India and UAE have signed a pact to promote use of local currency (Rupee and UAE Dirham(AED)) for cross border transactions. It will cover all current account transactions and permitted/limited capital account transactions.
Correspondent banks are financial institutions that act as an agent on behalf of other foreign banks. Foreign banks use the services of correspondent banks when it’s not financially feasible to establish a branch in the country. For example, SBI may act as a correspondent bank for banks in UAE because UAE banks may not be willing to establish their branches in India but just want to use some services.
Mechanism
Indian exporters will make invoices in Rupees (prices of exported items will be in Rupees) and UAE exporters (to India) will make invoices in UAE Dirham. Indian importers while making payment will transfer rupee in the correspondent bank (of UAE in India i.e. SBI) and Indian exporters will be paid in Rupee from this (SBI) correspondent bank.
As the UAE exporters (to India) are invoicing in Dirham and Indian importers are making payment in Rupee, so this will lead to development of INR-AED foreign exchange market. [Right now, only few currency pairs trading are allowed in forex market... USD/INR, EUR/INR, JPY/INR etc.] Presently since there is no direct conversion/trading of INR-AED (Dirham) is there, so there is no market for INR-AED trade. But once this mechanism of payment starts then INR-AED foreign exchange market will develop. And then INR-AED will be easily convertible and then in future whether we are paying to (UAE exporters) in INR or AED will not make much difference as it will be freely convertible/tradable.
This mechanism will be used to pay for crude and other imports for which we are currently paying in dollars. This will also lead to promotion of investment and remittances between the two countries. It will be a step in the internationalization of rupee.
This will lead to protection/hedging from exchange rate risk (Rupee-dollar price variation) and will insulate the domestic economy from global shocks.
Correspondent banks are financial institutions that act as an agent on behalf of other foreign banks. Foreign banks use the services of correspondent banks when it’s not financially feasible to establish a branch in the country. For example, SBI may act as a correspondent bank for banks in UAE because UAE banks may not be willing to establish their branches in India but just want to use some services.
Mechanism
Indian exporters will make invoices in Rupees (prices of exported items will be in Rupees) and UAE exporters (to India) will make invoices in UAE Dirham. Indian importers while making payment will transfer rupee in the correspondent bank (of UAE in India i.e. SBI) and Indian exporters will be paid in Rupee from this (SBI) correspondent bank.
As the UAE exporters (to India) are invoicing in Dirham and Indian importers are making payment in Rupee, so this will lead to development of INR-AED foreign exchange market. [Right now, only few currency pairs trading are allowed in forex market... USD/INR, EUR/INR, JPY/INR etc.] Presently since there is no direct conversion/trading of INR-AED (Dirham) is there, so there is no market for INR-AED trade. But once this mechanism of payment starts then INR-AED foreign exchange market will develop. And then INR-AED will be easily convertible and then in future whether we are paying to (UAE exporters) in INR or AED will not make much difference as it will be freely convertible/tradable.
This mechanism will be used to pay for crude and other imports for which we are currently paying in dollars. This will also lead to promotion of investment and remittances between the two countries. It will be a step in the internationalization of rupee.
This will lead to protection/hedging from exchange rate risk (Rupee-dollar price variation) and will insulate the domestic economy from global shocks.
As per NITI Aayog Report, which is based on National Family Health Survey (NFHS) 2019-21, the Multidimensional Poverty (MP) has come down.
2015-16 2019-21
Overall MP 24.85% 14.96%
Rural MP 32.59% 19.28%
Urban MP 8.65% 5.27%
The overall reduction in multidimensional poverty is 9.89% (24.85% - 14.96%) during this period which has resulted in moving 13.5 crore (9.89% of 137 crore) out of poverty. So, we can say that there are still 14.96% of 137 crore = 20.5 crore people under multidimensional poverty.
The Global MPI (2023) as developed by Oxford Poverty and Human Development Initiative and UNDP says that there are around 16.4% people in India under multidimensional poverty (https://t.me/VivekSingh_Economy/4197).
India's MPI is not exactly the same as Global MPI. For instance, India's MPI has 12 variables, while the Global MPI has 10. The two additional variables in India's MPI are maternal health and bank account.
