Current Affairs Capsule

December 3
Current Affairs Capsule
2016
The document contains latest happenings in India and the World and a
brief analysis of contemporary issues
Current Affairs
Capsule - 03

Contents
BUSINESS ................................................................................................................................................. 3
Oil price rises sharply as OPEC members hint at deal to limit production ......................................... 3
RBI introduces incremental CRR to manage excess liquidity .............................................................. 4
NITI Aayog to hold meeting with telcos for Aadhar enabled payments ............................................. 4
Carmakers brace for demonetization impact ..................................................................................... 5
Manufacturing PMI down in November on demonetization effect ................................................... 5
RBI challenges Tata-Docomo deal in Delhi HC citing FEMA rules ....................................................... 5
ECONOMY ............................................................................................................................................... 6
Income Tax amendment bill tabled in Lok Sabha ............................................................................... 6
WORLD AFFAIRS ...................................................................................................................................... 7
U.S. for closer defence ties with India ................................................................................................ 7
Indias IT industry extends a cautious welcome to Trump ................................................................. 7
MISCELLANEOUS ..................................................................................................................................... 8
The National Anthem debate.............................................................................................................. 8
Cabinet approves Indias negotiating position adopted at Kigali conference .................................... 8
INSIGHTS INTO ISSUES .......................................................................................................................... 10
Merger of Railway Budget into General Budget ............................................................................... 10
Faculty of Management Studies, Delhi
Page 2

BUSINESS
Oil price rises sharply as OPEC members hint at deal to limit production
Brent Crude price increases as leading group of oil producers says it is on the verge of
agreement at Vienna meeting.
The price of Brent Crude rose to $54.19 a barrel (1 barrel = 119.24 litres), its highest level
this year.
The deal, OPECs first output cut in eight years, is
designed to reverse a slump in global oil prices and will
What is Brent Crude?
see the group reduce production by 1.2 million barrels a
day starting January.
Brent Crude is a major trading
classification of sweet light crude oil
The output cut follows several years of
that serves as a major benchmark for
depressed oil prices due to a supply glut on the market,
purchases of oil worldwide. This grade
which has seen prices more than halve since 2014.
is described as light because of its
Post OPEC decision, Russia too showed interest in
relatively low density, and sweet
because of its low sulphur content.
cutting production and a semblance of conciliation was
Petroleum products from Europe,
reached between Iran and Iraq in contrast to
Africa and the Middle East flowing
disagreement in the past.
west tend to be priced relative to this
A production cut could have a lasting impact on
oil, i.e. it forms a benchmark.
consumers as oil price increases feed into the cost of car
fuel, heating and electricity. It could also restore some
authority to OPEC as an arbiter of prices and supplies
after years of inaction.
SKEPTICISM
Despite the rises, analysts have noted that

prices have only returned to the levels seen
during September and October when plans
for a cut were first announced and raised
doubts about the deal.
Further, oil-producing countries that were not
party to the deal, such as the US, are likely to
increase production as prices rise, offsetting
efforts to curb oversupply.
IMPLICATIONS FOR INDIA
What is OPEC?
The Organization of Petroleum
Exporting Countries (OPEC) was
founded in Baghdad in 1960 by five of
the world biggest oil producers Iran,
Iraq, Kuwait, Saudi Arabia and
Venezuela. The cartel now has 14
members and accounted for 43% of
global oil production and 73% of
worlds proven oil reserves in 2015.
The countries joint mission is to
coordinate policies and ensure
stability in oil markets so consumers
have a regular economic supply, and
producers receive a fair return.
With demonetization in effect and expectations of

deflation in coming quarters, this move might
contribute towards keeping inflation in healthy
limits since India is a net crude oil importer.
Experts opine that price above $60 dollar per
barrel could set off a crisis for Indian economy as
India will have to spend $1.36 billion more every year for one dollar per barrel increase in
crude oil.
Page 3

