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Economic Affairs – August 1 to 15

RBI relaxes External Commercial Borrowing norms for corporates, non-banking lenders

In more liquidity easing measures, the Reserve Bank has liberalised the end-use stipulations for the External Commercial Borrowings both for corporates as well as liquidity starved non-banking lenders. Corporate borrowers will be able to avail of ECBs to repay rupee loans taken for Capital expenditures if they are into manufacturing or infrastructure building and classified as Special Mention Account, SMA-2 or Non-Performing Asset, under any one-time settlement arrangement with lenders.

RBI slaps Rs 26 lakh fine on Mobikwik and Hip Bar

The Reserve Bank has imposed a fine of about 26 lakh rupees on two online payment solutions providers for non-compliance of regulatory guidelines.The central bank said in a release that Mobikwik Systems Private Limited has been slapped a fine of 15 lakh rupees while Hip Bar Pvt Ltd faced a fine of 10.85 lakh rupees. It stated that these two prepaid payment instrument (PPI) issuers were levied a monetary penalty for non-compliance of regulatory guidelines.

Eight core sectors growth drops to 0.2% in June

Growth of eight core industries dropped to 0.2 per cent in June mainly due to a contraction in oil-related sectors as well as in cement production. According to official data released in August 2019, the eight-core sector industries – coal, crude oil, natural gas, refinery products, fertiliser, steel, cement and electricity – had expanded by 7.8 per cent in June last year.


According to the data, crude oil output contracted by 6.8 per cent while the refinery segment de-grew by 9.3 per cent. The cement output declined by 1.5 per cent. Snapping its two-month declining trend, the production of fertilisers grew by 1.5 per cent. 

Hey! you might be wondering how much data you need to remember. So, here is the thing, if you can, there is nothing like that, but in case, you can’t which is very obvious, you just need to remember the trend like here the consolidated IIP is depicting a falling trend and the main contributor is contraction in refinery followed by cement.

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However, Steel production increased by 6.9 per cent and electricity production increased by 7.3 per cent during the month under review. During April-June, the eight sectors grew by 3.5 per cent compared to 5.5 per cent in the same period last year.

What is IIP?

Comparison of economic performance over time is a key factor in economic analysis and a fundamental requirement for policy-making. Short-term indicators play an important role in this context by providing such comparison indicators. Among the short term indicators, the Index of Industrial Production (IIP) has historically been one of the most well-known and well-used indicators. The all India IIP is a composite indicator that measures the short-term changes in the volume of production of a basket of industrial products during a given period with respect to that in a chosen base period. It is compiled and published monthly by the Central Statistics Office (CSO) with a time lag of six weeks from the reference month.

Importance of IIP -The all-India IIP provides a single representative figure to measure the general level of industrial activity in the economy on a monthly basis. It is used by Government agencies/ departments especially the Ministry of Finance, the Reserve Bank of India, etc. for policy purposes. The all-India IIP forms a crucial input for compilation of Gross Value Added of Manufacturing sector in Gross Domestic Product of the country on quarterly basis. It is also used extensively by financial intermediaries, policy analysts and private companies for various analytical purposes suited for their requirements.

The base year of IIP was revised to 2011-12 and now the composition of IIPs is Mining (14.3%), Manufacturing ( 77.6%) and Electricity (7.9%).

Govt approves proposal given by RBI on draft modalities of guarantee to operationalize Budget announcement

The government has approved a proposal given by the Reserve Bank of India on draft modalities of the guarantee to operationalize the Budget announcement related to NBFCs. 

This is in regard to one-time partial credit to the Public Sector Banks for purchase of high-rated assets of financially sound Non-banking financial companies. Disclosing this Finance Ministry officials said in New Delhi today, after the approval from the Government, the modalities would be set in motion by RBI. The Department of Financial Services would put in place an oversight mechanism for this scheme. 

RBI imposes penalty on seven public sector banks for violating norms

Reserve Bank of India has imposed a penalty ranging between one to two crore rupees on seven public sector banks for violating norms on fraud classification, bill discounting and monitoring of end use of funds. 

The central bank said in a press release that Bank of Baroda, Bank of India, Indian Overseas Bank and Union Bank of India were fined 1.5 crore rupees each, while Allahabad Bank and Bank of Maharashtra were penalised 2 crore rupees each. Oriental Bank of Commerce was penalised with 1 crore rupees.

