News: June 09, 2020

Sub: Economics
Topic: Banking, Finance and Tax System Finance and Banking - India
Category: Prelims & Mains


News: 1/5

Reserve Bank of India (RBI)

Established under Reserve Bank of India Act, 1934, RBI controls monetary and other banking policies of the government.

RBI has four subsidiaries, earlier National Housing Bank(NHB) was also a subsidiary of RBI

  1. Deposit Insurance and Credit Guarantee Corporation of India(DICGC)
  2. Bharatiya Reserve Bank Note Mudran Private Limited(BRBNMPL)
  3. Reserve Bank Information Technology Private Limited (ReBIT)
  4. Indian Financial Technology and Allied Services (IFTAS)

Initiatives in focus

Payments Infrastructure Development Fund (PIDF)

  • To encourage acquirers to deploy Points of Sale (PoS) infrastructure - both physical and digital modes - in tier-3 to tier-6 centres and north eastern states.
  • RBI will make an initial contribution of ₹250 crore to the PIDF, covering half of the fund, while the remaining contribution will be from card-issuing banks and card networks operating in the country
  • PIDF will be governed through an Advisory Council and managed and administered by RBI.
  • RBI will also contribute to yearly shortfalls, if necessary.

RBI loan moratorium scheme

  • As per the RBI circular, banks and other financial institutions are permitted to provide a moratorium of three months for all term loan installments which are due for payment between 1 March and 31 May.
    • It has been extended till August
    • Banks can restructure loans from large corporates, MSMEs, and individuals to help stem the rising stress on incomes and balance sheets. Individual borrower's loan can be extended by 2 years by year end.
  • Term loans will include all kinds of retail loans such as vehicle loan, home loan, and personal loan, agricultural term loans as well as crop loans. It will also include credit card dues
  • The RBI has asked all banks, financial institutions including housing finance companies, non-banking finance companies, small finance banks, regional rural banks, small finance banks, local area banks to provide moratorium.
  • Interest will continue to be charged during the moratorium


  • All urban and multi-State cooperative banks to come under the direct supervision of the RBI
    • Currently cooperative banks are regulated by their respective states under Registrar of Cooperative Societies
  • RBI has asked all banks / NBFCs to disclose names of all digital lending platforms on their websites. Also immediately, after sanction but before execution of the loan agreement, the sanction letter shall be issued to the borrower on the letter head of the bank/ NBFC concerned


  • MFIs - MFI are small lending institutions that give tiny loans to low-income borrowers typically at an interest rate of 22-25 percent. They mainly source money from banks.
  • Moratorium  - A moratorium period is a time during the loan term when the borrower is not required to make any repayment.


RBI uses many tools to regulate credit and monetary policy in country.

  • Repo Rate -The rate of interest at which RBI lends money to banks, RBI buys government bonds and agrees to sell them back to banks at a fixed rate.
    • Repo Linked Lending Rate (RLLR) = Repo Rate + Margin charged by the bank.
    • Repo Rate is used for controlling inflation, and Reverse Repo Rate is used for controlling money supply. 
  • Reverse Repo Rate: The interest rate at which RBI borrows funds from banks for the short term, often for one day. Reverse Repo Rate is always lower than Repo Rate. An increase in Reverse Repo Rate provides incentive to banks to park their surplus funds in RBI and buy government bonds in return. thus decrease liquidity in market.
  • Open Market Operations (OMO): Open Market Operations is the sale and purchase of government securities and treasury bills by RBI to regulate money supply in economy
  • Long Term Repo Operations (LTRO): Under LTRO, RBI provides longer term (one to three year) loans to banks at the prevailing Repo Rate. As banks get long-term funds at lower rates, their cost of funds falls. In turn, they reduce interest rates for borrowers.
    • Targeted LTRO / TLRTO: Under Targeted LRTO funds are to be deployed in investment grade bonds, commercial paper (CPs) and non-convertible debentures (NCDs) of Non-Banking Financial Companies (NBFCs) and Micro Finance Institutions (MFIs)
  • Operation Twist
    • Operation twist involves the simultaneous purchase and sale of government securities to bring down long-term interest rates, and push up short-term rates. Business investment and housing demand are primarily determined by longer-term interest rates, so this is done to reduce long term interest rates,
    • RBI will sell short term bonds and use the funds to buy long term bonds. This raises their demand and hence prices., and this inflated price reduces the yield (interest) of the borrower, thus lowering the interest on long term bonds.
      • Bond yields and prices are inversely correlated.

