Indian Economy, 5th edition (117 page)

(iii)
Creation of an elaborate framework of priority sector lending with mandated targets as part of a strategy to meet the savings and credit needs of large sections of the Indian population who had no access to institutional finance.

Given the sheer enormity of the challenge, however, the outcomes of these efforts have so far been mixed.

Recent initiatives include:
(i) ‘no-frill’ account for retail purpose; (ii) simplified KYC (Know Your Customer); (iii) Credit counselling centre (GCC) facilities; (iv) use of NGOs and formation of SHGs; (v) Kisan credit cards services; and (vi) extension of Smart cards.

Every Union Budget since 2007-08 has laid down provisions for funding of financial inclusion goals. The
Rangarajan Committee
also spelt out priorities for meeting financial inclusion objectives.
Two
of the more important approaches in the recent times included the use of technology such as
smart cards
and
mobile telephone banking
. The potential for their spread can be vast especially in combination with ‘banking correspondence’ approach launched recently.

Financial Literacy:
4
Any policy initiative seeking to afford greater access to financial services to a large segment of the population must necessarily address bridging the existing
knowledge gap
in financial education and literacy. Over the last decade or so, researchers all over the world, especially in the developed countries, have, therefore started to study and explore whether individuals are well-equipped to make financial decisions. Financial education and literacy assumes urgency in any given scenario. No wonder policymakers all over are increasingly taking note of this and directing their efforts to address it.

Q. 41 Write a note on the need and prospects of the proposed ‘Infrastructure Debt Funds’ (IDFs).

Ans.
For setting up IDFs the broad guidelines were issued in September 2011
aimed
to facilitate flow of funds into infrastructure projects. The IDF will be set up either as a trust or as a company. A trust-based IDF would normally be a mutual fund (MF), while a company-based IDF would normally be an NBFC.

An IDF-NBFC would raise resources through issue of either ‘rupee-’ or ‘dollar-’ denominated bonds of minimum
five-year
maturity. The investors would be primarily domestic and off-shore institutional investors, especially insurance and pension funds which would have long-term resources. An IDF-MF would be regulated by the SEBI while an IDF-NBFC would be regulated by the RBI. Such entities would be designated as Infrastructure Debt Fund-Mutual Funds (IDF-MF) and Infrastructure Debt Fund-Non Banking Financial Company (IDF-NBFC). All NBFCs, including Infrastructure Finance Companies (IFCs) registered with the bank may sponsor IDFs to be set up as MFs. However, only IFCs can sponsor IDF-NBFCs.

Eligibility parameters
for NBFCs as sponsors of IDF-MFs include a minimum NOF (net owned fund) of Rs. 300 crore; CRAR (capital to risk-weighted assests ratio) of 15 per cent; net NPAs (non performing assets) less than 3 per cent; the NBFC to have been in existence for at least five years and earning profits for the last three years in addition to those prescribed by SEBI in the newly inserted
Chapter VI B
to the MF Regulations. Only NBFC-IFCs can sponsor IDF-NBFCs with prior approval of the RBI and subject to the following conditions:

•
The sponsor IFC would be allowed to contribute a maximum of 49 per cent to the equity of the IDF-NBFC with a minimum equity holding of 30 per cent of the equity of IDF-NBFC, post investment, in the IDF-NBFC;

•
The sponsor NBFC-IFC must maintain minimum CRAR and NOF prescribed for IFCs;

•
There are no supervisory concerns with respect to the IFC.

•
The IDF is granted relaxation in credit concentration norms and in risk weights.

Q. 42 Write a note on the ‘Interest Subvention Relief to Farmers’ programmes being run by the GoI.

Ans.
Farmers in the country have been facing financial hardship due to several reasons – consecutive droughts, indebtness and crop failures – farmers’ suicide have always been in news in the recent time. Consequent upon the announcement by the Union Finance Minister in Budget Speech 2006-07, public-sector banks, regional rural banks and rural co-operative credit institutions were advised that with effect from Kharif 2006-07, government would provide interest rate subvention of
2
per cent per annum in respect of short-term production credit up to Rs. 3.0 lakh. This subvention was available to public sector banks, regional rural banks and rural co-operatives on the condition that they made short-term credit available at
7
per cent per annum. In case of RRBs and rural cooperatives, this was applicable only to short-term production credit disbursed out of their own funds and did not include such credit supported by NABARD refinance.

