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<div>An interest rate corridor or a policy corridor refers to the range within which the operating target of the monetary policy - a short term interest rate, say the weighted average call money market rate - moves around the [http://arthapedia.in/index.php?title=Policy_Rate policy rate] announced by the central bank.<br />
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Generally a corridor should have a discount rate or standing lending facility at the upper bound and an uncollateralised<sup class="reference">[[#ref1|[1]]]</sup> deposit facility at the lower bound. The word standing facility means a facility to access funds at a specified rate from the Central Bank (or deposit funds with Central Bank) on a standing basis (i.e. non ad-hoc, operational throughout the year on a permanent basis). The idea of a standing lending facility is to enable banks to obtain funding from the central bank when all other options have been exhausted. Uncollateralised deposit facility (this is also a standing facility though in many economies generally the word “standing facility” is used only for indicating the permanent window for borrowing funds) provides an option for banks to park their excess funds, for which there are no takers in the market. Since the funds are parked with the central bank, there is generally no need to take securities as collateral.<br />
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The policy rate is the key lending rate of the central bank. It is generally the [http://arthapedia.in/index.php?title=Repo_Rate_and_Reverse_Repo_Rate repo rate] though the nomenclature varies from country to country. If a bank has faced shortage of liquidity, then it can approach the Central bank with acceptable collaterals to pledge and borrow funds at the repo rate. The spreads around the policy rate for determination of the corridor is generally fixed such that any change in the policy rate automatically gets translated into corresponding changes in the standing facility rates. Notwithstanding the width of the formal corridor charted by the two standing facilities, the overnight interest rate, in practice, varies around the policy rate in a narrow corridor.<br />
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Monetary policy is generally conducted with a single policy rate in many countries. The policy rate is set within a corridor charted by<br />
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*A standing collateralised marginal lending facility available throughout the day at a rate higher than the Policy rate that provides the upper bound; and<br />
*A standing uncollateralised deposit facility at a rate lower than the Policy rate that provides the lower bound to the corridor. <br />
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The two standing facilities provided by the European Central Bank may be seen [https://www.ecb.europa.eu/mopo/implement/sf/html/index.en.html here]. Although in the US there is no standing deposit facility, the interest rate paid on excess reserves provides a floor and the discount rate provides the ceiling.<br />
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The market logically has to operate within the interest rate corridor as a trader having excess cash would demand the minimum rate from a borrower of funds, which it can get from the Central Bank by depositing its excess cash. The maximum rate he can charge would be below the standing facility rate at which central bank gives liquidity to the participants at a penal rate.<br />
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The width of the corridor is generally based on the following two considerations. <br />
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*First, it should not be so wide as to induce volatility in short-term money market rates. <br />
*Second, it should not be so narrow that it retards the development of the short-term money market by taking away the incentive from market participants to deal amongst themselves before approaching the central bank.<br />
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The width of the corridor fixed by countries generally varies from 50 basis points to 200 basis points.In India, the width of the corridor has been substantially brought down from 200 bps to 50 bps over the last few years.<br />
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Just as the spread between commercial banks deposit and lending rates is a measure of the cost of bank intermediation, the spread between the parameters of the corridor is measure of the cost of central bank intermediation.<br />
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For most countries, the policy rate is placed symmetrically at the centre of the corridor. Countries like New Zealand, have asymmetric spread around the policy rate.<br />
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The money market rates should ideally be in the middle of the corridor, hovering around the policy rate.<br />
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The overnight operations are generally conducted at a fixed rate tender at the Policy Rate to clearly signal the stance of monetary policy. The longer-term repo operations and fine-tuning operations are conducted at a variable rate tender essentially as liquidity management operations. The longer-term operations and fine tuning operations are viewed essentially as liquidity management operations.<br />
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By changing the repo rate, the central banks indicate the interest rate direction. A shift in monetary policy can be signaled by adjusting the interest rate corridor. <br />
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For instance, widening of the corridor may imply tighter monetary policy stance as borrowing from central bank is relatively costlier than placing money with the central bank. <br />
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Frequent changing of the width of the corridor may create uncertainty and may also make it difficult to keep the target rate aligned to the policy rate. However, in extraordinary situations, when there is a need to incentivise or disincentivise market participants from accessing the standing lending facility or parking funds with the central banks, the width of the corridor could be changed.<br />
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A too-narrow corridor could increase the reliance of banks on the central bank and thus hamper the growth of the money market. On the other hand, too wide a corridor could give scope for volatility in the overnight interest rate which could impair the transmission of monetary policy. The guiding principle in the determination of the width of the corridor is that it should stabilise the overnight money market interest rate while facilitating the development of the money market so that the reliance of banks on central bank facilities comes down over time.<br />
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International experience suggested that the width of the corridor generally remains fixed but the recent global financial crisis saw countries changing the width of the corridor<sup class="reference">[[#ref2|[2]]]</sup>. <br />
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There are a number of ways to operate an interest rate corridor, depending on the specific country circumstances, liquidity forecasting abilities, state of development of the financial markets etc. Some of the main alternative interest rate corridor and policy rate configurations include:<br />
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*'''A corridor with no official central bank policy rate:''' The central bank may, or may not, have an internal target for the interbank rate.<br />
*'''A floor system''' where the rate on the central bank deposit facility that constitutes the floor of the corridor both serves as the target for the interbank rate and as the official central bank policy rate.<br />
*'''A mid-rate corridor system''' where the policy rate either is an announced target for the interbank rate-and a central bank commitment to use open market operations (OMOs) to steer interbank rates to the target-or the rate the central bank uses to transact with its counterparts (the “OMO rate”). Typically, the policy rate is positioned in the middle of the corridor with the standing facility rates that constitutes the floor and ceiling of the corridor set at a fixed margin above and below the policy rate so that they move in tandem with changes in the policy rate.<br />
*'''A ceiling system''' where the rate on the central bank lending facility that constitutes the ceiling of the corridor both serve as the target for the interbank rate and as the official central bank policy rate, somewhat similar to the "classical system" where the central bank discount rate, or Bank Rate, combined with OMOs were used to steer short-term market rates somewhat below the Bank Rate. Ceiling systems are not common anymore.<br />
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For a more detailed discussion on alternate regimes see [https://www.imf.org/external/np/seminars/eng/2014/oapbali/pdf/M3.pdf IMF Working paper]. <br />
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'''Interest Rate Corridor in India'''<br />
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In India, policy rate is the fixed repo rate announced by the central bank - Reserve Bank of India (RBI) - for its overnight borrowing/lending operations through its mechanism for managing short term liquidity - the [http://www.arthapedia.in/index.php?title=Liquidity_Adjustment_Facility_(LAF) Liquidity Adjustment Facility]. The Repo Rate is an instrument for borrowing funds by selling securities of the ''Central Government or a State Government or of such securities of a local authority'' as may be specified in this behalf by the Central Government or foreign securities, with an agreement to repurchase the said securities on a mutually agreed future date at an agreed price which includes interest for the funds borrowed.<br />
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<div style="flot:right; width:593px; margin:10px 0px 25px 0px;">[[File:interest-rc-pic1.jpg]]</div><br />
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The upper bound of the interest rate corridor in India is served by the [http://www.arthapedia.in/index.php?title=Marginal_Standing_Facility Marginal Standing Facility] (MSF) rate, which is the penal rate at which banks borrow money from the central bank and lower bound is served by the reverse repo rate, the rate at which banks park their surplus with RBI by purchasing the securities from central bank<sup class="reference">[[#ref3|[3]]]</sup>. (For more details on marginal standing facility rate, repo and reverse repo rates and policy rate please see the respective concepts in Arthapedia)<br />
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Other interest rates in the system like, inter-bank overnight call money rate, 7 and 14 day market repo and Collateralized Borrowing and Lending Obligations (CBLO) rates, form the short term money market rates in India. These rates typically hover around the policy rates - at the time of excess liquidity in the system, the rates are around the reverse repo rate while at the time of shortage, the same hovers around repo rate. At extremely tight liquidity conditions, these rates hug near to the MSF rate. The actual movement of rates during the period May 2015 to April 2016 is shown in the graph below. <br />
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<div style="flot:right; width:593px; margin:10px 0px 25px 0px;">[[File:interest-rc-pic2.jpg]]</div><br />
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Source: [http://dbie.rbi.org.in/DBIE/dbie.rbi?site=home RBI database]<br />
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The typical corridor used by RBI had been 200 basis points (100 basis point (bps) = 1%) or +/- 100 bps around the policy rate. In April 2016, RBI narrowed the policy rate corridor from +/-100 basis points (bps) to +/- 50 bps. Thus, MSF will be fixed 50 basis points above repo rate and Reverse repo would be fixed 50 basis points below Repo rate. This was done with a view to ensure finer alignment of the weighted average call rate or the overnight money market rates with the repo rate (which essentially means more effective transmission of monetary policy).<br />
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At present, the objective of meeting short term liquidity needs is being accomplished through the provision of liquidity by the Reserve Bank under its regular facilities - variable rate 14-day/7-day repo auctions equivalent to 0.75 per cent of banking system Net demand and Time Liabilities (NDTL), supplemented by daily overnight fixed rate repos (at the repo rate) equivalent to 0.25 per cent of bank-wise NDTL. Frictional and seasonal mismatches that move the system away from normal liquidity provision are addressed through fine-tuning operations, including variable rate repo/reverse repo auctions of varying tenors. Under the Marginal Standing Facility, the eligible entities may borrow up to 2% of their respective NDTL.<br />
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'''History of Interest rate corridor in India'''<br />
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The operating procedure of monetary policy in India has evolved over the years from regulation and direction of credit to liquidity management in a market environment. The focus on liquidity management arose particularly after the liberalisation of the economy and inflow of capital. Setting of an interest rate corridor in a formal manner thus started in India with the introduction of Liquidity Adjustment Facility in 1999. <br />
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In 1998, the Committee on Banking Sector Reforms (Narasimham Committee II) recommended the introduction of a Liquidity Adjustment Facility (LAF) under which the RBI should conduct auctions periodically. Accordingly, the RBI introduced an Interim Liquidity Adjustment Facility (ILAF) in April 1999 to minimize volatility in the money market by ensuring the movement of short-term interest rates within a reasonable range. Under the ILAF, the [http://arthapedia.in/index.php?title=Bank_Rate Bank Rate] acted as the refinance rate (i.e., the rate at which the liquidity was to be injected) and liquidity absorption was done through the fixed reverse repo rate announced on a day-to-day basis (At that point of time they were called as repo rate). An informal corridor of the call rate thus emerged with the Bank Rate as the ceiling and the reverse repo rate as the floor rate, thereby minimising the volatility in the money market. ILAF was expected to promote stability in money market activities and ensure that interest rates moved within a reasonable range.<br />
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With the introduction of revised LAF in 2004 (whereby the meaning of the hitherto used Repo and Reverse Repo rates were inter-changed), in effect from November 2004, all liquidity injections are made at the fixed repo rate and liquidity absorption at the fixed reverse repo rate, with the two rates intended to act as the upper and lower bound of the corridor, respectively. <br />
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The 2011 [https://www.rbi.org.in/scripts/PublicationReportDetails.aspx?ID=631 Report of the Working Group on Operating Procedure of Monetary Policy] (RBI, March 15, 2011; Chairman: Shri Deepak Mohanty)) paved the way for the installation of the current framework of interest rate corridor. Both the corridors designed earlier worked without a single policy rate. Depending on the liquidity situation either bank rate or repo rate or reverse repo rate assumed the role of policy rate. The operation of the LAF during April 2001 to February 2011 indicated that the repo and reverse repo rates were changed either separately or together 39 times, leading to changes in the corridor width 26 times. Hence, the committee recommended the following with respect to interest rate corridor. <br />
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*''Idea of operating the monetary system in a deficit mode''<br />
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The Working Group report stated that monetary transmission is substantially more effective in a deficit liquidity situation than in a surplus liquidity situation. If the banks have surplus funds, the commercial bank will have discretion as to whether they lend their surplus to the central bank at the policy rate or create more credit by lowering credit standard if the policy rate is not attractive and the banks have the risk appetite. In case of surplus, the central bank's ability to transmit its preferred interest rate structure (yield curve direction) into the market gets weakened. If the shortage is a continuing feature of the market, the central bank becomes a net creditor of the banking system and the effectiveness of the monetary policy is likely to be stronger. However, the level of acceptable shortage for effectiveness of the monetary policy is a debate in itself.<br />
