of Finance with suitable budgetary provisions to be made in the
Annual Plans on a year-to- year basis.
The quantum of VGF provided under this scheme is in the form of a capital grant at the stage of
project construction. The amount of VGF will be equivalent to the lowest bid for capital subsidy,
but subject to a maximum of 20% of the total project cost. In case the sponsoring Ministry/State
Government/ statutory entity propose to provide any assistance over and above the said VGF, it
will be restricted to a further 20% of the total project cost.
Support under this scheme is available only for infrastructure projects where private sector
sponsors are selected through a process of competitive bidding. The project agreements must
also adhere to best practices that would secure value for public money and safeguard user
interests. The lead financial institution for the project is responsible for regular monitoring and
periodic evaluation of project compliance with agreed milestones and performance levels,
particularly for the purpose of grant disbursement. VGF is disbursed only after the private sector
company has subscribed and expended the equity contribution required for the project.
References
1. http://www.infrastructure.gov.in

Worker (Census Definition)

In India the Census started defining Worker as early as 1872. Over time the term work and
worker as defined by Census of India have undergone several amendments to suit the changing
dimensions of work. Work is defined as participation in any economically productive activity
with or without compensation, wages or profit. Such participation may be physical and/or mental
in nature. Work involves not only actual work but also includes a. effective supervision and
direction of work; b. part time help or unpaid work on farm, family enterprise or in any other
economic activity; and c. cultivation or milk production even solely for domestic consumption.
Accordingly, as per Census of India, all persons engaged in 'work' defined as participation in any
economically productive activity with or without compensation, wages or profit are workers. The
Reference period for determining a person as worker and non-worker is one year preceding the
date of enumeration.
The Census classifies Workers into two groups namely, Main workers and Marginal workers.
Main Workers are those workers who had worked for the major part of the reference period i.e. 6
months or more. Marginal Workers are those workers who had not worked for the major part of
the reference period i.e. less than 6 months.
The Main workers are classified on the basis of Industrial category of workers into the following
four categories:
1. Cultivators
2. Agricultural Labourers
3. Household Industry Workers and
4. Other Workers

Worker Population Ratio

The employment-to-population ratio is defined as the proportion of an economys working-age
population that is employed. As an indicator, the employment-to-population ratio provides
information on the ability of an economy to create jobs.
Worker population ratio is defined as the number of persons employed per thousand persons.
WPR= No. of employed persons x 1000
/Total population
Worker Population Ratio is an indicator used for analyzing the employment situation in the
country. This is also useful in knowing the proportion of population that is actively contributing
to the production of goods and services in the economy.
References
1. NSSO (2005), Report No. 515, Employment unemployment situation in India (Part 1), 61st round (20042005).