Important Economic Concept

Part-I

1. 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 Territoriess. 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.
2. 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.
3. 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 e-governance portal
AGMARKNET, implemented by National Informatics Centre (NIC), facilitates generation and
transmission of prices, commodity arrival information from agricultural produce markets, and webbased 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.

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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.
AGMARKNET is also expected to play a crucial role in enabling e-commerce in agricultural
marketing.
4. 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.
5. Alternative Investment Funds (AIFs)
Anything alternate to traditional form of investments gets categorized as alternative investments.
Now, what is considered as traditional may vary from country to country. Generally, investments in
stocks or bonds or fixed deposits or real estates are considered as traditional investments. However,
even with respect to investments in stocks, if the investments are in the stocks of small and medium
scale enterprises (SMEs), it gets categorized as alternative investments in many jurisdictions (For
instance, the SME exchange is called as Alternative Investment Market (AIM) in UK). Generally,
the term AIF refers to private equity and hedge funds.
In India, alternative investment funds (AIFs) are defined in Regulation 2(1)(b) of Securities and
Exchange Board of India (Alternative Investment Funds) Regulations, 2012. It refers to any
privately pooled investment fund, (whether from Indian or foreign sources), in the form of a trust or
a company or a body corporate or a Limited Liability Partnership(LLP) which are not presently
covered by any Regulation of SEBI governing fund management (like, Regulations governing
Mutual Fund or Collective Investment Scheme)nor coming under the direct regulation of any other
sectoral regulators in India-IRDA, PFRDA, RBI. Hence, in India, AIFs are private funds which are
otherwise not coming under the jurisdiction of any regulatory agency in India.
Thus, the definition of AIFs includes venture Capital Fund, hedge funds, private equity funds,
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commodity funds, Debt Funds, infrastructure funds, etc.,while, it excludes Mutual funds or
collective investment Schemes, family trusts, Employee Stock Option / purchase Schemes, employee
welfare trusts or gratuity trusts, holding companies within the meaning of Section 4 of the
Companies Act, 1956, securitization trusts regulated under a specific regulatory framework, and
funds managed by securitization company or reconstruction company which is registered with the
RBI under Section 3 of the Securitization and Reconstruction of Financial Assets and Enforcement
of Security Interest Act, 2002.
One AIF can float several schemes. Investors in these funds are large lyinstitutional, high net worth
individuals and corporates.
6. Annual Financial Statement
Annual Financial Statement is a document presented to the Parliament every year under Article 112
of the Constitution of India, showing estimated receipts and expenditures of the Government of India
for the coming year in relation to revised estimates for the previous year as also the actual amounts
for the year prior to it.
The receipts and disbursements are shown under three parts in which Government Accounts are to
be kept viz.,(i) Consolidated Fund, (ii) Contingency Fund and (iii) Public Account.
Under the Constitution, Annual Financial Statement has to distinguish expenditure on revenue
account from other expenditure. Government Budget, therefore, comprises of Revenue
Budget and Capital Budget.
The estimates of receipts and expenditure included in the Annual Financial Statement are for the
expenditure net of refunds and recoveries, as will be reflected in the accounts.
The estimates of receipts and disbursements in the Annual Financial Statement are shown according
to the accounting classification prescribed by Comptroller and Auditor General of
India under Article 150 of the Constitution, which enables Parliament and the public to make a
meaningful analysis of allocation of resources and purposes of Government expenditure.
Annual Financial Statement is essentially the Budget of the Government. In case of the Central
Government, the Budget is presented in two parts, viz., the Railway Budget pertains to Railway
Finance and the General Budget (or what is commonly known as Union Budget) relating to the
financial position of the Government of India, excluding Railways. The Railway Budget is presented
by the Railway Minister sometime in the third week of February. By convention, the General Budget
is presented to Lok Sabha by the Finance Minister on the last working day of February of each year.
A copy of the respective Budgets is simultaneously laid on the Table of Rajya Sabha.
However, these days, the term Union Budget includes not just the Annual Financial Statement but
also the policy documents associated with it like, Budget Speech, Finance Bill, Appropriation
Bill, Demand for grants, documents submitted under Fiscal Responsibility and Budget Management
Act like, macro-economic framework statement, medium term fiscal policy statement etc.
7. 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
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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.
8. ASHA (Accredited Social Health Activist)
ASHA is a woman grass root level health volunteer, who links households with health facilities. As
per norms, there should be one ASHA for every 1000 population.
She disseminates health related information and assists households to gain access to health care
facilities. She is paid on the basis of performance (incentive) for the task she undertakes.
9. 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.
10. 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). 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

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and thus ASRTU is committed to provide all necessary help to them in their production, quality
monitoring and to address to their common problems.
11. Atal Pension Yojana (APY)
Atal Pension Yojana is a pension scheme for the unorganized sector that provides a defined
pension, depending on the contribution and the period of contribution. Government contributes 50%
of the beneficiaries premium limited to Rs.1,000 each year, for five years, in the new accounts
opened before 31st December 2015.
The Scheme focuses on the unorganized sector where nearly 400 million employees representing
more than 80 per cent of all employees are engaged. Atal Pension Yojana would provide a fixed
minimum pension Rs.1000 to Rs.5000 per month starting from the age of 60. The amount of pension
will depend on the monthly contribution by the employee and the age at which the employee
subscribes to the scheme. In any case, the individual will have to subscribe under Atal Pension
Yojana for a minimum of 20 years.
The scheme is aimed at those who are not members of any statutory social security scheme and who
are not Income Tax payers.
The pension would also be available to the spouse on the death of the subscriber and thereafter, the
pension corpus would be returned to the nominee. The minimum age of joining APY is 18 years and
maximum age is 40 years. The benefit of fixed minimum pension would be guaranteed by the
Government.
The scheme was launched in simultaneous functions held at 115 venues across the country on 9 May
2015. The most significant part of this Scheme is co-contribution by government of Rs.1000/- per
annum or 50% of the total contribution whichever is lower, for the first 5 years if one joins the
scheme before the end of the first year of its launch, that is 31 December, 2015.
12. 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.
Ayurveda is more prevalent in the states of Kerala, Maharashtra, Himachal Pradesh, Gujarat,
Karnataka, Madhya Pradesh, Rajasthan, Uttar Pradesh, Delhi, Haryana, Punjab, Uttarkhand, Goa and
Orissa.
The practice of Unani System could be seen in some parts of Andhra Pradesh, Karnataka, Jammu &
Kashmir, Bihar, Maharashtra, Madhya Pradesh, Uttar Pradesh, Delhi and Rajasthan.
Homoeopathy is widely practiced in Uttar Pradesh, Kerala, West Bengal, Orissa, Andhra Pradesh,
Maharashtra, Punjab, Tamil Nadu, Bihar, Gujarat and the North Eastern States and the Siddha
system is practiced in the areas of Tamil Nadu, Pondicherry and Kerala.

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In September 2009 Sowa Rigpa system of medicine was also recognized as a traditional system of
medicine. Sowa Rigpa, commonly known as Amchi is one of the oldest surviving system of
medicine in the world, popular in the Himalayan region of India. In India this system is practiced in
Sikkim, Arunachal Pradesh, Darjeeling (West Bengal), Lahoul and Spiti (Himachal Pradesh) and
Ladakh region of Jammu & Kashmir.
The Department of Ayurveda, Yoga & Naturopathy, Unani, Siddha and Homoeopathy (AYUSH),
Ministry of Health and Family Welfare has been accorded the status of a Ministry with effect from
09.11.2014 by the Cabinet Secretariat.
National AYUSH Mission (NAM) launched on 15 September 2014 as part of 12th Plan envisages
better access to AYUSH services through increase in number of AYUSH Hospitals and
Dispensaries, ensuring availability of AYUSH drugs and trained manpower.
13. 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.
14. Backwardness
As a consequence of amalgamation of regions at varying levels of socio- economic development &
different political and administrative structures, the modern state has inherited regional imbalances
that still persist. The backwardness of states is measured to understand the extent of these regional
imbalances. Some of the attempts to define or measure backwardness in India are mentioned below:
Measuring backwardness of Districts at the national level - 2003-04
Concept of Backwardness also came up in the context of a scheme for backward districts, called
Backward Districts Initiative Rashtriya Sam Vikas Yojana (RSVY) (A Tenth Plan Initiative).
The Rashtriya Sam Vikas Yojana (RSVY) was being implemented in 147 districts since 2003-04.
The list of districts covered under the RSVY may be seen here. The Scheme was aimed at focused
development programmes for backward areas which would help reduce imbalances and speed up

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development. The identification of backward districts within a State was made on the basis of an
index of backwardness comprising three parameters with equal weights to each:

value of output per agricultural worker;

agriculture wage rate; and
percentage of SC/ST population of the districts.

This Scheme later (2006-07) got subsumed in the Backward Regions Grant Fund program, the
guidelines of which may be seen here. BRGF consists of two components - (a) Districts Component
covering 270 districts, and (b) State Component-which covers special plan for West Bengal, Bihar
and the Kalahandi Bolangir-Koraput (KBK) Region of Odisha and Bundelkhand packages for UP &
MP. The implementing Ministry for the BRGF districts component is the Ministry of Panchayati
Raj. This Scheme was also proposed for closure from December 2009 as most of the districts have
claimed their total allocation of Rs.45 crore each. As such there is no proposal under consideration
of the Government to extend RSVY to other districts of the country. However, a special
development package of Rs. 850.00 crore has been provided to the state of Andhra Pradesh from
BRGF (State component) during 2014-15.Pursuant to the recommendations of 14th Finance
Commission for higher untied tax devolution to states, the scheme followed a natural death since
2015-16. Hence, the ongoing projects under BRGF for addressing Intra-State inequality may be
supported by the States out of their own funds, including received under the recommendations of
14th Finance Commission.
However, the Parliamentary Standing Committee on Finance in its report in April 2015 (on
the Demand for Grants of Ministry of Finance) had disagreed with this view in their report and were
of the view that such subsuming of specific schemes designed with a special purpose / focus to uplift
living standards in backward and under-developed areas / regions with chronic poverty is not
desirable. According to the Committee, Central budgetary support and an element of hand-holding
by way of special central assistance is therefore still required to bring about social and economic
development in such areas, which are lagging far behind in socioeconomic indices and which also
face extraordinary challenges.In this regard the Committee desired that the recommendations of
Raghuram Rajan's Report on backwardness of States (Committee for Evolving a Composite
Development Index of States) may be considered and appropriately implemented.
Measuring backwardness of states - 2013
Government in May 2013, decided to constitute an Expert Committee under the chairmanship of Dr.
Raghuram Rajan to measure backwardness of the Indian States by evolving a Composite
Development Index of States for guiding devolution of funds from central government to such
backward states. The committee submitted its report in September 2013.
The Committee proposed a general method for allocating funds from the Centre to the states based
both on a states development needs as well as its development performance. Towards this,
committee created a multi-dimensional index based on certain measures which correspond to the
multi dimensional approach to defining poverty outlined in the Twelfth Plan. Need is based on a
simple index of (under) development computed as an average of the following ten sub-components:

monthly per capita consumption expenditure

education
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health
household amenities
poverty rate
female literacy
percent of SC-ST population
urbanization rate
financial inclusion
connectivity

Improvements to a states development index over time (that is, a fall in underdevelopment) is taken
as the measure of performance. Less developed states rank higher on the index, and would get larger
allocations based on the need criteria, with allocations increasing more than linearly to the most
underdeveloped states.
The Committee recommended that States that score 0.6 and above on the Index may be classified as
Least Developed; States that score below 0.6 and above 0.4 may be classified as Less
Developed; and States that score below 0.4 may be classified as Relatively Developed. The
Least Developed states effectively subsume what is now special category state.
Using the index, the Committee has identified the Least Developed states as Arunachal Pradesh,
Assam, Bihar, Chhattisgarh, Jharkhand, Madhya Pradesh, Meghalaya, Odisha, Rajasthan and Uttar
Pradesh. Government as on date has not taken any decision on the recommendations of the
Committee.
15. Banking Correspondent (BC)
Banking Correspondents (BCs) are individuals/entities engaged by a bank in India (commercial
banks, Regional Rural Banks (RRBs) and Local Area Banks (LABs)) for providing banking services
in unbanked / under-banked geographical territories. A banking correspondent works as an agent of
the bank and substitutes for the brick and mortar branch of the bank.
BCs engage in

identification of borrowers;

collection and preliminary processing of loan applications including verification of primary

information/data;

creating awareness about savings and other products and education and advice on managing
money and debt counselling;

processing and submission of applications to banks;

promoting, nurturing and monitoring of Self Help Groups/ Joint Liability Groups/Credit
Groups/others;

post-sanction monitoring;

follow-up for recovery,

disbursal of small value credit,

recovery of principal / collection of interest

collection of small value deposits

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sale of micro insurance/ mutual fund products/ pension products/ other third party products

and

receipt and delivery of small value remittances/ other payment instruments.

The banks in India may engage the following individuals/entities as BCs.