Pursuant to the
Union Budget 2010-11
announcement, it was decided to provide interest subvention of 1.5 per cent per annum for short-term agriculture loans up to Rs. 3.0 lakh disbursed by public-sector banks, cooperatives, and RRBs. The additional subvention for prompt repayment has been enhanced to
2
per cent per annum so that the effective interest rate charged to such farmers is 5 per cent per annum up to Rs. 3.0 lakh. In the
Budget 2011-12
, the government of India proposed to provide interest subvention of 1.5 per cent per annum for short term agriculture loans up to Rs. 3.0 lakh disbursed by public sector banks, co-operatives and RRBs. The additional subvention for prompt paying farmers is proposed to be enhanced to 3 per cent per annum so that the effective interest rate charged to these farmers is 4 per cent per annum upto Rs. 3.0 lakh. The programme has also been continued by the
Union Budget 2013-14
.

Q. 43 Write a note on the advantage to India in the world of ‘Wellness Tourism’.

Ans.
Several studies have estimated the global market for medical tourism ranging from US$ 100 billion to US$ 150 billion. The Asian medical tourism market is being bolstered by initiatives taken by the national governments, as also rising quality standards.

According to a study by the Organization for Economic Cooperation and Development (OECD), Thailand, India, Singapore, Malaysia, Hungary, Poland, and Malta are promoting their comparative advantage as medical tourist destinations. Singapore Medicine has been established under government-industry partnership to promote Singapore as a destination for advanced medical care. Malaysia has established the Malaysia Healthcare Travel Council to develop and promote the health-care and travel industry. Philippines has launched the Philippines Medical Tourism Programme and included medical tourism in the Investment Policies Plan. Thailand has been leveraging elements such as spas and alternative therapies in its promotional strategies for several decades, coupled more recently with state-of-the-art hospitals and skilled professionals.

Several features like cost-effective health-care solutions, availability of skilled health-care professionals, reputation for treatment in advanced health-care segments, increasing popularity of India’s traditional wellness systems, and strengths in IT have positioned India as an ideal health-care destination. India, while strengthening its capabilities in modern health-care systems is also leveraging its inherent strengths in traditional health-care systems such as Ayurveda, Siddha, Yoga, Naturopathy, and Faith healing/Spiritualism. It also holds an edge over competitor countries with its mastery over techniques of ‘concentration and ‘mind control’.

Q. 44 During India’s Struggle for Independence, ‘Indian capitalist class was anti-socialist and bourgeois but it was not pro-imperialist’. Elucidate.

Ans.
There has been a general misconception about the ‘loyality’ and ‘stand’ of the Indian capitalist class (industrialists, traders) throughout the freedom struggle – for which there were valid reasons:

•
They never wanted their business to suffer so opposed the Civil Disobedience and Non-coperation Movements – seen going against Gandhi in particular and INC is general.

•
They opposed ‘socialism’ and favoured ‘capitalism’ that is why they looked in opposition to the socialistic leanings of the INC.

•
Due to above-given reasons the stand of the Indian capitalist class has been often seen as supportive to the Imperial Rule.

But
objective analysis
of their stand proves it wrong:

•
From mid 19
th
century, Indian capitalists had their independent capital base and did not remain junior partners of foreign capital – which was antagonistic to the foreign capitalism class.

•
The Bombay Plan (of a wide cross section of the leaders of Indian capitalist class) vehemently demanded land reform, co-operativisation of production, finance and marketing (like nationallist leaders).

•
FICCI (1927) soon got relevance which by 1930s started talking of ‘unequal exchanges’ – the INC saw it as a favour against the fighting imperialist economic hegemony.