Fund lending

  • Base Rate
    • Base Rate is the minimum interest rate of a bank below which it cannot lend, except in some cases allowed by the RBI.
    • It varied from bank to bank.
    • Base rate calculation is based on cost of funds, margin or profit, operating expenses and cost of maintaining cash reserve ratio
  • MCLR (Marginal Cost of funds based Lending Rate) - From financial year 2016-17 banks in country shifted from base rate to MCLR to compute their lending rate, as banks were reluctant to change their base rates to reflect Repo Rate.
    • MCLR refers to the minimum interest rate of a bank below which it cannot lend
    • MCLR is a tenor linked internal benchmark. The actual lending rates are determined by adding the components of spread to the MCLR. Banks will review and publish their MCLR of different maturities, every month, on a pre-announced date. 
      • Tenor means the amount of time left for the repayment of a loan
    • MCLR is based on marginal cost of funds, tenor premium, operating expenses and cost of maintaining cash reserve ratio.
      • Marginal cost of funds = (92% x Marginal cost of borrowings) + (8% x Return on net worth) 
      • Marginal cost of borrowing refers to - average rates at which deposits of a similar maturity were raised in the specified period preceding the date of review, weighed by their outstanding balance in the bank’s books. It is based on  interest rate which banks pay to depositors.
    •  MCLR is largely determined by marginal cost of funds and especially by deposit rates and Repo Rates
    • Banks were still lethargic to lower their rates, and usually offered home loans linked to six month or one-year MCLR, So RBI, in October 2019 announced that all new floating rate personal or retail loans (housing, auto etc.) shall be linked to an external benchmark. 
  • External benchmark rate (EBR): Lending rate based on an external benchmark.
    • Banks are free to choose from any of the external benchmark mentioned below:
      • RBI's Repo Rate
      • Government of India 3-Months Treasury Bill yield published by the Financial Benchmark India Private Ltd (FBIL)
      • Government of India 6-Months Treasury Bill yield published by the FBIL
      • Any other benchmark market interest rate published by the FBIL
    • Interest rate applicable on home loans = external benchmark + bank's spread (margin) + risk premium

[In News]

  • June, 20
    • A supreme court bench asked RBI, whether the moratorium would eventually lead to payment of interest on interest deferred for six months. Solicitor-General said that moratorium is a deferment and not a waiver, and waiving the interest completely will not be easy for banks and MFIs as they have to pay interest to their depositors.
    • In wake of PMC scam, and to bring more transparency, all urban and multi-State cooperative banks under the direct supervision of the RBI. CPI(M) is opposing the move
    • RBI comes heavily on banks/NBFCs as it found violations of fair practices (high interest, low transparency) by digital platforms that were acting as agency of theses lenders.
  • July, 20
    • RBI says it deployed several tools to maintain abundant liquidity in market.
  • Aug, 20
    • RBI allows loan restructuring but has not extended the moratorium in its third review of the monetary policy since the COVID-19 pandemic

Sub: Society
Topic: Farming Sector
Category: Prelims & Mains


News: 2/5

Schemes facilitating farm produce


Agricultural Produce and Livestock Marketing (Promotion & Facilitation) Act, 2017 (APLM Act)

APL Act was introduced to provide single market within a state, private wholesale markets, direct sale by farmers to bulk buyers, and promotion of electronic trading. As agriculture is a state subject, states are free to adopt entire or parts of Model Act

  • The draft law proposes to cap market fees and commission charges payable by a farmer after bringing produce to a wholesale market, and help create a national market with provisions for an inter-state trading licence.
  • Traders will be able to transact in all markets within a state by paying a single fee and sell perishables such as fruits and vegetables outside existing mandis
  • Existing market committees will help develop marketing facilities. All regulatory powers will lie with the office of the director of agricultural marketing in the state, who will also issue licenses to traders and new private players.

