Related Topic in KAS Prelims Syllabus:
Economy [Paper-II]: Indian Public Finance, Stock exchange and Share market
- Cabinet Committee on Economic Affairs chaired by Prime Minister has given its approval for creation and launch of Bharat Bond Exchange Traded Fund (ETF).
- It is India’s first corporate bond exchange traded fund, comprising debt of state-run companies.
- It will create an additional source of funding for Central Public Sector Undertakings (CPSUs) Central Public Sector Enterprises (CPSEs), Central Public Financial Institutions (CPFIs) and other Government organizations.
What is Bharat Bond ETF?
- It will be a basket of bonds issued by central public sector enterprises/undertakings or any other government organization bonds. (Initially, all AAA rated)
- It will invest in a portfolio of bonds of CPSE, CPSU, CPFI or any other Government organizations that matures on or before the maturity date of the ETF
ETF will be a basket of bonds issued by CPSE/CPSU/CPFI/any other Government organization Bonds (Initially, all AAA rated bonds)
- Tradable on exchange
- Small unit size Rs 1,000
- Transparent Net Asset Value (Periodic live NAV during the day)
- Transparent Portfolio (Daily disclosure on website)
- Low cost (0.0005%)
- Each ETF will have a fixed maturity date
- The ETF will track the underlying Index on risk replication basis, i.e. matching Credit Quality and Average Maturity of the Index
- As of now, it will have 2 maturity series – 3 and 10 years. Each series will have a separate index of the same maturity series.
- Index will be constructed by an independent index provider – National Sock Exchange
- Different indices tracking specific maturity years – 3 and 10 years
- It will provide safety (underlying bonds are issued by CPSEs and other Government owned entities), liquidity (tradability on exchange) and predictable tax efficient returns (target maturity structure).
- It will also provide access to retail investors to invest in bonds with smaller amount (as low as Rs. 1,000) thereby providing easy and low-cost access to bond markets.
- This will increase participation of retail investors who are currently not participating in bond markets due to liquidity and accessibility constraints.
- Tax efficiency compared to Bonds as coupons from the Bonds are taxed at marginal rates.
- Bond ETFs are taxed with the benefit of indexation which significantly reduces the tax on capital gains for investor.
How it will benefit CPSEs?
- It would offer CPSEs, CPSUs, CPFIs and other Government organizations an additional source of meeting their borrowing requirements apart from bank financing.
- It will expand their investor base through retail and HNI participation which can increase demand for their bonds.
- With increase in demand for their bonds, these issuers may be able to borrow at reduced cost thereby reducing their cost of borrowing over a period of time.
- Bond ETF trading on the exchange will help in better price discovery of the underlying bonds.
- Since a broad debt calendar to assess the borrowing needs of the CPSEs would be prepared and approved each year, it would inculcate borrowing discipline in the CPSEs at least to the extent of this investment.
How it will impact Bond Market in India?
- Target Maturity Bond ETF is expected to create a yield curve and a ladder of Bond ETFs with different maturities across calendar years.
- ETF is expected to create new eco-system – Market Makers, index providers and awareness amongst investors – for launching new Bond ETFs in India.
- This will eventually increase the size of bond ETFs in India leading to achieving key objectives at a larger scale – deepening bond markets, enhancing retail participation and reducing borrowing costs.
Related Topic in KAS Prelims Syllabus:
Economy [Paper-II]: Indian Public Finance, Recent fiscal and monetary policy issues and their impact, structure of Indian Banking and Non- Banking Financial Institutions and reforms
Monetary Policy Committee (MPC) of RBI maintained status quo on policy rates in its fifth bimonthly policy review, citing inflation concerns despite economic growth continuing to slow down.
Fifth Bimonthly Monetary Policy Statement
- Reserve Bank of India (RBI) released its fifth bi-monthly monetary policy statement for 2019-20 in which the Monetary Policy Committee (MPC) decided to keep the policy repo rate unchanged at 5.15%.
