Indian Economy, 5th edition (123 page)

It was thought that an independent forum was needed to deal with debts of these types. Thus, in
1993
the
Recovery of Debts Due to Banks and Financial Institutions Act’
was passed. The Act, however, imposes a limitation and states that only those debts which are in excess of Rs. 10 lakhs (or upto Rs. 1 lakh, where the Central government specified certain types of debts) would come under its purview.

The tribunals are set up by the Central government. The government also specified the areas within which such tribunals will have jurisdiction. A DRT consists of the Presiding Officer to be appointed by notification by the Central government. The government may also specify that the presiding officer of one tribunal may takeover the functions of the presiding officer of another tribunal. A person has to be at least a district judge to become a presiding officer of a Tribunal.

The very first step involved in the recovery process is to make an application to the Tribunal under Section 19 of the Recovery of Debts due to Banks and Financial Institutions Act, 1993. Every bank and financial institution, which stands to recover loans and other debts, shall initiate the procedure by first forwarding an application to the Tribunal within the local limits of whose jurisdiction the defaulter company is located. After the financial institution has filled an application before the Tribunal, and if there are other banks whose loan to the same company has become bad, the latter can join the recovery suit.

debt swap scheme

In 2003, the Government of India announced a scheme to replace the relatively high cost debt of states with lower cost borrowings, taking advantage of falling interest rates. The scheme envisages states pre-paying that portion of their outstanding debt to the Centre on which the interest rate is 13 per cent and more, contracted during the mid-1990s when general interest rates were high.

Of a total stock of ‘2,44,000 crore of outstanding Plan loans, ‘1,00,000 crore worth of loans bear a coupon rate of 13 per cent and above. Servicing these loans is a major burden for states, many of which are undergoing fiscal stress. These loans from the Centre would be pre-paid using fresh, lower cost debt, which consists of both the small savings lent to the states by the National Small Savings Fund and additional market borrowings. As a result, while the total debt of the states would remain unchanged, the cost of servicing the loans would come down. This is the fiscal benefit to the states.

All collections from small savings, which include post office deposits, Kisan Vikas Patras, National Savings Certificates, and the Public Provident Fund (PPF), flow to the public account. After adjusting for repayments to the depositors of these small savings instruments, the entire net collections are lent to the states. Of the amount apportioned to each state based on the collection in the respective states, 70 per cent is made available as cash transfer, while the remaining 30 per cent is used for repaying the high cost loans of 13 per cent and above.

Apart from this, states are also now allowed to use additional market borrowings at an average interest rate of less than 6.5 per cent to retire high cost debt.

In simple language, what this means is that while the small savings deposits except for the PPF have a maturity of five to six years, the repayment of loans given to states against small savings is over a period of 25 years. If interest rates were to rise over the medium to long term, this could obviously create a problem for the centre, since the cost of its borrowings would be going up, while the return on its existing loans to the states would remain locked. It is to take care of this risk that the higher spreads is needed.

DECOUPLING THEORY

Decoupling theory holds that Asian economies, especially emerging ones, no longer depend on the United States economy for growth, leaving them
insulated
from a severe slowdown there, even recession – looked true for some time as Asian stocks rose while socks in the US fell - however, as fears of recession mounted in the US, stocks declined heavily. Looking this happen in late 2008 the decoupling theory regarding the Asian as well as the EU economies have now lost ground. But still the emerging economies are able to have higher growth rates and exports in comparision to the US – that is why the theory is still debated by the experts.

Deindustrialisation

Sustained decrease in the share of the secondary sector in the total output (GDP) of an economy.

Demat account

It is a way of holding securities in electronic or dematerialised form. Demat form of shares can be traded online. As such, the transactions are concluded much faster, which prevents theft, misuse, forging of original shares certificates or other documents, and allows an investor to buy or sell shares in any quantity. Demat account allows for faster refund of money in case application is not accepted. Demat accounts are offered by banks, and the dematerialised stock is held by the depository (National Securities Depository Ltd.–[NSDL] or Central Securities Depository Ltd.–[CSDL]). The investor needs to fill up the requisite forms, submit the documents and pay the applicable charges in order to have the demat account opened.

Demerger

The breaking-up of a company into more separate companies. Such companies are usually formed through mergers.

Derivatives

The financial assets that “derive” their value from other assets, such as shares, debentures, bonds, securities, etc.

DIIs

Domestic Investment Institution (DIIs) are the financial institutions of Indian origin investing in India is different derivatives such as share, securities, corporate bounds, etc. They may be /files/04/35/93/f043593/public/govt. owned or privately owned – mutual funds, pension funds and insurance (life) companies are the major ones in India.

Direct cost

The direct material and labour cost of a product–proportionally varies with the total output.

Direct investment

The expenditure on physical assets (i.e., plant, machinery, etc.).

Dirty float

A term of foreign exchange managment when a country manipulates its exchange rate under the floating currency system to take leverage in its external transactions.

Discount house

A financial institution specialising in buying and selling of short-term (i.e., less than one year) instruments of the money market.

Disgorgement

Disgorgement is a common term in developed markets across the world, though for most market participants in India it is a new thing. Disgorgement means repayment of illegal gains by wrongdoers. Funds that were received through illegal or unethical business transactions are ‘disgorged’, or paid back, with interest to those affected by the action. It is for the first time in India that the capital markets regulator, SEBI has passed this order of disgorgement; internationally it is the civil courts that have this mandate along with the markets regulator.

