ECONOMY by VIVEK SINGH

2021-07-23 09:00:53 Open / Comment

2021-07-23 08:56:22 Source: HINDU
Please follow the below notes to develop proper understanding of Bank notes, Fiat currency, cryptocurrency and Central Bank digital Currency Open / Comment

2021-07-22 09:57:04 Source: Hindu
A very good article to read. Open / Comment

2021-07-22 07:58:37 The answer to the above question is (b)
Explanation:
On 31st March 2020, India's external debt was $558 billion (20.6% of GDP) which increased to $570 billion (21% of GDP) by 31st March 2021. So, the increase is very less. Because of the covid-19 and recession what has increased is Govt. of India's Debt and State Govts debt which has crossed 90% of GDP on 31st March 2021 from the earlier 75% of GDP on 31st March 2020.

India's External Debt (21% of GDP) = Sovereign Debt (4%) + Non-Sovereign Debt (17%)

Sovereign Debt includes FPIs/FIIs purchasing Govt. of India bonds PLUS bilateral assistance (debt from other countries) PLUS multilateral assistance (debt from institutions like World Bank etc.)

Non-Sovereign Debt includes External Commercial Borrowing (ECB) PLUS FPIs/FIIs purchasing Indian companies bonds PLUS NRIs depositing in Indian banks.

Currency wise, India's external debt includes:
US Dollar denominated (52%)
Indian Rupee denominated (33.3%)
And then some is Yen, Euro, SDR.

The Rupee denominated debt is basically FPIs/FIIs purchasing Indian Govt. bonds and Indian companies bonds in Indian market and Masala bonds raised by Indian companies in abroad market and some NRI deposits in Indian rupees.

Our Forex Reserves is presently $610 billion, so if we want to pay our (India's) External Debt then we would be able to pay as our Forex reserves are more than the India's External debt ($570 billion).

Its important for your prelims because of Govt. debt increasing due to covid-19 Open / Comment

2021-07-21 09:11:58 Question of the day

Consider the following statements regarding India's external debt as on 31st March 2021

(i) It has increased considerably (as a percentage of GDP) because of economic recession and covid related expenses
(ii) Majority of the debt is Non-Sovereign
(iii) Rupee denominated debt is less than 10% of the total India's external debt
(iv) It is fully covered by our Forex reserves Open / Comment

2021-07-20 08:43:24 The above is news from PIB. The following are some relevant points.

1) As per the budget promise, Govt. of India has created the much awaited "bad bank" named "National Asset Reconstruction Company Limited (NARCL)". NARCL is "Government Company", "Public Company" and "Unlisted Company". For details regarding types of companies you can refer the book.

2) A bad bank is nothing but an "Asset Reconstruction Company (ARC)" which is owned generally by Government of India (through eight Public Sector Banks). So, NARCL is an ARC owned by Govt. of India while in general ARCs are privately owned. ARCs are regulated by RBI.

3) The NARCL will purchase bad assets (NPAs) from the Banks and NBFCs (Non banking finance Companies) and then will try to recover the money from the NPAs. Actually Banks/NBFCs core expertise is in banking functions like deposit, lending and other offering other financial products rather than RECOVERY. So, the Banks/NBFCs generally sell the NPAs to ARCS and get rid of bad assets and focus on their core expertise.

4) Let us say a Bank/NBFC gave a loan of Rs. 1000 crore and it turned NPA. So, the Banks/NBFCs may sell it to an ARC in Rs. 300 crore and get rid out of the bad asset and will free up this Rs. 300 capital and the Banks/NBFCs balance sheet will look clean. Why an ARC will purchase in Rs. 300 crore?? If the ARC thinks that they can recover Rs. 400 crore from the bad loan/asset then they may purchase. If ultimately the ARCs is able to recover more they will make more profit or otherwise less.

5) "Asset reconstruction" means acquisition by an ARC of any right or interest of any Bank or financial institution (NBFC) in any debt/loan/advance for the purpose of realisation/recovery of such debt.
When a Bank/NBFC gives loan then a right/interest is created in favour of the Bank/NBFC against the assets of the debtor. For example, when a Bank gives loan for a house then a right/interest is created in favour of the bank against that house/property...............and we say that the house/property is the collateral for the home loan. Open / Comment

2021-07-20 08:22:22 Open / Comment

2021-07-19 08:12:33 Source: Indian Express
A good article to read and self explanatory, but would like to add certain points.

The author has said that Cooperatives have not been successful in India like banking, sugar etc. except for Dairy Sector which has been quite successful in India. In India, private sector has tremendously grown post liberalization (in 1991), but Cooperatives have not been successful except Dairy. From my experience of the Industry, let me give you some practical insights why is this so:

1) Cooperatives are formed by thousands of members who decide to co-operate among each other and set up an entity where the members are the owners and they are the decision makers (through their representatives). So, thousands of members come together and they are the real producers and the owners and the returns are shared among the members. In contrast to this, a private company (the private sector) is driven by one man's DREAM, VISION and PASSION. The zeal and fire of one man to become rich drives the private sector (of course supported by thousands of employees). I think this one man's dream/passion/vision outweighs 1000s of people collaborating in cooperatives. [It is rightly said that everyone's responsibility is no ones responsibility]. This is based on my experience as I have personally met several times Mr. Gautam ADANI (the chairman of Adani Group) where I worked for FOUR years after my MBA. I have also worked in Dairy sector.

2) This passion/zeal of one person makes the organization efficient because that one person is willing to bring all the desired resources which are required to grow the company (and make profit) like capital, professional management, transparency etc. which the cooperative sector is not able to do.

3) Then why Dairy cooperative is successful and not other cooperatives??
Answer: AMUL (the cooperative) was established long back in 1949..........but the major role was played by one person "Verghese Kurien" (the Milkman of India). He saw farmers getting exploited at the hands of local traders and this led him to jump into this and may be he was driven by a social cause and he saw an opportunity to fulfill his dream of helping the poor farmers and that time private sector was almost missing from the Indian economy. Dairy sector was liberalized in 2002 and from then on private sector has entered aggressively and now the private sector milk procurement is same as cooperatives and there is much higher growth in private sector. So, the success of Dairy cooperatives can be attributed again to one man's dream (Verghese Kurien) and this sector getting a headstart in 1949, with a lot of support of capital from the Govt. at that time while private sector came in 50 years after AMUL was established.

Which way should we grow??? Private or Cooperative that we can always debate with merits and demerits........But cooperatives will always require Govt. support to grow and there are limitations. The Growth that we are talking about for India which can pull millions out of poverty may not come from cooperatives and private sector is the only hope... but again it has its own issues and demerits (rising income disparity).... but that Govt. can devise mechanisms to improve it like funding more into health, education and Infra... etc. Open / Comment

2021-07-19 07:33:30 Open / Comment