- Consequently, the Reverse Repo Rate under the LAF will remain unchanged at 4.90 per cent, and the Marginal Standing Facility (MSF) rate and the Bank Rate at 5.40 per cent.
- MPC decided to continue with the accommodative stance as long as it is necessary to revive growth, while ensuring that inflation remains within the target.
- These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth.
- The committee acknowledged that growth has weakened further, adding that removing impediments to future investments is the need of the hour.
- The real GDP growth for 2019-20 has been revised downwards from 6.1 per cent in the October policy to 5.0 per cent.
- RBI also revised its inflation forecast for the second half of the current fiscal to 4.7-5.1% from 3.5-3.7%. This comes after consumer price inflation quickened to 4.62% in October 2019, breaching the 4% target for the first time since July 2018.
- Despite cutting policy rates by 135 basis points so far in 2019, new loans have seen a transmission of only 44 basis points. Thus, MPC would rather wait for the lending rate to reflect full transmission before going ahead with a rate cut.
About Monetary Policy Committee (MPC)
- Central Government amended the RBI Act in June 2016 to hand over the job of monetary policy-making in India to a newly constituted Monetary Policy Committee (MPC).
- It is a committee headed by RBI Governor, which is entrusted with the task of fixing the benchmark policy interest rate (repo rate) to contain inflation within the specified target level.
- MPC replaced the earlier system where the RBI governor, with the aid and advice of his internal team and a technical advisory committee, has complete control over monetary policy decisions.
- The first meeting of the MPC was held on October 3 and 4, 2016 in the run up to the Fourth Bi-monthly Monetary Policy Statement, 2016-17.
- The Reserve Bank’s Monetary Policy Department (MPD) assists the MPC in formulating the monetary policy.
Composition of MPC
- MPC will have six members – the RBI Governor (Chairperson), the RBI Deputy Governor in charge of monetary policy, one official nominated by the RBI Board and the remaining three members would represent the Government of India.
- The three central government nominees of the MPC appointed by the search cum selection committee will hold office for a period of four years and will not be eligible for re-appointment.
Decision Making at MPC
- The proceedings of MPC are confidential and the quorum for a meeting shall be four Members, at least one of whom shall be the Governor and in his absence, the Deputy Governor who is the Member of the MPC.
- The MPC takes decisions based on majority vote (by those who are present and voting). In case of a tie, the RBI governor will have the second or casting vote.
- The decision of the Committee would be binding on the RBI.
- As per the Act, RBI has to organise at least four meetings of the MPC in a year.
Related Topic in KAS Prelims Syllabus:
Economy [Paper-II]: Indian Public Finance, Structure of Indian Banking and Non- Banking Financial Institutions and reforms
- Prevention of Money Laundering Act (PMLA) Court has declared PNB scam accused Nirav Modi a fugitive economic offender under the Fugitive Economic Offenders Act.
- In January 2019, Vijay Mallya was declared as an FEO. He is the first person to be declared so under the Fugitive Economic Offenders Act. The order was passed under Section 2F of FEOA by the PMLA court.
Who is a Fugitive Economic Offender (FEO)?
A fugitive economic offender is an individual who has committed some specified offence(s) involving an amount of one hundred crore rupees or more and has absconded from India or refused to come back to India to avoid or face criminal prosecution in India.
Fugitive Economic Offenders Act (FEOA)
- FEOA, which became a law on July 31, 2018, allows for declaring a person as an offender after an arrest warrant has been issued against the individual and the value of offences exceeds 100 crore.
- Another condition for declaring a person a fugitive economic offender (FEO) is when the individual refuses to return to the country to face prosecution in the specified cases.
- As per the law, a special court can order the confiscation of a FEO’s properties, including those which are benami, and the proceeds of crime in and outside India.
- Once properties are confiscated, the Union government has the right over them, and it can dispose them after 90 days.
