Please wait...

The Hindu 24 August 2019

UPSC - Daily Current Affair






Finance Minister announces measures to boost Economy



Composite Water management Index 2.0



FATF Group blacklists Pakistan




1. Finance Minister announces measures to boost Economy - (The Hindu, Page 01)


Mains: GS Paper III – Indian Economy


Measures to Boost Economy



In response to the economic slowdown, the Finance Minister has announced comprehensive package of reforms to boost the Economic Growth in India. These measures have been announced to boost private sector investments, address the problems of NBFCs and undo some controversial announcements in the Budget.


CSR violations

Background: The Companies Amendment act 2019 provided that the violation of the CSR norms be treated as criminal offence which may attract the imprisonment of the defaulting officer. Such a move by the government had in turn raised concerns for the private sector. Recently a high level committee on Corporate Social responsibility (CSR) headed by Injeti Srinivas had recommended that violation of CSR norms be treated as civil offence.

Announcement: Violation of CSR Norms not to be treated as criminal offence and would instead be civil liability. Ministry of Corporate Affairs to review the sections under Companies Act. Government has provided companies through revised orders, time for completing on-going projects towards fulfil their CSR obligations. 


Relief from enhanced surcharge on FPIs


Currently, a surcharge of 15% is levied on the income of individuals earning over one crore rupees, and 10% on income of individuals earning between Rs 50 lakh and one crore rupees.  In the Union Budget 2019-20, the surcharge on income tax for entities earning between two crore rupees and five crore rupees has been increased to 25% and for persons earning over five crore rupees has been increased to 37%. This would be applicable to individuals, trusts, Hindu Undivided Families, firms and associations of persons (AoPs). 


FPIs set up as trusts argue that they may be assessable by tax officials as associations of persons and are therefore affected by the surcharge increase. The imposition of higher surcharge on the FPIs set up as trusts has led to capital outflows of around Rs 22,000 crores since the budget announcement leading to an adverse impact on the capita; market.

Announcement: In order to encourage investment in the capital market, it has been decided to withdraw the enhanced surcharge on the FPIs. However, the enhanced surcharge would still be applicable to the high net-worth individuals earning more than Rs 2 crores a year.


Withdrawal of Angel Tax provisions for Startups


Angel tax is applicable to unlisted companies that have raised capital through sale of shares at a value above their fair market value. This excess capital is treated as income and taxed accordingly. This tax predominantly affects start-ups and the angel investments they attract.

Concerns: The Angel Tax is calculated when the Startups receive funding which is higher than its "fair Market Value". However, it becomes extremely difficult for the tax authorities to ascertain the "Fair Market value" of the start-up companies. The "Angel Tax" has assumed significance in recent days as several start-ups and angel investors have raised concerns over notices received from income tax authorities over the payment of "Angel Tax". This has adversely affected the start-up ecosystem in India which nurtures innovation and entrepreneurship. 

Announcement: The Angel Tax would not be applicable on the entities registered with the Department of Industry and Internal Trade (DPIIT). It has also been decided to set up a dedicated cell under Member of CBDT for addressing the problems of startups.


Additional Credit expansion through PSBs

Background: The Indian Economy has seen a slowdown in the credit creation due to higher NPAs of the Banks as well as liquidity crunch. Further, the Public Sector Banks are required to fulfill the requirements of higher capital under the BASEL III guidelines.

Announcement: The Centre would provide up-front capital of around Rs 70,000 crores to the PSBs. This is expected to release liquidity to the tune of Rs 5 lakh crores into the economy. This move would benefit the corporates, MSMEs, traders etc.


Banks to effect timely rate cuts

Background: The Monetary transmission in India has remained quite inefficient. This is evident in the fact that even though repo rate has been reduced by 110 basis points in the current year, the banks have cut the lending rates by only around 29 basis points.

Announcement: The Government would press the banks to pass on rate cuts through the MCLR reduction to benefit all borrowers. Further, the banks would launch repo rate/ external benchmarked linked loan products in order to improve the monetary policy transmission. This move is set to benefit the borrowers of the home loans and auto loans. The lower rates of interest would in turn boost the declining consumption expenditure in the Indian Economy.


Support to NBFCs/HFCs 

Background: The NBFC sector has been hit by liquidity crunch due to Asset-Liability Mismatch. The poor financial condition of the NBFCs has in turn adversely affected the credit creation in the Indian Economy. In this regard, the Union Budget 2019 had announced Partial Credit Guarantee Scheme for the purchase of the highly rated assets of the NBFCs and HFCs by the Public Sector Banks.

Under the Partial Credit Guarantee Scheme, the Public Sector Banks would purchase highly rated assets of the NBFCs and HFCs in order to address the temporary liquidity crunch.

