current affairs handout(economics- lecture no. 5 & 6) by

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CURRENT AFFAIRS HANDOUT (ECONOMICS- Lecture No. 5 & 6) by Jayant Parikshit

Question: Consider the following about e-RUPI: 1. It a social service voucher system, to ensure the reach of particular benefit to the

eligible beneficiaries. 2. e-RUPI are like e-gift cards, which are prepaid in nature. 3. These e-vouchers will be person and purpose-specific. 4. Even if one does not have a bank account or a digital payment app or a smartphone

can benefit from these vouchers. Choose the correct answer:

a. Only1 b. Both1&2 c. 1,2&3 d. 1,2,3&4

Question: Consider the following statements about e-RUPI:

1. e-RUPI is a form of digital currency. 2. e-RUPI can be issued only by a government agencies. Corporates can’t issue them. 3. e-RUPI’s unique feature is it’s ability to permit direct cash-out or peer-to-peer transfer. 4. e-RUPI system doesn’t require any bank.

Choose the correct option: a. Only1 b. Both1&2 c. 2,3&4 d. None of these

Question-3: Consider the following statements about SDR:

1. It is like a global currency designed by IMF. 2. It is used as a unit of account of IMF. 3. It is neither a claim nor a potential claim on freely usable currency of IMF members.

Choose the correct option: a. Only1 b. Only2 c. Both1&2 d. 1,2&3

Question-4: IMF provides concessional loans to poor countries seeking help. Which of the following are the eligibility conditions for the same:

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1. The country must meet the threshold criterion of per capita income set by IBRD of World Bank.

2. The country is isolated from global financial market. Choose the correct option:

a. Only1 b. Only2 c. Both1&2 d. None of these

Question-5: Consider the following statements about disinvestment & privatisation:

1. In disinvestment, both ownership & management are transferred to a private party. 2. In privatisation, ownership is necessarily transferred but management may or may

not be transferred. Choose the correct option:

a. Only1 b. Only2 c. Both1&2 d. None of these

ANSWERS:

§ 1-d § 2-d § 3-b § 4-d (here, the country should not be isolated but generally is unable to access global

capital market on durable basis, i.e. consistently). § 5-d (Disinvestment = transfer of ownership + management may or may not be

transferred. In general ,management is also transferred but it might not be done in many cases of disinvestment. Privatisation = Both ownership & Management are transferred)

TOPICS COVERED v Global Manufacturing Index-2021 v e-RUPI v IMF & General Quota SDR v Terms frequently used in newspaper articles: Net Worth (NW),

Turnover, Net Sales, Gross profit, Net Profit v Public Sector Enterprises (PSEs) & Disinvestment- Basic Framework

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GLOBAL MANUFACTURING INDEX-2021

§ Cushman & Wakefield’s 2021 Global Manufacturing Risk Index assesses the most advantageous locations for global manufacturing among 47 countries in Europe, the Americas and Asia Pacific.

§ Under this report, countries are evaluated based on four key areas:

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1. Bounce Back: Projected ability to restart manufacturing operations as vaccines are rolled out and business begins to return to normal. It is measured by two indicators- IMF’s GDP forecast & percentage of population vaccinated.

2. Conditions: Business environment, including the availability of talent/labour and access to markets

3. Costs: Operating costs including labour, electricity and real estate 4. Risks: Political, economic and environmental

GLOBAL RANKS & TOP PERFORMERS-2021

§ China has retained its top position and continues to diversify its manufacturing base. China continues to diversify its base to move up the value chain to focus on telecom, high-tech, and computers. Guangdong and Jiangsu regions are spearheading its electronic components and automotive manufacturing, while Zhejiang and Liaoning focus on chemicals and natural resources.

§ The US is a desirable hub as it offers a large consumer market as well as incentives at both state and federal levels. But its rapid adoption of technology and policies could make it a tough competitor to China.

INDIA’S RANK: Factors Responsible for Improvement in India’s Ranking: § The report mentions that one of the biggest reasons for

the increasing interest of manufacturers in India is the country’s ability in meeting outsourcing requirements

§ Many initiatives have been taken by the Indian government and other related authorities to make the country a manufacturing hub and self-dependent. These include: v Atmanirbhar Bharat Abhiyan v Make in India v Skill India Mission v Steps for MSMEs

§ The growing focus on India can also be attributed to India’s operating conditions and cost competitiveness.

§ India has a huge population, which means a younger workforce with innovative capabilities that has the potential to fuel the country’s manufacturing sector.

§ The improvement in ranking can be also attributed to plant relocations from China to other parts of Asia due to an already established base in pharma, chemicals and engineering sectors. Also, these factors continue to be at the centre of the US-China trade tensions.