RBI introduces incremental CRR to manage excess liquidity
The Reserve Bank of India has increased the cash reserve requirement (CRR) for incremental
deposits between September 16 and November 11 to 100%. The move is estimated to suck
out around Rs 3.24 lakh crore excess liquidity from the system.
Why such move?
o One of the main reasons for the RBI move is the rising amount of excess funds that
banks were keeping with RBI through its reverse repo window. With the withdrawal
of the legal tender status of Rs 500 and Rs 1,000 denomination bank notes beginning
November 9, there has been a surge in deposits relative to the expansion in bank
credit, leading to large excess liquidity in the system.
As per RBI data, total deposits rose from Rs 97 lakh core in the September
16 fortnight to Rs 101.1 lakh crore in the November 11 fortnight.
The new move is intended to absorb a part of the surplus liquidity arising
from the return of specified bank notes to the banking system, while leaving
adequate liquidity with banks to meet the credit needs of the productive
sectors of the economy.
Implications of this move:
o The RBI move will require all excess deposits that banks in India are getting because
of the demonetisation move, is to be kept with the central bank for which the banks
will not earn any interest.
o Banks will pay interest rate of 4% to depositors, but will earn nothing from RBI on
the incremental deposits. So far, the banks which were keeping those extra funds
with the RBI, were earning interest at up to 6.24% yearly rate.
o The RBI measure could also lead to a rise in interest rates through sharp spike in
yields.
What next?
o RBI said the incremental CRR is intended to be a temporary measure within its
liquidity management framework to drain excess liquidity in the system and shall be
reviewed on December 9 or even earlier.
NITI Aayog to hold meeting with telcos for Aadhar enabled payments
NITI Aayog is planning to hold a high-level meeting with telecom companies to enable
Aadhar enabled online transactions through mobile phones. It is concurrently working on
developing a common mobile phone app that can be used by shopkeepers and merchants
for receiving Aadhar enabled payments bypassing debit and credit cards, pin and password.
The initiative can help the government deal with situations like recent demonetization and
curb black money menace while bringing in more financial transparency. People can link
their Aadhar with their bank accounts and use Aadhar enabled payment system (AEPS) for
funds transfer, balance enquiry, cash deposits or withdrawals and inter-banking
transactions.
IT department is providing an incentive of Rs 100 for every merchant enrolled through over
two lakh common service centres across India. The IT ministry is planning to undertake a
major outreach communication campaign. An amount to the tune of Rs. 100 crore has been
kept aside to incentivise enrolment of merchants on to the digital platform to help push the
drive.
Page 4

Carmakers brace for demonetization impact
Slowdown triggered by uncertainty, may be short-term

o The auto industry is bracing for short-term headwinds due to immediate
disruption and uncertainty brought in by demonetization, even as some carmakers
posted double-digit growth in domestic sales during November.
o While players such as Maruti, Toyota and Volkswagen saw robust growth,
automakers such as Mahindra, Ford and Honda saw their sales drop during the
month.
Affected walk-ins
o Demonetization has impacted sales as it has affected customer walk-ins at
dealerships, order bookings and timely deliveries.
o Amidst back of the festive season and other positive parameters such as rural
demand and interest rate softening, the sudden announcement of demonetization
has brought in disruption and uncertainty.
Wholesale figures
o Demonetization will have significant negative impact at least in the next two to
three months especially for two-wheelers, SUVs, luxury and commercial vehicles.
Manufacturing PMI down in November on

demonetization effect
Demonetization has adversely impacted manufacturing

growth in November, manufacturing conditions
nevertheless improved for eleventh consecutive month.
Reason is companies are signalling softer increases in
order books, buying levels and output.
PMI data showed that the sudden withdrawal of the high
value banknotes has caused problems for manufacturers,
as cash shortages hampered growth of new work, buying
activity and production.
Of respite to firms, cost inflationary pressures softened,
which in turn encouraged the vast majority of businesses
to keep their selling prices unchanged.
What is PMI?
The Purchasing Managers Index (PMI)
is an indicator of the economic health
of manufacturing sector. The PMI is
based on five major indicators: new
orders, inventory levels, production,
supplier deliveries and employment
environment. The purpose of the PMI
is to provide information about
current business conditions to
company decision makers, analysts
and purchase managers.
RBI challenges Tata-Docomo deal in Delhi HC citing FEMA rules
The RBI has challenged the legality of Tata-Docomo deal citing violation of Foreign
Exchange Management Act (FEMA) regulations.
In its application, RBI said that Tata Sons should not be allowed to remit money overseas
either for share buyback or for arbitration award.
The RBIs application came even as Tata Sons lawyer informed the court that it intended to
pay the arbitral award of $1.17 billion but had been unable to do so due to the lack of
permission from Indias central bank.
Page 5