Disgorgement is a ‘remedial’ civil action, rather than a ‘punitive’ civil action. In the US, individuals or companies that violate Securities and Exchange Commission regulations are typically required to pay both civil money penalties and disgorgement. Civil money penalties are punitive, while disgo-rgement is about paying back profits made from those actions that violated securities regulations.

Interestingly, disgorgement payments are not only demanded of those who violate securities regulations. In the US, anyone profiting from illegal or unethical activities may be required to disgorge their profits. The money disgorged from the violating parties is used to create a ‘Fair Fund’–fund for the benefit of investors who were harmed by the violation.

dismantling of textile quota

Until December 31, 2004, global textile trade was largely regulated by the quota system. A textile exporting country (for example, India) could not export a particular textile item to an importing country (say, the U
s
) beyond a fixed quantity, determined bilaterally. The phase-out of textile quota has removed the non-tariff barrier. The move is expected to drive outsourcing of textiles and apparel manufacturing to low-cost destinations. India is considered the
second largest
beneficiary of quota dismantling after China. It has advantages of having an integrated textile industry right from fibre to fashion. According to government projections, India’s textile exports is expected to touch $50 billion mark by 2010.

Dissaving

The situation of higher current consumption over current disposable income by the households–the difference is met by withdrawals from the past savings (
i.e., decrease in saving
).

Domino effect

An economic situation in which one economic event causes a series of similar events to happen one after the other. For example, experts believe that the falling of share indices around the world in early-2008 was a domino effect of the sub-prime crisis faced by the US economy. A similar case is cited from the mid-1996 when all major stock markets crashed around the world due to the domino effect emanating from the South East Asian currency crisis.

Dow-Jones Index

The US share price index which monitors and records the share price movements of all compaines listed on the New York Stock Exchange (
with the exception of high-tech companies
which are listed on the
nasdaq
stock exchange
). India has its equivalent in the BSE
Sensex.

Drug price control

d
rug price control, as the term suggests, means a mechanism or a policy that ensures that
essential
and
life-saving
medicines are available at reasonable prices. Control over cost of medicines to the consumer exists in one form or the other in most countries. Government’s control over drug pricing in India had begun in the wake of the Sino-Indian war, but a structured price control mechanism was only first instituted in 1979 with the issuance of the first Drug Price Control Order (DPCO).

The Drugs Price Control Order, 1995 is an order issued by the Government of India under Section 3 of the Essential Commodities Act, 1955. The Order provides the list of price-controlled drugs, procedures for fixation of prices of drugs, method of implementation of prices fixed by government and penalties for contravention of provisions among other things. For the purpose of implementing provisions of DPCO, powers of the government have been vested in the National Pharmaceutical Pricing Authority. As of now, 74 bulk drugs are under price control and there is no price control on 70 to 75 per cent of the retail pharma market.

Drugs and formulation have been subjected to price control for more than three decades now and the industry’s stand is that when price control has been abolished in a large number of industries, it is unfair to stifle the pharmaceutical industry with rigorous price control. While the government has expressed that it wants to provide a stable policy environment to the pharmaceutical industry, it has also said that it will ensure the availability of essential and life-saving drugs at reasonable prices to the public.

Dumping

Exporting a good at a price lower than its price in the domestic market. To neutralise the effects of dumping the importing country may impose a
surcharge
on such imports which is known as the
anti-dumping duty.

Dutch Disease

When an increase in one form of net exports drives up a country’s exchange rate, it is called the Dutch Disease. Such instances make other exports non-competitive in the world market and impairs the ability of domestic products to compete with imports.

The term originated from the supposed effect of natural gas discoveries on the Netherlands economy.

DUTY DRAWBACK SCHEME

The Duty Drawback Scheme (DDS) is provided by the Government of India as a part of export incentives to make exports competitive. Exporters get refund of the central excise (censat) and custom duties on the inputs they use in manufacturing the exportables. Those who are covered by the Duty Entitlement Passbook Scheme (DEPS) are not covered by it. The rates are announced from time to time.

DUTY ENTITLEMENT PASSBOOK SCHEME

The Duty Entitlement Passbook Scheme (DEPS) is an export incentive scheme of the GoI under which exporters get credit (pre-determined by the Direcor General of Foreign Trade) on the export value which they use in future imports thus neutralising all the taxes. No cash is given (unlike the Duty Drawback Scheme). It has been abolished by the GoI w.e.f. October 1, 2011 after using it for 14 years – the WTO provisions do not allow member countries to carry such schemes.

e
-business

Using computers and the Internet to link both the
internal
operations (i.e., transactions and communications between the various departments/divisions of the business firm) and its
external
operations (i.e., all its dealings with the suppliers, customers, etc.).

e
-commerce

Method of buying and selling goods and services over the Internet – a kind of direct marketing i.e. without the help of any middle arrangement of sales.

Economies of scale

The long-run reduction in average/unit cost that occurs as the scale of the firm’s output increases. The opposite situation is known as
diseconomiess of scale.

Economies of scope

The long-run reduction in average/unit cost that occurs as the scope (diversification) of the firm’s activities increase.

Edgeworth box

A concept for the purpose of analysing the possible relationships between two individuals or countries. It is done using indifference curve.

The concept was developed by Francis Ysidro Edgeworth (1845–1926) who is also credited for analytical tools of
indifference curves
and
contract curves.