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An empirical exercise carried out by the Group suggested that under deficit liquidity conditions, money market rates responded immediately to a policy rate shock. For example, a 100 basis points (bps) change in the repo rate caused around 80 bps change in the weighted average call rate over a month. However, the strength of the response is relatively small in a surplus liquidity situation: a 100 bps change in the reverse repo rate, which is the operational rate in a surplus liquidity situation, caused around 25 bps change in the weighted average call rate over a month. Given the substantially superior strength of monetary transmission in a deficit liquidity condition, the Group recommended that the RBI should operate the modified LAF in a deficit liquidity mode to the extent feasible.<br />
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A simulation exercise carried out by the Group showed that at a liquidity deficit of one per cent of NDTL, the weighted average of money market rates exceeded the repo rate, on average, by around 15 bps. Similarly, with a liquidity surplus of one per cent of NDTL, the weighted average of money market rates was lower by about 20 bps. But when the liquidity deficit increased beyond one per cent of NDTL, the impact on the weighted average of money market rates was non-linear. For example, for a deficit at 1.25 per cent of NDTL, the deviation in weighted average of money market rates was 40 bps which rose to 75 bps for deficits at 1.5 per cent of NDTL and became unbounded at higher deficit levels. The Group was of the view that the objective of the LAF should be to stabilize short-term interest rates around the chosen policy rate for the smooth transmission of monetary policy. The Group, therefore, recommended that the liquidity level in the LAF should be contained around (+)/ (-) one per cent of NDTL. If the liquidity surplus/deficit persists beyond (+)/ (-) one per cent of NDTL, the RBI should use alternative instruments to supplement the LAF operations for effective monetary transmission.<br />
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*''Setting a single policy rate'' <br />
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However, it poses a major communication challenge to clearly articulate the stance of monetary policy, particularly in a situation when liquidity alternates between the surplus mode and the deficit mode in quick succession. World over central banks generally follow a corridor approach and they have a single policy rate as the system mostly operates in a deficit mode. As the Working Group suggested that the RBI operate the LAF in a deficit mode, it also recommended that the repo rate be the single policy rate. <br />
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*''Bank Rate and Reverse Repo rates acting as the ceiling of the Corridor''<br />
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Further, the Group recommended that the repo rate should operate within a corridor so that the overnight interest rate moves around the repo rate in a narrow informal bound by redesigning the corridor. The Group recommended that the Bank Rate be re-activated as a discount rate with a spread over the repo rate. Once the policy rate changes, the Bank Rate should change automatically with a fixed spread over the repo rate.<br />
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The Group recommended that the reverse repo facility at which the RBI absorbs liquidity from the system should constitute the lower bound of the corridor. However, the reverse repo rate should not act as a policy rate as at present and should be determined as a negative spread over the repo rate. Moreover, as the Group envisaged the reverse repo facility more in the nature of a standing deposit facility, it suggested that the reverse repo rate should be such that it does not incentivise market participants to place their funds with the RBI and this needs to be kept in view while designing width of the corridor.<br />
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*''Creation of an Exceptional standing facility at the Bank Rate''<br />
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The Group recommended the institution of a collateralised Exceptional Standing Facility (ESF) at the Bank Rate up to one per cent of the NDTL of banks carved out of their required SLR portfolio. Under sub-section (8) of Section 24 of the Banking Regulation Act, 1949, the RBI is allowed to waive payment of the penal interest on account of default in the maintenance of the SLR by a bank. The idea of liquidity facility up to one per cent of NDTL by waiving the penalty for the SLR default is to ensure that interest rates in the overnight inter-bank market do not spike for want of eligible collateral with some banks. The Group, therefore, recommended that the RBI should grant general exemption from payment of penal interest rate for the proposed ESF.<br />
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*''Suitable corridor width'' <br />
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An empirical exercise carried out by the Working Group showed a positive significant correlation of corridor width with weighted average overnight call rate. Controlling for liquidity, a wider corridor was associated with greater volatility in the overnight interest rate. In India, the corridor width has varied between 100 and 300 bps. An international survey suggests a corridor width of 50 to 200 bps. The Group also examined the effect of corridor width on weighted average call money rate volatility which indicated that a corridor width in the range of 150–175 bps could be optimal. Considering these estimates and keeping in view the optimality at containing liquidity within (+)/(-) one per cent of NDTL, the Group recommended 150 bps for the corridor width.<br />
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*''Spread of the corridor around the policy rate''<br />
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Assuming a liquidity surplus scenario (due to capital flows and growth prospects) Group recommended an asymmetric corridor with the spread between the policy repo rate and reverse repo rate twice as much as the spread between the policy repo rate and the Bank Rate. That is, with a corridor width of 150 bps, the Bank Rate should be at ‘repo rate plus 50 bps’ and the reverse repo rate should be at ‘repo rate minus 100 bps’. This will ensure that market participants have an incentive to deal among themselves before approaching the RBI.<br />
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Accordingly, an operating framework of monetary policy was implemented on [https://www.rbi.org.in/scripts/NotificationUser.aspx?Id=6376&Mode=0 3 May 2011] on the basis of recommendations of the Working Group on Operating Procedure of Monetary Policy (RBI, 2011). The framework had the following distinguishing features<sup class="reference">[[#ref4|[4]]]</sup>:<br />
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*The weighted average overnight call money rate will be the operating target of monetary policy.<br />
*There will henceforth be only one independently varying policy rate and that will be the repo rate.<br />
*The reverse repo rate will continue to be operative but it will be pegged at a fixed 100 basis points below the repo rate. Hence, it will no longer be an independent rate.<br />
*A new Marginal Standing Facility (MSF) will be instituted from which Scheduled Commercial Banks (SCBs) can borrow overnight up to one per cent of their respective NDTL. The rate of interest on amount accessed from this facility will be 100 basis points above the repo rate. This facility is expected to contain volatility in the overnight inter-bank market.<br />
*As per the above scheme, the revised corridor will have a fixed width of 200 basis points. The repo rate will be in the middle. The reverse repo rate will be 100 basis points below it and the MSF rate 100 basis points above it.<br />
*While the width of the corridor is fixed at 200 basis points, the Reserve Bank will have the flexibility to change the corridor, should monetary conditions so warrant.<br />
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Thus, till the monetary policy statement of [https://www.rbi.org.in/scripts/NotificationUser.aspx?Id=6376&Mode=0 3.5.2011], LAF Repo and reverse repo rates were being fixed separately. In this 2011 monetary policy statement, based on the working group report, it was decided that the reverse repo rate would not be announced separately but will be linked to repo rate. The reverse repo rate was proposed to be kept at 100 basis points below repo rate (100 basis points = 1%). Thus, reverse repo ceased to exist as an independent rate.<br />
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The +/- 100 basis points system with MSF and Reverse Repo as the upper and lower bounds continued till April 2016, with the width of the corridor remaining at 200 basis points, except for some brief periods in between.<br />
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The Reserve Bank’s liquidity framework was changed significantly in September 2014 in order to implement key recommendations of the [https://rbi.org.in/Scripts/PublicationReportDetails.aspx?ID=743 Expert Committee to Revise and Strengthen the Monetary Policy Framework] (Chairman: Dr. Urjit R Patel), RBI, January 2014). Based on the committee report, it was decided that RBI would adopt inflation targeting using repo rate as the policy rate and by maintaining a tight grip on the other interest rates. <br />
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Urjit Patel Committee, while recommending [http://www.arthapedia.in/index.php?title=Inflation_Targeting_In_India inflation targeting] regime for the central bank advised continuing with the above operating framework in a broad manner. In the first or transitional phase, the weighted average call rate will remain the operating target, and the overnight LAF repo rate will continue as the single policy rate. The reverse repo rate and the MSF rate will be calibrated off the repo rate with a spread of (+/-) 100 basis points, setting the corridor around the repo rate. The repo rate will be decided by the [http://www.arthapedia.in/index.php?title=Monetary_Policy_Committee_(MPC) Monetary Policy Committee] (MPC) through voting. The MPC may change the spread, which however should be as infrequent as possible to avoid policy induced uncertainty for markets. Provision of liquidity by the RBI at the overnight repo rate will, however, be restricted to a specified ratio of bank-wise net demand and time liabilities (NDTL), that is consistent with the objective of price stability. As the 14-day term repo rate stabilizes, Committee suggested that, central bank liquidity should be increasingly provided at the 14-day term repo rate and through the introduction of 28-day, 56-day and 84-day variable rate auctioned term repos by further calibrating the availability of liquidity at the overnight repo rate as necessary. The objective should be to develop a spectrum of term repos of varying maturities with the 14-day term repo as the anchor.<br />
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Accordingly, in the [https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=36654 April 2016 monetary policy] RBI reviewed its monetary policy stance. It was stated by RBI that, it is possible for the Reserve Bank to keep the system closer to balance on average without the operational rate falling significantly, given that new instruments such as variable rate reverse repo auctions allow the Reserve Bank to suck out excess short term liquidity from the system without the excess liquidity being deposited with the Reserve Bank through overnight fixed rate reverse repo. Thus, RBI found that the past rationale for keeping the system in significant average liquidity deficit is no longer as compelling, especially when the policy stance is intended to be accommodative. Moreover, given that the Reserve Bank’s market operations rather than depositing or borrowing at standing facilities determine the operational interest rate, the policy rate corridor could be narrowed, as suggested by the Expert Committee.<br />
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Thus, in the [https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=36654 April 2016 monetary policy statement], RBI narrowed the policy rate corridor from +/-100 basis points (bps) to +/- 50 bps. Thus, MSF will be fixed 50 basis points above repo rate and Reverse repo would be fixed 50 basis points below Repo rate; i.e., the width of the corridor came down from 200 bps to 100 bps. This was done with a view to ensure finer alignment of the weighted average call rate or the overnight money market rates with the repo rate (which essentially means more effective transmission of monetary policy). Also, RBI decided that it would continue to provide liquidity as required but progressively lower the average ex ante liquidity deficit in the system from one per cent of NDTL to a position closer to neutrality. Further, it has been decided to:<br />
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*Smooth the supply of durable liquidity over the year using asset purchases and sales as needed;<br />
*Ease liquidity management for banks without abandoning liquidity discipline by reducing the minimum daily maintenance of CRR from 95 per cent of the requirement to 90 per cent with effect from the fortnight beginning April 16, 2016;<br />
*Allow substitution of securities in market repo transactions in order to facilitate development of the term money market; and<br />
*Consult with the Government on how to moderate the build-up of cash balances with the Reserve Bank.<br />
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[https://m.rbi.org.in/Scripts/PublicationReportDetails.aspx?UrlPage=&ID=944#CP36 Report of the Internal Working Group to Review the Liquidity Management Framework of September 2019] recommended that the existing difference of 25 basis points between the repo rate and the reverse-repo rate, as well as between the repo rate and the MSF rate, be retained. In India, the fixed rate reverse repo has acted as floor to the corridor; there is no bank-wise or overall limit on the reverse repo amount and the same is limited by the collateral available with the Reserve Bank. To overcome collateral constraints, the Reserve Bank has been resorting to issuances of Cash Management Bills (CMBs) under MSS to impound the surplus liquidity. The Working group felt that for effective liquidity management operations, institutionalising an uncollateralised standing deposit facility is essential. In order to strengthen the operating framework further, the Government has since amended the RBI Act, 1934 for introduction of a SDF. The Group recommended that the SDF be operationalised early.<br />
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<span class="small_footernote" id="ref1">1. Refers to depositing funds with the central bank without receiving any collateral as security in return</span><br />
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<span class="small_footernote" id="ref2">2. It has also been argued recently that the constant width of the corridor is a waste of a good instrument. Goodhart, Charles (2009), "Liquidity Management". Paper prepared for the Federal Reserve Bank of Kansas City Symposium at Jackson Hole, August, 2009 as quoted in the Working Group Report. </span><br />
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<span class="small_footernote" id="ref3">3. "reverse repo" means an instrument for lending funds by purchasing securities of the ''Central Government or a State Government or of such securities of a local authority'' as may be specified in this behalf by the Central Government or foreign securities, with an agreement to resell the said securities on a mutually agreed future date at an agreed price which includes interest for the funds lent.</span><br />
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<span class="small_footernote" id="ref4">4. The transition to the current framework in which the interest rate is the operating target, from the earlier regime based on reserve targeting – i.e., base money, borrowed reserves, non-borrowed reserves – was generally driven by two guiding considerations. First, financial sector reforms largely freed the interest rate from administrative prescriptions and setting, thereby enhancing its effectiveness as a transmission channel of monetary policy. Second, the erosion in stability and predictability in the relationship between money aggregates, output and prices with the proliferation of financial innovations, advances in technology and progressive global integration.</span><br />
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==Also See==<br />
*[http://www.arthapedia.in/index.php?title=Marginal_Standing_Facility Marginal Standing Facility (MSF)]<br />
*[http://www.arthapedia.in/index.php?title=Statutory_Liquidity_Ratio Statutory liquidity ratio (SLR)]<br />
*[http://www.arthapedia.in/index.php?title=Cash_Reserve_Ratio_(CRR) Cash reserve ratio (CRR)]<br />