ECONOMY
Income Tax amendment bill tabled in Lok Sabha
The Government has sought to bring to tax all unaccounted money that was flowing into the
banking system following the demonetisation announcement on November 8. In this regard,
Finance Minister Arun Jaitley has introduced a Bill in Lok Sabha.
The Taxation Laws (Second Amendment) Bill, 2016 proposes to amend Section 115BBE of
the Income Tax Act to provide for a punitive tax, surcharge and penalty on unexplained
credit, investment, cash and other assets.
Key Facts:
o Against current provision of 30% flat tax rate plus surcharge and cess, a steep 60%
tax will be levied on unaccounted income together with 25% surcharge of tax (15%
of such income). So total incidence of tax will be 75% with no expense, deductions
or set-off allowed.
o Also, the assessing officer can levy an additional 10% penalty, taking the total tax
incidence to 85%.
o The current provisions for penalty in cases of search and seizure are proposed to be
amended to provide for a penalty of 30% of income if it is admitted, returns filed
and taxes paid. In all other cases, 60% will be the penalty.
o Currently, the penalty is 10% of the income, if the income is admitted, returned and
taxes are paid. Penalty is at 60% in all other cases.
Pradhan Mantri Garib Kalyan Yojana, 2016 (PMGKY):
o An alternative Scheme namely, Taxation and Investment Regime for Pradhan
Mantri Garib Kalyan Yojana, 2016 (PMGKY) has been proposed in the Bill.
o Under this, besides 50% tax, surcharge and penalty, a quarter of the declared
income will be to be deposited in interest free deposit scheme for four years.
o The scheme enables people with undisclosed income to come clean. However, they
would have to fork out a tax of 30% and penalty of 10%. A surcharge in the form of
cess of 33% will have to be paid on the tax.
o In addition to tax, surcharge and penalty, the declarant will have to deposit 25% of
undisclosed income in a deposit scheme to be notified by the Centre in consultation
with the RBI.
o This amount is proposed to be utilised for programmes of irrigation, housing,
toilets, infrastructure, primary education, primary health, livelihood etc, so that
there is justice and equality.
o A 75% tax and 10% penalty in case Income Tax authorities detect undisclosed wealth
deposited post demonetisation has also been proposed.
o The current provisions of penalty on under-reporting of income at 50% of the tax,
and misreporting (200% of tax) will remain and no changes are being made to them.
Page 6

WORLD AFFAIRS
U.S. for closer defence ties with India
The U.S Congress is planning to pass the National Defence Authorisation Act 2017 shortly.
The draft in this regard was recently released.
Background:
o NDAA seeks executive action to recognise Indias status as a major defence
partner of the United States. The U.S has already recognised India as a major
defence partner in June, during Prime Minister Narendra Modis visit, but the
implications of it remains undefined.
NDAA 2017 on India-US defence ties:
o It mandates to designate an individual within the executive branch who has
experience in defense acquisition and technology to ensure the success of
bilateral defence ties and to help resolve remaining issues impeding them.
o It also calls for strengthening the effectiveness of the U.S.-India Defence Trade
and Technology Initiative and the durability of the Department of Defences India
Rapid Reaction Cell, a special unit that reviews ties with India.
Indias IT industry extends a cautious welcome to Trump
Donald Trumps election is likely to impact Indian IT industry already battling challenges
stemming from sluggish economic growth and automation threatening jobs and profit
margins.
During his election campaign, Mr. Trump had come out against IT companies, claiming that
Indian employees were taking away American jobs using H-1B visas. One of his promises
had been to increase the H-1B wage to $100,000 per annum and to bring in strict
immigration laws.
Nasscom, the industrys apex body said it was looking forward to working with Trump and
his administration and leaders of the House and Senate to highlight the sectors
contributions to the U.S. economy and help to ensure that they understand these facts as
well as the depth of our investments.
Page 7