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INDIA’S CONCERN:

§ In the bounce back rating that takes into account a country’s ability to restart its manufacturing sector, India has been clubbed with Sri Lanka, Mexico, Vietnam, Indonesia, Bulgaria, Thailand, Tunisia, Peru, Philippines and Venezuela.

§ In cost scenario, India and Vietnam were overtaken by Indonesia, while China retained its lead position. India slipped to the third rank, while Indonesia moved to the second from the fifth spot.

§ But when it comes to the risk scenario that takes into account lower levels of economic and political risks, India is nowhere near the top. India has been clubbed along with Malaysia, Belgium, Indonesia, Bulgaria, Romania, Thailand, Hungary, Colombia, Italy, Peru and Vietnam.

e-RUPI What is e-RUPI?

§ It a social service voucher system, to ensure the reach of particular benefits to the eligible beneficiaries without any discrepancies and delay.

§ It is a QR code or SMS string-based e-voucher, which is delivered to the mobile of the beneficiaries. The users of this seamless one-time payment mechanism will be able to redeem the voucher without a card, digital payments app or internet banking access, at the service provider.

§ e-RUPI is a cashless and contactless person- and purpose-specific digital payment solution. e-RUPI can be issued by a government or by corporates to their employees for targeted use as it only allows purchase from merchant outlets, but does not permit direct cash-out or peer-to-peer transfer.

Who developed it?

§ It has been developed by the National Payment Corporation of India (NPCI), with the support of the Department of Financial Services, the Ministry of Health and Family Welfare, and the National Health Authority.

How to use e-RUPI vouchers?

§ A beneficiary will be required to show the QR code or the SMS message to the merchant, who will scan the same and a verification code will be sent to the beneficiary’s phone number. The latter will have to share the code with the merchant and the payment will be successful.

§ These vouchers are like e-gift cards, which are prepaid in nature. The code of the cards can be shared either via SMS or the OR code can be shared. These e-vouchers will be person and purpose-specific. Even if one does not have a bank account or a digital payment app or a smartphone can benefit from these vouchers.

Who can issue e-RUPI?

§ Any government agency and corporation can generate e-RUPI vouchers via their partner banks.

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Where will e-RUPI vouchers be used?

§ These vouchers will be used mostly for health-related payments. meaning if they are released by the government for the purpose of vaccination, then they can be redeemed only for that. Corporates can issue these vouchers for their employees.

Advantages:

§ e-RUPI voucher is going to play a huge role in making DBT more effective in digital transactions in the country and will give a new dimension to digital governance.

§ This will help everyone in targeted, transparent and leakage-free delivery. § The main objective and long-term vision behind e-RUPI is to reach 190 million unbanked citizens,

fold them into a formal financial system, and close part of the digital gap. This digital payment system can provide equal access to financial, healthcare, and welfare services to each and every citizen of our country

§ Aimed at bridging the digital gap among the unbanked population, the beneficiaries or users of this payment mechanism will not require a card, digital payments app, or internet banking access to redeem the voucher.

§ e-RUPI transaction process is said to be secure and will be keeping the details of the beneficiaries completely confidential, maintaining their privacy.

§ It will not only make them more efficient, but will also enable greater transparency and accountability.

What are loopholes in e-RUPI?

§ With the beneficiary not required to disclose their identity, these vouchers are also likely to be claimed by other people.

§ The government has maintained the privacy issue here but if the merchant doesn’t cross-check someone’s identity then anyone can claim these benefits.

Which nations have them?

§ The US, South Korea and several other countries have used similar voucher-based incentives for welfare services.

§ Few states in the US have implemented a digital voucher-based system for educational institutions to create targeted delivery structures. But no country has implemented an e-voucher system on a massive scale in the past.

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INTERNATIONAL MONETARY FUND (IMF)

Jayant Parikshit (Vajiram & Ravi) 22

Jayant Parikshit (Vajiram & Ravi) 23

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SPECIAL DRAWING RIGHTS (SDRs):

§ The Special Drawing Right (SDR) is an interest-bearing international reserve asset created by the IMF in 1969 to supplement other reserve assets of member countries.

§ The SDR is based on a basket of international currencies comprising the U.S. dollar, Japanese yen, euro, pound sterling and Chinese Renminbi.

§ It is not a currency, nor a claim on the IMF, but is potentially a claim on freely usable currencies of IMF members.

§ The value of the SDR is set daily by the IMF on the basis of fixed currency amounts of the currencies included in the SDR basket and the daily market exchange rates between the currencies included in the SDR basket.