Model Contract Farming Act, 2018

Also called, State/UT Agricultural Produce and Livestock Contract Farming and Services (Promotion & Facilitation) Act 2018, the Act aims for integration of farmers with bulk purchasers including exporters, agro- industries etc. for better price realization.

The Act has been prepared by Ministry of Agriculture & Farmers Welfare for circulation to the States for its adoption. It is a promotional and facilitative Act and not regulatory in its structure. Key features are:

  • Contracted produce is to be covered under crop / livestock insurance in operation.
  • Contract framing to be outside the ambit of APMC Act.
  • No right, title of interest of the land shall vest in the sponsor.
  • FPO/FPC can be a contracting party if so authorized by the farmers.
  • Contract Farming Facilitation Group (CFFG) for promoting contract farming and services at village / panchayat level 

Essential Commodities Act, 1955

  • For the control of the production, supply and distribution of, and trade and commerce, in certain commodities.
  • Essential commodities are commodities which are defined in the Schedule, and Centre has the authority to add or remove items from Schedule
  • At present, the “Schedule” contains 9 commodities `— drugs; fertilisers, whether inorganic, organic or mixed; foodstuffs, including edible oils; hank yarn made wholly from cotton; petroleum and petroleum products; raw jute and jute textiles; seeds of food-crops and seeds of fruits and vegetables, seeds of cattle fodder, jute seed, cotton seed; face masks; and hand sanitisers.

Essential Commodities (Amendment) Ordinance, 2020

The ordinance has been passed to liberalise the regulatory system. Amendments have been proposed to remove commodities such as cereals, pulses, oilseeds, edible oils, onion and potatoes from the list of regulated essential commodities. This move is expected to attract private investments.

  • The Ordinance provides that the central government may regulate the supply of certain food items including cereals, pulses, potato, onions, edible oilseeds, and oils, only under extraordinary circumstances.  These include: (i) war, (ii) famine, (iii) extraordinary price rise and (iv) natural calamity of grave nature.
  • Any action on imposing stock limits will be based on the price rise. The Ordinance requires that imposition of any stock limit on certain specified items must be based on price rise.  A stock limit may be imposed only if there is: (i) 100% increase in retail price of horticultural produce; and (ii) 50% increase in the retail price of non-perishable agricultural food item
  • The provisions of the Ordinance regarding the regulation of food items and the imposition of stock limits will not apply to any government order relating to the Public Distribution System

Farmers' Produce Trade and Commerce (Promotion and Facilitation) Ordinance, 2020

  • It seeks to provide for intra-state and inter-state trade of farmers’ produce outside state APMC. The Ordinance will prevail over state APMC Acts.
  • However, to trade in scheduled farmers’ produce (agricultural produce specified and regulated under state APMC Acts), an entity must be either:
    • a farmer producer organisation or agricultural cooperative society
    • a person having PAN card or any other document notified by the central government.
  • A person in contravention will be subject to a penalty between Rs 25,000 and five lakh rupees.
  • The Ordinance permits the electronic trading of farmers’ produce in the specified trade area. The following entities may establish and operate such platforms:
    • companies, partnership firms, or registered societies, having permanent account number under the Income Tax Act or any other document notified by the central government, and
    • farmer producer organisation or agricultural cooperative society. 
  • A person transacting with a farmer will be required to make payments to the farmer on the same day, or within three working days in certain conditions, for any transaction of scheduled farmers’ produce.
  • The Ordinance prohibits state governments from levying any market fee, cess or levy on farmers, traders, and electronic trading platforms for any trade under the Ordinance. 
  • The parties involved in a trade-related dispute may apply to the Sub-Divisional Magistrate for relief through conciliation.