MISCELLANEOUS
The National Anthem debate
Recently, the Supreme Court ruled that all cinemas in the country must play the national anthem
prior to the screening of a film, with all doors closed. The order has become a talking point among
millions of cinema-goers who visit thousands of theatres that dot Indias landscape where numerous
films are screened every day.
Key facts:
o Which are the States that have already made it compulsory for theatres to do so?
Maharashtra, Chhattisgarh and Goa are among the States that have passed
orders to this effect.
Under what law did these States make it mandatory?
o The States have done this under the Prevention of Insults to National Honour Act,
1971. The Act got presidential assent on December 23, 1971. It has been amended
twice since then.
The Act, which addresses insults to the Constitution, the national flag and
the national anthem, has its genesis in Article 51 (a) of the Constitution,
which enjoins a duty on every citizen of India to abide by the Constitution
and respect its ideals and institutions, the national flag and the national
anthem.
The Act states that whoever intentionally prevents the singing of the
national anthem or causes disturbances to any assembly engaged in such
singing, shall be punished with imprisonment for a term, which may extend
to three years, or with fine, or with both.
Why was the Act given punitive provisions?
o The objects and reasons for this Act said that cases involving deliberate disrespect to
these national symbols were discussed in both Houses of Parliament and members
urged the government to prevent the recurrence of such incidents.
Can the recent interim order of the Supreme Court be reviewed?
o Yes, those aggrieved can file a modification application to address the omissions and
contradictions in the recent Supreme Court Order.
Who can file the interventions?
o The Cinema Owners Exhibitors Association of India can, for instance, plead that the
order is in contradiction of an earlier Supreme Court order ordering cinema theatres
to keep their doors open, after a fire killed 59 people in Uphaar Theatre in 1997.
Organisations of differently abled people can seek exemptions from the order.
Cabinet approves Indias negotiating position adopted at Kigali conference

The Union Cabinet has given its ex-post facto approval to the negotiating position adopted by the
Government of India at the recent Meeting of Parties (MoP) to the Montreal Protocol of the
Vienna Convention for Protection of Ozone Layer that took place in October, 2016, in Kigali, Rwanda.
The Cabinet has also approved the proposal of the Ministry of Environment, Forest and
Climate Change to argue for adoption of an appropriate baseline years from out of 3 options
within a range of 2024 to 2030 with freeze in a subsequent year.
Page 8
The flexibility of using any of the options within this range with a combination of the
features of the proposed options in consultation with the Government has also been
approved.
Key facts:
o During negotiations held at Kigali India successfully negotiated the baseline years
and freeze years which will allow sufficient room for the growth of the concerned
sectors using refrigerants being manufactured domestically thus ensuring
unhindered growth with least additional cost and maximum climate benefits.
o It was agreed at Kigali that there would be two set of baselines or peak years for
developing countries and India will have baseline years of 2024, 2025, 2026. This
decision gives additional HCFC allowance of 65% that will be added to the Indian
baseline consumption and production.
o The freeze year for India will be 2028, with a condition that there will be a
technology review in 2024/2025 and, if the growth in the sectors using refrigerants
is above certain agreed threshold, India can defer its freeze up to 2030. On the other
hand, developed countries will reduce production and consumption of HFCs by 70%
in 2029.
o As per the decisions taken in Kigali, India will complete its phase down in 4 steps
from 2032 onwards with cumulative reduction of 10% in 2032, 20% in 2037, 30% in
2042 and 85% in 2047.
Kigali conference:
o The negotiations at Kigali were aimed at including Hydrofluoro Carbons (HFCs) in
the list of chemicals under the Montreal Protocol with a view to regulate their
production and consumption and phase them down over a period of time with
financial assistance from the Multilateral Fund created under the Montreal Protocol.
o The Kigali amendments to the Montreal Protocol will, for the first time, incentivise
improvement in energy efficiency in case of use of new refrigerant and technology.
Funding for R&D and servicing sector in developing countries has also been included
in the agreed solutions on finance.
Page 9