•
By 1928, FICCI had clearly indicated of entering politics with ‘nationalistic stand’ – a general approach of strengthening the hands of those who were for freedom of the country.

•
They were opposed to Civil Disobedience, reasons being – a prolonged movement could unleash forces which may become revolutionary in a social sense (threatening capitalists) and a ‘disregard for authority’ could hamper the future government after getting Swaraj; hampered day-to-day business threating the very existence of the business class; followed constitutional process but not on the terms of the Britishers (participated in councils, conferences – which did show as if they were with the Imperial powers.

•
By 1935, FICCI announced that without the INC approval or participation it would not get involved with the Imperial rule at any level – bycotted First Round Table Conference as it was not having Gandhi and the INC.

•
By 1937, FICCI has started pressurising the British government to come out with a goal of ‘self-rule’ and informed them that if it was not the outcome, the Congress will go for ‘direct action’ which meant ‘non-violent mass civil-disobedience’.

•
The increase in radicalisation of the INC in 1930s (towards Left) made capitalists more active in politics – but it did not push them into the ‘lap of imperialism’ (as predicted by contemporary radicals)which happened in some other colonial and semi-colonial countries, instead they evolved a subtle, many-sided strategy to contain the Left but no part of it went for imperialisits.

•
In 1927 the capitalist class (via FICCI) refused supporting the government on the Public Safety Bill which tried to contain the communists (since they were against the imperial government) – but they did not want to destroy capitalism as a force.

•
By 1943 the capitalists also realised the need for socialistic reforms – ‘Post War Economic Development Committee’ was set up by them which drafted the ‘Bombay Plan’ – with a general aim of incorporating ‘whatever was sound and feasible in the socialist movement’ without capitalism surrendering any of its essential features (says G L Mehta,
FICCI President
).

[Based on the CEHI, op. cit.; Bipan Chandra; Angus Maddison]

Q. 45 ‘India’s economic policies are neo-liberal.’ Examine.

Ans.
The process of economic reforms started by India in 1991 was a follow-up to liberal policies influenced by current world ideas of neo-liberalism via the IMF (as it agreed with Washington Consensus, 1985). This is why critics of the reform process call Indian economic policies neo-liberal (it was also remarked by the
Supreme Court of India
, in one of its judgements in 2012).

Through reform, India started redefining the economic role of state in the economy– a predominant role was assigned to the ‘private sector’ – but the state today has a different and bigger role. We may cite some examples to show why India’s policies are still not neo-liberal:

(i)
State still manages majority stakes in the PSUs and many ‘very big PSUs’ have been newly set up.

(ii)
Higher degree of regulation gives more economic authority to the government.

(iii)
Even after liberalisation, India is ranked very low in being a liberal economy what to ask of a neo-liberal economy.

(iv)
Subsidies are still on the higher side.

(v)
Government expenditure on education, healthcare, social security has increased hugely post-1991.

(vi)
Even liberal policies of the government are under several official checks and controls.

(vi)
Had India followed neo-liberal policies, it would also have faced some financial crisis after the US ‘sub-prime’ crisis.

Thus, India’s economic polices cannot be called neo-liberal – liberal, yes.

Q. 46 What are tax-havens and how they are promoting corruption in India?

Ans.
‘Tax havens’ are nation-states or dominions imposing ‘low’ or ‘no taxes’ on personal and corporate incomes, and as a consequence tend to attract wealthy individuals and corporates seeking to minimise their tax liabilities. Other than saving taxes, these havens are also used as a safe hub for parking ‘black money’
created in different countries. As per the data of the OECD, there are at present over 70 such destinations in the world – popular ones are British Virgin Islands, Cayman Islands, Cook Islands, Dubai, Isle of Maw, Liechtenstein, Marshall Islands, St. Kitts and Nevis, Switzerland, Mauritius, US Virgin Islands, etc. The tax havens are promoting corruption in India in so many ways which may be understood in the following way: