SWIFT (Society for World Interbank Financial Telecommunication System) platform

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  • SWIFT is global financial messaging service that enables financial institutions worldwide to send and receive information about financial transactions in secure, standardized and reliable environment.
  • It is used to transmit messages relating to cross border financial transactions.
  • It was founded in 1973 and is headquartered in La Hulpe, Belgium.
  • It is a cooperative society under Belgian law owned by its member financial institutions with offices around the world.
  • Globally over 11,000 financial institutions in more than 200 countries use services of SWIFT.
  • SWIFT does not facilitate funds transfer, rather, it sends payment orders, that must be settled by correspondent accounts that institutions have with each other.
  • On receiving this message through SWIFT, banks abroad, mostly branches of domestic banks abroad provide funds to the company.
  • Why in news? The mega PNB fraud surrounds around SWIFT technology which was misused by its branch officials to fraudulently issue LoUs (letters of undertaking), kind of Bank guarantees to diamond and jewellery importer Nirav Modi-linked companies without getting proper approvals and without making entries in CBS. The failure of SWIFT-CBS link led to Rs 11,400 crore fraud at PNB and enabled these transactions to go undetected for over seven years. 

 

Example:

  • Suppose a customer of a Bank of America of New York Branch want to send money to the ICICI bank account in Bengaluru, he can approach the Bank of America’s New York Branch with the account number of ICICI to which the money needs to be deposited and ICICI Banks Swift Code for the Bengaluru branch.
  • Bank of America’s New York Branch will send the payment message to the ICICI Bengaluru branch over the secure SWIFT network. Once ICICI ‘s Bengaluru branch receives the SWIFT message about the incoming payment, it will clear and credit the money to the account.
  • SWIFT code is used when the transfer between two banks happens internationally as we use IFSC codes for the domestic transfers i.e. financial transactions within the geographical territory of India.

Jute Industry

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Basics about Jute:

  • Jute is one of the important natural fibres after cotton in terms of cultivation and usage.
  • Its cultivation is dependent on climate, season, and soil.
  • Almost 85% of world’s jute cultivation is concentrated in the Ganges Delta.
  • India is largest producer or cultivator of jute in the world (around 60%) followed by Bangladesh and China.
  • Top jute producing states are West Bengal, Bihar, Assam and Odisha.

Facts:

  • Jute industry is predominantly dependent on Government sector which purchases jute products more than Rs. 5,500 crore every year.
  • Government has been making concerted efforts for the development of jute sector considering that nearly 3.7 lakh workers and approximately 40 lakh farmers are dependent for their livelihood on jute sectors.
  • Cabinet Committee on Economic Affairs (CCEA) has approved to expand the scope of mandatory packaging norms under Jute Packaging Material (JPM) Act, 1987. It has approved that 100% of the food grains and 20% of sugar shall be mandatorily packed in diversified jute bags.

Impact of mandatory packaging norm:

  • It will give a fillip to development of jute sector and impetus to the diversification of the jute industry.
  • It will increase quality and productivity of raw jute and also boost and sustaining demand for jute product.
  • It will benefit farmers and workers located in Eastern and North Eastern regions of country particularly in the states of West Bengal, Bihar, Odisha, Assam, Andhra Pradesh, Meghalaya and Tripura.

New Opportunity:

  • The outcry and ban against plastic bags and single-use plastic packaging holds potential for the jute sector.

Concerns

  • More than 100-year-old sector may not be in a position to benefit from this opportunity, right away.
  • The availability of quality raw jute and shrinking acreage on the one-hand and the failure of most jute mills to modernise has left the sector dependent on government-support like packaging reservations.
  • Only a section of the industry has diversified into non-packaging segments.
  • The industry’s ability to rise to these challenges hinges on the quality of the golden fibre.
  • West Bengal is India’s single largest raw jute cultivator producing almost 75 % of the crop in Nadia, Dinajpur, Murshidabad and North 24 Parganas districts.
  • But acreage had stagnated amid low productivity and falling prices of the cash crop.
  • With raw jute prices remaining below the support price in 2017-18, area-under-cultivation may stagnate in 2018-19.
  • Primitive, labour-intensive cultivation methods and retting (drenching raw jute in water to extract the fibre) — a crucial determinant in raw jute quality — creates problems.