*[http://www.arthapedia.in/index.php?title=Liquidity_Adjustment_Facility_(LAF) Liquidity Adjustment Facility (LAF)]<br />
*[http://arthapedia.in/index.php?title=Base_Rate Base Rate]<br />
*[http://arthapedia.in/index.php?title=Market_Stabilization_Scheme_(MSS) Market Stabilization Scheme (MSS)]<br />
*[http://arthapedia.in/index.php?title=Bank_Rate Bank Rate]<br />
*[http://arthapedia.in/index.php?title=Policy_Rate Policy Rate ]<br />
*[http://arthapedia.in/index.php?title=Repo_Rate_and_Reverse_Repo_RateRepo and Reverse Repo Rate]<br />
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==References==<br />
*[https://www.rbi.org.in/scripts/PublicationReportDetails.aspx?ID=631 Report of the Working Group on Operating Procedure of Monetary Policy] (RBI, March 15, 2011; Chairman: Shri Deepak Mohanty))<br />
*Report of the [https://rbi.org.in/Scripts/PublicationReportDetails.aspx?ID=743 Expert Committee to Revise and Strengthen the Monetary Policy Framework] (Chairman: Dr. Urjit R Patel), RBI, 21 January 2014<br />
*Dr. Golaka C Nath (2013): [https://www.ccilindia.com/Research/CCILPublications/Lists/CCILPubRakshitra/Attachments/214/Rakshitra December.pdf Repo Market - A Tool to Manage Liquidity in Financial Institutions], CCIL Monthly Newsletter, Clearing Corporation of India Ltd (CCIL), December 2013<br />
*Nils Maehle (2014): Monetary Policy Implementation: Operational Issues for Countries with Evolving Monetary Policy Regimes, [https://www.imf.org/external/np/seminars/eng/2014/oapbali/pdf/M3.pdf IMF Working Paper September 2014]<br />
*[https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=36654 April 2016 monetary policy statement] of RBI<br />
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==Contributed by==<br />
*[http://ies.gov.in/myaccount-profile-view.php?memid=338 Ms. Rose Mary K Abraham (IES 2006)]<br />
*Email- [mailto:rosemary.a@nic.in rosemary.a@nic.in]<br />
[[Category:concepts|Interestratecorridor]]</div>Rosemary.ahttp://arthapedia.in/index.php/Electoral_BondElectoral Bond2019-04-10T04:35:14Z<p>Rosemary.a: </p>
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<div>Electoral Bond is a financial instrument (similar to a promissory note) for making donations to political parties. These are issued by Scheduled Commercial banks upon authorisation from the Central Government to intending donors, but only against cheque and digital payments (it cannot be purchased by paying cash). These bonds shall be redeemable in the designated account of a registered political party within the prescribed time limit from issuance of bond.<br />
<br />
Electoral bond was announced in the [http://indiabudget.gov.in/ub2017-18/bs/bs.pdf Union Budget 2017-18]. Required amendments to the [https://rbidocs.rbi.org.in/rdocs/Publications/PDFs/RBIAM_230609.pdf Reserve Bank of India Act, 1934] (Section 31(3)) and the [http://lawmin.nic.in/legislative/election/volume%201/representation%20of%20the%20people%20act,%201951.pdf Representation of People Act, 1951] were made through Section 133 to 136 of [http://indiabudget.gov.in/ub2017-18/fb/bill.pdf Finance Bill, 2017].<br />
<br />
Electoral Bond is an effort made to cleanse the system of political funding in India. The scheme of electoral bonds addresses the concerns of donors to remain anonymous to the general public or to rival political parties. From the bonds, no details of the donor nor of the intended political beneficiary can be made out. So electoral bond cannot be identified or associated with any particular buyer or political party. However, some security features are encoded into the bonds to avoid issuance of fake /forged bonds. These include a random serial number invisible to the naked eye. However, the number is not noted by the SBI in any record associated with buyer or political party depositing a particular electoral bond. The number is not being used or can be used to track the donation or the buyer. The issuing bank is not sharing the serial number with anybody including the Government and users as per the [https://dea.gov.in/sites/default/files/Press%20Release%20on%20EBB.pdf press release] issued by Ministry of Finance on 17 April 2018. <br />
<br />
Government [http://www.incometaxindia.gov.in/communications/notification/notificationso29_2018.pdf notified] the Scheme on 2 January 2018. As per the scheme electoral bond means a bond issued in the nature of promissory note which is a bearer banking instrument not carrying the name of the buyer or payee;The text of the Article written by the Union Finance Minister, Shri Arun Jaitley on Necessity of Electoral Bonds may be seen [http://pib.nic.in/newsite/PrintRelease.aspx?relid=175452 here].<br />
<br />
It is an interest free banking instrument issued on a non-refundable basis and are not available for trading. Further, no loan would be provided against these bonds. A citizen of India or a body incorporated in India will be eligible to purchase the bond. It would be issued/purchased for any value, in multiples of Rs.1,000, Rs.10,000, Rs.1,00,000, Rs.10,00,000 and Rs.1,00,00,000 from the Specified Branches of the State Bank of India (SBI). The purchaser would be allowed to buy Electoral Bond(s) either singly or jointly with other individuals, only on due fulfilment of all the extant KYC norms and by making payment from a bank account either using a cheque or electronically. It will not carry the name of payee. Electoral Bonds would have a life of only 15 days during which it can be used for making donation only to the political parties registered under section 29A of the Representation of the Peoples Act, 1951 and which secured not less than one per cent of the votes polled in the last general election to the House of the People or a Legislative Assembly. Further, the Electoral Bonds under the Scheme shall be available for purchase for a period of 10 days each in the months of January, April, July and October, as may be specified by the Central Government. An additional period of 30 days shall be specified by the Central Government in the year of the General election to the House of People. The Electoral Bond(s) shall be encashed by an eligible political party only through a designated bank account with the authorised bank. No payment shall be made to any payee political party if the bond is deposited after expiry of the validity period and the bond deposited by any political party to its account shall be credited on the same day. <br />
<br />
The information furnished by the buyer shall be treated confidential by the authorised bank and shall not be disclosed to any authority for any purposes, except when demanded by a competent court or upon registration of criminal case by any law enforcement agency. No commission, brokerage or any other charges for issue of bond shall be payable by the buyer against purchase of the bond.<br />
<br />
State Bank of India (SBI) has been authorised to issue and encash Electoral Bonds initially at its [http://pib.nic.in/newsite/PrintRelease.aspx?relid=176734 4 Authorised Branches]. The first issue of the Scheme was opened in March 2018. Accordingly, the first sale of Electoral Bonds commenced from 1 March 2018 for a period of 10 days i.e. up to 10 March 2018. <br />
<br />
Further, in accordance with the suggestion made by the Election Commission, the maximum amount of cash donation that a political party can receive is stipulated at Rs. 2000/- from one person, pursuant to the announcement in Union Budget 2017-18. However, Political parties will be entitled to receive donations by cheque or digital mode from their donors. Every political party would have to file its return within the time prescribed in accordance with the provision of the Income-tax Act. Existing exemption to the political parties from payment of income-tax would be available only subject to the fulfilment of these conditions. <br />
<br />
As per Section 29C(1) of [http://lawmin.nic.in/legislative/election/volume%201/representation%20of%20the%20people%20act,%201951.pdf The Representation of People Act, 1951], the political party needs to disclose the details of non-governmental corporations and persons who donate more than Rs. 20,000 to it in a financial year. Vide the Finance Bill 2017, it has been specified that no report needs to be prepared in respect of the contributions received by way of an electoral bond. <br />
<br />
This reform is expected to bring about greater transparency and accountability in political funding, while preventing future generation of black money.<br />
<br />
<br />
'''Also See''' <br />
<br />
[http://www.arthapedia.in/index.php?title=Electoral_Trust Electoral Trust] <br />
<br />
<br />
==Contributed by==<br />
* [http://www.ies.gov.in/myaccount-profile-view.php?memid=338 Rosemary K. Abraham, IES(2006)]<br />
*Email- [mailto:rosemary.a@nic.in rosemary.a@nic.in]<br />
<br />
[[Category:concepts|Electoral Bond]]</div>Rosemary.ahttp://arthapedia.in/index.php/Public_Debt_Management_of_the_Union_Government_in_IndiaPublic Debt Management of the Union Government in India2019-04-03T07:26:18Z<p>Rosemary.a: </p>
<hr />
<div>'''Objectives of Public Debt Management in India'''<br />
<br />
See the definition of public debt in India [http://arthapedia.in/index.php?title=Public_Debt here].<br />
<br />
The overall objective of the Central Government’s debt management policy, as laid out by the [http://finmin.nic.in/reports/govt_debt_2010.pdf Central Government's status paper in November 2010] is to “meet Central Government’s financing needs at the lowest possible long term borrowing costs and also to keep the total debt within sustainable levels. Additionally, it aims at supporting development of a well-functioning and vibrant domestic bond market”. <br />
<br />
Apart from this declared objectives, timely availability of resources for Government is ensured in a non-disruptive manner for the market. Various institutional arrangements are also put in place accordingly.<br />
<br />
Government published its first Debt Management Strategy (DMS) document (earlier published across various documents of the Government and RBI) on December 31, 2015.The scope of DMS is restricted to active elements of domestic debt management, i.e., marketable debt of the Central Government. Over time, the scope would be progressively expanded to cover the entire stock of outstanding liabilities including external debt as well as General Government Debt including state development loans (SDL). The objective of the debt management strategy (DMS) is to secure the government's funding at all times at low cost over the medium/long-term while avoiding any excessive risk. The DMS has been articulated for the medium-term for a period of three years and would be<br />
reviewed annually and rolled over for the next three years. <br />
<br />
India is not formally using the [http://treasury.worldbank.org/bdm/htm/guidelines_publicdebt.html IMF / World Bank Medium Term Debt Strategy] and Debt Sustainability Analysis. (See the IMF Guidelines [http://www.imf.org/external/np/mae/pdebt/2000/eng/index.htm here]). Many countries across the globe follow / target Medium Term Public Debt Strategy specifying the debt targets to be met and the strategies for achieving the same. In India, such a framework / document is not in existence. However, in the [http://indiabudget.nic.in/ub2012-13/frbm/frbm2.pdf Medium Term Fiscal Policy Statement] laid before the Parliament, a two year target for outstanding liabilities is incorporated. In the [http://indiabudget.nic.in/ub2012-13/frbm/frbm3.pdf Fiscal Policy Strategy Statement] laid before the Parliament, Government outlines the prudent debt management strategies so as to ensure that the public debt remains within sustainable limits and does not crowd out private borrowing for investment. <br />
<br />
As per the [http://indiabudget.nic.in/ub2012-13/frbm/frbm3.pdf Fiscal Policy Strategy Statement of 2012-13] the public debt management policy of the Government is driven by the principle of gradual reduction of [http://www.investopedia.com/terms/d/debtgdpratio.asp#axzz2AHaQZiPA public debt to GDP ratio]. This is with the objective of further reducing the [http://www.investopedia.com/terms/d/debtservice.asp#axzz2AHaQZiPA debt servicing] risk and to create [http://en.wikipedia.org/wiki/Fiscal_space fiscal space] for developmental expenditure. On the financing side, the Government policy focuses on the following principles<br />
<br />
<ol style="list-style-type:lower-roman"><br />
<li>greater reliance on domestic borrowings over external debt, </li><br />
<li>preference for market borrowings over instruments carrying administered interest rates,</li><br />
<li>consolidation of the debt portfolio and </li><br />
<li>development of a deep and wide market for Government securities to improve liquidity in secondary market.</li><br />
</ol><br />
<br />
Finance Minister in his Budget Speech for 2010-11 had indicated his intention to bring out a status paper giving detailed analysis of the government’s debt situation and a road map for curtailing the overall public debt. Accordingly, a paper was brought out in November 2010, titled ''[http://finmin.nic.in/reports/govt_debt_2010.pdf Government Debt: Status and Road Ahead]'' with detailed analysis on status of Central Government debt. At the same time, it also charts out a well calibrated roadmap for reduction in the overall debt as percentage of GDP for the general government during the period 2010-11 to 2014-15.<br />
<br />
Subsequent to the issue of DMS in 2015, the Government's borrowing programme is being planned and executed in terms of DMS. The present debt profile of the Central Government is analysed with regard to cost, maturity and potential risk factors. The risk analysis contains metrics such as average time to maturity, analysis of the redemption profile, average time to re-fixing, percentage of outstanding debt maturing in next 12 months, etc. The DMS revolves around three broad pillars, viz., low cost, risk mitigation and market development. Low cost objective is attained by planned issuances and offer of appropriate instruments to lower cost in medium to long-run, taking into account market conditions and preferences of various investor segments. Low cost also attained by improved transparency by way of a detailed issuance calendar. Scenario analysis, which contains expected cost of debt based on the assumptions of future interest and exchange rates and future borrowing needs, is included in MTDS. Debt sustainability indicators, such as debt to GDP, average time to maturity and interest expense to GDP, are projected. Stress tests of the debt structure on the basis of the economic and financial shocks, to which the government is exposed, are conducted. <br />
<br />
The latest version of the status paper for the year 2017-18 is available [https://dea.gov.in/public-debt-management here]. <br />
<br />
<br />
'''Accounting of Debt and risk measurements'''<br />
<br />
For all practical purposes India runs a [http://www.imf.org/external/pubs/ft/tnm/2011/tnm1104.pdf Single Treasury Account]. Both [http://accounting4management.com/preparation_of_statement_of_cash_flows.htm cash flow method] and [http://www.investopedia.com/terms/a/accrualaccounting.asp#axzz2AHaQZiPA accrual accounting] methods (see comparison between the two methods [http://en.wikipedia.org/wiki/Comparison_of_cash_and_accrual_methods_of_accounting here]) are used for measuring the cost of public debt. Risk of the debt portfolio is measured in terms of different parameters which include future cash flows and level of projected deficit and borrowings. Based on the different scenarios, internal limits are defined. <br />
<br />
Meetings with Primary Dealers (investors who take government securities in bulk and then redistribute to their clients) are generally held twice a year, or more depending on the market conditions. Issuance plans and debt strategy are discussed in general terms with the investors.<br />
<br />
<br />
'''Institutions responsible for management of public debt'''<br />
<br />
The Constitution of India gives the executive branch of Government the powers to borrow upon the security of the Consolidated Fund of India. Reserve Bank as an agent of the Government (both Union and the States) used to implement the borrowing program. The Reserve Bank draws the necessary statutory powers for debt management from Section 21 of the Reserve Bank of India Act, 1934. While the management of Union Government's public debt is an obligation for the Reserve Bank, the Reserve Bank undertakes the management of the public debts of the various State Governments by agreement. <br />
<br />
The jurisdiction of various institutions responsible for public debt management is given below:<br />
:#Reserve Bank of India – Domestic Marketable Debt i.e., dated securities, treasury bills and cash management bills.<br />
:#Ministry of Finance (MOF); Office of Aid and accounts Division – external debt <br />
:#Ministry of Finance; Budget Division and Reserve Bank of India – Other liabilities such as small savings, deposits, reserve funds etc. <br />
<br />
For monetary and fiscal coordination, there is a cash and debt management committee which meets regularly. The members comprise of officials from RBI and MOF.<br />
<br />
The Central Government’s Budget for 2007-08 announced setting up an autonomous debt Management Office (DMO) and, in the first phase, a Middle Office was set up in September 2008 in the Ministry of Finance to facilitate the transition to a full-fledged DMO. The Middle Office would be merged into the Debt Management Office (DMO), when it is established. The functionalities presently carried out by RBI and Ministry of Finance will be undertaken by the Middle Office in a phased manner to ensure a smooth transition from the existing arrangements. The responsibilities of the Middle Office can be seen [http://finmin.nic.in/the_ministry/dept_eco_affairs/middle_office/midoffice_index.asp here].<br />
<br />
To take forward the process of financial sector legislative reforms, the Government had proposed to move the Public Debt Management Agency of India Bill, 2012 in the Parliament. However, instead of moving a separate bill, Government introduced the creation of Public Dent Management Agency (PDMA) through the [http://indiabudget.nic.in/bill.asp Finance Bill of 2015], presented along with the [http://indiabudget.nic.in/bill.asp Union Budget of 2015-16]. Consequent amendments to RBI Act and Government Securities Act was also proposed and the latter was proposed to be repealed. The agency was to set up with the objective of minimizing the cost of raising and servicing public debt over the long term within an acceptable level of risk at all times, under the superintendence of the central government. Alternatively one could say, this is now the legal objective of public debt management policy in India. <br />
<br />
However, the proposals mentioned above in the Finance Bill 2015 could not be agreed upon in the Parliament. Accordingly, Clauses relating to the creation of PDMA, amendments to the RBI Act 1934 and the Government Securities Act 2006 were withdrawn from the Finance Bill, 2015.<br />
<br />
<br />
==Contributed by==<br />
* [http://www.ies.gov.in/myaccount-profile-view.php?memid=338 Rosemary K. Abraham, IES(2006)]<br />
*Email- [mailto:rosemary.a@nic.in rosemary.a@nic.in]<br />
<br />
[[Category:concepts|PublicDebtManagementoftheUnionGovernmentinIndia]]</div>Rosemary.ahttp://arthapedia.in/index.php/Kisan_Credit_CardKisan Credit Card2019-02-05T08:15:57Z<p>Rosemary.a: </p>
<hr />
<div>Kisan Credit Card is a pioneering credit delivery innovation for providing adequate and timely credit to farmers under single window. It is a flexible and simplified procedure, adopting whole farm approach, including short-term, medium-term and long-term credit needs of borrowers for agriculture and allied activities and a reasonable component for consumption needs.<br />
<br />
Credit card and pass book or credit card cum pass book provided to eligible farmers facilitate revolving cash credit facility. Any number of drawals and repayments within a limit, which is fixed on the basis of operational land holding, cropping pattern and scale of finance can be made. Each drawal has to be repaid within a maximum period of 12 months and the Card is valid for 3 to 5 years subject to annual review. Conversion/reschedulement of loans is permissible in case of damage to crops due to natural calamities. Crop loans disbursed under KCC Scheme for notified crops are covered under Rashtriya Krishi Bima Yojana (National Crop Insurance Scheme), to protect farmers against loss of crop yield caused by natural calamities, pest attacks etc.<br />
<br />
Kisan Credit Card (KCC) Scheme, which enables the farmers to purchase agricultural inputs such as seeds, fertilizers, pesticides, etc. and to draw cash to satisfy their consumption needs has since been simplified and converted into an ATM enabled debit card [http://www.arthapedia.in/index.php?title=Rupay_Debit_Card (Rupay KCC- RKCC)]. <br />
<br />
In order to extend the operational flexibility to farmers engaged in [https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11462&Mode=0 Animal Husbandry and Fisheries] the Government of India decided to extend the facilities of KCC to these farmers in the Budget 2018-19. <br />
<br />
==References==<br />
#http://www.nabard.org/development&promotional/kisancreditcardmore.asp<br />
#http://www.statebankofindia.com/user.htm<br />
#http://www.bankofindia.com/kisan.aspx<br />
<br />
<br />
==Contributed by==<br />
*[http://www.ies.gov.in/myaccount-profile-view.php?memid=106 Sudhir Tewari, IES (1985)]<br />
*Email- [mailto:sudhirtewari@hotmail.com sudhirtewari@hotmail.com]<br />
<br />
[[Category:concepts|KisanCreditCard]]</div>Rosemary.ahttp://arthapedia.in/index.php/Government_CompanyGovernment Company2018-12-12T10:36:03Z<p>Rosemary.a: </p>
<hr />
<div><p>A &ldquo;Government company&rdquo; is defined under Section 2(45) of the [http://www.mca.gov.in/Ministry/pdf/CompaniesAct2013.pdf Companies Act, 2013] as &ldquo;any company in which not less than 51% of the paid-up share capital is held by the Central Government, or by any State Government or Governments, or partly by the Central Government and partly by one or more State Governments, and includes a company which is a subsidiary company of such a Government company&rdquo;.</p><br />
<p>Thus, the cardinal feature of a government company is not less than 51% ownership by Central/state government, either individually or jointly.</p><br />
<p>This definition includes what is generally known as [http://arthapedia.in/index.php?title=Public_Sector_Undertakings/Enterprises public sector undertakings]/ enterprises in India. </p><br />
<p>A &ldquo;subsidiary company&rdquo; or &ldquo;subsidiary&rdquo; of a Government Company would also be categorized as a Government Company provided the Government Company<br><br />
(<em>i</em>) controls the composition of the Board of Directors; or<br><br />
(<em>ii</em>) exercises or controls more than one-half of the total voting rights [till January 2018 the word share capital was used instead of voting rights] either at its own or together with one or more of its other subsidiary companies. </p><br />
<p>Even if the control referred above is of another subsidiary company of the Government company, the company would still be categorized as a &ldquo;subsidiary&rdquo; and hence a government company. Thus, joint-venture companies formed by various Government companies or public sector undertakings are also considered as government companies. </p><br />
<p>The composition of a company&rsquo;s Board of Directors shall be deemed to be controlled by another company if that other company, by exercise of some power exercisable by it at its discretion, can appoint or remove all or a majority of the directors;</p><br />
<p>There are some restrictions on the number of layers of subsidiaries beyond a certain number.</p><br />
<p>In respect of Government Companies, the [http://www.saiindia.gov.in/english/index.html Comptroller and Auditor-General of India] appoints the auditor and does the supplementary audit through its authorized persons, based on the first audit report. Further, a Government Company&rsquo;s annual reports have to be tabled in both houses of Parliament / state legislature, depending on the nature of ownership. </p><br />
<p>A Government company cannot contribute any amount directly or indirectly to any political party, unlike other companies.</p><br />
<br />
<br />
<br />
==Also See==<br />
*[http://arthapedia.in/index.php?title=Public_Sector_Undertakings/Enterprises Public sector undertakings]<br />
<br />
<br />
==Contributed by==<br />
* [http://www.ies.gov.in/myaccount-profile-view.php?memid=338 Rose Mary K Abraham (IES 2006)]<br />
*Email- [mailto:rosemary.a@nic.in rosemary.a@nic.in]<br />
<br />
[[Category:concepts|GovernmentCompany]]</div>Rosemary.ahttp://arthapedia.in/index.php/Public_Sector_Undertakings/EnterprisesPublic Sector Undertakings/Enterprises2018-12-12T10:32:08Z<p>Rosemary.a: </p>
<hr />
<div>The term public sector undertaking or Enterprise refers to a Government Company. “Government Company” is defined under Section 2 (45) of the Companies Act, 2013 as Any company in which not less than fifty-one per cent of the paid-up share capital is held by the Central Government, or by any State Government or Governments, or partly by the Central Government and partly by one or more State Governments, and includes a company which is a subsidiary company of such a Government company. The term is not intended to mean a public company (where shares are freely transferable and has a shareholder base of more than 200 people) though public sector enterprises are mostly public companies. <br />
<br />
<p>Public Sector undertakings refer to commercial ventures of the Government <br />
where user fees are charged for services rendered. The tariff/fees may be market <br />
based or subsidised. They are usually fully owned and managed by the Government <br />
such as Railways, Posts, Defence Undertakings, Banks etc. Public sector <br />
enterprises on the other hand refer to those companies registered under the <br />
Companies Act, 1956,which are predominantly owned by Government and which are <br />
managed by a Government appointed Chairman and Managing Director. Government <br />
nominees represent the interests of the Government on the board of Public sector <br />
enterprises. Public sector companies usually compete with private sector <br />
enterprises in the domestic as well as international market.</p><br />
<br />
<p>Investment decisions of PSUs are passed by the respective boards and then <br />
appraised and approved by the adminsitrative ministry to which they are <br />
accountable (e.g. Shipping Corporation of India is under the Department of <br />
Shipping in the Union Ministry of Surface Transport) or the Public Investment <br />
Board under the Department of Expenditure, Union Ministry of Finance and if the <br />
investment is beyond a certain threshold level or if a new public sector company <br />
is being created, then the proposal has to be approved by Cabinet. Central <br />
public sector enterprises are classified as “mahratnas” “mini-ratnas” and other <br />
enterprises depending on their track record based on guidelines approved by the <br />
Government from time to time.</p><br />
<br />
<p>Sub national governments also own and manage public sector undertakings and <br />
in most cases they are loss making and require considerable budgetary support.</p><br />
<p>The audit of public sector undertakings is done by the Comptroller and <br />
Auditor General of India while that of public sector enterprises is done first <br />
by Chartered Accountants and the supplementary audit is done by the Comptroller <br />
and Auditor General of India.</p><br />
<br />
<br />
'''Evolution of Public Sector enterprises''' <br />
<p>At the time of independence in 1947, Indian industry was ill-developed and <br />
required considerable policy thrust. The Second Five year Plan (1956-61) and the <br />
Industrial Policy Resolution of 1956 provided the framework for public sector <br />
undertakings/enterprises in India, which were expected to play a substantial <br />
role in preventing the concentration of economic power, reducing regional <br />
disparities and ensuring that planned development serves the common good. A list <br />
of 17 industrial sectors was reserved for the public sector in Schedule A of the <br />
1956 Resolution and no new units in the private sector in these categories would <br />
be permitted. Another list of industries was included in Schedule B where the <br />
Government actively encouraged public ownership. The Union Government and <br />
various sub-national governments made considerable investment on setting up and <br />
running public sector undertakings/enterprises.</p><br />
<br />
<p>Initially, the public sector was confined to core and strategic industries <br />
such as irrigation projects (e.g. the Damodar Valley Corporation), Fertilizers <br />
and Chemicals (e.g. Fertilizers and Chemicals, Travancore Limited) Communication <br />
Infrastructure (e.g. Indian Telephone Industries), Heavy Industries (e.g. Bhilai <br />
Steel Plant, Hindustan Machine Tools, Bharat Heavy Electricals, Oil and Natural <br />
Gas Commission etc.). Subsequently, however, the Government nationalized several <br />
banks (starting with nationalization of the Imperial Bank of India which was <br />
renamed State Bank of India in 1955) and foreign companies (Jessop &amp; Co, <br />
Braithwaite &amp; Co, Burn &amp; Co.).Later Public Sector companies started <br />
manufacturing consumer goods (e.g. Modern Foods, National Textile Corporation <br />
etc) and providing consultancy, contracting, and transportation services.</p><br />
<br />
<p>The internal (profits) and extra-budgetary resources (borrowed funds) of <br />
public sector undertakings are factored into the preparation of the Annual <br />
Financial Statement (Budget) of the Government. However, poor productivity, poor <br />
project management, over-manning, lack of continuous technological upgradation, <br />
and inadequate attention to R&amp;D and human resource development resulted in a <br />
large number of public enterprises showing a very low rate of return on the <br />
capital invested and the need for budgetary support for day to day running. <br />
Several of them accumulated huge losses and ran up huge debts which had to be <br />
written off /settled from time to time by the Government.</p><br />
<p>Reviewing the role of the public sector, the Industrial Policy Resolution <br />
1991 reduced the number of industrial undertakings exclusively reduced to the <br />
public sector to just six areas which included strategic industries like atomic <br />
energy, defence, coal, mineral oils etc. as well as railway transport. Efforts <br />
were made to divest non strategic public sector industries and to increase <br />
private participation in the equity of profitable public sector industries. At <br />
the same time a Board for Reconstruction of Public Sector Enterprises has been <br />
set up to suggest ways to turn around sick and loss making public sector <br />
enterprises.</p><br />
<br />
<br />
<br />
==References==<br />
#http://dpe.nic.in<br />
#http://dipp.nic.in<br />
<br />
<br />
==Contributed by==<br />
*[http://www.ies.gov.in/myaccount-profile-view.php?memid=128 Dr. Anuradha Balaram, IES (1986)]<br />
*Email- [mailto:pabalaram@hotmail.com pabalaram@hotmail.com]<br />
<br />
[[Category:concepts|PublicSectorUndertakings/Enterprises]]</div>Rosemary.ahttp://arthapedia.in/index.php/RBI_Reference_Exchange_RateRBI Reference Exchange Rate2018-09-26T05:15:05Z<p>Rosemary.a: </p>
<hr />
<div>RBI reference exchange rate refers to the benchmark foreign exchange rates for Indian Rupee against major four foreign currencies, published by Reserve Bank of India on a daily basis. However, the practice of publishing this rate has been discontinued by RBI. <br />
<br />
The Reserve Bank of India compiles and publishes on a daily basis, reference rates for four major currencies i.e. US dollar (USD), British Pound (GBP), Japanese Yen (YEN) and Euro (EUR). <br />
<br />
Uptill September 2014, the rates were arrived at by averaging the mean of the bid/ offer rates polled from a few select banks at a randomly chosen five minute window between 11.45 a.m. and 12.15 p.m. every week-day (excluding Saturdays, Sundays and Bank Holidays in Mumbai). The contributing banks were randomly selected from a large panel of banks, identified on the basis of their standing, market-share in the domestic foreign exchange market and representative character<sup class="reference">[[#ref1|[1]]]</sup>.<br />
<br />
Based on the recommendations of the [https://www.rbi.org.in/scripts/PublicationReportDetails.aspx?ID=761 Committee on Financial Benchmarks] (constituted on June 28, 2013; Chairman: Shri P. Vijaya Bhaskar; report submitted in February 2014) the following changes were made to the existing methodology for calculation of exchange rates.<br />
<br />
<br />
*The rate for spot US Dollar against Indian Rupee will be polled from the select list of contributing banks at a '''randomly chosen five minute window between 11.30 a.m. and 12.30 p.m. every week-day''' (excluding Saturdays, Sundays and Bank Holidays in Mumbai).<br />
*The other three rates, viz. EUR/INR, GBP/INR and JPY/INR would be computed by crossing the USD/INR Reference Rate with the ruling EUR/USD, GBP/USD and USD/JPY rates.<br />
*The daily press release on RBI Reference Rate for US Dollar will be issued every week-day (excluding Saturdays, Sundays and Bank Holidays in Mumbai) at around '''1.30 p.m'''.<br />
<br />
<br />
These changes have come into effective from September 1, 2014.<br />
<br />
The RBI reference exchange rate may be different from the rates established through the currency trading venues of stock exchanges or over the counter segments. However, the direction of movement would be the same.<br />
<br />
For instance, [http://www.fedai.org.in/ Foreign Exchange Dealers Association of India] (FEDAI)<sup class="reference">[[#ref1|[2]]]</sup> used to publish spot fixing rates for USD, GBP, EUR and JPY against INR at 11:40 AM - 12 noon on every working day based on quotes collected through polling. The FEDAI spot fixings were used for cash settlement of exercise of over the counter foreign currency- Indian rupee options primarily by some corporates. FEDAI also publishes [http://www.fedai.org.in/RevaluationRates.aspx revaluation rates] for spot contracts (against INR) in 25 currencies and for forward contracts (against INR) upto 6 months in nine currencies and upto 12 months in four currencies. The banks use the FEDAI revaluation rates for marking to market<sup class="reference">[[#ref1|[3]]]</sup> the outstanding spot and forward contracts in their books.<br />