Students should refer the data as published by NITI Aayog which says that there are still 14.96% multidimensionally poor in 2019-21.
In 2011-12, there were 21.9% (27 crore) people poor in India as per Tendulkar Committee report and 29.5% (36 crore) were poor as per Rangarajan Committee. This was based on per capita expenditure on food and non-food items. Govt. did not accept any of the committee findings formally.
2015-16 2019-21
Overall MP 24.85% 14.96%
Rural MP 32.59% 19.28%
Urban MP 8.65% 5.27%
The overall reduction in multidimensional poverty is 9.89% (24.85% - 14.96%) during this period which has resulted in moving 13.5 crore (9.89% of 137 crore) out of poverty. So, we can say that there are still 14.96% of 137 crore = 20.5 crore people under multidimensional poverty.
The Global MPI (2023) as developed by Oxford Poverty and Human Development Initiative and UNDP says that there are around 16.4% people in India under multidimensional poverty (https://t.me/VivekSingh_Economy/4197).
India's MPI is not exactly the same as Global MPI. For instance, India's MPI has 12 variables, while the Global MPI has 10. The two additional variables in India's MPI are maternal health and bank account.
Students should refer the data as published by NITI Aayog which says that there are still 14.96% multidimensionally poor in 2019-21.
In 2011-12, there were 21.9% (27 crore) people poor in India as per Tendulkar Committee report and 29.5% (36 crore) were poor as per Rangarajan Committee. This was based on per capita expenditure on food and non-food items. Govt. did not accept any of the committee findings formally.
Incremental Capital Output Ratio (ICOR)
ICOR = investment % in GDP/Growth in GDP
If investment was 28% and our growth in GDP was 7% then ICOR comes out to be 4. ICOR represents how efficiently capital is being used to produce output but it depends on several factors like skill, education, technology, administration etc. Lower the ICOR, better it is for the country.
From 2016 - 2019, ICOR increased due to demonetization and GST which resulted in disruption in economic output. So during that time, even though our investment was around 28%, our growth dipped to around 6% resulting in higher ICOR (4.65)
But now things have changed and last year (2022-23), investment was 29.2% and GDP growth was 7.2%, which results in an ICOR of around 4. So, if India wants to be a developed nation then it needs to grow at 7% for the next 25 years (till 2047) and that will require an investment of 28% with ICOR being 4.
Trade Issue (WTO)
Earlier developed countries preached free trade to increase their exports are now backing out and putting restrictions when we (developing countries) have started competing in the world market. This is one of the reasons that WTO is not making any progress and stuck with Doha Round issues
Artificial Intelligence (AI)
We should adopt AI as it will increase productivity and output but not necessarily jobs. For a populous country like India, we need to focus on labour intensive sectors also like textile (Mega Textile Parks) and toys. Due to AI and other technological innovations the employment elasticity of growth (% change in employment/%change in GDP) will be less which means that for every 1% increase in GDP, the job created will be much less.
Subsidies
Govt. should try to move out of most of the inefficient subsidies (except food) and try to providing a basic minimum income.
ICOR = investment % in GDP/Growth in GDP
If investment was 28% and our growth in GDP was 7% then ICOR comes out to be 4. ICOR represents how efficiently capital is being used to produce output but it depends on several factors like skill, education, technology, administration etc. Lower the ICOR, better it is for the country.
From 2016 - 2019, ICOR increased due to demonetization and GST which resulted in disruption in economic output. So during that time, even though our investment was around 28%, our growth dipped to around 6% resulting in higher ICOR (4.65)
But now things have changed and last year (2022-23), investment was 29.2% and GDP growth was 7.2%, which results in an ICOR of around 4. So, if India wants to be a developed nation then it needs to grow at 7% for the next 25 years (till 2047) and that will require an investment of 28% with ICOR being 4.
Trade Issue (WTO)
Earlier developed countries preached free trade to increase their exports are now backing out and putting restrictions when we (developing countries) have started competing in the world market. This is one of the reasons that WTO is not making any progress and stuck with Doha Round issues
Artificial Intelligence (AI)
We should adopt AI as it will increase productivity and output but not necessarily jobs. For a populous country like India, we need to focus on labour intensive sectors also like textile (Mega Textile Parks) and toys. Due to AI and other technological innovations the employment elasticity of growth (% change in employment/%change in GDP) will be less which means that for every 1% increase in GDP, the job created will be much less.