Agricultural Produce Market Committee (APMC)

Agriculture is a state subject under Seventh Schedule, so agriculture markets are generally established and regulated by state governments. While intra-state trades fall under the jurisdiction of state governments, inter-state trading comes under Central or Federal Government (including intra-state trading in a few commodities like raw jute, cotton, etc.)

  • APMC is a statutory market committee constituted by a State Governments in respect of trade in certain notified agricultural or horticultural or livestock products  under the Agricultural Produce Market Committee Act issued by that state government
  • Responsibilities
    • It ensures transparency in pricing system and transactions taking place in market area
    • To ensure payment for agricultural produce sold by farmers on the same day
    • To publicize data on arrivals and rates of agricultural produce brought into the market area for sale

electronic National Agriculture Market (e-NAM)

  • e-NAM was launched in 2016 by Ministry of Agriculture
  • National Agriculture Market (eNAM) is a pan-India electronic trading portal which networks the existing APMC mandis to create a unified national market for agricultural commodities.


Pradhan Mantri KIsan SAmman Nidhi (PM-KISAN)

Launched in 2018  with an aim to provide income support to all land holding eligible farmer families. The scheme aims to supplement the financial needs of the farmers in procuring various inputs to ensure proper crop health and appropriate yields, commensurate with the anticipated farm income.

  • Under the PM-KISAN scheme, all landholding farmers' families shall be provided the financial benefit of Rs. 6000 per annum per family payable in three equal installments of Rs. 2000 each, every four months.
  • All land holding eligible farmer families, irrespective of the size of land holdings (subject to the prevalent exclusion criteria), can avail benefits under scheme. Following categories of beneficiaries shall not be eligible:
    • All Institutional Land holders
    • Farmer families in which one or more of its members belong to following categories 
      • All Persons who paid Income Tax in last assessment year
      • Former and present holders of constitutional posts 
      • All serving or retired officers and employees of Central/ State Government Ministries 
      • All retired pensioners whose monthly pension is Rs.10,000 or more (excluding Multi Tasking Staff / Class IV/Group D employees) 
      • Professionals like Doctors, Engineers, Lawyers, Chartered Accountants, and Architects registered with Professional bodies 
  • States to prepare database of eligible beneficiary landholder farmer families in the villages 
  •  It is a Central Sector scheme with 100% funding from Government of India, and funds are directly transferred into the bank accounts

Agriculture Infrastructure Fund 

  • Agriculture Infrastructure Fund is a medium - long term debt financing facility for investment in viable projects for post-harvest management infrastructure and community farming assets through interest subvention and credit guarantee.
  • The duration of the scheme shall be from FY2020 to FY2029 (10 years).
  • Financing facility  scheme: New Central Sector Scheme of financing facility launched under Agriculture Infrastructure Fund of Rs. 1 Lakh Crore. The scheme will support farmers, Primary Agriculture Cooperative Society  (PACS), Farmers Production Organisations (FPO), Agri-entrepreneurs, etc. in building community farming assets and post-harvest agriculture infrastructure. These assets will enable farmers to get greater value for their produce as they will be able to store and sell at higher prices, reduce wastage, and increase processing and value addition.


[In News]

  • June, 20
    • Punjab has sought reconsideration of the three ordinances - for permitting trade in agricultural produce outside the physical boundaries of the set-up of the agricultural market under APMC Act, easing of restrictions under the Essential Commodities Act, and facilitating contract farming.
    • The Union Cabinet has approved an ordinance to amend The Essential Commodities Act, 1955
    • Protest against Farmers' Produce Trade and Commerce (Promotion and Facilitation) Ordinance
  • Aug, 20
    • Prime Minister Narendra Modi launches financing facility under Agriculture Infrastructure Fund, and released the sixth instalment of funds under the PM-KISAN scheme

Sub: Economics
Topic: Banking, Finance and Tax System Finance and Banking - India
Category: Prelims & Mains


News: 3/5

Goods and Services Tax (GST)