Individuals like retired bank employees, retired teachers, retired government employees and
ex-servicemen, individual owners of kirana (small shops) / medical /Fair Price shops, individual
Public Call Office (PCO) operators, agents of Small Savings schemes of Government of
India/Insurance Companies, individuals who own petrol pumps, authorized functionaries of well-run
Self Help Groups (SHGs) which are linked to banks, any other individual including those operating
Common Service Centres (CSCs);

NGOs/ Micro Finance Institutions set up under Societies/ Trust Acts or as Section 25
Companies ;

Cooperative Societies registered under Mutually Aided Cooperative Societies Acts/

Cooperative Societies Acts of States/Multi State Cooperative Societies Act;

Post Offices;

Companies registered under the Indian Companies Act, 2013 with large and widespread
retail outlets

Non-banking Finance Companies (NBFCs) were not allowed to be appointed as Business

Correspondents (BCs) by banks. However, since June 2014 banks have been permitted to engage
non-deposit taking NBFCs (NBFCs-ND) as BCs, subject to certain conditions:
While a BC can be a BC for more than one bank, at the point of customer interface, a retail outlet or
a sub-agent of a BC shall represent and provide banking services of only one bank.
The banks will be fully responsible for the actions of the BCs and their retail outlets / sub agents.
Banking Correspondent in India, in all sense of the term, is equivalent to what is known as
"Correspondent Banking" in Brazil (Generally, the term correspondent bank refers to a bank which
functions as an agent of another bank in a foreign jurisdiction. However, Brazil uses this term for
domestic agency services by individuals / entities). In some countries BC model is known as "Agent
Banking".
16. 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.
17. Base Rate
The base rate, introduced with effect from 1st July 2011 by the Reserve Bank of India, is the new
benchmark rate for lending operations of banks. It is a tool which will help in bringing more
transparency in lending operations of banks.
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Base rate is defined as the minimum interest rate of a bank below which it is not viable to lend.It
replaces the benchmark prime lending rate (BPLR), the interest rate which commercial banks
charged their most credit worthy customer.
Base rate includes all those elements of the lending rates that are common across all categories of
borrowers.
Banks are free to choose any benchmark to arrive at the base rate. The interest on all categories of
loans is determined with respect to the base rate except the following loans; (a) DRI advances ( that
is Differential rate of interest scheme whereby banks offer financial assistance at concessional rates)
(b) loans to banks own employees (c) loans to banks depositors against their own deposits. Base
rate is to be reviewed at least once in a quarter and has to be disclosed to the public. Each bank
arrives at its base rate separately. Banks are free to choose any methodology to arrive at the base rate
which is consistent , appropriate and transparent.
18. 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.
19. 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.
20. 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,
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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.
21. Bio-fuels
Bio-fuels are environment friendly fuels derived from renewable bio-mass resources. In India, a
definition of bio-fuels is provided in the National Bio-fuel Policy of 2009. As per that definition,
biofuels are those liquid or gaseous fuels produced from biomass resources and used in place of, or
in addition to, diesel, petrol or other fossil fuels for transport, stationary, portable and other
applications. In this context, 'biomass resources' refer to the biodegradable fraction of products,
wastes and residues from agriculture, forestry and related industries as well as the biodegradable
fraction of industrial and municipal wastes.
Three broad categories of bio-fuels are identified in India:
1. bio-ethanol: ethanol produced from biomass such as sugar containing materials, like sugar cane,
sugar beet, sweet sorghum, etc.; starch containing materials such as corn, cassava, algae etc.; and,
cellulosic materials such as bagasse, wood waste, agricultural and forestry residues etc.;
2. biodiesel: a methyl or ethyl ester of fatty acids produced from vegetable oils, both edible and
non-edible, or animal fat of diesel quality; and
3. other biofuels: biomethanol, bio CNG, biosynthetic fuels etc.
Bio-fuels provide a strategic advantage to promote sustainable development and to supplement
conventional energy sources in meeting the rapidly increasing requirements associated with high
economic growth for transportation fuels.
The Indian approach to bio-fuels is somewhat different from the current international approaches
since it is based solely on non-food feedstocks to be raised on degraded or wastelands that are not
suited to agriculture, thus avoiding a possible conflict of fuel vs. food security.
Further, the Ministry of Road Transport & Highways has started the initiative of promoting vehicles
which are fueled with clean fuels like Bio-Ethanol, Bio-CNG, Bio-Diesel, Electric Batteries, etc. The
specifications for test reference fuel for Bio-Ethanol fuel vehicles and emission for Bio-Ethanol Fuel
Vehicles, have been notified by the Ministry. In July 2015, the Ministry notified norms for the use of
Bio-CNG for testing and exhaust emission for vehicles running on Bio-CNG and the related norms.
With this notification, the vehicle manufacturers can manufacture, sell and get the vehicles fueled by
Bio-CNG in the country.
22. 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
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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
24. 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 (
the Upper House- Council of States called Rajya Sabha.(

)and

).

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 inter-alia
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

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Ministry/Department, and others with rank of a Cabinet Minister or Minister of State are named as
special invitees.
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.
25. Existing Cabinet Committees
As on 20th March 2013 there are 10 (ten) 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 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 Investment (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, three
Cabinet Committees have very limited mandates, i.e, 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 Investment (CCI), the Cabinet Committee
on Political Affairs (CCPA), and the Cabinet Committee on Security (CCS).
The latest Cabinet Committee is that on investment. On 2 January 2013, the Government has set up
the Cabinet Committee on Investments (CCI) with the Prime Minister as the Chairman to expedite
decisions on approvals/clearances for implementation of projects. This is expected to improve the
investment environment by bringing transparency, efficiency and accountability in accordance of
various approvals and sanctions.
Reconstitution of Cabinet Committees in June 2014
On 10th June 2014, the new Government headed by Prime Minister Shri Narendra Modi decided to
discontinue the following four Standing Committees of the Cabinet:
1. Cabinet Committee on Management of Natural Calamities: The functions of this Committee will
be handled by the Committee under the Cabinet Secretary whenever natural calamities occur.
2. Cabinet Committee on Prices: The functions of this Committee will be handled by the Cabinet
Committee on Economic Affairs.
3. Cabinet Committee on World Trade Organisation Matters: The functions of this Committee will
be handled by the Cabinet Committee on Economic Affairs and, whenever necessary, by the full
Cabinet.
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4. Cabinet Committee on Unique Identification Authority of India related issues: Major decisions in
this area have already been taken and the remaining issues will be brought to the Cabinet Committee
on Economic Affairs.
On 19th June 2014 the Government reconstituted six Committees of the Cabinet i.e. Appointments
Committee of the Cabinet, Cabinet Committee on Accommodation, Cabinet Committee on
Economic Affairs, Cabinet Committee on Parliamentary Affairs, Cabinet Committee on Political
Affairs and Cabinet Committee on Security.
26. Capital Budget
Under Article 112 of the Constitution of India, the Annual Financial Statement has to distinguish
expenditure of the Government on revenue account from other expenditures. Government Budget,
therefore, comprises of Revenue Budget and Capital Budget.
Capital Budget consists of capital receipts and capital payments.
The capital receipts are loans raised by Government from public, called market loans, borrowings by
Government from Reserve Bank and other parties through sale of Treasury Bills, loans received
from foreign Governments and bodies, disinvestment receipts and recoveries of loans from State and
Union Territory Governments and other parties.
Capital payments consist of capital expenditure on acquisition of assets like land, buildings,
machinery, equipment, as also investments in shares, etc., and loans and advances granted by Central
Government to State and Union Territory Governments, Government companies, Corporations and
other parties.
27. 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.
28. 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

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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 apenalty 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 reverserepo rates, changes in the CRR is aimed at the same in the medium term.
A country that uses the CRR aggressively to control domestic liquidity and target the monetary roots
of inflation is China.
29. 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 of the following:
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.
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.
The term Plan Grants generally comprise of 'Block Grants which consists of Normal Central
Assistance (NCA), Backward Regions Grant Fund (BRGF)- Scheme (State Component), Additional
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Central Assistance (ACA) for Externally Aided Projects (EAPs), Special Central Assistance (SCA),
Special Plan Assistance (SPA), etc.
Since 2015-16, pursuing the recommendations of the 14th Finance Commission, Some of the
schemes like NCA, SCA (untied), SPA, Additional Central Assistance for Other Projects (ACAOP),
Other ACA, SCA for Hill Areas Development Programme (HADP/WGDP), SCA under Backward
Regions Grant Fund (BRGF), National e-governance Plan (Mission mode project) and ACA for Left
wing Extremism (LWE) Affected Districts have been discontinued or subsumed under higher
devolution of taxes.
30. Central Sector and Centrally Sponsored Schemes
In Indias developmental plan exercise we have two types 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.In addition, the Central Ministries also implement some schemes directly in States/UTs
which are called Central Sector Schemes but resources under these Schemes are not generally
transferred to States.
Under Centrally Sponsored Scheme (CSS) 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. Funds are routed either through consolidated fund of
States and or are transferred directly to State/ District Level Autonomous Bodies/Implementing
Agencies. As per the Baijal Committee Report, April, 1987, CSS have been defined as the schemes
which are funded directly by Central Ministries/Departments and implemented by States or their
agencies, irrespective of their pattern of financing, unless they fall under the Centre's sphere of
responsibility i.e., the Union List.
Conceptually both CSS and Additional Central Assistance (ACA) Schemes have been passed by the
Central Government to the State governments. The difference between the two has arisen because of
the historical evolution and the way these are being budgeted and controlled and release of funds
takes place. In case of CSS, the budgets are allocated under ministries concerned themselves and the
entire process of release is also done by them.
Subsequently, the 14th Finance Commission (FFC) substantially enhanced the share of the States in
the Central divisible pool from the current 32 % to 42 %, which is the biggest ever increase in
vertical tax devolution. Such tax devolution is untied and can be spent as desired by the States.
Consequent to this substantially higher devolution and resultant reduced fiscal space for the Center,
the Finance Minister, Shri Arun Jaitley, while presenting the Union Budget 2015-16, said that many
schemes on the State subjects were to be delinked from Central support. However, he said that
Centre decided to continue to contribute to such schemes representing national priorities, especially
those targeted at poverty alleviation. Further, the schemes mandated by legal obligations and those
backed by Cess collection would be fully provided for by the Central Government. Thus, Union
Budget 2015-16 changed the contours of the central sector and centrally sponsored schemes as
follows:
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As per the Budget 2015-16, centre has decided to support fully those schemes which are
targeted to the benefits of socially disadvantaged group.

In case of some Centrally Sponsored Schemes, the Centre-State funding pattern will
undergo a change with States to contribute higher share. Details of changes in sharing pattern will
have to be worked out by administrative Ministry/Department.

In the Union Budget 2015-16, there are 31 Schemes to be fully sponsored by the Union
Government, 8 Schemes have been delinked from support of the Centre and 24 Schemes will now be
run with the changed sharing pattern.
31. 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.
32. Chit Funds / Chitty / Kuri/ Miscellaneous Non-banking Company
Chit funds are essentially saving institutions. They are of various forms and lack any standardised
form. Chit funds have regular members who make periodical subscriptions to the fund. The periodic
collection is given to some member of the chit funds selected on the basis of previously agreed
criterion. The beneficiary is selected usually on the basis of bids or by draw of lots or in some cases
by auction or by tender. In any case, each member of the chit fund is assured of his turn before the
second round starts and any member becomes entitled to get periodic collection again.
Chit funds are the Indian versions of Rotating Savings and Credit Associations found across the
globe.
Regulatory framework
Chit fund business is regulated under the Central Act of Chit Funds Act, 1982 and the Rules framed
under this Act by the various State Governments for this purpose. Central Government has not
framed any Rules of operation for them. Thus, Registration and Regulation of Chit funds are carried
out by State Governments under the Rules framed by them.
Functionally, Chit funds are included in the definition of Non- Banking Financial Companies by RBI
under the sub-head miscellaneous non-banking company(MNBC). But RBI has not laid out any
separate regulatory framework for them.
Cheating by Chit Fund company through fraudulent schemes is an offence under the Prize Chits and
Money Circulation Schemes (Banning) Act, 1978. The power to investigate and prosecute lies with
the State Governments.
For better identification of Chit Fund Companies, Rule 8(2)(b)(iii) of Companies (Incorporation)
Rules, 2014 framed under the Companies Act, 2013, provides that if the companys main business is
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that of a chit fund, its incorporation will not be allowed unless its name is indicative of that financial
activity, viz., Chit Fund
33. Clean Development Mechanism (CDM)
The Clean Development Mechanism (CDM) refers to a market mechanism for achieving greenhouse
gas emissions reduction and is defined in Article 12 of the Kyoto Protocol - an international treaty
for emissions reductions. CDM allows an industrialized/developed country with an emissionreduction or emission-limitation commitment under the Kyoto Protocol (called as Annex I Party or
Annex B Party of the original Kyoto Protocol signed in 1997) to implement an emission-reduction
project in any of those developing countries (which may otherwise be not financially capable of
undertaking such projects), thereby earning them tradable Certified Emission Reduction (CER)
credits, each equivalent to one tonne of CO2. The saleable CERs earned from such projects can be
counted towards meeting the prescribed Kyoto targets.
CDM is one of the three market-based mechanisms set up under Kyoto Protocol, the other two being
- Joint Implementation and emissions trading or commonly called as carbon trading [which provides
for trading of (a) spare emission units available with any entity (savings from the assigned or
permissible emission levels), (b) CERs created from CDM activities, (c) an emission reduction
unit (ERU) generated by a Joint Implementation project and (d) removal units (RMU) created on the
basis of land use, land-use change and forestry (LULUCF) activities such as reforestation]
CDM helps developing countries to achieve development without compromising on sustainable
aspects while it gives developed countries a flexible mechanism for achieving emissions reductions.
On the other hand, JI helps developed countries to refashion their development strategies through
technology transfer.
34. Clean Energy Cess - Carbon Tax of India
Clean Energy Cess is a kind of carbon tax and is levied in India as a duty of Excise under section 83
(3) of the Finance Act, 2010 at the rate of Rs.100 per tonne on Coal, Lignite and Peat (goods
specified in the Tenth Schedule to the Finance Act, 2010) in order to finance and promote clean
environment initiatives, funding research in the area of clean environment or for any such related
purposes.
This was introduced, with effect from 1 July 2010, though the Union Budget 2010-11, on coal
produced in India or imported to India. This is in line with the principle of "polluter pays", which is
the basic guiding criteria for pollution management.
In many countries carbon taxes are levied also on other fossil fuels like petroleum, natural gas etc.
However, in India this is applied only on coal and its variants - lignite and peat. In any case,
subsequent to the global financial crisis of 2008, many countries have either abolished or reduced or
postponed their decisions on such carbon taxes.
The cess would apply to the gross quantity of raw coal, lignite or peat raised and dispatched from a
coal mine. No deduction from this quantity is be allowed for loss, if any, on account of washing of
coal or its conversion into any other product/form prior to its dispatch from the mine. At the same
time, cess would not be chargeable on washed coal or any other form provided the appropriate cess
has been paid at the raw stage. Thus, if appropriate cess has not been paid at the raw stage, then the
products would attract clean energy cess.
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Since Clean Energy Cess is being levied as a duty of excise, it would also apply to imported coal,
including washed coal by virtue of Section 3(1) of the Customs Tariff Act in the form of additional
duty of customs. Since imported coal would not satisfy the condition regarding payment of
appropriate cess at the raw stage, Clean Energy Cess would apply to all forms of imported coal.
In the State of Meghalaya, coal is mined under traditional and customary rights vested on the local
tribes. The mines operated by these tribes are not subjected to the provisions of laws that regulate the
operation of coal mines. Hence, full exemption from Clean Energy Cess is being provided to coal
produced in the State of Meghalaya under such rights.
Usage of the fund raised through Clean energy cess
The fund raised through the cess is being used for the National Clean Energy Fund for funding
research and innovative projects in clean energy technologies or renewable energy sources to reduce
dependence on fossil fuels. Thus, projects aiming at reduction of emissions with innovative
technologies from different sectors get considered under this funding mechanism.
The details of cess collected for each year is available in the Receipt Budget Document issued
alongside Union Budget under the Budget head 5.07.04 (under excise duty).
35. Collective Investment Scheme (CIS)
A Collective Investment Scheme (CIS), as its name suggests, is an investment scheme wherein
several individuals come together to pool their money for investing in a particular asset(s) and for
sharing the returns arising from that investment as per the agreement reached between them prior to
pooling in the money. The term has broader connotations and includes even mutual funds.
36. Commodities Transaction Tax (CTT)
Commodities transaction tax (CTT) is a tax similar to Securities Transaction Tax (STT), levied in
India, on transactions done on the domestic commodity derivatives exchanges.
Globally, commodity derivatives are also considered as financial contracts. Hence CTT can also be
considered as a type of financial transaction tax.
The concept of CTT was first introduced in the Union Budget 2008-09 (para 179 of the Budget
Speech).The Government had then proposed to impose a commodities transaction tax (CTT) of
0.017% (equivalent to the rate of equity futures at that point of time).
Like all financial transaction taxes, CTT aims at discouraging excessive speculation, which is
detrimental to the market andto bring parity between securities market and commodities market such
that there is no tax / regulatory arbitrage. (Futures contracts are financial instruments and provide for
price risk management and price discovery of the underlying asset (commodity / currency/ stocks /
interest). It is therefore essential that the policy framework governing is uniform across all the
contracts irrespective of the underlying to minimize the chances of regulatory arbitrage.) The
proposal of CTT also appears to have stemmed from the general policy of the Government to widen
the tax base.
37. Compensatory Afforestation
Compensatory Afforestation (CA) refers to afforestation and regeneration activities carried out as a
way of compensating for forest land diverted to non-forest purposes. Here "non-forest purpose"
means the breaking up or clearing of any forest land or a portion thereof forRAJESH NAYAK

the cultivation of tea, coffee, spices, rubber, palms, oil-bearing plants, horticultural crops or
medicinal plants;

any purpose other than reafforestation;

but does not include any work relating or ancillary to conservation, development and management of
forests and wildlife, namely, the establishment of check-posts, fire lines, wireless communications
and construction of fencing, bridges and culverts, dams, waterholes, trench marks, boundary marks,
pipelines or other like purposes.
CA is one of the most important conditions stipulated by the Central Government while approving
proposals for de-reservation or diversion of forest land for non-forest use. The compensatory
afforestation is an additional plantation activity and not a diversion of part of the annual plantation
programme.
Elements of Schemes for Compensatory Afforestation
The scheme for compensatory afforestation should contain the following details:

Details of equivalent non-forest or degraded forest land identified for raising compensatory
afforestation.