<br />
The RBI Reference Rates are used for settlement of exchange traded currency futures and options. The Reference Rate is reportedly used by many corporates for determining [http://www.incometaxindia.gov.in/Pages/international-taxation/transfer-pricing.aspx transfer pricing]. The foreign exchange transactions of Government of India undertaken through RBI take place at the Reference Rate. The RBI’s foreign currency assets and liabilities are revalued at weekly and monthly intervals using the Reference Rate. The International Monetary Fund (IMF) also uses the rate for revaluation of Special Drawing Rights (SDRs).<br />
<br />
The RBI reference rates fixed for the day may be seen[https://rbi.org.in/ here]. Historical data may be seen from [http://dbie.rbi.org.in/DBIE/dbie.rbi?site=home RBI database]. <br />
<br />
Concerns are often raised as to whether RBI being the regulator of the Indian foreign exchange market should be involved in fixation of Reference Rates. However, across the globe, many central banks like European Central Bank, Bank of Canada, Central banks of countries like Brazil, South Africa, Thailand, Indonesia etc. publish such reference rates. Further in view of the scandals relating to manipulation of major global foreign exchange benchmarks administered by private sector entities, as also the fact that the Reference Rate setting process has remained quite robust, the Committee on Financial Benchmarks recommended that it may not be appropriate for RBI to discontinue fixing the Reference Rates.<br />
<br />
The Committee also felt that the USD/INR Reference Rate of RBI should be derived based on the actual market transactions obtained from defined source/s covering a sufficiently longer time window so as to ensure that the Reference Rate appropriately represents the prevailing spot rate. The Reference Rate was also recommended to be volume weighted to smoothen the impact of small value off-market transactions in determination of the benchmark. The sources of the EUR/USD, GBP/USD and JPY/USD rates used for crossing the USD/INR Reference Rate was also recommended to be publicly disclosed.<br />
<br />
The Reserve Bank periodically reviews the procedure for selecting the banks and the methodology of polling so as to ensure that the reference rate is a true reflection of the market activity.<br />
<br />
<br />
Since the timing of publication of the FEDAI spot rates and RBI reference rates were almost the same, Committee on Financial Benchmarks (Page No.71), had advised FEDAI to decide on phasing out the benchmark of Spot Fixing Rate at 11.30 a.m. after conducting a survey among banks. Accordingly, vide its circular dated [http://www.fedai.org.in/pdf/SPL_6_2014_16_June_2014.pdf16 June 2014], FEDAI decided to discontinue publishing daily FEDAI Spot Fixing Rates at 11.30 a.m. with effect from 1 October 2014. It does not mean that RBI reference rate would be mandated as an alternate reference rate. The settlement may be done at the ruling market rate.<br />
<br />
<p>Reserve Bank of India (RBI) announced in the Sixth Bi-monthly Monetary Policy Statement for the year 2017-18 in February, 2018 that Financial Benchmarks India Private Limited (FBIL) will assume, i.e. take over from RBI, the responsibility of computation and dissemination of reference rate for USD/INR and exchange rate of other major currencies at some appointed date. FIBIL has commenced the process of computing and disseminating reference rate for USD/INR and exchange rate of other major currencies with effect from July 10, 2018. Accordingly, the dissemination of Exchange Rate on RBI’s website has been discontinued now. </p><br />
<br />
<br />
==References==<br />
*RBI Press release dated [https://rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=31801 7 August 2014]<br />
*RBI press release dated [https://www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=18927 6 August 2008]<br />
*Report of the [https://www.rbi.org.in/scripts/PublicationReportDetails.aspx?ID=761Committee on Financial Benchmarks] (constituted on June 28, 2013; Chairman: Shri P. Vijaya Bhaskar; report submitted in February 2014)<br />
<br />
<br />
<span class="small_footernote" id="ref1">1. The reference rate computation process was reviewed and changed with effect from April 15, 2010. In the changed procedure, the number of banks in the polling panel was significantly expanded, of which a set of banks are selected randomly every day for calling for quotes. Further, the reference time window was expanded to 30 minutes, i.e. 11:45 AM to 12:15 PM from the earlier system of 15 minutes, of which a five minute window is selected randomly for conducting poll. The means of the polled bids and offers are calculated for each contributing bank and the outlier mean rates are removed. The Reference Rates are arrived at by averaging the remaining mean rates. </span><br />
<br />
<span class="small_footernote" id="ref2">2.'''Foreign Exchange Dealer's Association of India''' (FEDAI) was set up in 1958 as an Association of banks dealing in foreign exchange in India (typically called Authorised Dealers - ADs) as a self regulatory body and is incorporated under Section 25 of The Companies Act, 1956. It's major activities include framing of rules governing the conduct of inter-bank foreign exchange business among banks vis-à-vis public and liaison with RBI for reforms and development of forex market. </span><br />
<br />
<span class="small_footernote" id="ref3">3. '''Valuing the security in terms of its market value rather than the book value''' </span><br />
<br />
<br />
==Contributed by== <br />
* [http://www.ies.gov.in/myaccount-profile-view.php?memid=338 Ms. Rose Mary K Abraham (IES 2006)]<br />
*Email- [mailto:rosemary.a@nic.in rosemary.a@nic.in]<br />
<br />
<br />
<br />
[[Category:concepts|RBIReferenceExchangeRate]]</div>Rosemary.ahttp://arthapedia.in/index.php/RBI_Reference_Exchange_RateRBI Reference Exchange Rate2018-09-26T05:13:56Z<p>Rosemary.a: </p>
<hr />
<div>RBI reference exchange rate refers to the benchmark foreign exchange rates for Indian Rupee against major four foreign currencies, published by Reserve Bank of India on a daily basis. However, publishing this rate is discontinued by RBI. <br />
<br />
The Reserve Bank of India compiles and publishes on a daily basis, reference rates for four major currencies i.e. US dollar (USD), British Pound (GBP), Japanese Yen (YEN) and Euro (EUR). <br />
<br />
Uptill September 2014, the rates were arrived at by averaging the mean of the bid/ offer rates polled from a few select banks at a randomly chosen five minute window between 11.45 a.m. and 12.15 p.m. every week-day (excluding Saturdays, Sundays and Bank Holidays in Mumbai). The contributing banks were randomly selected from a large panel of banks, identified on the basis of their standing, market-share in the domestic foreign exchange market and representative character<sup class="reference">[[#ref1|[1]]]</sup>.<br />
<br />
Based on the recommendations of the [https://www.rbi.org.in/scripts/PublicationReportDetails.aspx?ID=761 Committee on Financial Benchmarks] (constituted on June 28, 2013; Chairman: Shri P. Vijaya Bhaskar; report submitted in February 2014) the following changes were made to the existing methodology for calculation of exchange rates.<br />
<br />
<br />
*The rate for spot US Dollar against Indian Rupee will be polled from the select list of contributing banks at a '''randomly chosen five minute window between 11.30 a.m. and 12.30 p.m. every week-day''' (excluding Saturdays, Sundays and Bank Holidays in Mumbai).<br />
*The other three rates, viz. EUR/INR, GBP/INR and JPY/INR would be computed by crossing the USD/INR Reference Rate with the ruling EUR/USD, GBP/USD and USD/JPY rates.<br />
*The daily press release on RBI Reference Rate for US Dollar will be issued every week-day (excluding Saturdays, Sundays and Bank Holidays in Mumbai) at around '''1.30 p.m'''.<br />
<br />
<br />
These changes have come into effective from September 1, 2014.<br />
<br />
The RBI reference exchange rate may be different from the rates established through the currency trading venues of stock exchanges or over the counter segments. However, the direction of movement would be the same.<br />
<br />
For instance, [http://www.fedai.org.in/ Foreign Exchange Dealers Association of India] (FEDAI)<sup class="reference">[[#ref1|[2]]]</sup> used to publish spot fixing rates for USD, GBP, EUR and JPY against INR at 11:40 AM - 12 noon on every working day based on quotes collected through polling. The FEDAI spot fixings were used for cash settlement of exercise of over the counter foreign currency- Indian rupee options primarily by some corporates. FEDAI also publishes [http://www.fedai.org.in/RevaluationRates.aspx revaluation rates] for spot contracts (against INR) in 25 currencies and for forward contracts (against INR) upto 6 months in nine currencies and upto 12 months in four currencies. The banks use the FEDAI revaluation rates for marking to market<sup class="reference">[[#ref1|[3]]]</sup> the outstanding spot and forward contracts in their books.<br />
<br />
The RBI Reference Rates are used for settlement of exchange traded currency futures and options. The Reference Rate is reportedly used by many corporates for determining [http://www.incometaxindia.gov.in/Pages/international-taxation/transfer-pricing.aspx transfer pricing]. The foreign exchange transactions of Government of India undertaken through RBI take place at the Reference Rate. The RBI’s foreign currency assets and liabilities are revalued at weekly and monthly intervals using the Reference Rate. The International Monetary Fund (IMF) also uses the rate for revaluation of Special Drawing Rights (SDRs).<br />
<br />
The RBI reference rates fixed for the day may be seen[https://rbi.org.in/ here]. Historical data may be seen from [http://dbie.rbi.org.in/DBIE/dbie.rbi?site=home RBI database]. <br />
<br />
Concerns are often raised as to whether RBI being the regulator of the Indian foreign exchange market should be involved in fixation of Reference Rates. However, across the globe, many central banks like European Central Bank, Bank of Canada, Central banks of countries like Brazil, South Africa, Thailand, Indonesia etc. publish such reference rates. Further in view of the scandals relating to manipulation of major global foreign exchange benchmarks administered by private sector entities, as also the fact that the Reference Rate setting process has remained quite robust, the Committee on Financial Benchmarks recommended that it may not be appropriate for RBI to discontinue fixing the Reference Rates.<br />
<br />
The Committee also felt that the USD/INR Reference Rate of RBI should be derived based on the actual market transactions obtained from defined source/s covering a sufficiently longer time window so as to ensure that the Reference Rate appropriately represents the prevailing spot rate. The Reference Rate was also recommended to be volume weighted to smoothen the impact of small value off-market transactions in determination of the benchmark. The sources of the EUR/USD, GBP/USD and JPY/USD rates used for crossing the USD/INR Reference Rate was also recommended to be publicly disclosed.<br />
<br />
The Reserve Bank periodically reviews the procedure for selecting the banks and the methodology of polling so as to ensure that the reference rate is a true reflection of the market activity.<br />
<br />
<br />
Since the timing of publication of the FEDAI spot rates and RBI reference rates were almost the same, Committee on Financial Benchmarks (Page No.71), had advised FEDAI to decide on phasing out the benchmark of Spot Fixing Rate at 11.30 a.m. after conducting a survey among banks. Accordingly, vide its circular dated [http://www.fedai.org.in/pdf/SPL_6_2014_16_June_2014.pdf16 June 2014], FEDAI decided to discontinue publishing daily FEDAI Spot Fixing Rates at 11.30 a.m. with effect from 1 October 2014. It does not mean that RBI reference rate would be mandated as an alternate reference rate. The settlement may be done at the ruling market rate.<br />
<br />
<p>Reserve Bank of India (RBI) announced in the Sixth Bi-monthly Monetary Policy Statement for the year 2017-18 in February, 2018 that Financial Benchmarks India Private Limited (FBIL) will assume, i.e. take over from RBI, the responsibility of computation and dissemination of reference rate for USD/INR and exchange rate of other major currencies at some appointed date. FIBIL has commenced the process of computing and disseminating reference rate for USD/INR and exchange rate of other major currencies with effect from July 10, 2018. Accordingly, the dissemination of Exchange Rate on RBI’s website has been discontinued now. </p><br />
<br />
<br />
==References==<br />
*RBI Press release dated [https://rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=31801 7 August 2014]<br />
*RBI press release dated [https://www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=18927 6 August 2008]<br />
*Report of the [https://www.rbi.org.in/scripts/PublicationReportDetails.aspx?ID=761Committee on Financial Benchmarks] (constituted on June 28, 2013; Chairman: Shri P. Vijaya Bhaskar; report submitted in February 2014)<br />
<br />
<br />
<span class="small_footernote" id="ref1">1. The reference rate computation process was reviewed and changed with effect from April 15, 2010. In the changed procedure, the number of banks in the polling panel was significantly expanded, of which a set of banks are selected randomly every day for calling for quotes. Further, the reference time window was expanded to 30 minutes, i.e. 11:45 AM to 12:15 PM from the earlier system of 15 minutes, of which a five minute window is selected randomly for conducting poll. The means of the polled bids and offers are calculated for each contributing bank and the outlier mean rates are removed. The Reference Rates are arrived at by averaging the remaining mean rates. </span><br />
<br />
<span class="small_footernote" id="ref2">2.'''Foreign Exchange Dealer's Association of India''' (FEDAI) was set up in 1958 as an Association of banks dealing in foreign exchange in India (typically called Authorised Dealers - ADs) as a self regulatory body and is incorporated under Section 25 of The Companies Act, 1956. It's major activities include framing of rules governing the conduct of inter-bank foreign exchange business among banks vis-à-vis public and liaison with RBI for reforms and development of forex market. </span><br />
<br />
<span class="small_footernote" id="ref3">3. '''Valuing the security in terms of its market value rather than the book value''' </span><br />
<br />
<br />
==Contributed by== <br />
* [http://www.ies.gov.in/myaccount-profile-view.php?memid=338 Ms. Rose Mary K Abraham (IES 2006)]<br />
*Email- [mailto:rosemary.a@nic.in rosemary.a@nic.in]<br />
<br />
<br />
<br />
[[Category:concepts|RBIReferenceExchangeRate]]</div>Rosemary.ahttp://arthapedia.in/index.php/MIBOR_and_MIBIDMIBOR and MIBID2018-09-26T05:00:40Z<p>Rosemary.a: </p>
<hr />
<div><p>Mumbai Inter-Bank Offer Rate (MIBOR) and Mumbai Inter-Bank Bid Rate (MIBID) are the benchmark rates at which Indian banks lend and borrow money to each other. The&nbsp;<strong>bid</strong>&nbsp;is the price at which the market would&nbsp;<em>buy</em>&nbsp;and the <strong>offer</strong>&nbsp;(or&nbsp;<strong>ask</strong>) is the price at which the market would&nbsp;<em>sell</em>. These rates reflect the short term funding costs of major banks. In other words, MIBOR reflects the price at which short term funds are made available to participating banks. </p><br />
<p> MIBID is&nbsp;the rate at which banks would like to borrow from other banks and MIBOR is the rate at which banks are willing to lend to other banks. Contrary to general perception, MIBID is <em><u>not</u></em> the rate at which banks attract deposits from other banks. </p><br />
<p> MIBOR is the Indian version of [https://www.theice.com/publicdocs/IBA_LIBOR_FAQ.pdf London Interbank Offer Rate] (LIBOR). MIBOR is fixed for overnight to 3 month long funds and these rates are published every day at a designated time. Of the above tenors, the overnight MIBOR is the most widely used one which is used for pricing and settlement of [http://www.investopedia.com/terms/o/overnightindexswap.asp Overnight Index Swaps] (OIS). Corporates use the OIS for hedging their interest rate risks<sup class="reference">[[#ref1|[1]]]</sup>. The MIBID/MIBOR rate is also used as a bench mark rate for majority of deals struck for [https://en.wikipedia.org/wiki/Interest_rate_swap Interest Rate Swaps] (IRS), [http://www.investopedia.com/exam-guide/cfa-level-1/derivatives/characteristics-fras-forward-rate-agreements.asp Forward Rate Agreements] (FRA), [http://www.investopedia.com/terms/f/frn.asp Floating Rate Debentures] and [http://www.investopedia.com/terms/t/termdeposit.asp Term Deposits]. The aggregate amount of outstanding interbank/[https://en.wikipedia.org/wiki/Primary_dealer Primary Dealers] (PD) notional principal referenced to MIBOR remained at INR 16,847.6 billion as on October 31, 2013<sup class="reference">[[#ref2|[2]]]</sup>.</p><br />