Subsidies
Govt. should try to move out of most of the inefficient subsidies (except food) and try to providing a basic minimum income.
Raising External Commercial Borrowing (ECB) from abroad requires approval from:
Final Results
34%
(a) Ministry of Finance, Govt. of India
42%
(b) Reserve Bank of India
24%
(c) It does not require approval
The answer to the above question is (b)
ECB falls under two routes: Automatic Route and Approval Route
Under 'Automatic Route' no approval is required.
RBI has set up an Empowered Committee to consider proposals coming under the 'Approval Route'.
ECB falls under two routes: Automatic Route and Approval Route
Under 'Automatic Route' no approval is required.
RBI has set up an Empowered Committee to consider proposals coming under the 'Approval Route'.
ECONOMY MAINS QUESTIONS 2023 VIVEK SINGH.pdf
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ECONOMY MAINS QUESTIONS 2023. It contains 50 Questions.
I will be releasing video discussion of the first 30 questions as they are more analytical in nature. The link of the Youtube videos will be posted on my telegram channel and it will be free.
Quite busy in offline classes, so will try to release the videos (in 3 parts) in the next 10 days.
I will be releasing video discussion of the first 30 questions as they are more analytical in nature. The link of the Youtube videos will be posted on my telegram channel and it will be free.
Quite busy in offline classes, so will try to release the videos (in 3 parts) in the next 10 days.
Govt. of India has planned to build 35 Multi Modal Logistics Park (MMLP) in the country under PPP mode. Which ministry is implementing this scheme?
Final Results
26%
(a) Ministry of Ports, Shipping and Waterways
26%
(b) Ministry of Road Transport & Highways
2%
(c) Ministry of Railway
47%
(d) All the above
Question of the day:
Consider the following statements regarding Price Stabilization Fund (PSF):
1. It is under Ministry of Agriculture and Farmers Welfare
2. Govt. agencies do Market Intervention Operation
3.Under the scheme, strategic buffer of agri-horticulture commodities is maintained
Consider the following statements regarding Price Stabilization Fund (PSF):
1. It is under Ministry of Agriculture and Farmers Welfare
2. Govt. agencies do Market Intervention Operation
3.Under the scheme, strategic buffer of agri-horticulture commodities is maintained
Select the correct code:
Final Results
11%
(a) 1 only
11%
(b) 3 only
32%
(c) 1 and 3 only
46%
(d) 2 and 3 only
The answer to the above question is (d)
Explanation:
The Price Stabilization Fund (PSF) was set up in 2014-15 under the Department of Agriculture, Cooperation & Famers Welfare (DAC&FW) to help regulate the price volatility of important agri-horticultural commodities like onion, potatoes, tomatoes, pulses etc. The PSF scheme was transferred from DAC&FW to the Department of Consumer Affairs under Ministry of Consumer Affairs, Food and Public Distribution w.e.f. 1st April, 2016.
The scheme provides for maintaining a strategic buffer of aforementioned commodities for subsequent calibrated release to moderate price volatility and discourage hoarding and unscrupulous speculation. For building such stock, the scheme promotes direct purchase from farmers/farmers’ association at farm gate/Mandi. The PSF is utilized for granting interest free advance of working capital to Central Agencies like NAFED (National Agricultural Cooperative Marketing Federation of India Ltd.) and SFAC (Small Farmers Agri-business Consortium), State/UT Governments/Agencies to undertake market intervention operations. Apart from domestic procurement from farmers/wholesale mandis, import may also be undertaken with support from the Fund.
Now, when the tomato prices have skyrocketed, NAFED and other agencies are releasing the tomato stock at a regulated price.
Explanation:
The Price Stabilization Fund (PSF) was set up in 2014-15 under the Department of Agriculture, Cooperation & Famers Welfare (DAC&FW) to help regulate the price volatility of important agri-horticultural commodities like onion, potatoes, tomatoes, pulses etc. The PSF scheme was transferred from DAC&FW to the Department of Consumer Affairs under Ministry of Consumer Affairs, Food and Public Distribution w.e.f. 1st April, 2016.