Delineation of proposed area on a suitable map.

Agency responsible for afforestation.

Details of work schedule proposed for compensatory afforestation.

Cost structure of plantation, provision of funds and the mechanism to ensure that the funds
will be utilised for raising afforestation.

Details of proposed monitoring mechanism.

38. Concession Agreement
In India, the term concession agreement is often used in the context of public private
partnership projects (PPP).
The contractual arrangement entered between a public entity and a private entity in a PPP project,
whereby the obligations of both the parties are clearly specified, is called a concession agreement.
39. 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.
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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.
40. 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;
41. 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.
42. 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 ..
43. 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

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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.
44. Core inflation
Core Inflation is also known as underlying inflation, is a measure of inflation which excludes items
that face volatile price movement, notably food and energy. In other words, Core Inflation is nothing
but Headline Inflation minus inflation that is contributed by food and energy commodities. To
understand the concept in a better way we can say that food and fuel prices may go up in the short
run due to some disturbance in the agriculture sector or oil economy. However, over the long term
they tend to revert back to their normal trend growth. On the other hand, prices of other commodities
do not fluctuate as regularly as food and fuel as such increase in their prices could be taken
relatively to be much more of a permanent nature. If this is so, then it follows logically for Central
Banks to target only core inflation, as it reflects the demand side pressure in the economy. In
practice too, the Reserve Bank of India (RBI) and Central Banks around the World always keep an
eye on the core inflation. Whenever core inflation rises, Central Banks increase their key policy rates
to suck excess liquidity from the market and vice versa. It is, therefore, a preferred tool for framing
long-term policy.
45. 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.
46. 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
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(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.
47. 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
48. Deficit Measurement in India
There are different measures of deficits in macroeconomics and each type of deficit measure carries
a different macroeconomic meaning. The broad measures of deficit (which have been and/or are
being) reported by the government in India, may be classified, either in terms of the nature of
transactions or on the basis of the means of financing them.
The chart below elucidates a list of different types of deficits that have been and are being used in
India.
I. Meaning of different measures of deficit
(a) Fiscal Deficit Gross Fiscal Deficit is defined as the excess of total expenditure of the government
over the total non-debt creating receipts.
Fiscal deficit can be either gross or net. The Central government makes capital disbursements as
loans to the different segments of the economy. In the developing countries, a large part goes as
loans to other sectors-States and local Governments, public sector enterprises and the like. Net fiscal
deficit can be arrived at by deducting net domestic lending from gross fiscal deficit .
(b) Budget Deficit Also referred to as simply budget deficit is that part of the governments deficit
which is financed through short-term borrowings. These short-term borrowings may be from the RBI
or from other sources.

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Normally, short-term borrowings from the RBI are through the net issuance of short-term treasury
bills (that is, ad-hoc and ordinary treasury bills) and by running-down the central governments cash
balances held by the RBI.
(c) Monetized deficit Also known as the net reserve bank credit to the government, it is that part of
the government deficit which is financed solely by borrowing from the RBI.
Since borrowings from the RBI can be both short-term and long-term, therefore, monetized deficit is
the sum of the net issuance of short-term treasury bills, dated securities (that is, long-term borrowing
from the RBI) and rupee coins held exclusively by the RBI, net of Governments deposits with the
RBI.
This is different from the Traditional Budget deficit in two ways1.
Traditional Budget deficit includes 91-day treasury bills held by both, the RBI and non-RBI
entities whereas Monetized deficit includes 91-day Treasury Bills held only by the RBI.
2.
Traditional Budget deficit includes only short-term sources of finance whereas Monetized
deficit includes long-term securities also.
3.
(d) Primary Deficit Gross Primary deficit is defined as gross fiscal deficit minus net interest
payments. Net primary deficit, is gross primary deficit minus net domestic lending.
4.
(e) Revenue deficit Revenue deficit is defined as the difference between revenue
expenditure and revenue receipts.
5.
(f) Effective revenue Deficit Introduced in 2011-12, it is defined as revenue deficit minus
that revenue expenditure (in the form of grants), which goes into the creation of Capital Assets.
(g) Other measures of deficit Apart from these, there are various other types of measures of deficit
that are widely used internationally, like the Consolidated Public Sector Deficit, which is the
excess of expenditure over revenue for all the government entities; Operational Deficit, which is
the inflation-corrected deficit and is defined as Consolidated Public Sector Deficit minus inflation
rate times the debt stock; Structural deficit which removes the effects of temporary movements in
the variables from their long-run values, thereby providing an idea of the long-run position of the
country after removing the impact of temporary shocks; and others.
49. Depository Receipts
A Depository Receipt (DR) is a financial instrument representing certain securities (eg. shares,
bonds etc.) issued by a company/entity in a foreign jurisdiction. Securities of a firm are deposited
with a domestic custodian in the firms domestic jurisdiction, and a corresponding depository
receipt is issued abroad, which can be purchased by foreign investors. DR is a
negotiable security (which means an instrument transferrable by mere delivery or by endorsement
and delivery) that can be traded on the stock exchange, if so desired.
DRs constitute an important mechanism through which issuers can raise funds outside their home
jurisdiction. DRs are issued for tapping foreign investors who otherwise may not be able to
participate directly in the domestic market. It is perceived as the beginning point of connecting with
the foreign investors (i.e. a stage before the actual listing the shares /securities in a foreign stock
exchange) or a way of introducing the company to a foreign investor. For investors, depository
receipt is a way of diversifying the risk, by getting exposure to a foreign market, but without the

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exchange rate risk as they are foreign currency denominated. Further, they feel more safe to invest
from their home location.
Depending on the location in which these receipts are issued they are called as ADRs or American
Depository Receipts (if they are issued in USA on the basis of the shares/securities of the domestic
(say Indian) company), IDR or Indian Depository Receipts (if they are issued in India on the basis
of the shares/securities of the foreign company; Standard Chartered issued the first IDR in India) or
in general as GDR or Global Depository Receipt.
Thus, ADR or GDR are issued outside India by a foreign depository on the back of an Indian
security deposited with a domestic Indian custodian in India (means a custodian or keeper of
securities- an Indian depository, a depository participant, or a bank- and having permission from the
securities market regulator, SEBI, to provide services as custodian).
Depository Receipt means a foreign currency denominated instrument, whether listed on an
international exchange or not, issued by a foreign depository in a permissible jurisdiction on the
back of eligible securities issued or transferred to that foreign depository and deposited with a
domestic custodian and includes global depository receipt as defined in section 2(44) of the
Companies Act, 2013.
As per the Companies Act, 2013 "Global Depository receipt" means any instrument in the form of a
depository receipt created by a foreign depository outside India and authorised by a company
making an issue of such depository receipts while the "Indian Depository Receipt means any
instrument in the form of a depository receipt created by a domestic depository in India and
authorised by a company incorporated outside India;
In India any company - whether private limited or public limited or listed or unlisted - can issue
DRs. However listed DRs enjoy some tax benefits.
ADR /GDR issues based on shares of a company are considered as part of Foreign Direct Investment
(FDI) in India, though it is an indirect way of holding shares.
Types of DRs
DRs are generally classied as under:

Sponsored: Where the Indian issuer enters into a formal agreement with the foreign
depository for creation or issue of DRs. A sponsored DR issue can be further classied as:

Capital Raising: The issuer issues new securities which are deposited with a domestic
custodian. The foreign depository then creates DRs abroad for sale to foreign investors. This
constitutes a capital raising exercise, as the proceeds of the sale of DRs go to the Indian issuer.

Non-Capital Raising: In a non-capital raising issue, no fresh underlying securities are

issued. Rather, the issuer gets holders of its existing securities to deposit these securities with a
domestic custodian, so that DRs can be issued abroad by the foreign depository. This is not a capital
raising exercise for the Indian issuer, as the proceeds from the sale of the DRs go to the holders of
the underlying securities.

Unsponsored: Unsponsored DRs are where there is no formal agreement between the
foreign depository and the Indian issuer. Any person other than the Indian issuer may, without any
involvement of the issuer, deposit the securities with a domestic custodian in India. A foreign
depository then issues DRs abroad on the back of such deposited securities. This is not a capital
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raising exercise for the Indian issuer, as the proceeds from the sale of the DRs go to the holders of
the underlying securities.
Based on whether a DR is traded in an organised market or in the over the counter (OTC) market,
the DRs can be classied as listed or unlisted.

Listed: Listed DRs are traded on organised exchanges. The most common example of this
are American Depository Receipts (ADRs) which are traded on the New York Stock Exchange
(NYSE).

Unlisted: Unlisted DRs are traded over the counter (OTC) between parties. Such DRs are
not listed on any formal exchange.
International experience
The most common DR programs internationally are:
ADRs: DRs issued in United States of America (US) by foreign rms are usually referred to
as ADRs. These are further classied based on the detailed rules under the US securities laws. The
classication is based on applicable disclosure norms and consists of:

Level 1: These programs establish a trading presence in the US but cannot be used for
capital raising. They may only be traded on OTC markets, and can be unsponsored.

Level 2: These programs establish a trading presence on a national securities exchange in

the US but cannot be used for capital raising.

Level 3: These programs can not only establish a trading presence on a national securities
exchange in the US but also help raise capital for the foreign issuer.

Rule 144A: This involves sale of securities by a non-US issuer only to Qualied
Institutional Buyers (QIBs) in the US.

Global Depository Receipts (GDRs): GDR is a collective term for DRs issued in non-US
jurisdictions and includes the DRs traded in London, Luxembourg, Hong Kong, Singapore.

Regulatory Regime for Depository Receipts in India

In India, the issue of Depository receipts were regulated by the The Issue of Foreign Currency
Convertible Bonds and Ordinary Share (through Depository Receipt Mechanism) Scheme 1993
issued by the Ministry of Finance. The 1993 Scheme was formulated at a time when Indias capital
markets were substantially closed to foreign capital and the domestic financial system was not well
developed. In the last two decades, the equity market has developed sophisticated market
infrastructure with active participation by both domestic and foreign investors and capital controls
have been eased substantially. In this period many aspects of the Indian legal and regulatory system
have evolved with substantial changes. These developments warranted a fresh look at the Scheme
governing the issue of Depository Receipts (DRs). Accordingly, based on the recommendations of
the MS Sahoo committee, Honble Finance Minister had announced in the 2014-15 Budget
Speech that he propose to Liberalize the ADR/GDR regime to allow issuance of depository receipts
on all permissible securities. Accordingly The Depository Receipts Scheme, 2014" was formulated
and implemented from December 15, 2014.
50. Dumping

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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.
51. E-Biz
eBiz is one of the integrated services projects and part of the 31 Mission Mode Projects
(MMPs) under the National E-Governance Plan (NEGP) of the Government of India launched in
2006.
It aims to create a business and investor friendly ecosystem in India by making all business and
investment related regulatory services across Central, State and local governments available on a
single portal. Process of applying for Industrial License & Industrial Entrepreneur Memorandum are
made online on 24X7 basis through eBiz Portal.In February 2015 eleven Central Government
Services were added to eBiz portal. These services are required for starting a business in the country
- four services from Ministry of Corporate Affairs, two services of Central Board of Direct Taxes,
two services of Reserve Bank of India and one service each from Directorate General of Foreign
Trade, Employees Provident Fund Organisation and Petroleum & Explosives Safety Organisation.
Prior to e-biz, a business-user availed these services either from the portal of respective
Ministry/Department or by physical submission of forms. With the integration of these services on
eBiz portal, he/she can avail all these services 24*7 online end-to-end i.e., online submission of
forms, attachments, payments, tracking of status and also obtain the license/permit from eBiz portal.
As on date, a total of 14 Central Services have been integrated through the e-Biz Platform.
The focus of eBiz is to improve the business environment in the country by enabling fast and
efficient access to Government-to-Business (G2B) services through an online portal. This will help
in reducing unnecessary delays in various regulatory processes required to start and run businesses.