§ SDRs are only allocated to IMF members that elect to participate in the SDR Department. Currently all members of the IMF are participants in the SDR Department.

WHO CAN HOLD SDRs?

§ SDRs can be held and used by member countries, the IMF, and certain designated official entities called "prescribed holders" (see below)—but it cannot be held, for example, by private entities or individuals.

15 prescribed holders:

a. 4 central banks (European Central Bank, Bank of Central African States, Central Bank of West African States, and Eastern Caribbean Central Bank)

b. 3 intergovernmental monetary institutions (Bank for International Settlements, Latin American Reserve Fund, and Arab Monetary Fund)

c. 8 development institutions (African Development Bank, African Development Fund, Asian Development Bank, International Bank for Reconstruction and Development and the International Development Association, Islamic Development Bank, Nordic Investment Bank, and International Fund for Agricultural Development)

WHAT IS A GENERAL SDR ALLOCATION?

§ An SDR allocation is a way of supplementing Fund member countries’ foreign exchange reserves, allowing members to reduce their reliance on more expensive domestic or external debt for building reserves.

§ The IMF has the authority to approve "general allocations" of SDRs to participants in its SDR Department (currently, all members of the IMF) in proportion to their quotas in the IMF.

SDRs general allocations so far:

1. SDR 9.3 billion in 1970–72

2. SDR 12.1 billion in 1979–81

3. SDR 161.2 billion in 2009

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4. A special one-time allocation of SDR 21.5 billion on September 9, 2009 to correct for the fact that members that had joined after 1981 had never received an allocation.

5. SDR 456.5 billion (= US$650 bn) was allocated on August 23, 2021.

Note: In addition, new members to the Fund receive an SDR allocation upon their participation in the SDR Department.

$ 650bn ALLOCATION:

§ General allocations of SDRs are distributed across the IMF membership in proportion to IMF quota shares . On this basis, the share of emerging market and developing economies is about 42.2 percent (about USD 275 billion), of which 3.2 percent (about USD 21 billion) is for low-income countries.

INDIA & $650bn ALLOCATION:

§ IMF has made an allocation of SDR 12.57 billion (equivalent to around $17.86 billion at the latest exchange rate) to India on August 23, 2021.

§ This allocation is about 2.75 per cent of the overall 456.5 billion SDRs general allocation made to the Fund's member countries. IMF has a membership of 190 countries.

§ As per RBI, following the allocation, India’s total SDR holdings now stand at SDR 13.66 billion (equivalent to around $19.41 billion at the latest exchange rate) as of August 23, 2021.

What happens to the SDRs once they are allocated? What can they be used for?

§ The IMF's SDR Department keeps records of SDR allocations to members and holdings of SDRs by members and prescribed holders; the SDR Department is also the channel through which all transactions and operations involving SDRs are conducted.

§ Once allocated, members can hold their SDRs as part of their foreign exchange reserves or sell or use part or all of their SDR allocations. Members can exchange SDRs for freely usable currencies among themselves and with prescribed holders; such exchange can take place under a voluntary arrangement or under a mandatory designation plan on members with sufficiently strong external positions. Since 1987, the SDR market has functioned through voluntary arrangements, without the need to activate the designation plan.

TERMS & CONCEPTS FROM NEWSPAPER § NET WORTH = Asset – Liability § TURNOVER = Sales made by a business over a period of time § NET SALES = Sales – any allowance, disount or return/exchange § GROSS PROFIT = Revenue – Cost of goods sold (COGS) § NET PROFIT = Gross Profit – All operating, interest and tax expenses

NEW FUND BEING CREATED: Resilience and Stability Trust is being planned for redirecting new SDR allocations to vulnerable low-middle-income countries and small island economies.

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PUBLIC SECTOR ENTERPRISES (PSUs), DISINVESTMENT & PRIVATISATION

BASIC DEFINITIONS & CONCEPTS

PUBLIC SECTOR ENTERPRISES OR UNITS (PSEs/PSUs):

§ PSUs are organisations established by the government of India as government companies. In a PSU company, most shares (51% or more), are owned by the central or state government.

§ PSUs are classified as central public sector enterprises (CPSUs, CPSEs) or state-level public enterprises (SLPEs).

DISINVESTMENT

§ The disinvestment of Public Sector Undertaking (PSU) means the sale of public sector equity leading to a dilution of government’s stake. Businesses and governments resort to divestment generally as a way to pare losses from a non-performing asset, exit a particular industry, or raise money.

PRIVATISATION:

§ Privatisation implies a change in the ownership resulting in a change of management while disinvestment may or may not result into a change of management.

* Note: Disinvestment may or may not result in Privatisation.

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