<p>&nbsp;</p><br />
<p><strong>Financial Benchmarks</strong><br><br />
MIBOR, MIBID etc. are all financial benchmarks. Financial benchmarks are mainly used for pricing, settlement, and valuation of financial contracts. The IOSCO&rsquo;s [https://www.iosco.org/library/pubdocs/pdf/IOSCOPD415.pdf Report on Principles for Financial Benchmarks] describes financial benchmarks as:</p><br />
<p><em>&ldquo;Prices, estimates, rates, indices or values that are:</em></p><br />
<ul><br />
<li><em>Made available to users, whether free of charge or for payment;</em></li><br />
<li><em>Calculated periodically, entirely or partially by the application of a formula or another method of calculation to, or an assessment of the value of one or more underlying Interests;</em></li><br />
<li><em>Used for reference for purposes that includes one or more of the following:</em></li><br />
<li style="margin-left:20px;"><em>determining the interest payable, or other sums due, under loan agreements or under other financial contracts or instruments;</em>&nbsp;</li><br />
<li style="margin-left:20px;"><em>determining the price at which a financial instrument may be bought or sold or traded or redeemed, or the value of a financial instrument; and/or</em>&nbsp;</li><br />
<li style="margin-left:20px;"><em> measuring the performance of a financial instrument.&rdquo;</em></li><br />
</ul><br />
<p>The London Inter-bank Offer Rate (LIBOR) is the primary global benchmark for short term interest rates and has been used for pricing and settlement of large varieties of interest rate and derivative contracts. Hundreds of trillions of dollars worth of outstanding loans and financial contracts world-wide are estimated to be linked to LIBOR. Before the rate fixation scandal, [http://www.bbatrent.com/disclaimer British Bankers' Association&nbsp;](BBA) used to calculate LIBOR. Now the responsibility for its administration has been transferred to&nbsp;[https://www.theice.com/publicdocs/IBA_LIBOR_FAQ.pdf Intercontinental Exchange] (ICE). Thus,&nbsp;<strong>BBA Libor</strong>&nbsp;is now known as <strong>ICE Libor</strong>. </p><br />
<p> ICE LIBOR is produced for the following five currencies with seven maturities quoted for each - ranging from overnight to 12 months, producing 35 rates each business day. </p><br />
<ul><br />
<li>CHF (Swiss Franc)</li><br />
<li>EUR (Euro)</li><br />
<li>GBP (Pound Sterling)</li><br />
<li>JPY (Japanese Yen)</li><br />
<li>USD (US Dollar)</li><br />
</ul><br />
<p>ICE LIBOR provides an indication of the average rate at which a LIBOR contributor bank can obtain unsecured funding in the London interbank market for a given period, in a given currency. Individual ICE LIBOR rates are the end-product of a calculation based upon submissions from LIBOR contributor banks.ICE Benchmark Administration maintains a reference panel of between 11 and 18 contributor banks for each currency calculated<sup class="reference">[[#ref3|[3]]]</sup>.</p><br />
<p> The Indian foreign exchange and Rupee interest rate benchmarks are used by the banking sector mainly for two purposes, i.e. </p><br />
<ul><br />
<li>pricing and settlement of foreign exchange and Rupee interest rate contracts, </li><br />
<li>periodic valuation of various foreign exchange and Rupee interest rate related assets and liabilities. </li><br />
</ul><br />
<p>The major foreign exchange and interest rate benchmarks currently in use by the banking sector are listed below.</p><br />
<p><em><u>A. Rupee Interest Rate Benchmarks</u></em></p><br />
<ol><br />
<li>[http://www.fimmda.org/ Fixed Income Money Market and Derivative Association of India] (FIMMDA)- National Stock Exchange (NSE) Mumbai Interbank Bid Rate (MIBID) and Offer Rate (MIBOR)</li><br />
<li>FIMMDA-Thomson Reuters Mumbai Interbank Forward Offered Rate (MIFOR)</li><br />
<li>Thomson Reuters Indian Benchmark Yield Curve (INBMK)</li><br />
<li>FIMMDA-Thomson Reuters Mumbai Interbank Overnight Indexed Swaps (MIOIS)</li><br />
<li>FIMMDA-Thomson Reuters Mumbai Interbank Offered Currency Swaps (MIOCS)</li><br />
<li>FIMMDA-[http://pdai.org.in/about-us/index.html Primary Dealers Association of India] (PDAI) G-Sec Yield Curve</li><br />
<li>FIMMDA- PDAI Spread for Government of India (GoI) Floating Rate Bonds</li><br />
<li>FIMMDA- PDAI Prices for State Development Loans</li><br />
<li>FIIMDA- PDAI &nbsp;Prices for Corporate Bonds</li><br />
<li>FIMMDA-Thomson Reuters T-Bill Curve</li><br />
<li>FIMMDA-Thomson Reuters [https://en.wikipedia.org/wiki/Commercial_paper Commercial Paper] (CP) Curve</li><br />
<li>Thomson Reuters [https://en.wikipedia.org/wiki/Certificate_of_deposit Certificate of Deposits] (CD) Curve</li><br />
</ol><br />
<p>Of the various benchmarks currently used in the market, MIBOR is the most liquid benchmark in rupee interest rate contracts, accounting for 92 percent share of the total trades. </p><br />
<p><em><u>B. Foreign Exchange Benchmarks</u></em></p><br />
<ol><br />
<li>RBI Reference rates</li><br />
<li>[http://www.fedai.org.in/ Foreign Exchange Dealers&rsquo; Association of India] (FEDAI) Spot Fixing Rates</li><br />
<li>FEDAI Foreign Currency Non-Resident (FCNR(B)) Benchmark Rates</li><br />
<li>FEDAI Month end Revaluation Rate – Foreign Exchange Contracts</li><br />
<li>FEDAI USD-INR Option Volatility</li><br />
</ol><br />
<p>&nbsp;</p><br />
<p><strong>Evolution of MIBOR- How MIBOR is fixed?</strong><br><br />
An Internal Committee at NSE for the Development of the Debt Market had studied and recommended the modalities for the development for a benchmark rate for the [http://www.investopedia.com/terms/i/interbank_call_money_market.asp call money market]. Accordingly, [http://www.nseindia.com/ National Stock Exchange] (NSE) developed and launched the NSE Mumbai Inter-bank Bid Rate (MIBID) and NSE Mumbai Inter-bank Offer Rate (MIBOR) for the overnight [http://www.investopedia.com/terms/i/interbank_call_money_market.asp call money market] on June 15, 1998. The success of the Overnight NSE MIBID-MIBOR encouraged the Exchange to develop a benchmark rate for the term money market. Thus, NSE launched the 14-day NSE MIBID- MIBOR on November 10, 1998 and the longer term money market benchmark rates for 1 month and 3 months on December 1, 1998.&nbsp;[http://www.fimmda.org/ Fixed Income Money Market and Derivative Association of India] (FIMMDA) became a partner to NSE in co-branding the dissemination of MIBID-MIBOR rates for the overnight and term segments on March 4, 2002 and the product thereafter was rechristened as FIMMDA-NSE MIBID/MIBOR. Later, NSE introduced a 3 Day FIMMDA-NSE MIBID-MIBOR on all Fridays with effect from June 6, 2008 in addition to existing overnight rate. </p><br />
<p>FIMMDA-NSE MIBID MIBOR was based on rates polled by NSE from a representative panel of 30 banks/ primary dealers. That is, participating banks are asked at what rate they would be borrowing/lending funds of a reasonable market size at the scheduled time of reference. Extreme values are avoided while calculating the reference rates and the mean or average benchmark rate is calculated with &quot;[https://en.wikipedia.org/wiki/Bootstrapping_(statistics) Bootstrapping]&quot; scores (i.e., computing the reference rate from a sample with replacement, as an average of the polled rates after an appropriate amount of trimming to minimize noise (outliers) and then computing a measure of dispersion i.e. the confidence intervals for the trimmed means/average). </p><br />
<p>Every day the FIMMDA-NSE MIBID MIBOR along with their respective standard deviations (probability that the estimated trimmed mean obtained after avoiding extreme values, lies in a given range) were disseminated to the market at 9.40 (IST) for overnight rates (3 day on all Fridays) and at 11.30 PM for the three term rates, viz. 14-day, 1-month and 3-month. The structure of the reporting is given below. </p><br />
<br />
<table border="0" cellspacing="0" cellpadding="0" width="100%" class="table_formatting"><br />
<tr><br />
<td colspan="6" align="center">FIMMDA-NSE MIBID MIBOR for the Day</td><br />
</tr><br />
<tr bgcolor="#FADECB"><br />
<td><strong>Category</strong></td><br />
<td><strong>Time</strong></td><br />
<td><strong>MIBOR</strong></td><br />
<td><strong>Standard Deviation of MIBOR</strong></td><br />
<td><strong>MIBID</strong></td><br />
<td><strong>Standard Deviation of MIBID</strong></td><br />
</tr><br />
<tr><br />
<td><strong>OVERNIGHT</strong></td><br />
<td>9:40 a.m.</td><br />
<td>&nbsp;</td><br />
<td>&nbsp;</td><br />
<td>&nbsp;</td><br />
<td>&nbsp;</td><br />
</tr><br />
<tr bgcolor="#FADECB"><br />
<td><strong>3 DAY</strong></td><br />
<td>9:40 a.m.</td><br />
<td>&nbsp;</td><br />
<td>&nbsp;</td><br />
<td>&nbsp;</td><br />
<td>&nbsp;</td><br />
</tr><br />
<tr><br />
<td><strong>14 DAY</strong></td><br />
<td>11:30 a.m.</td><br />
<td>&nbsp;</td><br />
<td>&nbsp;</td><br />
<td>&nbsp;</td><br />
<td>&nbsp;</td><br />
</tr><br />
<tr bgcolor="#FADECB"><br />
<td><strong>1 MONTH</strong></td><br />
<td>11:30 a.m.</td><br />
<td>&nbsp;</td><br />
<td>&nbsp;</td><br />
<td>&nbsp;</td><br />
<td>&nbsp;</td><br />
</tr><br />
<tr><br />
<td><strong>3 MONTH</strong></td><br />
<td>11:30 a.m.</td><br />
<td>&nbsp;</td><br />
<td>&nbsp;</td><br />
<td>&nbsp;</td><br />
<td>&nbsp;</td><br />
</tr><br />
</table><br />
<br />
<br />
<br />
<p>As is the practice internationally, a polled rate, instead of actual transaction data was used, so as to ensure continuous publication of this systemic benchmark rate, even in times when liquidity is low and there are few transactions on which to base the rate. Further, the method of polling was adopted because market participants generally do not like to reveal the identity of those whom they have lent and at what rate they have lent. However, obtaining benchmark reference rates by polling a few market participants and summarizing the prices they report suffer from lack of transparency, accuracy and truthfulness in reporting and is liable to corruption and fixing since the number of participants is limited. </p><br />
<p> In the wake of misconduct of financial benchmark setters in international financial markets (A few big banks were found to have fixed the polled benchmark rates in order to benefit from derivative trades which are settled on these benchmark rates), the [https://rbi.org.in/Scripts/PublicationReportDetails.aspx?ID=761#f18 RBI committee on &lsquo;Financial Benchmarking&rsquo;] (Chairperson: Shri P.Vijaya Bhaskar) recommended measures to improve the system of bench marking in India. </p><br />
<p> Acting on these recommendations, <strong>Board</strong> <strong>of Financial Benchmarks India Pvt. Ltd</strong> (FBIL) was jointly formed by FIMMDA, [http://www.fedai.org.in/ Foreign Exchange Dealers&rsquo; Association of India] (FEDAI) and [http://www.iba.org.in/ Indian Banks&rsquo; Association] (IBA). FBIL was incorporated in December 2014 and commenced operations in February 2015. </p><br />
<p> As part of the measures to initiate reforms in the area of benchmark setting, the existing benchmark ie. MIBOR based on &lsquo;polled rates&rsquo; administered by FIMMDA and NSE has been replaced by a new Benchmark known as &lsquo;FBIL Overnight Mumbai Interbank Outright Rate&rsquo; (<strong>FBIL-Overnight MIBOR</strong>) and the new benchmark has been in operation from July 22,2015. The new benchmark setting is based on &ldquo;transaction rates&rsquo; rather than &lsquo;polled rates&rsquo; by banks. That is, it is based on trade weighted inter-bank call money transactions on the [https://www.ccilindia.com/Pages/default.aspx Clearing Corporation of India Ltd] (CCIL)&rsquo;s platform for call money transactions - Negotiated Dealing System [https://www.ccilindia.com/FAQ/Pages/SecuritySettlement.aspx (NDS)-Call platform] - between 9 A.M. and 10 A.M. The trades will be pulled out from the NDS-CALL system immediately after the cut-off time. CCIL will be the calculating agent. The approved methodology for the benchmark is also being placed on the websites of FIMMDA and Clearing Corporation of India Ltd(CCIL). </p><br />
<p> A minimum of 10 trades with a total traded value of Rs.500 crore in the NDS-Call segment will be considered as the minimum threshold limit (both) for estimation of the volume weighted average rate. A rate Range will be computed – Max will be Weighted Average Rate + 3* Standard Deviation and Min will be Weighted Average Rate - 3* Standard Deviation. Any trades executed at rates outside the said Max and Min range will be considered as outlier and will be excluded from the computation process (i.e. higher than Max and lower than Min). In case either of the criteria mentioned above (a minimum of 10 trades with a total traded value of Rs.500 crore) is not met, the timeframe for computation of rates will be extended by 30 minutes. If the threshold criteria are still not met, then time frame is extended by another 30 minutes. If the threshold criteria are not met even after the two extensions, no rate computation will be initiated. The previous day&rsquo;s values will be used for dissemination. This may continue for a maximum of two consecutive working days after which if the threshold criteria are still not met, CCIL will not disseminate any rate on such days and Banks will use their own fallback mechanism. Thus, Volume weighted average (VWA)&nbsp;is calculated by averaging the reported trades after weighting them with their respective volume. The VWA needs price volume data of all executed deals and is a reliable measure of the market sentiment, however, suffers from discontinuity if the market is not liquid.</p><br />
<p> Accordingly, computation &amp; dissemination of FIMMDA-NSE MIBID - MIBOR for overnight and three days were discontinued w.e.f July 22, 2015. The other rates (14 Day, 1 month and 3 month rates) are still being published, for which NSE is awaiting further directions as on date. The FBIL proposes to take over administration of forex benchmarks and other Indian Rupee interest rate benchmarks over a period of time after careful examination of the methodology and utility to the financial markets in consultation with the stakeholders. There will be periodic review of the benchmark methods to ensure that they are robust and conform to the best governance standards.</p><br />
<br />
<p>Reserve Bank of India (RBI) announced in the Sixth Bi-monthly Monetary Policy Statement for the year 2017-18 in February, 2018 that Financial Benchmarks India Private Limited (FBIL) will assume, i.e. take over from RBI, the responsibility of computation and dissemination of reference rate for USD/INR and exchange rate of other major currencies at some appointed date. FIBIL has commenced the process of computing and disseminating reference rate for USD/INR and exchange rate of other major currencies with effect from July 10, 2018. Accordingly, the dissemination of Exchange Rate on RBI’s website has been discontinued now. </p><br />
<br />
<br />
<br />
<span class="small_footernote" id="ref1">1. The OIS is actively traded by the banks and primary dealers (wholesale traders in securities) with average daily trading volume (notional principal) of INR 105.7 billion during the period from May to October 2013. Source: Report of the [https://rbi.org.in/Scripts/PublicationReportDetails.aspx?ID=761#f18 RBI committee on &lsquo;Financial Benchmarking&rsquo;] </span><br />
<br />
<span class="small_footernote" id="ref2">2. Source: Report of the [https://rbi.org.in/Scripts/PublicationReportDetails.aspx?ID=761#f18 RBI committee on &lsquo;Financial Benchmarking&rsquo;] </span><br />
<br />
<span class="small_footernote" id="ref3">3. Source: [https://www.theice.com/iba/libor https://www.theice.com/iba/libor] </span><br />
<br />
<br />
<br />
==Data==<br />
*The FBIL overnight MIBOR can be seen [http://www.fimmda.org/modules/securitiesApproval/securitiesApproval.aspx?op=mibor here].<br />
*<strong>The FBIL Term MIBOR can be seen </strong>[http://www.fimmda.org/modules/securitiesApproval/securitiesApproval.aspx?op=fbiltermmibor here]<strong>. </strong><br />
*<strong>FIMMDA-NSE MIBID MIBOR can be seen </strong>[http://www.nseindia.com/products/content/debt/wdm/fimmda_mibid_mibor.htm here]<strong>. </strong><br />
<br />
<br />
==References==<br />
*[https://www.theice.com/publicdocs/IBA_LIBOR_FAQ.pdf The FAQ on LIBOR] <br />
*Report of the [https://rbi.org.in/Scripts/PublicationReportDetails.aspx?ID=761#f18 RBI committee on &lsquo;Financial Benchmarking&rsquo;]<br />
*FIMMDA [http://www.fimmda.org/Uploads/general/FBIL-Overnight-Mibor-Press-Release-22-june-2015.pdf Press Release dated 22 July 2015]<br />
*[http://www.nseindia.com/products/content/debt/wdm/fimmda_mibid_mibor.htm NSE&rsquo;s brief on MIBOR]<br />
<br />
<br />
==Contributed by==<br />
*[http://www.ies.gov.in/myaccount-profile-view.php?memid=234 P.K Abdul Kareem (IES 1996)] with inputs from officials at National Stock Exchange of India Ltd. (NSE)<br />
*Email-[mailto:pkakareem@yahoo.com pkakareem@yahoo.com]<br />
<br />
[[Category:concepts|MIBORandMIBID]]</div>Rosemary.ahttp://arthapedia.in/index.php/Disaster_funding_arrangements_in_IndiaDisaster funding arrangements in India2018-09-12T01:38:54Z<p>Rosemary.a: </p>
<hr />