Initiatives

  • The I-CARE programme unveiled by the National Jute Board and the Jute Corporation of India seeks to address the retting issue by introducing a pilot project on retting technologies aimed at increasing farmers’ returns.
  • A recent initiative called ‘The Jute Foundation’ (TJF) is trying to address many issues pertaining to the environment-friendly product.
  • It is trying to engage all stakeholders –farmers, workers, mills, research organisations and consumers.
  • An initiative is being introduced for the industry to work jointly with research and development agencies like IJIRA (Indian Jute Industries’ Research Association) and others to develop thin and slim jute shopping bags that can be rolled into a ladies’ handbag.

 

Payment Banks

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  • Payment banks are non-full service banks, whose main objective is to accelerate financial inclusion.
  • Payment Banks concept allows mobile firms, supermarket chains and others to cater to banking requirements of individuals and small businesses to further enhance financial inclusion.
  • Payments banks will mainly deal in transfer and remittance services and accept deposits of up to Rs 1 lakh.
  • They will not lend to customers and will have to deploy their funds in government papers and bank deposits.
  • They can accept demand deposit, issue ATM/debit cards but not credit cards.
  • They also can distribute non-risk sharing simple financial products like mutual funds and insurance products.

Goods and Services Tax Network (GSTN)

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  • It is a not for profit, non-Government, private limited company incorporated in 2013.
  • The Government of India holds 24.5%equity in GSTN
  • All States including NCT of Delhi and Puducherry, and the Empowered Committee of State Finance Ministers (EC), together hold another 24.5%.
  • Balance 51% equity is with non Government financial institutions.
  • The Company has been set up primarily to provide IT infrastructure and services to the Central and State Governments, tax payers and other stakeholders for implementation of the Goods and Services Tax (GST).
  • After rolling out of GST, the Revenue Model of GSTN shall consist of User Charge to be paid by stakeholders who will use the system and thus it will be a self-sustaining organization

 

ias4sure.com - Goods and Services Tax Network (GSTN)

New Changes:

  • GST Council has approved proposal to convert GST Network (GSTN) into government entity from current private entity status by taking over stakes held by private entities.
  • Why this change?
    • Majority of Goods and Services Tax (GST) processes including registration, filing of returns, payment of taxes, processing of refunds is IT driven and mainly through GSTN.
    • For this, GSTN handles large-scale invoice level data of lakhs of business entities including data relating to exports and imports.
    • Considering nature of state function performed by GSTN, it was felt that the network should be converted into fully government-owned company.

 

Eight Core Sectors

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  • Core industry can be defined as the main industry. In most countries, there is a particular industry that seems to be the backbone of all other industries and it qualifies to be the core industry.
  • In India, there are eight core sectors comprising of
    1. Refinery products (28.04%)
    2. Electricity (19.85%)
    3. Steel (17.92%)
    4. Coal (10.33%)
    5. Crude oil (8.98%)
    6. Natural gas (6.88%)
    7. Cement (5.37%)
    8. Fertilisers (2.63%)
  • These eight Core Industries comprise nearly 40.27% of the weight of items included in the Index of Industrial Production (IIP), which measures factory output.
  • Index of Eight Core Industries is released by Ministry of Commerce and Industry.

 

National Procurement Policy

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Public Procurement:

  • Public procurement in India is about 30% of GDP and most vulnerable to corruption.
  • It is characterized by cartelization, rigging, monopoly, corruption, poor quality of procured goods and services etc.
  • Apart from reduction in corruption, ensuring access for government to best product and service at reasonable prices etc., public procurement policy can bring in the following financial benefits :
    • Fiscal Savings (of about 0.6-1.2% of GDP) and hence added fiscal space
    • Enhanced flexibility for government to channel expenditure into growth enhancing areas
    • Shift towards rule-based institutional procurement

 

Procurement Policy:

Government has approved a national procurement policy that gives preference to ‘Make In India’ in government procurements. The policy aims to maintain the balance between promoting ‘Make in India’ and ensuring timely, quality and value-for-money products for the procuring government entities.

 

Why was it needed?

  • It will boost domestic manufacturing and service provision 
  • It will enhance income and employment.
  • It will facilitate flow of capital and technology into domestic manufacturing and services.

 

Key Points:

  • Preference will be given to local content in government procurements
  • Local content essentially means domestic value addition
  • Local suppliers are those whose goods or services meet minimum thresholds (50%) for local content.
  • For the procurement of goods below Rs 50 lakhs, only local suppliers will be eligible if the Nodal Ministry determines that there is a availability of sufficient local capacity and local competition.
  • For procurements valued above Rs 50 lakhs or in case of insufficient local capacity and if the lowest bid happens to be from a non local supplier, then the lowest-cost local supplier who is within a margin of 20% of the lowest bid, will be offered an opportunity to match the lowest bid. 
  • If the order can be split into more than one supplier, the order will be split between the non-local supplier and the local supplier.
  • Small procurements valued below Rs 5 lakhs are exempted from the policy.
  • The order also covers autonomous bodies and all the government entities under the control of the government.  
  • The policy primarily favours self certification for verification of local content. However, if the declarations were found to be false then the supplier will have to face penal consequences.
  • A Standing Committee in Department of Industrial Policy and Promotion (DIPP) will oversee the implementation of this order. It will further make recommendations to Nodal Ministries and procuring entities.