The scheme provides for maintaining a strategic buffer of aforementioned commodities for subsequent calibrated release to moderate price volatility and discourage hoarding and unscrupulous speculation. For building such stock, the scheme promotes direct purchase from farmers/farmers’ association at farm gate/Mandi. The PSF is utilized for granting interest free advance of working capital to Central Agencies like NAFED (National Agricultural Cooperative Marketing Federation of India Ltd.) and SFAC (Small Farmers Agri-business Consortium), State/UT Governments/Agencies to undertake market intervention operations. Apart from domestic procurement from farmers/wholesale mandis, import may also be undertaken with support from the Fund.
Now, when the tomato prices have skyrocketed, NAFED and other agencies are releasing the tomato stock at a regulated price.
Fiscal Deficit (Centre + States) has come down from 13.3% in 2020-21 to 8.9% (5.9% + 3%) in 2023-24
Debt (Centre + States) has come down from 89.6% in 2020-21 to 85.7% (56% + 29.7%) in 2022-23
If economic growth rate is higher than interest rate (cost of borrowing) on Govt. borrowings then debt declines [in terms of lower Debt/GDP ratio] because higher growth increases the GDP (denominator) ... [Assuming that we have paid all previous borrowings as it may have higher interest rate]
But it may be possible that Govt.'s cost of borrowing may be less than economic growth rate just because:
1. Banks are forced to keep 18% SLR, so they will purchase more G-Sec (forced money to Govt.) resulting in lower interest rate
2. When Govt. has to borrow then around that time RBI does Open Market Operations and it purchases G-Sec to keep the interest rate less on Govt. borrowing
This leads to:
(a) Distortion of financial market. [Distortion means either the price of money is impacted in the market or the availability of money itself gets impacted]
(b) Financial Repression which occurs when Governments implement policies to channel the financial resources to themselves which in a deregulated market would go somewhere else (may be to private sector)
Redistribution of Resources (by Govt.) is necessary but it should redistribute the hard earned taxpayers money through cash transfers (Income Support) rather than subsidizing the prices of goods and services which results in market distortion (Govt. intervention/interference leading to either change in price or quantity of products produced/traded).
Macroeconomic Stabilization is mainly Central Govt. responsibility so it should restrict itself in reckless spending and enforce that States also don't spend unnecessarily on populist measures. (Already Central Govt. is doing this by allowing the increased debt limits to States linked with performance of States in certain sectors like Power etc.)
Debt (Centre + States) has come down from 89.6% in 2020-21 to 85.7% (56% + 29.7%) in 2022-23
If economic growth rate is higher than interest rate (cost of borrowing) on Govt. borrowings then debt declines [in terms of lower Debt/GDP ratio] because higher growth increases the GDP (denominator) ... [Assuming that we have paid all previous borrowings as it may have higher interest rate]
But it may be possible that Govt.'s cost of borrowing may be less than economic growth rate just because:
1. Banks are forced to keep 18% SLR, so they will purchase more G-Sec (forced money to Govt.) resulting in lower interest rate
2. When Govt. has to borrow then around that time RBI does Open Market Operations and it purchases G-Sec to keep the interest rate less on Govt. borrowing
This leads to:
(a) Distortion of financial market. [Distortion means either the price of money is impacted in the market or the availability of money itself gets impacted]
(b) Financial Repression which occurs when Governments implement policies to channel the financial resources to themselves which in a deregulated market would go somewhere else (may be to private sector)
Redistribution of Resources (by Govt.) is necessary but it should redistribute the hard earned taxpayers money through cash transfers (Income Support) rather than subsidizing the prices of goods and services which results in market distortion (Govt. intervention/interference leading to either change in price or quantity of products produced/traded).
Macroeconomic Stabilization is mainly Central Govt. responsibility so it should restrict itself in reckless spending and enforce that States also don't spend unnecessarily on populist measures. (Already Central Govt. is doing this by allowing the increased debt limits to States linked with performance of States in certain sectors like Power etc.)