<div>Financial assistance to meet the rescue and relief expenditure during any notified disaster event is governed by notified guidelines on [http://arthapedia.in/index.php?title=State_Disaster_Response_Fund_(SDRF) State Disaster Response Fund (SDRF)] and [http://arthapedia.in/index.php?title=National_Disaster_Response_Fund_(NDRF) National Disaster Response Fund (NDRF)]. These funds have been created under the legal frame work of 48(1) (a) and section 46 of [https://ndma.gov.in/en/disaster.html Disaster Management Act, 2005] respectively.<br />
<br />
'''Calamities covered under SDRF/NDRF''' <br />
<br />
Natural calamities of cyclone, drought, earthquake, fire, flood, tsunami, hailstorm, landslide, avalanche, cloud burst, pest attack and cold wave & frost considered to be of severe nature by Government of India and requiring expenditure by a State Government in excess of the balances available in its own State Disaster Response Fund (SDRF), will qualify for immediate relief assistance from NDRF. Ministry of Agriculture is responsible for handling natural calamities of Drought, hailstorm, pest Attack, Cold Wave & Frost. All other notified natural calamities are managed by Ministry of Home Affairs. Ministry of Home Affairs is nodal ministry for disaster management in the country.<br />
<br />
There is no categorisation of calamities mentioned as [http://arthapedia.in/index.php?title=National_Calamity National Calamity] in Disaster Management Act, 2005. As per the DM Act 2005 and 14th Finance Commission (FC) recommendations, any notified [http://arthapedia.in/index.php?title=Calamity_of_Severe_Nature calamity of a severe nature] will qualify for assistance from NDRF.<br />
<br />
The State Governments are primarily responsible for execution of relief operations in the wake of natural calamities. The Government of India supplements the efforts of the State Governments by extending additional financial assistance from NDRF. Funds from SDRF and NDRF are released to assist States to provide immediate relief. Assistance for long term reconstruction of assets is provided through overall development plans of the Centre and the States, and is not covered under the norms and guidelines of SDRF & NDRF.<br />
<br />
Assistance provided from NDRF is on 100% central grant basis whereas in case of SDRF, states also need to contribute their share as per successive Finance Commission’s recommendations.<br />
<br />
NDRF is maintained by Government of India in the Public Account. A limited size cess (NCCD-National Calamity Contingency Duty) backed the fund earlier. After implementation of GST, most of the cesses are subsumed in GST, hence the size of cess is narrowed down and not sufficient to fulfil the growing needs of disaster funding under NDRF. Therefore, now as per requirement, necessary budgetary support is being provided for NDRF.<br />
<br />
Thirteenth Finance Commission (FC-XIII) had recommended differential State shares, with general category States contributing 25 per cent and [http://www.arthapedia.in/index.php?title=Special_Category_States special category States] contributing 10 per cent, and the balance being contributed by the Union Government as grants-in-aid. Fourteenth Finance Commission (FFC) has recommended an amount of Rs. 61,219 crore as aggregated corpus of State Disaster Response Fund(SDRF) for all States for award period 2015-20 with state contribution of 10% (6122 crore ) to SDRF, the remaining 90% (Rs. 55097 crore ) coming from Central Government. The Government has accepted the above recommendations of FFC with modification that the percentage share of the States will continue to be as before (i.e. during FC-XIII award period) and once GST is in place, the recommendation of FFC on disaster relief would be fully implemented. Thereafter, from the year 2018-19, the share of states in SDRF has been decided at 10% and rest 90% is being contributed by the centre. <br />
<br />
The grant under SDRF is to be released by Ministry of Finance in two instalments in June and December in each financial year on the recommendations of Home Ministry. In case of severe calamity, there is a provision of advance release of these instalments. State-wise and Year-wise allocation of SDRF has been decided by the 14th FC for its award period 2015-16 to 2019-20. Further, in the event of a [http://arthapedia.in/index.php?title=Calamity_of_Severe_Nature calamity of a severe nature] when the SDRF is insufficient to meet the relief requirements, additional central assistance is provided from NDRF. The quantum of assistance from NDRF is subjected to an adjustment of 50% of the balance in SDRF as on 1st April the financial year.<br />
<br />
<br />
'''Assessment of Relief Assistance from the NDRF''' <br />
<br />
In the case of notified natural calamities, as per the established procedure, the State Government is required to submit a detailed memorandum indicating the sector-wise details of damage and requirement of funds for relief operations of immediate nature.<br />
<br />
Upon a request made by a State not having adequate balance in its State Disaster Response Fund (SDRF), Ministry of Home Affairs or the Ministry of Agriculture, as the case may be, assess need for additional assistance from NDRF under the existing guidelines and the approved items of expenditure.<br />
<br />
<br />
'''The following procedure will be adopted for making such assessment:''' <br />
<br />
* The memorandum of the State Government is examined to assess the likely requirement of funds as per items and norms of expenditure under SDRF/NDRF. If the preliminary examination reveals that there are adequate funds in SDRF with the State for providing relief as per norms, the State would be advised accordingly.<br />
<br />
* If the preliminary examination reveals that the State is in need of assistance, a Central Team will be deputed for making an on the spot assessment.<br />
<br />
* The report of the Central Team shall be examined by the Sub-Committee of National Executive Committee (SC-NEC) constituted under section 8 of the DM Act, 2005. The SC-NEC will assess the extent of assistance and expenditure which can be funded from the NDRF, as per the norms of NDRF/SDRF, and make recommendations.<br />
<br />
* Based on the recommendations of SC-NEC, a High Level Committee (HLC) will approve the quantum of immediate relief to be released from NDRF.<br />
<br />
<br />
High Level Committee consists of Finance Minister, Agriculture Minister, Home Minister, and Planning Minister/Vice Chairman-NITI AAYOG as members. HLC is serviced by the Disaster Management Division of Ministry of Home Affairs.<br />
<br />
Ministry of Home Affairs to supervise:- The Ministry of Home Affairs (MHA) oversee the utilisation of releases from NDRF for the purposes for which funds have been released and monitor compliance with the guidelines of NDRF. States will need to provide the required information to MHA.<br />
<br />
Releases to States:- Upon the approval of HLC, Ministry of Finance releases assistance from NDRF to States.<br />
<br />
'''Norms of assistance under NDRF'''<br />
<br />
The norms of assistance to be provided under NDRF, including items and amount of assistance for each item, are decided by Expert Committee constituted by Ministry of Home Affairs and these norms are revised from time to time. Last such revision was done vide MHA’s letter dated 08.04.2015.<br />
<br />
<br />
==Also See==<br />
* [http://arthapedia.in/index.php?title=National_Disaster_Response_Fund_(NDRF) National Disaster Response Fund (NDRF)]<br />
* [http://arthapedia.in/index.php?title=State_Disaster_Response_Fund_(SDRF) State Disaster Response Fund (SDRF)]<br />
* [http://arthapedia.in/index.php?title=Calamity_of_Severe_Nature Calamity of a severe nature]<br />
<br />
<br />
==References==<br />
* [http://www.ndmindia.nic.in/guidelines NDMA Guidelines]<br />
<br />
<br />
==Contributed by==<br />
* [http://ies.gov.in/myaccount-profile-view.php?memid=342 Shri. Subash Chandra Meena (IES 2006)]<br />
<br />
<br />
<br />
[[Category:concepts|DisasterfundingarrangementsinIndia]]</div>Rosemary.ahttp://arthapedia.in/index.php/Disaster_funding_arrangements_in_IndiaDisaster funding arrangements in India2018-09-12T01:37:53Z<p>Rosemary.a: </p>
<hr />
<div>Financial assistance to meet the rescue and relief expenditure during any notified disaster event is governed by notified guidelines on [http://arthapedia.in/index.php?title=State_Disaster_Response_Fund_(SDRF) State Disaster Response Fund (SDRF)] and [http://arthapedia.in/index.php?title=National_Disaster_Response_Fund_(NDRF) National Disaster Response Fund (NDRF)]. These funds have been created under the legal frame work of 48(1) (a) and section 46 of [https://ndma.gov.in/en/disaster.html Disaster Management Act, 2005] respectively.<br />
<br />
'''Calamities covered under SDRF/NDRF''' :-<br />
<br />
Natural calamities of cyclone, drought, earthquake, fire, flood, tsunami, hailstorm, landslide, avalanche, cloud burst, pest attack and cold wave & frost considered to be of severe nature by Government of India and requiring expenditure by a State Government in excess of the balances available in its own State Disaster Response Fund (SDRF), will qualify for immediate relief assistance from NDRF. Ministry of Agriculture is responsible for handling natural calamities of Drought, hailstorm, pest Attack, Cold Wave & Frost. All other notified natural calamities are managed by Ministry of Home Affairs. Ministry of Home Affairs is nodal ministry for disaster management in the country.<br />
<br />
There is no categorisation of calamities mentioned as [http://arthapedia.in/index.php?title=National_Calamity National Calamity] in Disaster Management Act, 2005. As per the DM Act 2005 and 14th Finance Commission (FC) recommendations, any notified [http://arthapedia.in/index.php?title=Calamity_of_Severe_Nature calamity of a severe nature] will qualify for assistance from NDRF.<br />
<br />
The State Governments are primarily responsible for execution of relief operations in the wake of natural calamities. The Government of India supplements the efforts of the State Governments by extending additional financial assistance from NDRF. Funds from SDRF and NDRF are released to assist States to provide immediate relief. Assistance for long term reconstruction of assets is provided through overall development plans of the Centre and the States, and is not covered under the norms and guidelines of SDRF & NDRF.<br />
<br />
Assistance provided from NDRF is on 100% central grant basis whereas in case of SDRF, states also need to contribute their share as per successive Finance Commission’s recommendations.<br />
<br />
NDRF is maintained by Government of India in the Public Account. A limited size cess (NCCD-National Calamity Contingency Duty) backed the fund earlier. After implementation of GST, most of the cesses are subsumed in GST, hence the size of cess is narrowed down and not sufficient to fulfil the growing needs of disaster funding under NDRF. Therefore, now as per requirement, necessary budgetary support is being provided for NDRF.<br />
<br />
Thirteenth Finance Commission (FC-XIII) had recommended differential State shares, with general category States contributing 25 per cent and [http://www.arthapedia.in/index.php?title=Special_Category_States special category States] contributing 10 per cent, and the balance being contributed by the Union Government as grants-in-aid. Fourteenth Finance Commission (FFC) has recommended an amount of Rs. 61,219 crore as aggregated corpus of State Disaster Response Fund(SDRF) for all States for award period 2015-20 with state contribution of 10% (6122 crore ) to SDRF, the remaining 90% (Rs. 55097 crore ) coming from Central Government. The Government has accepted the above recommendations of FFC with modification that the percentage share of the States will continue to be as before (i.e. during FC-XIII award period) and once GST is in place, the recommendation of FFC on disaster relief would be fully implemented. Thereafter, from the year 2018-19, the share of states in SDRF has been decided at 10% and rest 90% is being contributed by the centre. <br />
<br />
The grant under SDRF is to be released by Ministry of Finance in two instalments in June and December in each financial year on the recommendations of Home Ministry. In case of severe calamity, there is a provision of advance release of these instalments. State-wise and Year-wise allocation of SDRF has been decided by the 14th FC for its award period 2015-16 to 2019-20. Further, in the event of a [http://arthapedia.in/index.php?title=Calamity_of_Severe_Nature calamity of a severe nature] when the SDRF is insufficient to meet the relief requirements, additional central assistance is provided from NDRF. The quantum of assistance from NDRF is subjected to an adjustment of 50% of the balance in SDRF as on 1st April the financial year.<br />
<br />
<br />
'''Assessment of Relief Assistance from the NDRF:''' <br />
<br />
In the case of notified natural calamities, as per the established procedure, the State Government is required to submit a detailed memorandum indicating the sector-wise details of damage and requirement of funds for relief operations of immediate nature.<br />
<br />
Upon a request made by a State not having adequate balance in its State Disaster Response Fund (SDRF), Ministry of Home Affairs or the Ministry of Agriculture, as the case may be, assess need for additional assistance from NDRF under the existing guidelines and the approved items of expenditure.<br />
<br />
<br />
'''The following procedure will be adopted for making such assessment:''' <br />
<br />
* The memorandum of the State Government is examined to assess the likely requirement of funds as per items and norms of expenditure under SDRF/NDRF. If the preliminary examination reveals that there are adequate funds in SDRF with the State for providing relief as per norms, the State would be advised accordingly.<br />
<br />
* If the preliminary examination reveals that the State is in need of assistance, a Central Team will be deputed for making an on the spot assessment.<br />
<br />
* The report of the Central Team shall be examined by the Sub-Committee of National Executive Committee (SC-NEC) constituted under section 8 of the DM Act, 2005. The SC-NEC will assess the extent of assistance and expenditure which can be funded from the NDRF, as per the norms of NDRF/SDRF, and make recommendations.<br />
<br />
* Based on the recommendations of SC-NEC, a High Level Committee (HLC) will approve the quantum of immediate relief to be released from NDRF.<br />
<br />
<br />
High Level Committee consists of Finance Minister, Agriculture Minister, Home Minister, and Planning Minister/Vice Chairman-NITI AAYOG as members. HLC is serviced by the Disaster Management Division of Ministry of Home Affairs.<br />
<br />
Ministry of Home Affairs to supervise:- The Ministry of Home Affairs (MHA) oversee the utilisation of releases from NDRF for the purposes for which funds have been released and monitor compliance with the guidelines of NDRF. States will need to provide the required information to MHA.<br />
<br />
Releases to States:- Upon the approval of HLC, Ministry of Finance releases assistance from NDRF to States.<br />
<br />
'''Norms of assistance under NDRF''':-The norms of assistance to be provided under NDRF, including items and amount of assistance for each item, are decided by Expert Committee constituted by Ministry of Home Affairs and these norms are revised from time to time. Last such revision was done vide MHA’s letter dated 08.04.2015.<br />
<br />
<br />
==Also See==<br />
* [http://arthapedia.in/index.php?title=National_Disaster_Response_Fund_(NDRF) National Disaster Response Fund (NDRF)]<br />
* [http://arthapedia.in/index.php?title=State_Disaster_Response_Fund_(SDRF) State Disaster Response Fund (SDRF)]<br />
* [http://arthapedia.in/index.php?title=Calamity_of_Severe_Nature Calamity of a severe nature]<br />
<br />
<br />
==References==<br />
* [http://www.ndmindia.nic.in/guidelines NDMA Guidelines]<br />
<br />
<br />
==Contributed by==<br />
* [http://ies.gov.in/myaccount-profile-view.php?memid=342 Shri. Subash Chandra Meena (IES 2006)]<br />
<br />
<br />
<br />
[[Category:concepts|DisasterfundingarrangementsinIndia]]</div>Rosemary.ahttp://arthapedia.in/index.php/National_Disaster_Response_Fund_(NDRF)National Disaster Response Fund (NDRF)2018-09-05T12:30:02Z<p>Rosemary.a: </p>
<hr />
<div>National Disaster Response Fund is defined in Section 46 of the [http://www.ndma.gov.in/images/ndma-pdf/DM_act2005.pdf Disaster Management Act, 2005] (DM Act) as a fund managed by the Central Government for meeting the expenses for emergency response, relief and rehabilitation due to any threatening disaster situation or disaster. NDRF is constituted to supplement the funds of the [http://arthapedia.in/index.php?title=State_Disaster_Response_Fund_(SDRF) State Disaster Response Funds] (SDRF) of the states to facilitate immediate relief in case of calamities of a severe nature.<br />
<br />
The DM Act defines "disaster" to mean ‘a catastrophe, mishap, calamity or grave occurrence in any area, arising from natural or man-made causes, or by accident or negligence which results in substantial loss of life or human suffering or damage to, and destruction of, property, or damage to, or degradation of, environment, and is of such a nature or magnitude as to be beyond the coping capacity of the community of the affected area.'<br />