RBI said in a release said that a scrutiny was carried out in the accounts of the companies of a group and it was observed that the banks had failed to comply with provisions of one or more of the directions issued by RBI. 

National Housing Bank makes available Rs. 10,000 crore for Housing Finance Companies; step to further ease fund flow to housing sector

Subsequent to the Union Budget, RBI had unveiled measures for banks to avail additional liquidity of ₹ 1,34,000 crores. Now, as announced in the Union Budget and as detailed by the Department of Economic Affairs, the backstop guarantee to banks for NBFC portfolios taken over by them has become effective. Banks will be utilising this guarantee support as per the contours of the scheme.

To further ease flow of funds to the housing sector, the National Housing Bank (NHB) is making available from today, a liquidity infusion facility of Rs. 10,000 Cr. for Housing Finance Companies (HFCs) as additional liquidity for individual housing loans, for affordable housing. Details of the facility are available on the NHB website. This facility shall be over and above the two existing refinance schemes of NHB.

Govt. approves modalities for one time partial credit guarantee to PSBs for purchase of high rated pooled assets of financially sound NBFCs

Considering the important role being played by Non-Banking Financial Companies (NBFCs) and Housing Finance Companies (HFCs) in the economic development, it was announced in the Budget Speech for 2019-20 that the Government would provide a one time six months’ partial credit guarantee to PSBs for the first loss of up to 10 percent to enable them to purchase pooled assets of financially sound NBFCs amounting to Rs. 1 lakh crore. This would ease the liquidity stress in the NBFC sector and increase the access of these NBFCs to bank finance, and, in turn enable them to continue to play their role in meeting the financing requirements of the productive sectors of the economy.

The Government has received a proposal from RBI on draft modalities of the guarantee to operationalize the above Budget announcement. The Government has accorded its approval to the modalities that would set in motion by RBI. The Department of Financial Services, Ministry of Finance would put in place an oversight mechanism for this scheme.

India Participates in 8th RCEP Inter-Sessional Ministerial Meeting in Beijing

The Commerce Secretary Dr. Anup Wadhawan led a delegation to the 8th RCEP Inter-sessional Ministerial meeting held in Beijing on 2-3 August 2019. During the meeting he highlighted India’s contribution in shaping the RCEP negotiations till date.  He advocated a spirit of understanding accommodation and flexibility towards reaching balanced outcome in the negotiations. India’s concerns regarding market access and other issues leading to imbalanced trade between some of the partner countries was specifically flagged during the meetings.

High Level Committee on CSR recommends CSR expenditure to be made tax deductible expenditure

The main recommendations of the high level committee include, making CSR expenditure tax deductible, provision for carry forward of unspent balance for a period of 3 – 5 years, aligning Schedule 7 with the SDGs by adopting a SDG plus framework (which would additionally include sports promotion, Senior Citizens’  welfare, welfare of differently abled persons, disaster management and heritage protection), balancing local area preferences with national priorities, introducing impact assessment studies for CSR obligation of 5 crore or more, and registration of implementation agencies on MCA portal.  The other recommendations include developing a CSR exchange portal to connect contributors, beneficiaries and agencies, allowing CSR in social benefit bonds, promoting social impact companies, and third party assessment of major CSR projects.

The Committee has emphasized on not treating CSR as a means of resource gap funding for government schemes.  The Committee discourages passive contribution of CSR into different funds included in Schedule VII of the Act.  It has emphasized on CSR spending as a board driven process to provide innovative technology based solutions for social problems. 

The High Level Committee on CSR was constituted in October, 2018 under the Chairmanship of Secretary (Corporate Affairs) to review the existing CSR framework and make recommendations on strengthening the CSR ecosystem, including monitoring implementation and evaluation of outcomes. 

India’s Foreign Trade: July 2019

India’s overall exports (Merchandise and Services combined) in April-July 2019-20 are estimated to be USD 181.47billion, exhibiting a positive growth of 3.13per cent over the same period last year. Overall imports in April-July 2019-20 are estimated to be USD 214.37billion, exhibiting a negative growth of 0.45per cent over the same period last year.

India’s Foreign Trade April-July 2019