Under this Scheme, the Government has agreed to provide 10% first loss guarantee to assets, amounting to total of ₹ 1 lakh crore. Here it is important to note that the limit of ₹ 1 lakh crore refers to the total amount of assets against which guarantee will be extended and not the total amount of guarantee. The maximum exposure that the Government will take under the Scheme is ₹ 10,000 crores (10% of ₹ 1 lakh crore). 

Announcement: More credit support for purchase of houses, vehicles, consumption goods. Additional liquidity support to HFCs of Rs. 20,000 Cr by NHB thereby increasing it to Rs. 30,000 Cr. Partial Credit Guarantee scheme for purchase of pooled assets of NBFCs/ HFCs up to Rs 1 lakh Cr - to be monitored at highest level in each bank.


Co-origination of loans by PSBs jointly with NBFCs

Announcement: The Government would expedite the process of co-origination of loans by the Banks and NBFCs.

The Co-origination framework seeks to bring the strengths of two sectors i.e. ” banks and micro-finance institutions (MFIs)/non-banking finance companies (NBFCs) together. 

Under this framework, both bank and NBFC can come together to provide loans to various sectors wherein they decide to share the loan amount and associated risks in a predetermined manner. It is expected that such a blending would not only increase flow of credit to priority sectors but also bring down the cost of credit for the sector substantially. 

Rationale: Banks have enough resources, but they lack the understanding of the ground level and last mile reach. Additionally, the structural problems from which our banking system is suffering currently are unlikely to be sorted out soon. In contrast, NBFCs and MFIs lack adequate resources, but they are more familiar with local conditions and better informed about business viability and credit worthiness of local individuals and business enterprises and their repayment capabilities. So, combining the strengths of these two sectors can certainly be an ideal structure to address the credit concerns of the MSME sector. 


Initiatives for the MSME Sector

All pending GST refund due to MSMEs shall be paid within 30 days. In future all GST refunds shall be paid within 60 days from the date of application.

The Government would implement the recommendations of U.K Sinha Committee on facilitating ease of credit, marketing, technology etc.

MSME Definition: MSMEs are presently defined based on investment in plant and machinery / equipment. To facilitate ease of doing business, the Government has proposed turnover based definition by replacing the current investment-based definition of MSMEs. 

Classification of the MSME

New Classification (annual turnover)

Previous classification – Ceiling on Investment in Plant and Machinery (in Rs)


Not exceeding Rs 5 crores

Below 25 lakhs


Between Rs 5 crores to Rs 75 crores

25 lakhs to 5 crores


Rs 75 to Rs 250 crores

5 crores to 10 crores


Deepening of bond markets in India 

Concerns: Despite various initiatives taken in the past, the growth of the corporate bond market in India still remains far from satisfactory. Corporate debt to GDP ratio in India stood at a around 17 per cent in 2017 as compared to 123 per cent in the US and 19 per cent in the case of China. The proportion of firms using banks as the primary source of working capital is higher than most developing countries.


In order to improve access to long term finance, it is proposed to establish an organisation to provide Credit Enhancement for infrastructure and housing projects. This would enhance debt flow towards such projects.

How would setting up of  Credit Guarantee Enhancement Corporation help?

The companies raise capital through the issuance of Corporate Bonds. The guarantee on the repayment on such bonds may be given by another entity such as Credit Guarantee Enhancement Corporation and this refers to Credit Enhancement. This enables the Credit Guarantee Enhancement Corporation to act as guarantors for the debt raised by the companies. 

One of main advantages of credit enhancement is that it leads to improvement in the credit rating of a bond. For example, credit Enhancement on Corporate Bond rated "BBB" can improve its credit rating to "AAA". Thus, credit enhancement improves the confidence of the investors in the corporate bonds and increases their demand in the capital market. At the same time, enhancement in the credit rating would enable the companies to raise capital at lower interest rates (due to lower risk).


Improving Ease of Doing Business: 


Single air and water clearance for MSMEs. 

Single consent to establish a factory by MSMEs.

1 day to incorporate a company - Central Registration Centre for name reservation & incorporation.

Integrated Incorporation Form .

Shifting of 16 offence sections to monetary penalty only.

Faster & easier approvals for mergers and acquisitions 

Withdrawal of over 14,000 prosecutions under Companies Act 

Robust IBC framework with amendments supporting MSMEs and home buyers


Boosting the demand for Automobiles

Government shall lift the ban on purchase of new vehicles for replacing all old vehicles by Departments. Government will consider various measures including scrappage policy.

BS IV vehicles purchased till 31st March 2020 would remain operational for entire period of registration.