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The vision of eBiz is to be the entry point for all individuals, businesses and organizations (local and
international) who would like to do business or have any existing business in India by creating a
one-stop-shop of convenient and efficient online G2B services to the business community, by
reducing the complexity in obtaining information and services related to starting businesses in India,
and dealing with licenses and permits across the business life-cycle.
This project aims at creating an investor-friendly business environment in India by making all
regulatory information starting from the establishment of a business, through its ongoing
operations, and even its possible closure - easily available to the various stakeholders concerned. In
effect, it aims to develop a transparent, efficient and convenient interface, through which the
government and businesses can interact in a timely and cost effective manner, in the future.
eBiz is being implemented by Infosys Technologies Limited (Infosys) under the guidance and aegis
of Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce & Industry,
Government of India.
52. E-gold/ silver / metals
e-gold refers to electronic mode of holding gold and is essentially a financial instrument traded in
spot exchanges in India that enables its investors to invest their funds into gold in smaller
denominations and hold it in demat form (i.e, in electronic form). Investors buying E-Gold and ESilver can liquidate the same or convert into physical gold. Such e-contracts are also available for a
few metals like copper, zinc, platinum, lead etc.
For eg. the contract specifications for e-gold at the spot exchange -National Spot Exchange
Limited (NSEL) may be seen here.
Such commodity contracts are also meant for retail investors who prefer investing in commodity
stocks with a view to gain benefits from the volatility in the respective commodities.
53. Eco-mark
Eco-mark is a voluntary labelling scheme for easily identifying environment friendly products. The
Eco-mark scheme defines as an environmentally friendly product, any product which is made, used
or disposed of in a way that significantly reduces the harm it would otherwise cause the
environment. The definition factors in all aspects of the supply chain, taking a cradle-to-grave
approach, which includes raw material extraction, manufacturing and disposal.
What sets eco-mark apart from other labels is that not only does the product have to meet strict
environmental requirements, but it also has to meet strict quality requirements.
The scheme is one of Indias earliest efforts in environmental standards, launched in 1991, even
before the 1992 Rio Summit in which India participated. The scheme was launched by theMinistry
of Environment and Forests, and is administered by the Bureau of Indian Standards (BIS), which
also administers the Indian Standards Institute (ISI) mark quality label, a requirement for any
product to gain the Eco-mark label.
54. 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
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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 short, Effective Revenue Deficit is the difference between revenue deficit and grants for creation
of capital assets. Effective Revenue Deficit signifies that amount of capital receipts that are being
used for actual consumption expenditure of the Government.
Effective revenue deficit has now become a new fiscal parameter and same is targeted to be
eliminated by the 31st of March 2015 and keep it at that level in the future, as per the Amendments
made in 2012 to Fiscal Responsibility and Budget Management Act.
However, the 14th Finance Commission observed that the concept of effective revenue deficit is not
recognised in the standard government accounting process. Under the Constitution, there are only
two categories of expenditure- expenditure on the revenue account and other expenditure which is
broadly expressed as capital expenditure. Hence, according to the Commission, the artificial carving
out of the revenue account deficit into effective revenue deficit to bring out that portion of grants
which is intended to create capital asset at the recipient level leads to an accounting problem and
raises the moral hazard issue of creative budgeting. The Commission recommend that the Union
Government should consider making an amendment to the FRBM Act to omit the definition of
effective revenue deficit from 1 April 2015.
55. 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
general category 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.
56. Escrow Account

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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.
57. Finance Bill or Finance Act
Finance Bill is a secret bill introduced every year in Lok Sabha (Lower chamber of the Parliament)
immediately after the presentation of the Union Budget, to give effect to the financial proposals of
the Government of India for the immediately following financial year. Rule 219 of the Rules of
Procedure of Lok Sabha defines a Finance Bill to also include a Bill that gives effect to
supplementary (additional) financial proposals for any period.
The Finance Bill is presented at the time of presentation of the Annual Financial Statement before
Parliament, 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. It is
through the Finance Act that amendments are made to the various Acts like Income Tax Act 1961,
Customs Act 1962 etc.
In short, Finance Bill can be considered as an umbrella Act. However, being an Act of the
Parliament, the various chapters of Finance Act independently also exist and is hence enforceable.
For instance, a Commodity Transaction Tax was imposed through Chapter VII of the Finance Act of
the year 2013. Similarly the service tax was introduced throughChapter V of the Finance Act of
1994.
When the proposals are introduced to the Parliament it is called as a Finance Bill. Once it is passed
by the Parliament and assented to by the President, Finance Bill becomes the Finance Act for that
year. (For instance, Union Budget 2015-16 for the Financial Year starting from April 2015 to March
2016, would be presented in February 2015 and would be accompanied by Finance Act, 2015
indicating the year (2015) in which the Act is passed.)
In election years there would usually be two Finance Bills one by the outgoing Government
presented alongwith its interim budget or votes on account and another by the new Government
which is titled as Finance Bill (No. 2) of that year.
Finance Bill Vs Appropriation Bill
While the Finance Bill generally seeks approval of the Parliament for raising resources through
taxes, cess etc., an Appropriation Bill seeks Parliament's approval for the withdrawal from
the Consolidated Fund of India to meet the approved expenditures of the Government. For more
details on Appropriation Bill see here.
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Both Finance Bill and Appropriation Bill are money bills.

Finance Bill Vs Money Bill
A Finance Bill is a Money Bill but not all money bills are Finance Bills. Under Article 110(1) of the
Constitution a money bill is defined as follows
110(1)a Bill is deemed to be a Money Bill if it contains only provisions dealing with all or any of
the following matters, namely:
(a) the imposition, abolition, remission, alteration or regulation of any tax;
(b) the regulation of the borrowing of money or the giving of any guarantee by the Government of
India, or the amendment of the law with respect to any financial obligations undertaken or to be
undertaken by the Government of India;
(c) the custody of the Consolidated Fund or the Contingency Fund of India, the payment of moneys
into or the withdrawal of moneys from any such fund;
(d) the appropriation of moneys out of the Consolidated Fund of India;
(e) the declaring of any expenditure to be expenditure charged on the Consolidated Fund of India
or the increasing of the amount of any such expenditure;
(f) the receipt of money on account of the Consolidated Fund of India or the public account of
India or the custody or issue of such money or the audit of the accounts of the Union or of a State;
or
(g) any matter incidental to any of the matters specified in sub-clauses (a) to (f).
(2.) A Bill is not deemed to be Money Bill by reason only that it provides for the imposition of fines
or other pecuniary penalties, or for the demand or payment of fees for licences or fees for services
rendered, or by reason that it provides for the imposition, abolition, remission, alteration or
regulation of any tax by any local authority or body for local purposes.
Finance Bill is generally limited to Article 110(1)(a) & (g) - the imposition, abolition, remission,
alteration or regulation of any tax and any matter incidental thereto.
More about money bills may be seen in the Legislative Procedures of Lok Sabha and Rajya Sabha.
Features of Money Bills (including a Finance Bill)
Essentially Money bill including a Finance Bill has the following features:

It can be introduced only in the Lok Sabha (lower chamber of the Parliament)

The bill is placed in Rajya Sabha (Upper chamber of the Parliament) thereafter and Rajya
Sabha can return the Bill with or without its recommendations.

In any case, the Bill has to be returned within a period of 14 days from the date of its receipt
by Rajya Sabha. Otherwise it is deemed to have been passed by both Houses at the expiration of the
said period in the form in which it was passed by Lok Sabha.

If the bill is returned to Lok Sabha without recommendation, a message to that effect is
reported by the Secretary-General to the Lok Sabha if in session, or published in the Bulletin for the
information of the members of the Parliament, if it is not in session. The Bill shall then be presented
to the President for his assent.

If the bill is returned to the Lok Sabha with amendments it has to be laid on the Table of the
House and taken up for consideration.

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However, Lok Sabha is not bound to accept these amendments. Lok Sabha, under Article
109 of the Constitution, has the option to accept or reject all or any of the recommendations made by
Rajya Sabha. In any case, Lok Sabha has to inform Rajya Sabha about the status of their
recommendations, as to whether they have been accepted or not. It is not that Lok Sabha does not
accept any of the recommendations of Rajya Sabha. For instance, in the Income Tax Bill, 1961,
Rajya Sabha did recommend a number of amendments of substantial character, all of which were
agreed to by Lok Sabha.

If Lok Sabha accepts any amendments as recommended by the Rajya Sabha, the Bill shall
be deemed to have been passed by both the Houses of the Parliament with the amendments
recommended by the Rajya Sabha and accepted by the Lok Sabha and a message to that effect has
to be sent to the Rajya Sabha.

If Lok Sabha does not accept the recommendations of the Rajya Sabha, the Bill shall be
deemed to have been passed by both the Houses in the form in which it was passed by the Lok
Sabha without any of the amendments recommended by the Rajya Sabha.

In all other bills final passing of the bill happens at Rajya Sabha. In case of money bills,
final passing happens at Lok Sabha and then it is sent to the President for his assent.

Unlike other bills, the President cannot return the Money Bill with his recommendations to
the Lok Sabha for reconsideration.
A defeat of Money bill in Lok Sabha is deemed political/parliamentary defeat of the government of
the day. Speaker has unquestionable powers to decide if a Bill is a Money Bill or not. It cannot be
questioned in any court. Rajya Sabha (Upper chamber of the Parliament)s dissent on a Money Bill
is of no political significance, as the Lok Sabha has overriding powers on Money Bills. Finance Bill
or any money bill cannot be referred to even joint Committees of the two Houses of the
Parliament (to resolve differences between the two Houses), as is in the case of other bills.
The Standing Committee of the Parliament also cannot scrutinize a Money Bill.
A Finance bill, being a money bill is normally passed without much debate as against the usual
procedurally lengthy and informed debates for other bills inside Parliament, and outside in standing
committees or among the experts and stake-holders and in the media. Hence, Finance Bill route is
generally not adopted to introduce important policy amendments with far reaching consequences, for
which usually a separate bill is preferred.
Can Finance Bill contain non-tax proposals?
Finance Bill/Act normally deals with income tax, customs, service tax, central excise, cess and
related aspects and is intended to help implement the Budget. Of late, Finance Bills are also used to
introduce one or two amendments in certain Acts such as UTI Act or FRBM Act, Securities
Contracts Regulation Act, Forward Contracts Regulation Act, Foreign Exchange Management Act,
Prevention of Money Laundering Act, etc. Such amendments are usually presented under the
Miscellaneous Chapter of the Finance Bill.
Finance Bill, 2015 came under criticism for incorporation of many policy amendments (like setting
up of a Public Debt Management Agency, Repeal of Government Securities Act, Amendments to
RBI Act etc to shift regulatory jurisdiction over various segments of the financial markets ) which
did not technically qualify to be in the Finance Bill. Many members of the Parliament demanded that
the bill be withdrawn and a new bill be introduced. Some argued that the inclusion of non-taxation
proposals in the Finance Bill, which is a Money Bill, would curtail the power of Rajya Sabha to
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amend those provisions. Consequent to this, Government withdrew some of those controversial
policy amendments from the Finance Bill, 2015. The debate in Lok Sabha on 30 April 2015 and the
Ruling of the Speaker in this regard may be seen.
Honble Speaker clarified that as per Rule 219 of the Rules of Procedure of Lok Sabha, the primary
object of a Finance Bill is to give effect to the financial proposals of the Government. At the same
time, this Rule does not rule out the possibility of inclusion of non-taxation proposals. Therefore, a
Finance Bill may contain non-taxation proposals also. But the fact is that a well-established practice
of Lok Sabha has been not to include non-taxation proposals in not only a Finance Bill but also other
Bills containing taxation proposals unless it is imperative to include such proposals on constitutional
or legal grounds. Therefore, Speaker ruled that every effort should be made to separate taxation
measures from other matters unless it is impossible on constitutional or legal grounds or some such
unavoidable reasons, to do so in a particular case.
Finance Bill Vs Financial Bill
Finance Bill is different from a Financial Bill which is defined under article 117(1) of the
Constitution. Money bills including Finance Bills are a subset of Financial Bills.
Whereas a Money Bill deals solely with matters specified in article 110(1) (a) to (g) of the
Constitution, a Financial Bill does not exclusively deal with all or any of the matters specified in the
said article. It may contain some other provisions also.
Financial Bills can be divided into two categories.

In the first category are Bills which contain provisions attracting article 110(1)(a) to (f)
of the Constitution. They are categorized as Financial Bills under article 117(1) of the Constitution.
It is a Bill which has characteristics both of a Money Bill and an ordinary Bill. As in the case of a
Money Bill, firstly, it cannot be introduced in Rajya Sabha, and secondly, it cannot be introduced
except on the recommendations of the President. Except these two points of difference, a Financial
Bill in all other respects is just like any other ordinary Bill. That is other restrictions in regard to
Money Bills do not apply to this category of Bills. Financial Bill under article 117(1) of the
Constitution can be referred to a Joint Committee of the Houses.

In the second category are those Bills which contain provisions which on enactment would
involve expenditure from the Consolidated Fund of India. Such Bills are categorised as Financial
Bills under article 117 (3) of the Constitution. Such Bills can be introduced in either House of
Parliament. However, recommendation of the President is essential for consideration of these Bills
by either House and unless such recommendation is received, neither House can pass the Bill. Such
Bills are more in the nature of ordinary Bills rather than the Money Bills and Financial Bills
mentioned earlier. The only point of difference between this category of Financial Bills and the
ordinary Bills is that such a Financial Bill, if enacted and brought into operation, involves
expenditure from the Consolidated Fund of India and cannot be passed by either House of
Parliament unless the President has recommended to that House the consideration of the Bill. In all
other respects this category of Bills is, just like ordinary Bills, so that such a Financial Bill can be
introduced in Rajya Sabha, amended by it or a joint sitting can be held in case of disagreement
between the Houses over such a Bill. There is, in other words, no limitation on the power of Rajya
Sabha in respect of such Financial Bills.
58. Financial Inclusion
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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.
The various financial services identified by the Rangarajan Committee include credit, savings,
insurance and payments and remittance facilities. The full report of the Committee may be seen here.
The Committee on Financial Sector Reforms headed by Dr. Raghuram Rajan in its Report - A
Hundred Small Steps, proposed a paradigm shift in the way Government see inclusion. Instead of
seeing the issue primarily as expanding credit, which puts the cart before the horse, the Committee
urged a refocus to seeing it as expanding access to financial services, such as payments services,
savings products, insurance products, and inflation-protected pensions. According to the committee,
financial Inclusion, broadly defined, refers to universal access to a wide range of financial services at
a reasonable cost. These include not only banking products but also other financial services such as
insurance and equity products.
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) Pradhan Mantri Jan Dhan Yojna etc.

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Benefits of Financial Inclusion

Financial inclusion enables good financial decision making through financial literacy and qualified
advice as also access to financial services for all, particularly the vulnerable groups such as weaker
sections, minorities, migrants, elderly, micro entrepreneurs and low income groups at an affordable
cost so as to enable them to
a) manage their finances on day to day basis confidently, effectively and securely;
b) Plan for the future to protect themselves against short term variations in income and expenditure
and for wealth creation and gaining from financial sector developments; and
c) deal with financial distress effectively thereby reducing their vulnerability to the unexpected.
The United Nations Capital Development Fund (UNCDF) investing in LDCs sees financial
inclusion, financial services for poor and low-income people and micro and small enterprises as an
important and integral component of the financial sector, each with its own comparative advantages,
and each presenting the market with a business opportunity.
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.
59. 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".
60. Fiscal Consolidation
Fiscal Consolidation refers to the policies undertaken by Governments (national and sub-national
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
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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.
61. 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 2008-09 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.
Background
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.
Implementation
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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 200708.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.
62. Foreign Portfolio Investor (FPI)
In India, the term Foreign Portfolio Investor refers to FIIs or their sub-accounts, or qualified
foreign investors (QFIs) who are permitted to hold upto 10% stake in a company.
Origin
The term FPI was defined to align the nomenclature of categorizing investments of foreign investors
in line with international practice. FPI stands for those investors who hold a short term view on the
company, in contrast to Foreign Direct Investors (FDI). FPIs generally participate through the stock
markets and gets in and out of a particular stock at much faster frequencies. Short term view is
associated often with lower stake in companies. Hence, globally FPIs are defined as those who hold
less than 10% in a company. In India, the hitherto existing closest possible definition to an FPI
was Foreign Institutional Investor.
Features of FPI
Portfolio Investment by any single investor or investor group cannot exceed 10% of the equity of an
Indian company, beyond which it will now be treated as FDI.
FIIs, Sub-Accounts and QFIs are merged together to form the new investor class, namely Foreign
Portfolio Investors, with an aggregate investment limit of 24% which can be raised by the Company
up to the applicable sectoral cap.
All existing FIIs and Sub Accounts can continue to buy, sell or otherwise deal in securities under the
FPI regime.
All existing Qualified Foreign Investors (QFIs) may continue to buy, sell or otherwise deal in
securities only till the period of one year from the date of notification of the FPI Regulation. In the
meantime, they have to obtain FPI registration.
Non-Resident Indians (NRIs) and Foreign Venture Capital Investors (FVCI) are excluded from the
purview of this definition.
Designated Depository Participants (DDPs) authorized by SEBI (as per prescribed norms) would
henceforth register FPIs on behalf of SEBI subject to fulfillment of KYC (Know Your Customer)
and due diligence norms. DDPs carry out necessary due diligence and obtain appropriate
declarations and undertakings before registering an entity as FPI. The DDPs are either Authorized
Dealer Category-1 bank authorized by Reserve Bank of India, or Depository Participant or a
Custodian of Securities registered with SEBI. Existing SEBI approved Qualified Depository
Participant who were registering the QFIs, but not meeting the DDP eligibility criteria, can operate
as DDP only for a period of one year.
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63. 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
with Section 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 here:
However, FII as a category does not exist now. It was decided to create a new investor class called
"Foreign Portfolio Investor" (FPI) by merging the existing three investor classes viz. FIIs,Sub
Accounts and Qualified Foreign Investors. Accordingly, SEBI (Foreign Portfolio Investors)
Regulations, 2014 were notified on January 07, 2014 followed by certain other enabling notifications
by Ministry of Finance and RBI. In order to ensure the seamless transition from FII regime to FPI
regime, it was decided to commence the FPI regime with effect from June 1, 2014 so that the
requisites systems and procedures are in place before migration to the new FPI regime.
With the new FPI regime, which has commenced from 1 June 2014, it has now been decided to
dispense with the mandatory requirement of direct registration with SEBI and a risk based
verification approach has been adopted to smoothen the entry of foreign investors into the Indian
securities market.
FPIs have been made equivalent to FIIs from the tax perspective, vide central government
notification dated 22nd January 2014.
Who can get registered as FII?
Following foreign entities / funds are eligible to get registered as FII:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.