  • The Goods and Service Tax Act was passed in 2017.  GST is an indirect tax which replaced many indirect taxes such as the excise duty, VAT, services tax, CST, etc. GST is governed by GST council headed by Ministry of Finance
  • GST is a destination based tax, which means tax is collected at the point of consumption and not at the point of origin.
  • GST is also a multi-stage tax, where every stage of production is taxed. There are three components of GST:
    1. SGST – State GST, collected by the State government
    2. CGST – Central GST, collected by the Central government
    3. IGST – Integrated GST, collected by the Central government and shared with State based on pre defined rates by government. IGST is charged on transfer of goods and services from one state to another state

Goods and Services Tax (Compensation to States) Act

  • The Act provides for compensation to states for any loss in revenue due to the implementation of GST.
  • Compensation will be provided to a state for a period of five years from the date on which the state brings its State GST Act into force.
  • For the purpose of calculating the compensation amount in any financial year, year 2015-16 will be assumed to be the base year.  The growth rate of revenue for a state during the five-year period is assumed be 14% per annum.  
  • Any unutilised money in the Compensation Fund at the end of the compensation period will be distributed in the following manner: (i) 50% of the fund to be shared between the states in proportion to revenues of the states, and (ii) the remaining 50% will be part of the centre’s divisible pool of taxes.
  • GST Compensation Cess: GST Compensation Cess is a levy applicable in addition to the regular GST taxes (CGST + SGST on intrastate supplies and IGST on interstate supplies). GST Cess is levied on supply of certain notified goods (mostly luxury and demerit/sin category). The idea behind GST Compensation Cess was that as GST is a destination based tax, it resulted in loss to manufacturing states.

Recent Initiatives

  • 40th GST Council in June, 20 reduced late fee and interest for those with tax liabilities and waived off late fee completely for those with no tax liabilities

[In News]

  • June, 20
    • GST council notes only 45% of target collection in pandemic
  • Aug, 20
    • Central government announced that it has released the Goods and Services Tax (GST) compensation dues to States for 2019-20. The shortfall by Centre was covered up by excess collections in earlier years as well as some of the balance of inter-State GST from earlier years.

Sub: Economics
Topic: Banking, Finance and Tax System
Category: Prelims & Mains


News: 4/5

Market Borrowings

Credit Rating Agencies

  • Global
    • Fitch Ratings
    • Moody's - India's rating downgrade to Baa2 from Baa3, with negative outlook.
      • The rating was based on policies since 2017 and not on pandemic
    • Standard & Poor's : India's rating stayed BBB (minus) with a stable outlook
  • India
    • Credit Rating Information Services of India Limited (CRISIL)

Sub: History
Topic: Art & Culture Language, Religion, and Culture
Category: Prelims & Mains


News: 5/5


Vedas are the compilation of the mantras or the hymns.

  • Originally, the Vedas were not in a written form.
  • Veda Vyasa categorized all the mantras and compiled them in four parts. The four parts thus compiled came to be known as the four Vedas - Rig Veda, the Yajur Veda, the Sama Veda and the Atharva Veda.
  • Vedanga  : Vedas are studied through Vedangas - Shiksha, Kalp, Vyakaran, Nirukta, Jyotish and  Chhanda
  • In the opinion of some scholars, the Vedas are constituted of  two parts: The Samhitas and  the Brahmanas.
  • Other scholars opine that each of the Vedas is divided into four parts (or the sections): the Samhitas, the Brahmanas, the Aranyakas and the Upanishads
  • The Samhitas and the Brahmanas form the Karma-Khanda segment of the Vedas, and contains ceremonial rites and rituals.
  • The Aranyakas and the Upanishads form the Gyan-Kanda segment of the Vedas, and focuses on philosophy and spiritualism.

Upanishads / Vedanta

  • Upanishads are the concluding portions, appearing at the end of the Vedas
  • Most of the Upanishads are in forms of dialogues between a master and a disciple. Some of the Upanishads are in the prose form and some others in the verse form. 
  • It is not known how many Upanishads existed originally. We do not know who composed them. 
  • 'Satyamev Jayate' is from Mundaka upanishad


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