Significance of FEOA
- The Act would deter economic offenders from evading the process of Indian law by remaining outside the jurisdiction of Indian courts.
- It is expected to re-establish the rule of law with respect to the fugitive economic offenders as they would be forced to return to India to face trial for scheduled offences.
- This would also help the banks and other financial institutions to achieve higher recovery from financial defaults committed by such fugitive economic offenders, improving the financial health of such institutions.
FACTS OF THE DAY
- Mahaparinirvan Diwas is observed on the 6th of December every year to mark the death anniversary of Dr BR Ambedkar.
- Dr BR Ambedkar was the chief architect of the Constitution of India.
- Parinirvan is one of the major principles and goals of Buddhism.
- The Sanskrit term (written in Pali as parinibbana) means “nirvana after death“, which refers to the achievement of nnirvana after the body dies.
- Dr Ambedkar passed away on December 6, 1956, just a few days after completing his last work, ‘The Buddha and His Dhamma’.
- His mortal remains were cremated at Dadar Chowpatty in Mumbai which is now known as Chaitya Bhoomi.
NATIONAL CAPITAL TERRITORY OF DELHI (RECOGNITION OF PROPERTY RIGHTS OF RESIDENTS IN UNAUTHORISED COLONIES) BILL, 2019
- Rajya Sabha passed the National Capital Territory of Delhi (Recognition of Property Rights of Residents in Unauthorised Colonies) Bill, 2019.
- The Bill recognises the property rights of residents of 1,731 unauthorised colonies and also provides some relief to the residents of such colonies in Delhi from registration charges.
- The properties in these colonies are at present not being registered by registration authorities.
- The Bill seeks to recognise and confer rights of ownership or transfer or mortgage to the residents of such colonies on the basis of power of attorney, agreement to sale, will, possession letter and other documents.
INVESTOR EDUCATION & PROTECTION FUND AUTHORITY (IEPFA)
- Investor Education & Protection Fund Authority (IEPFA) signed MOU with Bank of Baroda for Investor Awareness.
- It will help various investors who often fall prey to tempting offers for investments and Ponzi schemes.
- Government of India has established Investor Education and Protection Fund Authority in 2016 under the provisions of section 125 of the Companies Act, 2013.
- The Authority is entrusted with the responsibility of administration of the Investor Education Protection Fund (IEPF), make refunds of shares, unclaimed dividends, matured deposits/debentures etc. to investors and to promote awareness among investors.
NATIONAL FLORENCE NIGHTINGALE AWARD-2019
- Lini PN, the nurse from Kerala who died due to Nipah virus that she contracted while treating a patient last year during the Nipah outbreak, was posthumously awarded National Florence Nightingale Award-2019.
- National Florence Nightingale awards were instituted in the year 1973 by the Indian government as a mark of recognition for the meritorious services rendered by nurses.
- Lini had contracted the deadly Nipah Virus Disease after treating first index case of Nipah virus infection at EMS Memorial Cooperative hospital at Perambra, during the Nipah outbreak in May 2018.
- Apart from Lini, 35 other nurses were also awarded this year in two slots of 18 awardees each.
EXERCISE INDRA 2019
- Exercise INDRA 2019 is a joint, tri services exercise between India and Russia.
- It will be conducted in India from 10 -19 December 2019 simultaneously at Babina (near Jhansi), Pune, and Goa.
- The INDRA series of exercise began in 2003 and the First joint Tri Services Exercise was conducted in 2017.
- Company sized mechanised contingents, fighter and transport aircraft as well as ships of respective Army, Air Force and Navy wiil participate in this exercise of ten days duration.
- The exercise will consist of a five day training phase consisting of a comprehensive training curriculum.
- The espirit-de-corps (a feeling of pride and mutual loyalty shared by the members of a group) and goodwill shall be the key areas during the exercise which will facilitate further strengthening of bonds between the defence forces of India and Russia.