Pension Funds
Mutual Funds
Investment Trusts
Banks
Insurance Companies / Reinsurance Company
Foreign Central Banks
Foreign Governmental Agencies
Sovereign Wealth Funds
International/ Multilateral organization/ agency
University Funds (Serving public interests)
Endowments (Serving public interests)
Foundations (Serving public interests)
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:
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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.
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
ii.
units of schemes floated by domestic mutual funds including Unit Trust of India, whether
listed on a recognised stock exchange or not
iii.
units of scheme floated by a collective investment scheme
iv.
dated Government Securities
v.
derivatives traded on a recognised stock exchange
vi.
commercial paper
vii.
Security receipts
viii.
Indian Depository Receipt
64. 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 Economic
Affairs, Ministry of Finance since September 2013. (Before this, FMC used to function under
Department of Consumer Affairs, Ministry of Consumer Affairs, Food & Public Distribution, Govt.
of India. Vide Gazette Notification S.O. No. 2694 dated 6 September 2013 the work related to
Forward Markets Commission, Futures trading and The Forward Contracts (Regulation) Act of 1952
were shifted to Department of Economic Affairs (DEA) from Department of Consumer Affairs
(DCA).) FMC 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. However, subsequent to the passing ofFinance Act 2015, FMC ceased to
exist and the responsibility of regulating commodity markets have been given to the securities
market regulator, SEBI
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

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market conditions continuously and takes remedial measures wherever necessary by imposing
various regulatory measures.
Merging of FMC with SEBI
In the Union Budget 2015-16, it was proposed that FMC be merged with the securities market
regulator - Securities and Exchange Board of India (SEBI). Amendments to the relevant Acts were
carried out through Chapter VIII of the Finance Act of 2015. With the passing of Finance Act 2015,
the Forward Contracts Regulation Act stands repealed.
65. GDP deflator
The Gross Domestic Product (GDP) deflator is a measure of general price inflation. It is calculated
by dividing nominal GDP by real GDP and then multiplying by 100. Nominal GDP is the market
value of goods and services produced in an economy, unadjusted for inflation (It is the GDP
measured at current prices). Real GDP is nominal GDP, adjusted for inflation to reflect changes in
real output (It is the GDP measured at constant prices).
GDP Deflator

Nominal GDP x 100

Real GDP

Importance of GDP Deflator

There are other measures of inflation too like Consumer Price Index (CPI) and Wholesale Price
Index (or WPI); however GDP deflator is a much broader and comprehensive measure. Since Gross
Domestic Product is an aggregate measure of production, being the sum of all final uses of goods
and services (less imports), GDP deflator reflects the prices of all domestically produced goods and
services in the economy whereas, other measures like CPI and WPI are based on a limited basket of
goods and services, thereby not representing the entire economy (the basket of goods is changed to
accommodate changes in consumption patterns, but after a considerable period of time). Another
important distinction is that the basket of WPI (at present) has no representation of services sector.
The GDP deflator also includes the prices of investment goods, government services and exports,
and excludes the price of imports. Changes in consumption patterns or the introduction of new goods
and services or structural transformation are automatically reflected in the deflator which is not the
case with other inflation measures.
However WPI and CPI are available on monthly basis whereas deflator comes with a lag (yearly or
quarterly, after quarterly GDP data is released). Hence, monthly change in inflation cannot be
tracked using GDP deflator, limiting its usefulness.
66. Goods and Services Tax
Goods and Services Tax (GST) refers to the single unified tax created by amalgamating a large
number of Central and State taxes presently applicable in India. The latest constitution Amendment
Bill of December 2014 made in this regard, proposes to insert a definition of GST in Article 366 of
the constitution by inserting a sub-clause 12A. As per that, GST means any tax on supply of goods,
or services, or both, except taxes on supply of the alcoholic liquor for human consumption. And
here, services are defined to mean anything other than goods.
Implementation of GST is one of the major indirect tax reforms in India and is expected to be put in
place by April 2016.

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Context & Genesis of GST

Currently, fiscal powers between the Centre and the States are clearly demarcated in the Constitution
of India with almost no overlap between the respective domains. The Centre has the powers to levy
tax on the manufacture of goods (except alcoholic liquor for human consumption, opium, narcotics
etc.) while the States have the powers to levy tax on the sale of goods. In the case of inter-State
sales, the Centre has the power to levy a tax (the Central Sales Tax) but, the tax is collected and
retained entirely by the States. As for services, it is the Centre alone that is empowered to levy
service tax. Since the States are not empowered to levy any tax on the sale or purchase of goods in
the course of their importation into or exportation from India, the Centre levies and collects this tax
as additional duties of customs. This duty counterbalances excise duties, sales tax, State value added
tax (VAT) and other taxes levied on the like domestic product. Introduction of the GST would
require amendments in the Constitution so as to concurrently empower the Centre and the States to
levy and collect the GST.
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 which replaced MODVAT, at the central level, is a valued added tax
that provided credit on tax paid on inputs and it 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.
The idea of moving towards the GST was first mooted by the then Union Finance Minister Shri P.
Chidambaram in his Budget for 2006-07. Initially, it was proposed that GST would be introduced by
1st April, 2010. The Empowered Committee of State Finance Ministers (EC) which had formulated
the design of State VAT was requested to come up with a roadmap and structure for the GST. Joint
Working Groups of officials having representation of the States as well as the Centre were set up to
examine various aspects of the GST and draw up reports specifically on exemptions and thresholds,
taxation of services and taxation of inter-State supplies. Based on discussions within and between it
and the Central Government, the EC released its First Discussion Paper (FDP) on the GST in
November, 2009. This spells out the features of the proposed GST and has formed the basis for
discussion between the Centre and the States so far.
The GST implementation took a lot of time as some States have been apprehensive about
surrendering their taxation jurisdiction while others wanted to be adequately compensated.
In the Union Budget 2014-15 the Finance Minister indicated that the debate whether to introduce a
Goods and Services Tax (GST) must now come to an end. Following the Budget presentation in July
2014, the Constitution Amendment Bill was placed in the Parliament in December 2014.

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Advantages of GST
Adam Smith, father of economics, has laid down four canons of taxation which are equality,
certainty, convenience and economy. A tax can be tested on these four criteria. The Good and
Services Tax (GST) qualifies for these four canons in a better manner. By amalgamating various
taxes into a single tax, GST would mitigate cascading or double taxation (tax upon tax situations) in
a major way and pave the way for a common national market. If the benefits are passed on fully, for
consumers, this would mean 25%-30% reduction in the prices they pay, as tax burden on goods
comes down[1]. This can reduce the overall costs of production and hence, introduction of GST
would also make Indian products more competitive in the domestic and international markets, with
beneficial effects on economic growth. According to the implementing agency, Central Board of
Excise and Customs (CBEC), this tax, because of its transparent character, would be easier to
administer. Union Budget 2014-15 admitted that GST will streamline the tax administration, avoid
harassment of the business and result in higher revenue collection, both for the Centre and the States.
GST also helps in better tax collections, better tax compliance, less cases of tax evasion and
litigation, more transparency, less harassment and corruption, according to Union Finance Minister,
Shri Arun Jaitly.
Salient Features of GST as proposed in India
The salient features of GST are as under:
i.
GST comes under the broad spectrum of what is known as Value Added Tax which
provides for input credits and taxes only the value addition that happened in the process of
production / provision of service.
ii.
GST would be applicable on supply of goods or services as against the present concept of
tax on the manufacture or on sale of goods or on provision of services.
iii.
GST would be a destination based tax as against the present concept of origin based tax. i.e,
tax is imposed at the point of consumption.
iv.
It would be a dual GST with the Centre and the States simultaneously levying it on a
common base. The GST, to be levied by the Centre would be called Central GST (CGST) and that to
be levied by the States would be called State GST (SGST). This is to protect the fiscal federalism of
this country as both the levels of government have the constitutional mandate to levy and collect
specific taxes. 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.
v.
The Centre would levy and collect the Integrated Goods and Services Tax (IGST) on all
inter-State supply of goods and services. There will be seamless flow of input tax credit from one
State to another. Proceeds of IGST will be apportioned among the States.
vi.
CGST and SGST would be levied at rates to be mutually agreed upon by the Centre and the
States.
vii.
Credit of CGST paid on inputs may be used only for paying CGST on the output and the
credit of SGST paid on inputs may be used only for paying SGST. In other words, the two streams
of input tax credit cannot be mixed except in specified circumstances of inter-State sales.

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viii.

All goods and services, except alcoholic liquor for human consumption, will be brought
under the purview of GST (To include alcoholic liquor, which is a major source of revenue for the
states, another constitution amendment would be required). Crude Petroleum and some petroleum
products have also been Constitutionally brought under GST. However, it is provided that petroleum
and petroleum products shall not be subject to the levy of GST till notified at a future date on the
recommendation of the GST Council. The present taxes levied by the States and the Centre on
petroleum and petroleum products, i.e., Sales Tax/VAT, CST and Excise duty only, will continue to
be levied in the interim period.
ix.
Tobacco and tobacco products would be subject to GST. In addition, the Centre could
continue to levy Central Excise duty and the States can levy sales tax / VAT.
x.
Exports would be zero-rated.
xi.
Import of goods or services would be treated as inter-State supplies and therefore, would be
subject to IGST in addition to the applicable customs duties.
xii.
The list of exempted goods and services is attempted to be kept to a minimum and it would
be harmonized for the Centre and the States as far as possible.
xiii.
A common threshold exemption would apply to both CGST and SGST. Dealers with a
turnover below it would be exempt from tax. A compounding option (i.e.to pay tax at a flat rate
without credits) would be available to small dealers below a certain threshold. The threshold
exemption and compounding provision would be optional.
xiv.
GST rates will be uniform across the country. However, to give some fiscal autonomy to the
States and Centre, there will a provision of a narrow tax band over and above the floor rates of
CGST and SGST.
xv.
It is proposed to levy a non-vatable additional tax of not more than 1% on supply of goods
in the course of inter-State trade or commerce, except on those goods which are specifically
exempted by the Central Government. This tax will be for a period not exceeding 2 years, or further
such period as recommended by the GST Council. This additional tax on supply of goods will be
assigned to the States from where such supplies originate. (Since GST is a destination based tax
where the consuming state would receive the revenue, this provision has been built in to compensate
the producer / manufacturing states, like say in case of petroleum products whose production
constitutes a substantial portion of revenue for a few states)
xvi.
The laws, regulations and procedures for levy and collection of CGST and SGST would be
harmonized to the extent possible.
xvii.
A Goods & Services Tax Council which will be a joint forum of the Centre and the States
will be created. This Council would function under the Chairmanship of the Union Finance Minister
and will have Ministers in charge of Finance/Revenue or Minister nominated by each of the States &
UTs with Legislatures, as members. Members have differential voting powers with votes of the
central government having 1/3rd weightage and rest 2/3rd with states. Decisions can be taken only if
it has more than 3/4th majority (i.e. Votes in Favour = 1/3 *Votes in favour by Center + [(2/3 *
1/No. of states present and Voting)*Votes in favour by States]). Such decisions will be immune from
the deficiencies in the constitution of the GST council or appointment of its members or any
procedural irregularity. The Council will make recommendations to the Union and the States on
important issues like
1.
taxes, cesses and surcharges levied by the Union, States and local bodies which may
be subsumed in the GST
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2.
3.
4.
5.

the goods and services that may be subjected to or exempted from GST
apportioning of the revenue between center and states in case of IGST
Framing of model GST laws
deciding the principles that govern the determination of place of supply, based on
GST laws

6.

decision on threshold limits of turnover below which goods and services may be
exempted from GST,
7.
creating special provisions for states like Jammu& Kashmir, North Eastern States
including Assam, and hilly states like Himachal Pradesh and Uttarakhand,
8.
decision on the date on which GST will be levied on crude petroleum, high speed
diesel, petrol, natural gas, and ATF.
9.
tax rates including the floor rates and bands, special rates /rates for a specified period
to raise additional resources during a natural calamity or disaster
10.
framing dispute resolution modalities.
xviii.
GST levied and collected by Union Govt. except the tax apportioned with states in case of
IGST shall also be distributable between Union and States as per the recommendations of the
Finance Commission.
xix.
Union Government cannot impose surcharges (which usually goes to the consolidated fund
of India) on articles which are covered under GST laws.
xx.
Centre will compensate States for loss of revenue arising on account of implementation of
the GST for a period up to five years. (The compensation will be on a tapering basis, i.e., 100% for
first three years, 75% in the fourth year and 50% in the fifth year).
Taxes subsumed in GST
GST would replace the following taxes currently levied and collected by the Centre:
1.
2.
3.
4.
5.
6.
7.
8.
9.

Central Excise duty

Excise Duty levied under the Medicinal and Toilet Preparations (Excise Duties) Act 1955,
Additional Excise Duties (Goods of Special Importance)
Additional Excise Duties (Textiles and Textile Products)
Additional Customs Duty (commonly known as Countervailing duties or CVD)
Special Additional Duty of Customs (SAD)
Service Tax
Cesses and surcharges in so far as they relate to the supply of goods and services
Taxes on the sale or purchase of newspapers and on advertisements published therein.

State taxes that would be subsumed within the GST are:

1.
2.