 

Challenges in Implementation:

  • Enhancing data management capabilities and standardisation which will ensure transparency in public procurements.
  • Need clarity regarding multiple references to ‘rules’ in the Bill which have led to confusion and ambiguity.
  • Need to upgrade infrastructure (For e.g. IT Infrastructure for e-procurement) and the skill sets of the officials involved in procurement exercise in-line with best practices.
  • However, apart from these, certain other reforms like:
    • Changes in the Procurement Bill like simplifying objectivity, including post-tendering steps within the ambit of procurement, designating a nodal agency for procurement etc.
    • Strengthening CCI to check cartelization while procurement
    • Adoption of Global best practices like OECD Guidelines In Public Procurement
  • These all steps along will go a long way in reforming the procurement process in India

FDI

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Facts:

  • India has received over US $300 billion Foreign Direct Investment (FDI) between April 2000 and September 2016
  • 33% of the FDI came through the Mauritius route. India received US $101.76 billion dollar from Mauritius between April 2000 and September 2016.
  • India’s services sector received maximum 18% of the cumulative equity FDI inflows.
  • FDI in FY17-18 = ~$37 Billion
  • India has attracted US $208.99 billion foreign direct investment (FDI) during April 2014 to December 2017 period.
  • India has fallen out of top 10 destinations for Foreign Direct Investments (FDI) in terms of its attractiveness according to 2018 Kearney FDI Confidence Index, in which it was ranked 11th, down from 8th in 2017 and 9th in 2016.

 

Why there is a fall in India’s FDI ranking?

  • Fall in India’s rankings may be due to teething troubles in implementation of goods and services tax (GST) and Government’s demonetisation decision in 2016.
  • These policies may have deterred investors in the short term as they have disrupted business activity and weighed on economic growth.
  • In future, potential investors are likely to be cautious as they are monitoring political risks such as China abolishing presidential term limits and upcoming general election in India.

 

FDI in FY17-18 : Analysis

  • Mauritius was top source of foreign direct investment (FDI) into India in 2017-18 followed by Singapore.
  • FDI into manufacturing sector had witnessed substantial decline.
  • FDI into communication services had increased.
  • The inflows into retail and wholesale trade increased.
  • FDI in financial services too saw rise.

 

 

Is increasing flow of FDI always good for economy? Critically examine.

 

Whether FDI actually contributes to economic growth is dependent on multiple factor such as :

  • Whether FDI is concentrated in export oriented sector or focuses on domestic market instead,
  • Whether it focuses on R&D activity in the host nation,
  • Its impact on net investment income,
  • Whether FDI crowds out or crowds in domestic investment,
  • Its impact on employment.

 

The following points reflect the true nature of FDI in India.

  1. Share of FDI in export oriented sector in India is only 10% as compared to 55% in China. Hence, India hasn’t been able to exploit the potential of FDI in developing export oriented industries. 
  2. Studies have also shown that R&D activity of MNCs is lower than domestic enterprises in India. 
  3. Net outflows of investment income have quadrupled between 2008-09 and 20014-15. 
  4. There is considerable apprehension regarding threat from FDI in multi brand retail, hence leading to a inward looking FDI policy in this sector. 
  5. A considerable amount of FDI cases are of round tipping, used for tax avoidance. 
  6. 40% of FDI flows are of short term nature, thus increasing volatility. 
  7. There is no well pronounced impact of FDI on employment generation and economic growth in India. 
  8. Besides this, FDI is regionally biased with 6 richest states receiving more than 50% of the FDI.
  9. Structure of FDI investments also need to be looked at as many are coming to “Make for India” rather than “Make in India”, which doesn’t bode well for manufacturing
  10. Issues of “technology transfer” where the critical technology has not been transferred. This is seen in Defence sector and procurement of defence technologies

 

Impact:

  • Lockheed Martin may setup F-16 assembly line in India due to 100% FDI in defence

 

Related Questions:

  1. Justify the need for FDI for the developments of the Indian economy. Why there is gap between MOUs signed and actual FDIs? Suggest remedial steps to be taken for increasing actual FDIs in India. (UPSC Mains 2016)