INSIGHTS INTO ISSUES
Merger of Railway Budget into General Budget
The almost century old practice of presenting a separate Railway Budget ahead of the General
Budget is to be dispensed with from the next financial year (2017-18) and the Railway Budget will be
merged with the General Budget. The proposal has been cleared by the Union Cabinet.
Arguments for the merger
Arguments against the merger
A separate Railway Budget is being dispensed with so

that the Indian Railways need not pay the annual
dividend to the Government of India on the
budgetary support given each year, saving the
financially stressed Railways about Rs.10,000 crore
annually
One of the more publicised reasons for the merger is

that it will free the Railways of the obligation of
paying the annual dividend. The dividend is paid not
only on the budgetary support extended during a
year but also on the total capital at charge which
includes the gross budgetary support (GBS) of
previous years. By this merger, a loan-in-perpetuity
is converted to a grant. Thus it is akin to a loan
waiver, and loan waivers are granted to individuals or
institutions in extreme financial distress.
Budget is not merely a statement of allotment of
funds to various projects and programmes, unlike
other ministries, but comprises a fairly detailed
performance review, physical and financial, of the
previous year and prospects for the current Budget
year. A separate post-Budget discussion in
Parliament on the Railways, as indicated by the
Finance Minister, is no substitute, as the focus most
likely will be on allotments to various projects, not
on financial performance.
Railways is unlike any other Central ministry in size
and scope: It is an operational ministry; it earns as
well as spends, unlike other ministries that only
spend. Its gross earnings (Rs.1.68 lakh crore in 201516) are among the highest for any Indian
organisation, public or private; it has a staff strength
(13.2 lakh) that exceeds that of the Indian Army; it
fully meets the pension liabilities of its retired
employees (13.8 lakh) out of its own earnings unlike
other ministries; it follows an accounting practice,
though not up to the standards of a purely
commercial establishment, that has a number of
features of a commercially-run organisation. So, if the
Railways is to be treated like other ministries, the
question that crops up is whether the government
would fund the pension liabilities which are estimated
to be about Rs.45,500 crore in 2016-17.
Bibek Debroy committee recommendation to go for
merger of railways budget with general budget was
accompanied with a slew of other reform measures
such as complete overhaul of the project financing
architecture of the Railways involving ruthless
weeding out of unviable/long-pending projects;
comprehensive accounting reforms; separation of
infrastructure and operations; and setting up of a rail
regulatory authority.
In 1924, when the first Railway Budget was

presented, the Railways entailed more funds than
Indias expenditure on all other aspects of
administration combined. So it made sense to
present a separate Budget. That equation changed
long ago, and now the Railways outlay is just 6 per
cent of the total expenditure proposed in the Union
Budget for this year. In fact, revenues from the
domestic aviation business are more than the
Railways traffic earnings.
Over the years, the Budget has been misused by
politicians as a populist platform to enhance their
own image. Railway Ministers will no longer need to
conjure up fancy and often regurgitated promises
about new, improved services for passengers without
charging them the operational costs of reaching their
destination. The pressure to hold commuter fares
has skewed the Railways freight rates, year after
year. Indeed, the change is already being felt as
tweaking of tariffs outside the Budget has begun.
Other instances are changes in coal freight and the
introduction of flexible pricing on premium passenger
trains.
No other Ministry has a separate budget and the

practice exists in no other country today. The NITI
Aayog had suggested this merger as the Railway
budget was being used to dole out favours by way of
new trains and projects. Bibek Debroy Committee
has recommended discontinuance of a separate Rail
Budget and it is part of the Prime Ministers reform
programme.
Page 10

CONCLUSION:
The Centre needs to now seriously consider setting up an independent tariff regulator to
depoliticise fares. New lines and trains should be determined by economic viability rather than the
constituencies covered. Initiatives such as demand-driven clone trains must be deployed to boost
earnings, and the Rs.37,000-crore tab on social obligations, including concessional ticketing, must be
borne by the exchequer. The Railways accounts need to be cleaned up and made bankable.
Scrapping the Rail Budget is a good starting point to fix the fading utility. Bringing it back safely on
track will take a lot more doing, and undoing.
Page 11

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December 3