State VAT/ Sales Tax

Central Sales Tax (levied by the Center and collected by the States)
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3.
Luxury Tax
4.
Octroi
5.
Entry Tax i.e, taxes on the entry of goods into a local area for consumption, use or sale
therein. (other than those in lieu of octroi)
6.
Purchase Tax
7.
Entertainment Tax which are not levied by the local bodies; i.e. panchayats, municipalities
and District councils of autonomous districts can impose taxes on entertainment and amusements
8.
Taxes on general advertisements
9.
Taxes on lotteries, betting and gambling
10.
State cesses and surcharges insofar as they relate to supply of goods or services
GST does not subsume stamp duties and custom duties.
Constitution Amendment Bills of 2011 & 2014
The assignment of concurrent jurisdiction to the Centre and the States for the levy of GST would
require a unique institutional mechanism that would ensure that decisions about the structure, design
and operation of GST are taken jointly by the two. For it to be effective, such a mechanism also
needs to have Constitutional force.
To address all these and other issues, the Constitution (115th Amendment) Bill was introduced in the
Lok Sabha on 22.03.2011. The Bill was referred to the Parliamentary Standing Committee on
Finance for examination and based on its report, certain official amendments were prepared.
Subsequent to general elections and formation of a new Government, the Union Cabinet under Prime
Minister Shri Narendra Modi approved on 17th December, 2014 the proposal for replacing the
earlier bill of the erstwhile government with a similar bill alongwith some more amendments -The
Constitution (122nd Amendment) (GST) Bill, 2014- to facilitate the introduction of GST. The Union
Finance Minister Shri Arun Jaitley introduced the said Bill in the Lok Sabha on 19th December
2014.
Constitution Amendment Bill confers concurrent powers to Parliament and the state Legislatures to
make laws governing GST.
Way forward
The Constitution Amendment Bill needs to be passed by a two-third majority in both Houses of
Parliament and subsequent ratification by at least half of the State Legislatures. After passage of the
Bill by both Houses of Parliament, ratification by State legislatures and receipt of assent by the
President, the process of enactment would be complete.
Suitable legislation for the levy of GST (Central GST Bill and State GST Bills) drawing powers
from the Constitution can be introduced in Parliament or the State Legislatures only after the
enactment of the Constitution Amendment Bill. Unlike the Constitutional Amendment, the GST
Bills would need to be passed by a simple majority. Obviously, the levy of the tax can commence
only after the GST law has been enacted by the respective legislatures. Also, unlike the State VAT,
the date of commencement of this levy would have to be synchronized across the Centre and the

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States. This is because the IGST model cannot function unless the Centre and all the States
participate simultaneously.
Implementation Progress
Every Union Budget since its introduction of the idea in 2006-07 has been expressing the
Government's commitments to go ahead with the GST implementation. GST is expected to be
implemented by April 2016.
The Central Board of Excise and Customs (CBEC) is involved with the drafting of GST law and
procedures, particularly the CGST and IGST law, which will be exclusive domain of the Central
Government. CBEC also addresses the implementation challenges. A GST Cell has been created
within CBEC which functions under the Joint Secretary TRU II.
In 2013, four Committees were constituted by the Empowered Committee of State Finance Ministers
(EC) to deal with the various aspects of work relating to the introduction of GST. The Committees
are:
i.
The Committee on the Problem of Dual Control, Threshold and Exemptions in GST
Regime;
ii.
The Committee on Revenue Neutral Rates for State GST & Central GST and Place of
Supply Rules (A Sub-Committee has been constituted to examines issues relating to the Place of
Supply Rules);
iii.
The Committee on IGST & GST on Imports (A Sub- Committee was set up to examine
issues pertaining to IGST model);
iv.
The Committee to draft model GST Law (Three Sub-Committees were constituted to draft
various aspects of the model law).
The GST law is still evolving and the dialogue continues between the Centre and the States on
related issues. A number of procedural, legal and administrative issues relating to GST are under
active discussions in various Committees / Sub-committees constituted by the EC and in various
Groups constituted by the CBEC.
67. Green GDP
Green GDP is a term used generally for expressing GDP after adjusting for environmental damage.
The System of National Accounts (SNA) is an accounting framework for measuring the economic
activities of production, consumption and accumulation of wealth in an economy during a period of
time. When information on economy's use of the natural environment is integrated into the system of
national accounts, it becomes green national accounts or environmental accounting.
The process of environmental accounting involves three steps viz. Physical accounting; Monetary
valuation; and integration with national Income/wealth Accounts. Physical accounting determines
the state of the resources, types, and extent (qualitative and quantitative) in spatial and temporal
terms. Monetary valuation is done to determine its tangible and intangible components. Thereafter,

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the net change in natural resources in monetary terms is integrated into the Gross Domestic Product
in order to reach the value of Green GDP.
The process envisaged by Ministry of Environment and Forest does not require any change in the
core System of National Accounts (SNA), and is achieved by establishing linkages between the two
through a system of satellite accounts (called Satellite accounts as it adds new information to core
accounts). For example, Environmental Satellite Accounts link measures of emissions, material use,
costs of remediation and environmental taxes to measures of economic activity. Satellite accounts
are a framework that enables attention to be focused on a certain field or aspect of economic and
social life. They are produced in the context of national accounts but are more flexible as they allow
concepts, definitions, accounting rules and classifications to be changed, where it improves analysis.
68. Grievances Against Misleading Advertisements (GAMA)
Grievances Against Misleading Advertisements (GAMA) is a dedicated online web portal
established by Department of Consumer Affairs, Government of India in March 2015 to enable
consumers to register their grievances on misleading advertisements which makes claims that are
dubious or unverified. GAMA serves as a central registry for complaints against misleading
advertisements.
Any consumer in any part of the country can register on this site and can lodge a complaint against
misleading advertisements. A well-defined protocol then ensures that the complaints are taken up
with the relevant authorities in the state or the central government concerned and appropriate action
taken. The portal also enables the consumer to be informed of the action taken. The portal will be
linked to all state authorities concerned, select voluntary consumer organizations in the country and
the sector regulators in the Government of India.
69. 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.
70. Gross Value Added (GVA) at basic prices and GVA at Factor Costs
Gross Value Added (GVA) Vs. GDP
Gross value added (GVA) is defined as the value of output less the value of intermediate
consumption. Value added represents the contribution of labour and capital to the production
process. When the value of taxes on products (less subsidies on products) is added, the sum of value
added for all resident units gives the value of gross domestic product (GDP). Thus, Gross Domestic
Product (GDP) of any nation represents the sum total of gross value added (GVA) (i.e, without

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discounting for capital consumption or depreciation) in all the sectors of that economy during the
said year after adjusting for taxes and subsidies.
Introduction of GVA at basic prices in India
In India, GDP is estimated by Central Statistical Office (CSO). Under the Fiscal Responsibility and
Budget Management Act 2003 and Rules thereunder, Ministry of Finance uses the GDP numbers (at
current prices) to peg the fiscal targets. For this purpose, Ministry of Finance makes their own
projections about GDP for the coming two years while specifying future fiscal targets.
In the revision of National Accounts statistics done by Central Statistical Organization (CSO)
in January 2015, it was decided that sector-wise wise estimates of Gross Value Added (GVA) will
now be given at basic prices instead of factor cost. In simple terms, for any commodity the basic
price is the amount receivable by the producer from the purchaser for a unit of a product minus
any tax on the product plus any subsidy on the product. However, GVA at basic prices will include
production taxes and exclude production subsidies available on the commodity. On the other hand,
GVA at factor cost includes no taxes and excludes no subsidies and GDP at market prices include
both production and product taxes and excludes both production and product subsidies.
The relationship between GVA at Factor Cost and GVA at Basic Prices and GDP at market prices
and GVA at basic prices is shown below:
GVA at factor cost + (Production taxes less Production subsidies) = GVA at basic prices
GDP at market prices = GVA at basic prices + Product taxes- Product subsidies
Gross value added at basic prices is defined as output valued at basic prices less intermediate
consumption valued at purchasers prices. Here the GVA is known by the price with which the
output is valued. From the point of view of the producer, purchasers prices for inputs and basic
prices for outputs represent the prices actually paid and received. Their use leads to a measure of
gross value added that is particularly relevant for the producer.
Gross value added at producers prices is defined as output valued at producers prices less
intermediate consumption valued at purchasers prices. In the absence of VAT, the total value of the
intermediate inputs consumed is the same whether they are valued at producers or at purchasers
prices, in which case this measure of gross value added is the same as one that uses producers prices
to value both inputs and outputs. It is an economically meaningful measure that is equivalent to the
traditional measure of gross value added at market prices. However, in the presence of VAT, the
producers price excludes invoiced VAT, and it would be inappropriate to describe this measure as
being at market prices.
By definition, the value of output at producers prices exceeds that at basic prices by the amount, if
any, of the taxes on products, less subsidies on products so that the two associated measures of gross
value added must differ by the same amount.
Gross value added at factor cost is not a concept used explicitly in the SNA. However, it can easily
be derived from either of GVA at basic prices or GVA at producer's price by subtracting the value of
any taxes on production and adding subsidies on production, payable out of gross value added as
defined. For example, the only taxes on production remaining to be paid out of gross value added at
basic prices consist of other taxes on production which are not charged per unit. These consist
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mostly of current taxes (or subsidies) on the labour or capital employed in the enterprise, such as
payroll taxes or current taxes on vehicles or buildings. Gross value added at factor cost can thus be
derived from gross value added at basic prices by subtracting other taxes on production and adding
subsidies on production.
Deriving GDP from the GVA
From these various concepts of GVA, one can arrive at an estimate of GDP in the following manner:
a.
GDP = the sum of the gross value added at producers prices, plus taxes on imports, less
subsidies on imports, plus non-deductible VAT.
b.
GDP = the sum of the gross value added at basic prices, plus all taxes on products, less all
subsidies on products.
c.
GDP = the sum of the gross value added at factor cost plus all taxes on products, less all
subsidies on products, plus all other taxes on production, less all other subsidies on production.
71. 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.
72. 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.

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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.
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 (CPI-UNME),
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).
73. 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.
74. 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
by Directorate 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.
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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.
75. Index of Eight Core Industries
The Office of the Economic Adviser (OEA) in the Department of Industrial Policy and Promotion
(DIPP), Government of India compiles and releases the production index of core industries.
The rationale of the Index of Core Industries
The Central Statistics Office (CSO) of the Government of India brings out monthly Index of
Industrial Production (IIP). Industrial Production in the IIP comprises three distinct groups of
industry, (a) Mining, (b) Manufacturing and (c) Electricity. The quick estimate of IIP pertaining to a
month is released after approximately six weeks (on 12th of the Month, or if 12th is a Gazetted
Holiday, on the previous working day).
The Eight Core Industries are Coal, Cement, Electricity, Crude Oil, Refineryproducts, Steel,
Fertilizers and Natural Gas, which have the following weights in IIP.
The Index of Eight Core Industries is released on the last day of the month following the month for
which the Index pertain. If the last day of the month is a Gazetted Holiday, then it is released on the
next working day. The Index of Eight Core Industries released about two weeks prior to the IIP
release provides an advance indication of performance of more than one third of the IIP basket.
76. Inflation Targeting In India
Inflation targeting is a monetary policy strategy used by Central Banks for maintaining price level at
a certain level or within a range. It indicates the primacy of price stability as the key objective of
monetary policy. The argument for price stability stems from the fact that rising prices create
uncertainties in decision making, adversely affecting savings and encouraging speculative
investments. Inflation targeting brings in more predictability and transparency in deciding monetary
policy. If the central banks could ensure price stability, households and companies can plan ahead,
negotiating wages on the basis of expecting low and stable inflation. Various advanced economies
including United States, Canada and Australia have been using inflation targeting as a strategy in
their monetary policy framework. The case for inflation targeting has been made in India as the
country has been experiencing a high level of inflation till recently.
The Reserve Bank of India and Government of India signed a Monetary Policy Framework
Agreement on 20th February 2015. As per terms of the agreement, the objective of monetary policy
framework would be primarily to maintain price stability, while keeping in mind the objective of
growth. The monetary policy framework would be operated by the RBI. RBI would aim to contain
consumer price inflation within 6 percent by January 2016 and within 4 percent with a band of (+/-)
2 percent for all subsequent years.
The central bank would be seen as failing to meet the targets, if retail inflation is more than 6 per
cent for three consecutive quarters from 2015-16 and less than 2 per cent for three
consecutive quarters from 2016-17. If this happens, RBI will have to explain the reason for its
failure to meet as well as give a timeframe within which it will achieve it. RBI will publish the
operating targets as well as operating procedure for the monetary policy though which the target for