Earlier, the Government had proposed the revision of one time registration fees  for the vehicles. This has now been deferred till June 2020. 


Boosting Infrastructure Development

Rs 100 lakh crores for developing modern infrastructure over 5 years: An inter-ministerial Task force is being formed by Department of Economic Affairs to finalise the pipeline of infrastructure projects. The above initiative is expected to boost growth and creation of jobs. These projects would be monitored actively to accelerate capital expenditure and investments in the economy.




2. Composite Water Management Index (The Hindu, Page 09)


Mains: GS Paper 3 – Environment & Biodiversity 


Water Conservation Measures



To supplement the efforts of Jal Shakti Ministry, NITI Aayog has prepared the second Round of Composite Water Management Index (CWMI 2.0). 



  • Scientific management of water is increasingly recognized as being vital to India’s growth and ecosystem sustainability. Government is being proactive about water management and has created the Ministry of Jal Shakti to consolidate interrelated functions pertaining to water management. 

  • The newly formed Jal Shakti Ministry has strived to over bridge the water challenges by launching the Jal Shakti Abhiyan - a campaign for water conservation and water security.


About Composite Water Management Index

  • NITI Aayog first launched and conceptualized the Composite Water Management Index in 2018 as a tool to instill the sense of cooperative and competitive federalism among the states. 

  • The CWMI is an important tool to assess and improve the performance of States/ Union Territories in efficient management of water resources.  This has been done through a first of its kind water data collection exercise in partnership with Ministry of Jal Shakti, Ministry of Rural Development and all the States/ Union Territories.

  • The index would provide useful information for the States and also for the concerned Central Ministries/Departments enabling them to formulate and implement suitable strategies for better management of water resources. 


About Composite Water Management Index 2.0

  • CWMI 2.0 ranks various states for the reference year 2017-18 as against the base year 2016-17.

  • In the report released, Gujarat hold on to its rank one in the reference year (2017-18), followed by Andhra Pradesh, Madhya Pradesh, Goa, Karnataka and Tamil Nadu.  

  • In North Eastern and Himalayan States, Himachal Pradesh has been adjudged number 1 in 2017-18 followed by Uttarakhand, Tripura and Assam. 

  • The Union Territories have first time submitted their data and Puducherry has been declared as the top ranker. 

  • In terms of incremental change in index (over 2016-17 level), Haryana holds number one position in general States and Uttarakhand ranks at first position amongst North Eastern and Himalayan States. 

  • On an average, 80% of the states assessed on the Index over the last three years have improved their water management scores, with an average improvement of +5.2 points.


3.FATF Group blacklists Pakistan– (The Hindu, Page 13)


Mains: GS Paper III: International Relations


FATF and Pakistan



  • Pakistan has been placed “blacklist” of the Financial Action Task Force’s Asia Pacific Group (APG) for non-compliance and non-enforcement of safeguards against terror financing and money laundering.

  • While the placing does not bring any new punitive measures on Pakistan, it will mean quarterly reporting to the group on improvement in its financial safeguards.



  • Pakistan was earlier placed on the grey list by the FATF in June last year for failing to curb anti-terror financing. 

  • It has been scrambling in recent months to avoid being added to a list of countries deemed non-compliant with anti-money laundering and terrorist financing regulations.


About Financial Action Task Force (FATF)

The Financial Action Task Force (FATF) is an inter-governmental body established in 1989 by the Group of Seven (G-7) in Paris, France. x It was formed with the intention to examine and develop measures to combat money laundering.



The objectives of the FATF are to set standards and promote effective implementation of legal, regulatory and operational measures for combating: 

  • Money laundering

  • Terrorist financing 

  • Threats to the integrity of the international financial system


FATF ‘40+9’

  • FATF issues a report containing a set of Forty Recommendations, which are intended to provide a comprehensive plan of action needed to fight against money laundering. 

  • In 2001, the development of standards in the fight against terrorist financing was added to the mission of the FATF thereby further adding 9 Special Recommendations. 

  • FATF has formed 40 recommendations against money laundering and 9 special recommendations against terrorist financing, which forms the commonly known ‘40+9’ FATF Standards.


Mutual Evaluations

The FATF conducts peer reviews of each member to assess levels of implementation of the FATF Recommendations. It provides an in-depth description and analysis of each country’s system for preventing criminal abuse of the financial system.


FATF Listings

  • FATF issues a list of ‘Non-Cooperative Countries or Territories’ (NCCTs), commonly called the FATF Blacklist. These countries or territories are considered to be uncooperative in international efforts against money laundering and terrorism financing. 

  • The grey list is a list of countries or territories with strategic anti-money laundering/countering the financing of terrorism deficiencies for which they have developed an action plan with the FATF.