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the monetary policy will be achieved. The RBI will also be required to bring a document every six
months to explain the sources of inflation and forecast for inflation for next 6-18 months.
RBI has been using headline CPI (Combined) inflation as the nominal anchor for monetary policy
stance from April 2014 onwards.
77. Infrastructure Investment Trust (InvITs)
Infrastructure Investment Trusts (InvITs) are mutual fund like institutions that enable investments
into the infrastructure sector by pooling small sums of money from multitude of individual investors
for directly investing in infrastructure so as to return a portion of the income (after deducting
expenditures) to unit holders of InvITs, who pooled in the money.
For these purposes, Infrastructure is as defined by Ministry of Finance vide its notification
dated October 07, 2013 and would include any amendments/additions made thereof.
InvITs can invest in infrastructure projects, either directly or through a special purpose vehicle
(SPV). In case of Public Private Partnership (PPP) projects, such investments can only be through
SPV.
InvITs are regulated by the securities market regulator in India- Securities and Exchange Board of
India (SEBI).
SEBI notified SEBI (Infrastructure Investment Trusts) Regulations, 2014 on September 26, 2014,
providing for registration and regulation of InvITs in India. The objective of InvIT is to facilitate
investment into the infrastructure sector in India.
InvITs are very much similar to the Real Estate investment Trusts (REITs) in structure and
operations. InvITs are modified REITs designed to suit the specific circumstances in India.
Types of InviTs
Two types of InvITs have been allowed, one which is allowed to invest mainly in completed and
revenue generating infrastructure projects and other which has the flexibility to invest in
completed/under-construction projects. While the former has to undertake a public offer of its units,
the latter has to opt for a private placement of its units. Both the structures are required to be listed.
78. Infrastrucuture Debt Funds (IDFs)
The term Debt Fund is generally understood as an investment pool which invests in debt securities of
companies. However, an Infrastructure Debt Fund (IDF) registered in India refers to a company or a
Trust constituted for the purpose of investing in the debt securities of infrastructure companies
or public private partnership projects.
Thus in contrast to the general understanding of the term, IDF does not refer to a Scheme floated by
a mutual fund or such other organizations but to the Company or Trust who is investing in debt
securities. An IDF can float various Schemes for financing infrastructure projects.
Purpose
IDF is a distinctive attempt to address the issue of sourcing long term debt for infrastructure projects
in India. Union Finance Minister in his Budget speech for 2011-12 had announced setting up of IDFs
to accelerate and enhance the flow of long term debt in infrastructure projects. IDFs are meant to
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1.
supplement lending for infrastructure projects
2.
provide a vehicle for refinancing the existing debt of infrastructure projects presently
funded mostly by commercial banks
Structure& Regulation
These Funds can be established by Banks, Financial Institutions and Non- banking Financial
Companies (NBFCs).
IDFs can be set up either as a company or as a trust. A trust based IDF would normally be a Mutual
Fund (MF) that would issue units while a company based IDF would normally be a form of NBFC
that would issue bonds. Further, a trust based IDF (MF) would be regulated by SEBI; and an IDF set
up as a company (NBFC) would be regulated by RBI.
79. 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.
80. 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 (56 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 NorthEastern region, while it is 0.5 per cent for central tribal belt.
81. Kisan Vikas Patra (KVP)
Kisan Vikas Patra (KVP) is a saving instrument launched by the Government for individual savers,
wherein invested money doubled during the maturity period. This savings scheme was first launched
by the Government on 1 April, 1988 and was distributed through post offices. It was discontinued in
2011 and later reintroduced in 2014.
KVP is considered a part of the National Small Savings Fund. (for details on the accounting of the
funds thus collected, please see the write up on National Small Savings Fund). In Hindi, Kisan
stands for farmers, Vikas for development and Patra for certificate.
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However, as the name might suggest, this is not a scheme intended only for farmers nor is the raised
money used only for farmers' development. In fact, the Scheme does not distinguish between rural or
urban investors. Rather, it had an urban bias. Further, the money raised through KVP is invested in
central and state government securities, thus financing the respective Governments indirectly.
In KVP, a single holder type certificate was issued to an adult for himself or on behalf of a minor, or
jointly to two adults. When introduced initially, it was available in denominations of INR. 100/-,
500/-, 1000/-, 5000/-, 10,000/-, in all Post Offices and INR. 50,000/- in all Head Post Offices.
Further, there was no limit on investment under KVP. In addition, it was easily transferrable like
a bearer instrument. It had longer maturity than a term deposit and had higher interest rate than a
government security of a comparable maturity. The maturity period of the scheme, when launched,
was 5 years and the money invested doubled on maturity. However, KVP is not a tax saving
instrument as it does not offer any income tax exemption.
The scheme was very popular among the investors and the percentage share of gross collections
secured in KVP was in the range of 9% to 29% against the total collections received under all
National Savings Schemes in the country. Gross collections under the scheme in the year 2010-11
were Rs. 21631.16 crores which was 9% of the total gross collections during the year.
However, the Committee set up for comprehensive review of National Small Savings Fund (NSSF)
headed by Smt. Shyamala Gopinath, Deputy Governor, Reserve Bank of India which submitted
its report in June 2011 had recommended discontinuation of Kisan Vikas Patra. Committee observed
as follows:
"The continued popularity of both KVP and National Savings Certificate (NSC) among the urban
population who are not all small savers could be prompted by an incentive to avoid tax. As
compared to NSC, KVP is more popular as it is a bearer-like certificate due to its ease of transfer. It
also has an in built liquidity due to the regulated premature closure facility offered in the scheme.
The absence of Tax deduction at Source (TDS) and ceiling on investment, tax benefits on NSC and
higher than market rate of return have posed considerable fiscal costs to the Government. The
deposits under both KVP and NSC can be pledged as a security with financial intermediaries,
including banks. The Rakesh Mohan Committee had recommended that both these instruments are
quite expensive in terms of the effective cost to the Government and felt that these instruments should
be discontinued to ensure an equitable and harmonious tax treatment across the full spectrum of
medium term savings schemes. The Committee endorses this recommendation. In view of the recent
developments on Anti money laundering (AML)/Combating the Financing of Terrorism (CFT) front,
the Committee recommends that KVP should be discontinued."
Committee had also recommended to examine the reasons for large number of irregularities, such as
opening of irregular accounts and issue of NSCs and KVPs to the persons firms, institutions, trust,
etc, and to suggest remedial measures to curb such irregularities.
Accordingly, the Scheme was discontinued from 01.12.2011. In the year of its closure, the scheme
secured gross collections of Rs. 7575.95 crores (April 2011 to November 2011). In 2011, it yielded
around 8.41% and money used to double in 8 years and 7 months.
However, in view of the popular demand and to revitalize Small Savings, the Finance Minister vide
para 27 of his Budget Speech of 2014-15 (July) announced that Kisan Vikas Patra (KVP) will be
reintroduced. This was implemented with effect from 18 November 2014.
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The major concern regarding KVP has been addressed now as KYC norms (Know your client
norms) regarding all National Savings Schemes (NSS) are now applicable in post offices and banks
w.e.f. January, 2012.
The re-launched Kisan Vikas Patra (KVP) will be available to the investors in the denomination of
Rs. 1000, 5000, 10,000 and 50,000, with no upper ceiling on investment. The certificates can be
issued in single or joint names and can be transferred from one person to any other person / persons,
multiple times. The facility of transfer from one post office to another anywhere in India and of
nomination will be available. As in the case of previous issue, the certificate can also be pledged as
security to avail loans from the banks and in other case where security is required to be deposited.
Though, initially the certificates will be sold through post offices, it is intended to make it available
to the investing public through designated branches of nationalized banks, in contrast to the original
KVP.
As in the previous issue, Kisan Vikas Patras have unique liquidity feature, where an investor can, if
he so desires, encash his certificates after the lock-in period of 2 years and 6 months and thereafter in
any block of six months on pre-determined maturity value. The investment made in the certificate
will double in 100 months (8 years and 4 months).
Reintroduction of Kisan Vikas Patra (KVP) was to provide a safe and secure investment avenue to
the investors so as to help in augmenting the savings rate in the country. The scheme is also aimed at
safeguarding investors from fraudulent schemes, considering the number of ponzi schemes that have
surfaced particularly after the closure of KVP. With a maturity period of 8 years 4 months, the
collections under the scheme will be available with the Govt. for a fairly long period to be utilized in
financing developmental plans of the Centre and State Governments.
82. 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.
83. 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.
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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.
84. 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.
85. 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.

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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.

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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).
86. Macro-economic Framework Statement
The Macro-economic Framework Statement is a statement presented to the Parliament at the time of
Union Budget under Section 3(5) of the Fiscal Responsibility and Budget Management Act,
2003 and the rules made thereunder and contains an assessment of the growth prospects of the
economy with specific underlying assumptions.
It contains an assessment regarding the expected GDP growth rate, fiscal balance of the Central
Government and the external sector balance of the economy.
The statement is submitted annually.
87. 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.

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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.
88. Mahatma Gandhi Pravasi Surksha Yojna (MGPSY)
Mahatma Gandhi Pravasi Surksha Yojna (MGPSY) is a scheme launched by Ministry of Overseas
Indian Affairs (MOIA) for providing social security in the form (a) pension, (b) savings for return
and resettlement and (c) life insurance to unskilled / semi-skilled overseas Indian workers (with
below matriculation education).
The Scheme commenced on a pilot basis in Kerala on 1st May 2012,for overseas workers
in 17 Emigrant Check Required (ECR) countries -ie., those countries where social security needs of
foreign workers are less /not addressed.The Scheme is named after the father of nation Mahatma
Gandhi.
This Scheme combines the three existing voluntary savings schemes functioning under the
jurisdiction of three financial sector regulators Pension Fund Regulatory Development
Authority(PFRDA),Securities and Exchange Board of India (SEBI) and Insurance Regulatory
Development Authority (IRDA).

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In detail, MGPSY provides for:

1.
Pension from the age of 60 through investment in a PFRDA regulated pension scheme NPS Lite; Withdrawal in NPS Lite is not permitted before attaining the age of 60 years, subject
tothe exit policy of PFRDA.
2.
Savings for return & resettlement (R&R) through investment in the UTI Monthly Income
Scheme (MIS) run by the SEBI regulated mutual fund Unit Trust of India(UTI);Subscriber can
withdraw this amount on return to India or can remain invested;
3.
Freelife insurance cover against natural /accidental death and disability during the period of
coverage under JanashreeBimaYojana (JBY) run by the IRDA regulated insurance firm - Life
Insurance Corporation of India(LIC).
Government of India, from the budget of Ministry of Overseas Indian Affairs contributes to the
Scheme in the following manner:1.
Government contributes Rs.1,000 per annum for male MGPSY beneficiary and 2000 per
annum for female MGPSY beneficiary, if they save between Rs.1,000 and Rs.12,000 per year in
NPS-Lite.
2.
Government contributes Rs.900 towards Return and Resettlement (R&R) of the overseas
Indian workers (whether male or female)if they save Rs.4,000 or more per annum in R&R Scheme
of UTI-AMC.
3.
A free contribution of Rs. 100 is made by the Government for providing insurance coverage
to all MGPSY beneficiaries.
4.
Government will co- contribute for a period of five financial years or till the worker return
to India, whichever is earlier.
MGPSY is a voluntary scheme with subscriber joining this scheme on his/her own discretion.
MGPSY offers all the three Partner schemes in the form of a package and not in isolation. That is,
subscribers have to opt in all three partner schemes if he wishes to subscribe in MGPSY and
registration in MGPSY will stand cancelled if subscriber fails to get registered in any of the three
sub schemes.
Minimum contribution under R&R scheme is Rs 1000 and in NPS lite, it is Rs 100. (i.e, an MGPSY
beneficiary has to pay a minimum of Rs. 1100 at the time of enrollment) However, governments cocontribution occurs only if the beneficiaries save per annum, Rs. 1000or more for NPS-Lite and Rs.
4000 or more for R&R Scheme.
If the worker fails to contribute at any point of time later-on, the savings accumulated in subscribers
MGPSY account will remain secure and will remain invested in NPS-Lite and UTI-MIS in his/her
own name. There is no penalty by MOIA in the event of no contribution from subscriber. However,
subscriber will not get any kind of co-contributory benefit from MOIA if s/he does not contribute but
will still be covered under Insurance.
1) Pravasi refers to Non-resident; Suraksha refers to security; Yojna refers to Scheme / Plan
2) The term of social security can be described as follows: the protection which society provides
for its members, through a series of public measures, against the economic and social distress that
otherwise would be caused by the stoppage or substantial reduction of earnings resulting from
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sickness, maternity, employment injury, unemployment, invalidity, old age and death; the provision
of medical care; and the provision of subsidies for families with children (ILO, 1984, p.3). This
definition corresponds to the nine classical branches of social security laid down in the ILO Social
Security (Minimum Standards) Convention, 1952 (No.102):
1.Medical care
2.Sickness benefit
3.Unemployment benefit
4.Old-age benefit
5.Employment injury benefit
6.Family benefit
7.Maternity benefit
8.Invalidity benefit and
9.Survivors benefit.
3) Emigration Act, 1983 provides that no citizen of India shall migrate unless he obtains emigration
clearance from Protector of Emigrants. Similarly, it has been recognized that certain countries
(currently 17) do not have strict laws regulating the entry and employment of foreign nationals. They
also do not provide avenues for grievance redressal. Thus they have been categorized as Emigration
Check Required (ECR) countries. Hence, all persons, having ECR endorsed passports and going to
any of the 17 ECR countries for taking up employment require emigration clearance. However, ECR
passport holders going to any ECR country for purposes other than employment do not require
emigration clearance.
4) Aggregators are intermediaries identified and approved by PFRDA, to perform subscriber
interface functions under their pension Scheme -NPS-Lite. Aggregator shall perform the functions
relating to registration of subscribers, undertaking Know Your Customer (KYC) verification,
receiving contributions and instructions from subscribers and transmission of the same to designated
NPS Lite intermediaries
89. 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) 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 agricommodities. These are often called farmers markets: inthe state of Andhra Pradesh they are called
Rythu bazaar and in Tamil Nadu Uzhavar Sandhai .These markets enable the farmer to sell his

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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 .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. Through the Finance Act,
2015, Forward Markets Commission has been merged with the securities market regulator - SEBI.
90. 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) and refers to the penal rate at which banks can borrow money from
the central bank over and above what is available to them through the LAF window.
MSF, being a penal rate, is always fixed above the repo rate. 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.
MSF represents the upper band of the interest corridor and reverse repo as the lower band and the
repo rate in the middle. To balance the liquidity, RBI intend to use the sole independent "policy rate"
which is the repo rate and the MSF rate automatically gets adjusted to a fixed per cent above the
repo rate (MSF was originally intended to be 1% above the repo rate).
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.
91. 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
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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 TreasuryBills/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.
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.
92. Masala Bonds
"Masala Bonds" are the 10 year off-shore rupee bonds issued by International Finance Corporation
(IFC), a member of the World Bank group, in the international capital market in November 2014, to
raise funds for supporting private sector infrastructure development initiatives in India. Masala
bonds are listed in London Stock Exchange.
Masala bonds, like any other off-shore bonds, are intended for those foreign investors who want to
take exposure to Indian assets, yet constrained from doing it directly in the Indian market or prefer to
do so from their offshore locations. The settlement of the bonds will be in US dollars but since they
are pegged to the Indian currency -rupee-, investors will directly take the currency risk or exchange
rate risks. Settlement is done in US dollars because of the limited convertibility of rupee.
The term "masala" stands for Indian spices, which gives Indian cuisine its characteristic flavour, and
helped India gain a place in the global trade map. IFC, established in 1956 and owned by 184
member countries, is the largest global development institution focused exclusively on the private
sector companies and financial institutions in developing countries.
Masala bonds were issued on 10 November 2014 under IFCs $2 billion offshore rupee program and
yields 6.3%. IFC issued the bonds in London, a premier financial center and the investment banker,
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J.P. Morgan was the sole arranger for the bond. The vast majority of investors in masala bonds are
European insurance companies. Proceeds from this 10-year, 10 billion Indian rupee bond (equivalent
to $163 million) will be used to support a forthcoming infrastructure bond issuance by Axis Bank,
back in India. Thus, Masala bonds pave the way for more foreign investment to help meet Indias
private sector development needs.
Masala bonds are the first rupee bonds listed on the London Stock Exchange. They are the longestdated bonds in the offshore rupee markets, building on earlier offshore rupee issuances by IFC at
three-, five-, and seven-year maturities. However, these earlier bond issuances were not issued under
the nomenclature of masala bonds. As on date, the present issue of masala bonds is a one-time issue.
Hence, subsequent issuances of the off shore rupee bonds by IFC may also not be under this
nomenclature.
Yet by usage of the term, Masala Bonds are similar to dimsum bonds -bonds issued outside China
but denominated in Chinese currency. But they are different from samurai bonds which are Yen
(Japanese currency)-denominated bond issued in Tokyo by a non-Japanese company and subject to
Japanese regulations.
Offshore bonds have its own set of advantages and disadvantages for both the issuer and the investor
as well as for the economy. Competition from offshore markets may induce improvements in
domestic bonds markets such as strengthening of domestic market infrastructure, improving investor
protection and removing tax distortions that hinder domestic market development etc. Against these
benefits come the risks associated with financial openness and sudden shifts in capital flows, and the
risk that offshore markets may draw liquidity away from the domestic market.
93. Medium-term Expenditure Framework (MTEF) Statement
The Medium-term Expenditure Framework Statement is a statement presented to the Parliament
under Section 3 of the Fiscal Responsibility and Budget Management (FRBM) Act, 2003and sets
forth a three-year rolling target for the expenditure indicators with specification of underlying
assumptions and risks involved.
The statement provides an estimate of expenditure commitments for various items viz. Education,
Health, Rural Development, Energy, Subsidies and Pension etc. While formulating the MTEF
Statement, information on expenditure commitments spread across the various central ministries on
salaries (including grants-in-aid for salaries) and pensions, grants-in-aid for creation of capital assets,
major programme, interest payment, defense expenditure and major subsidies etc. and other
commitments of Government, will be considered. To take an example, in MTEF, salary component
which now appears scattered amongst the various Demand for Grants of central Ministries would be
aggregated and projected into the future. Expenditure commitments are shown separately for
Revenue and Capital expenditure. " Grants-in-aid for creation of capital assets" and its projection are
also depicted as a part of Revenue expenditure.
The objective of the MTEF is to provide a closer integration between budget and the FRBM
Statements. This Statement is presented separately in the session next to the session in which Union
Budget is presented, i.e. normally in the Monsoon Session.
MTEF, inter alia, contain:

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a) The expenditure commitment of the government on major policy changes involving new services,
new instrument of service, new schemes and programmes;
b) The explicit contingent liabilities, which are in the form of stipulated annuity payments over a
multi-year time-frame;
c) The detailed break-up of grants for creation of capital assets.
94. Medium-term Fiscal Policy (MTFP) Statement
The Medium-term Fiscal Policy Statement (MTFP) is a statement presented to the Parliament under
Section 3(2) of the Fiscal Responsibility and Budget Management (FRBM) Act, 2003, which sets
out three-year rolling targets for five specific fiscal indicators in relation to GDP at market prices,
namely, (i) Revenue Deficit (ii) effective revenue deficit, (iii) Fiscal Deficit, (iv) Tax to GDP ratio
and (v) Total outstanding Debt as percentage of GDP at the end of the year.
MTFP is a document which lays down the projected fiscal aggregates to arrive at the fiscal targets as
prescribed in Fiscal Responsibility and Budget Management (FRBM) Act/Rules (say, keeping
revenue deficit at zero and fiscal deficit at 3%) over the coming three year period.
The Statement includes the underlying assumptions, an assessment of sustainability relating to
balance between revenue receipts and revenue expenditure and the use of capital receipts including
market borrowings for generation of productive assets.
Background
The Fiscal Responsibility and Budget Management (FRBM) Act, 2003 was enacted with a view to
provide a legislative framework for reduction of deficit, and thereby debt, of the Government to
sustainable levels over a medium term so as to ensure inter-generational equity in fiscal management
and long term macro-economic stability. FRBM Act requires the government to lay before the
parliament four policy statements in each financial year namely, Medium Term Fiscal Policy
Statement, Fiscal Policy Strategy Statement, Macroeconomic Framework Policy Statement
and Medium Term Expenditure Framework (MTEF).
The FRBM framework provides a medium term perspective to fiscal management. For instance, the
FRBM framework requires the Government to reduce the deficits to a prescribed level in a
prescribed time following a laid out fiscal consolidation roadmap. Accordingly, Government is
required to place a medium term fiscal framework in the parliament, laying down the projected fiscal
aggregates to meet the fiscal targets as prescribed in Act/Rules. The Act also mandates the
Government to spell out the strategy that it decides to adopt to meet the projected fiscal plan. While
the Medium Term Fiscal Policy (MTFP) lays down the fiscal constraints of the Government in
medium term, Medium Term Expenditure Framework (MTEF) lays down the expenditure
commitments for various sectors over a 3 years rolling framework.
In terms of principles of Public Expenditure Management Handbook of World Bank issued in 1998,
the MTFP can be considered as one of the steps to arrive at Medium term Expenditure Framework.
95. 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
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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.
96. 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.
97. Micro Units Development Refinance Agency (MUDRA) Bank
Micro Units Development Refinance Agency (MUDRA) Bank is a refinance institution for microfinance institutions. As on date, MUDRA is conceived not only as a refinance institution and but
also as a regulator for the micro finance institutions (MFIs).
The MUDRA Bank would primarily be responsible for
1) Laying down policy guidelines for micro/small enterprise financing business
2) Registration of MFI entities
3) Regulation of MFI entities
4) Accreditation /rating of MFI entities
5) Laying down responsible financing practices to ward off indebtedness and ensure proper client
protection principles and methods of recovery
6) Development of standardized set of covenants governing last mile lending to micro/small
enterprises
7) Promoting right technology solutions for the last mile
8) Formulating and running a Credit Guarantee scheme for providing guarantees to the loans which
are being extended to micro enterprises
9) Creating a good architecture of Last Mile Credit Delivery to micro businesses under the scheme
of Pradhan Mantri Mudra Yojana
Union Budget 2015-16 has proposed to create MUDRA with a corpus of Rs. 20,000 crore made
available from the shortfalls of Priority Sector Lending. In addition, there is a credit guarantee

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corpus of Rs.3,000 crore for guaranteeing loans being provided to the micro enterprises. MUDRA
Bank will refinance Micro-Finance Institutions through a Pradhan Mantri Mudra Yojana.
MUDRA Bank will operate through regional level financing institutions who in turn will connect
with last mile lenders such as Micro Finance Institutions (MFIs), Small Banks, Primary Credit
Cooperative Societies, Self Help Groups (SHGs), NBFC (other than MFI) and such other lending
institutions.
In lending, MUDRA proposes to give priority to enterprises set up by the under-privileged sections
of the society particularly those from the scheduled caste / tribe (SC/ST) groups, first generation
entrepreneurs and existing small businesses. There are estimated to be some 5.77 crore small
business units in India, mostly individual proprietorship, which run small manufacturing, trading or
service businesses. 62% of these are owned by SC/ST/OBC as stated in the Union Budget speech of
2015-16.
MUDRA Bank will be set up through an enactment of law and it will take some time. To begin with,
the same is being operationalised as a subsidiary of Small Industries Development Bank of India
(SIDBI). It was launched on 8 April 2015.
98. 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 midcourse 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.
99. Minimum Export Price
Minimum Export Price (MEP) is the price below which an exporter is not allowed to export the
commodity from India. MEP is imposed in view of the rising domestic retail / wholesale price or
production disruptions in the country. MEP is a kind of quantitative restriction to trade. As per a
2005 study by OECD, around 14 of the WTO members had adopted a Minimum Export Price
Policy.
Government fixes MEP for the selected commodities with a view to arrest domestic price rise and
augment domestic supply. This is intended to be imposed for short durations and is removed when
situations change. The removal of MEP helps farmers / exporters in realising better and
remunerative prices and would also help in earning valuable foreign exchange for the country.
For instance, minimum Export Prices (MEP) of US$ 450/MT on Potato was imposed on 26th June,
2014 to augment domestic supplies in view of rising retail and wholesale prices in domestic markets.
This continued till 20th February, 2015, for almost 8 months, uptill surplus supply of potato in the
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domestic markets and consequent rapid fall in price (In domestic and retail) led to its removal by
Department of Commerce vide another Gazette Notification.
Generally, MEP imposition is restricted to essential commodities like potatoes, Onions, rice, edible
oils etc.
100. 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.
101. Money Bill
Money Bill refers to a bill (draft law) introduced in the Lower Chamber of Indian Parliament (Lok
Sabha) which generally covers the issue of receipt and spending of money, such as tax laws, laws
governing borrowing and expenditure of the Government, prevention of black money etc.
Eg. of Money bills are Finance Bills and Appropriation Bills, Income Tax Act, 1961, The
Undisclosed Foreign Income And Assets (Imposition Of Tax) Bill, 2015 etc .
The term money bill hence, connotes certain characteristics of the proposed bill.
Under Article 110(1) of the Constitution of India a money bill is defined as follows
110(1)a Bill is deemed to be a Money Bill if it contains only provisions dealing with all or any of
the following matters, namely:
(a) the imposition, abolition, remission, alteration or regulation of any tax;
(b) the regulation of the borrowing of money or the giving of any guarantee by the Government of
India, or the amendment of the law with respect to any financial obligations undertaken or to be
undertaken by the Government of India;

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(c) the custody of the Consolidated Fund or the Contingency Fund of India, the payment of moneys
into or the withdrawal of moneys from any such fund;
(d) the appropriation of moneys out of the Consolidated Fund of India;
(e) the declaring of any expenditure to be expenditure charged on the Consolidated Fund of India or
the increasing of the amount of any such expenditure;
(f) the receipt of money on account of the Consolidated Fund of India or the public account of
India or the custody or issue of such money or the audit of the accounts of the Union or of a State;
or
(g) any matter incidental to any of the matters specified in sub-clauses (a) to (f).
(2.) A Bill is not deemed to be Money Bill by reason only that it provides for the imposition of
fines or other pecuniary penalties, or for the demand or payment of fees for licences or fees for
services rendered, or by reason that it provides for the imposition, abolition, remission, alteration or
regulation of any tax by any local authority or body for local purposes.
Features of Money Bills
Essentially a Money bill has the following features:

It can be introduced only in the Lok Sabha (lower chamber of the Parliament)

The bill is placed in Rajya Sabha (Upper chamber of the Parliament) thereafter and Rajya
Sabha can return the Bill with or without its recommendations.

In any case, the Bill has to be returned within a period of 14 days from the date of its receipt
by Rajya Sabha. Otherwise it is deemed to have been passed by both Houses at the expiration of the
said period in the form in which it was passed by Lok Sabha.

If the bill is returned to Lok Sabha without recommendation, a message to that effect is
reported by the Secretary-General to the Lok Sabha if in session, or published in the Bulletin for the
information of the members of the Parliament, if it is not in session. The Bill shall then be presented
to the President for his assent.

If the bill is returned to the Lok Sabha with amendments it has to be laid on the Table of the
House and taken up for consideration.

However, Lok Sabha is not bound to accept these amendments. Lok Sabha, under Article
109 of the Constitution, has the option to accept or reject all or any of the recommendations made by
Rajya Sabha. In any case, Lok Sabha has to inform Rajya Sabha about the status of their
recommendations, as to whether they have been accepted or not. It is not that Lok Sabha does not
accept any of the recommendations of Rajya Sabha. For instance, in the Income Tax Bill, 1961,
Rajya Sabha did recommend a number of amendments of substantial character, all of which were
agreed to by Lok Sabha.[1]

If Lok Sabha accepts any amendments as recommended by the Rajya Sabha, the Bill shall
be deemed to have been passed by both the Houses of the Parliament with the amendments
recommended by the Rajya Sabha and accepted by the Lok Sabha and a message to that effect has
to be sent to the Rajya Sabha.

If Lok Sabha does not accept the recommendations of the Rajya Sabha, the Bill shall be
deemed to have been passed by both the Houses in the form in which it was passed by the Lok
Sabha without any of the amendments recommended by the Rajya Sabha.
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In all other bills final passing of the bill happens at Rajya Sabha. In case of money bills,
final passing happens at Lok Sabha and then it is sent to the President for his assent.

Unlike other bills, the President cannot return the Money Bill with his recommendations to
the Lok Sabha for reconsideration.
A defeat of Money bill in Lok Sabha is deemed political/parliamentary defeat of the government of
the day. Speaker has unquestionable powers to decide if a Bill is a Money Bill or not. It cannot be
questioned in any court. Rajya Sabha (Upper chamber of the Parliament)s dissent on a Money Bill
is of no political significance, as the Lok Sabha has overriding powers on Money Bills. Money bill
cannot be referred to even joint Committees of the two Houses of the Parliament (to resolve
differences between the two Houses), as is in the case of other bills. The Standing Committee of the
Parliament also cannot scrutinize a Money Bill.
102. Minority Communities
Minority Community is a community notified so by the Central Government as per clause (c) of
Section 2 of the National Commission for Minorities Act, 1992 (19 of 1992).
Accordingly, the following five communities e.g. Muslim, Christian, Sikhs, Buddhists and
Zoroastrians (Parsis) have been declared as minority communities, vide Ministry of Welfare
Notification dated 23.10.1993. Jain has also been declared as Minority Community recently.
Population of minority communities can be obtained from Census of India which provides
statistical information on different characteristics of the people of India.
The word minority has been devised to ensure a more focused approach towards issues relating to
the minorities and to facilitate the formulation of overall policy and review of the regulatory
framework and development programmes also towards the benefit of the minority communities.The
Union Ministry of Minority Affairs was created on 29th January, 2006 with these objectives in mind.
The Act also provides for a National Commission for Minorities which was set up on 17th May 1993
to perform the following functions.
1.
evaluate the progress of the development of Minorities under the Union and States.
2.
monitor the working of the safeguards provided in the Constitution and in laws enacted by
Parliament and the State Legislatures.
3.
make recommendations for the effective implementation of safeguards for the protection of
the interests of Minorities by the Central Government or the State Governments.
4.
look into specific complaints regarding deprivation of rights and safeguards of the
Minorities and take up such matters with the appropriate authorities.
5.
cause studies to be undertaken into problems arising out of any discrimination against
Minorities and recommend measures for their removal.
6.
conduct studies, research and analysis on the issues relating to socio-economic and
educational development of Minorities.
7.
suggest appropriate measures in respect of any Minority to be undertaken by the Central
Government or the State Governments.
8.
make periodical or special reports to the Central Government on any matter pertaining to
Minorities and in particular the difficulties confronted by them.
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103. National Clean Energy Fund (NCEF)

The National Clean Energy Fund (NCEF) is a fund created in 2010-11 using the carbon tax - clean
energy cess - for funding research and innovative projects in clean energy technologies of public
sector or private sector entities, upto the extent of 40% of the total project cost. Assistance is
available as a loan or as a viability gap funding, as deemed fit by the Inter-Ministerial group, which
decides on the merits of such projects.
The Fund is designed as a non lapsable fund under Public Accounts and with its secretariat in Plan
Finance II Division, Department of Expenditure, Ministry of Finance.
Creation of NCEF was announced in the Union Budget 2010-11.
An Inter-Ministerial Group, chaired by the Finance Secretary in Ministry of Finance (and comprising
of Secretaries of Departments of Expenditure and Revenue at Ministry of Finance, Principal
Scientific Advisor to the Government of India, a representative of Planning Commission and a
Representatives of Ministry sponsoring the proposal and other Ministries concerned with that
specific proposal) recommends projects eligible for funding under NCEF. Upon recommendation by
NCEF, the final approval is given by the Minister of the concerned nodal Ministry (which initially
approved and decided to take the project submitted by the public or private entity to NCEF) if the
project cost is below Rs. 150 Crore; by Minister of Finance and the Minister of the concerned nodal
Ministry if the project cost is between Rs. 150 Crore and 300 crore; and by the Cabinet Committee
on Economic Affairs if the project cost is above Rs. 300 Crore.
104. National Investment and Infrastructure Fund (NIIF)
National Investment and Infrastructure Fund (NIIF) is a fund created for enhancing infrastructure
financing in the country. NIIF, proposed to be set up as a Trust, would raise debt to invest in the
equity of infrastructure finance companies such as Indian Rail Finance Corporation
(IRFC) and National Housing Bank (NHB). The idea is that these infrastructure finance companies
can then leverage this extra equity, manifold. In that sense, NIIF is a banker of the banker of the
banker.
The fund is yet to be constituted. Its creation was announced in the Union Budget 2015-16.
105. National Investment Fund (NIF)
The cabinet Committee on Economic Affairs (CCEA) on 27th January, 2005 had approved the
constitution of a National Investment Fund (NIF). The Purpose of the fund was to receive
disinvestment proceeds of central public sector enterprises and to invest the same to generate
earnings without depleting the corpus. The earnings of the Fund were to be used for selectedCentral
social welfare Schemes. This fund was kept outside the consolidated fund of India.

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