<br />
The [http://ndmindia.nic.in/NDRFSDRF_300715.pdf July 2015 guidelines] states that natural calamities of cyclone, drought, earthquake, fire, flood, tsunami, hailstorm, landslide, avalanche, cloud burst, pest attack and cold wave and frost considered to be of severe nature by Government of India (GoI) and requiring expenditures by a state government in excess of the balances available in its own SDRF will qualify for immediate relief assistance from NDRF.<br />
<br />
In the event of a disaster of 'a severe nature', in which the funds needed for relief operations exceeded the balances in the SDRF account, additional assistance would be provided from the NDRF after following prescribed procedures.<br />
<br />
The financial assistance from SDRF/NDRF is for providing immediate relief and is not compensation for loss/damage to properties /crops<sup class="reference">[[#ref4|[4]]]</sup>. In other words, NDRF amount can be spent only towards meeting the expenses for emergency response, relief and rehabilitation. For projects exclusively for the purpose of mitigation, i.e, measures aimed at reducing the risk, impact or effect of a disaster or threatening disaster situation a separate fund called National Disaster Mitigation Fund has to be constituted<sup class="reference">[[#ref5|[5]]]</sup>.<br />
<br />
In fact, the hitherto existing [http://arthapedia.in/index.php?title=National_Calamity_Contingency_Fund_(NCCF) National Calamity Contingency Fund] (NCCF) was renamed as National Disaster Response Fund (NDRF) on [http://finmin.nic.in/TFC/Guidelines%20for%20National%20Disaster%20Response%20Fund%20(NDRF).pdf 28 September 2010] with the enactment of the [http://www.ndma.gov.in/images/ndma-pdf/DM_act2005.pdf Disaster Management Act] in 2005 and consequent changes in the design and structure of disaster management in India. <br />
<br />
The National Executive Committee (NEC) of the National Disaster Management Authority takes decisions on the expenses from National Disaster Response Fund, in accordance with the guidelines laid down by the Central Government in consultation with the National Authority. The revised norms for assistance from NDRF were issued on [http://www.ndma.gov.in/images/pdf/SDRF.pdf 8 April 2015].<br />
<br />
<br />
'''Sources of Financing NDRF'''<br />
<br />
Like its predecessor, NCCF, the NDRF is financed through the levy of a cess on certain items, chargeable to excise and customs duty, and approved annually through the [http://arthapedia.in/index.php?title=Finance_Bill_or_Finance_Act Finance Bill]. The requirement for funds beyond what is available under the NDRF is met through general budgetary resources.<br />
<br />
Currently, a National Calamity Contingency Duty (NCCD) is levied to finance the NDRF and additional budgetary support is provided as and when necessary. A provision also exists in the DM Act to encourage any person or institution to make a contribution to the NDRF. However, this source has not yet been tapped<sup class="reference">[[#ref6|[6]]]</sup>.<br />
<br />
The financing of the NDRF has so far been almost wholly through the levy of cess on selected items, but if the cesses are discontinued or when they are subsumed under the [http://www.arthapedia.in/index.php?title=Goods_and_Services_Tax goods and services tax (GST)] in future, 14th Finance Commission (FC-XIV) recommended that the Union Government should consider ensuring an assured source of funding for the NDRF.<br />
<br />
Currently, funds contributed to the Prime Minister's Relief Fund or the State Chief Minister's Relief Fund are exempt from income tax. The Ministry of Home Affairs has informed 14th FC that modalities are being explored for the extension of tax exemptions to private contributions to the NDRF as well, which was supported by the FC.<br />
<br />
The Union Government was also asked to explore the possibility of incorporating in these rules on financing of the NDRF, expenditures that are categorised under the head of corporate social responsibility (CSR) under Section 135 of the Companies Act of 2013. Schedule VII of the Companies (Corporate Social Responsibility Policy) Rules 2014 relating to CSR states that companies may provide funds for the Prime Minister's Relief Fund or 'any other fund set up by the Central Government or the State Governments for socio-economic development and relief'. FC recommended that the Union Government should consider invoking the use of this as an enabling provision for financing the NDRF.<br />
<br />
<br />
'''Features of NDRF'''<br />
<br />
*The primary purpose of NDRF is to supplement the SDRF, in case there is a calamity of “severe nature” which requires assistance over and above the funds available under SDRF.<br />
*NDRF is located in the "[http://www.arthapedia.in/index.php?title=Public_Accounts Public Accounts]" of Government of India under "Reserve Funds not bearing interest"<br />
*Department of Agriculture and Cooperation under [http://agricoop.nic.in/ Ministry of Agriculture] (MoA) monitors relief activities for calamities associated with drought, hailstorms, pest attacks and cold wave /frost while rest of the natural calamities are monitored by [http://mha.nic.in/ Ministry of Home Affairs] (MHA).<br />
*The memorandum of the state government for additional assistance from NDRF is examined by the MHA/MoA as the case may be, and in case there is any shortage, a central team is deputed for making an on the spot assessment. The recommendations of the central team are examined and the extent of assistance and expenditures which can be funded from the NDRF is recommended by the National Executive Committee (NEC) constituted for this purpose under the DM Act. Based on these recommendations, a high level committee (HLC) approves the quantum of immediate relief to be released from NDRF. The HLC is constituted with Home Minister, Finance Minister, Agriculture Minister and Planning Minister / Vice Chairman of [http://www.arthapedia.in/index.php?title=NITI_Aayog_(National_Institution_for_Transforming_India) NITI Aayog] as members. HLC is serviced by the Disaster Management Division of MHA. Upon approval of HLC, the Ministry of Finance releases the assistance from NDRF to states. <br />
*The State Executive Committee constituted by the State Government under Section 20 of the DM Act, 2005 will be responsible for ensuring that NDRF expenditures are as per specifications. <br />
*The financial assistance from NDRF is for providing immediate relief and is not compensation for loss/damage to properties /crops<sup class="reference">[[#ref7|[7]]]</sup>. Further, the provision for disaster preparedness, restoration, reconstruction and mitigation are not a part of NDRF (The DM Act specifies that for such activities a separate fund called Disaster Mitigation Fund has to be constituted). In the absence of a Disaster Mitigation Fund, such activities have to be borne out of the budget of the government concerned. <br />
*[http://www.cag.gov.in/ Comptroller and Auditor General of India] (CAG) audits the accounts of NDRF<br />
<br />
<br />
'''Background'''<br />
<br />
A dedicated fund for calamity relief was first recommended by the 9th Finance Commission (FC-IX; submitted its report in 1990). Prior to this, the Commissions set apart specific amounts under the 'margin money' scheme (which envisaged setting apart specific amounts by states in order to meet the expenditure on relief measures), recommended by the FC-II (submitted its report in 1957) to meet expenditures on relief measures. The FC-IX recommended the establishment of a [http://arthapedia.in/index.php?title=Calamity_Relief_Funds_(CRF) Calamity Relief Fund] (CRF) in each State, with 75 per cent contribution by the Union Government and 25 per cent by the State. For calamities of rare severity, the Union Government was asked to render assistance and support beyond that envisaged in the CRF.<br />
<br />
The FC-X (submitted its report in 1995) put in place a formal mechanism and recommended the setting up of a National Fund for Calamity Relief (NFCR) to assist a State affected by a `calamity of rare severity' through contributions from the Union and State Governments. The fund was to be managed by a National Calamity Relief Committee with representation from both the Union and State Governments. The FC-XI modified this and recommended the setting up of a [http://arthapedia.in/index.php?title=National_Calamity_Contingency_Fund_(NCCF) National Calamity Contingency Fund] (NCCF) with an initial corpus of Rs. 500 crore. The funds were to be recouped by levying a special surcharge on Central taxes. The FC-XII (submitted its report in 2004) continued with this arrangement.<br />
<br />
With the enactment of the Disaster Management Act in 2005 and consequent changes in the design and structure of disaster management, the FC-XIII (submitted its report in 2009) recommended the merger and transfer of NCCF balances, as on 31 March 2010, to the NDRF which was accepted and notified by the Union Government. Thus, based on the recommendations of the FC-XIII, the available balances in the NCCF on 1 April 2010 were merged with the NDRF. In the event of a disaster of 'a severe nature', in which the funds needed for relief operations exceeded the balances in the SDRF account, additional assistance would be provided from the NDRF after following prescribed procedures.<br />
<br />
<br />
<span class="small_footernote" id="ref4">4. In fact, life/property /crop insurance is the financial tool to insure people against crop losses or damages to life and property. Government also runs certain micro insurance and crop insurance schemes. Under the insurance schemes claims are paid to only those who insured their crops/property/life and paid premium under any of the notified insurance scheme. Admissible claims are worked out and paid as per the provisions of the respective schemes. </span><br />
<br />
<span class="small_footernote" id="ref5">5. Section 2(i) of the DM Act defines “mitigation” to mean measures aimed at reducing the risk, impact or effect of a disaster or threatening disaster situation. However, the fund is yet to be constituted. The Supreme Court on 11 May 2016 has given a direction to the Government of India to constitute the same at the earliest.</span><br />
<br />
<span class="small_footernote" id="ref6">6. As informed by Ministry of Home Affairs to 14th Finance Commission</span><br />
<br />
<span class="small_footernote" id="ref7">7. On the other hand, life/property /crop insurance is a financial tool to insure people against crop losses or damages to life and property on payment of admissible premium to the insurance company. Under the insurance schemes claims are paid to only those who insured their crops/property/life and paid premium under any of the notified insurance scheme. Admissible claims are worked out and paid as per the provisions of the respective schemes.</span><br />
<br />
<br />
==Also See==<br />
*[http://arthapedia.in/index.php?title=Calamity_Relief_Funds_(CRF) Calamity Relief Fund (CRF)]<br />
*[http://arthapedia.in/index.php?title=State_Disaster_Response_Fund_(SDRF) State Disaster Response Fund (SDRF)]<br />
*[http://arthapedia.in/index.php?title=National_Calamity_Contingency_Fund_(NCCF) National Calamity Contingency Fund (NCCF)]<br />
*[http://www.arthapedia.in/index.php?title=Drought Drought]<br />
*[http://www.ndmindia.nic.in/guidelines NDMA Guidelines]<br />
<br />
<br />
==References ==<br />
*[http://fincomindia.nic.in/writereaddata%5Chtml_en_files%5Coldcommission_html/fincom13/discussion/report23.pdf A study by NIDM for the 13th Finance Commission] - Financing Disaster Management in India , August 2009<br />
*Chapter 11 of [http://fincomindia.nic.in/writereaddata%5Chtml_en_files%5Coldcommission_html/fincom13/tfc/Chapter11.pdf 13th Finance Commission Report]<br />
*Chapter 10 of [http://finmin.nic.in/14fincomm/14fcreng.pdf 14th Finance Commission Recommendations] in respect of handling disaster management funds <br />
*Various [http://fincomindia.nic.in/default.aspx Finance Commission Reports]<br />
<br />
<br />
==Contributed by==<br />
* [http://www.ies.gov.in/myaccount-profile-view.php?memid=338 Ms. Rose Mary K Abraham (IES 2006)]<br />
*Email- [mailto:rosemary.a@nic.in rosemary.a@nic.in]<br />
<br />
[[Category:concepts|NationalDisasterResponseFund(NDRF)]]</div>Rosemary.ahttp://arthapedia.in/index.php/State_Disaster_Response_Fund_(SDRF)State Disaster Response Fund (SDRF)2018-09-05T12:28:24Z<p>Rosemary.a: </p>
<hr />
<div>The State Disaster Response Fund (SDRF) is the primary fund available with States for disaster response and is constituted under Section 48 of the [http://www.ndma.gov.in/images/ndma-pdf/DM_act2005.pdf Disaster Management Act, 2005] (DM Act). <br />
<br />
The SDRF is used for meeting expenditures for providing immediate relief to the victims of cyclone, drought, earthquake, fire, flood, tsunami, hailstorm, landslide, avalanche, cloud burst, pest attack, and frost and cold wave. Besides, for providing immediate relief to the victims of State-specific disaster within the local context, which are not included in the list of the above notified natural calamities, [http://mha.nic.in/ Ministry of Home Affairs] has authorized the State Governments to incur an expenditure of 10% of funds available under SDRF, subject to the procedures laid down therein. This flexibility is applicable only after the state has listed the natural disasters for inclusion and has notified clear and transparent guidelines for relief, in case such disasters occur.<br />
<br />
Any amount spent by the state for such disasters over and above the specified ceiling would have to be borne out of its own resources and it would be subject to the same accounting norms.<br />
<br />
If the amount available under the SDRF is not sufficient, states can request for making available assistance from a similar fund managed by the central Government - [http://arthapedia.in/index.php?title=National_Disaster_Response_Fund_(NDRF) National Disaster Response Fund] (NDRF).<br />
<br />
The financial assistance from SDRF/NDRF is for providing immediate relief and is not compensation for loss/damage to properties /crops<sup class="reference">[[#ref1|[1]]]</sup>. Further, the provision for disaster preparedness, restoration, reconstruction and mitigation are not a part of SDRF (The DM Act specifies that for such activities a separate fund called Disaster Mitigation Fund has to be constituted). However, 5% of the annual allocation to SDRF can be kept for specified capacity building activities by the states in the area of disaster management.<br />
<br />
The norms of assistance, is reviewed comprehensively after the award of successive [http://www.arthapedia.in/index.php?title=Finance_commission Finance Commissions], taking into account various factors, including the price rise.<br />
<br />
The Disaster Management Act, 2005 mandates that States shall constitute SDRF once the constitution of the State Disaster Management Authority is notified.<br />
<br />
<br />
'''Source of Financing SDRF'''<br />
<br />
The hitherto existing [http://arthapedia.in/index.php?title=Calamity_Relief_Funds_(CRF) calamity relief Fund] (CRF) / Disaster Relief Funds with the state Government was renamed as State Disaster Response Fund (SDRF) by the 13th Finance Commission and the balance in the former was merged with SDRF with effect from 1 April 2010.<br />
<br />
While the DM Act clearly provides two sources of financing the NDRF, no source has been laid down for the SDRF. It is implied that the corpus of the SDRF will be the grant recommended by the Finance Commission (FC) under [http://indiacode.nic.in/coiweb/welcome.html Article 275 (1) of the Constitution].<br />
<br />
Thus, financing of the SDRF is based on the recommendations of the [http://www.arthapedia.in/index.php?title=Finance_commission Finance Commissions], which determine the annual size of the Funds as well as the respective contributions of the Union and State Governments<sup class="reference">[[#ref2|[2]]]</sup>. <br />
<br />
Since financial year 2010-11, the Union Government has been financing the NDRF through the levy of a cess and the SDRF as grants-in-aid. The FC-XIII (Submitted the report in 2009) had recommended differential State shares, with general category States contributing 25 per cent and special category States contributing 10 per cent, and the balance being contributed by the Union Government as grants-in-aid. Even though the FC –XIV (submitted its report in Feb 2015) had recommended 10% contribution for all state Governments, irrespective of being general or [http://www.arthapedia.in/index.php?title=Special_Category_States special category], the central Government continued with the existing formula of 75:25 for general category states and 90:10 for [http://www.arthapedia.in/index.php?title=Special_Category_States special category states]. <br />
<br />
FC- XIV also recommended that in view of the very wide responsibility cast on governments at different levels by the statute, the Union Government should expedite the development and scientific validation of the Hazard Vulnerability Risk Profiles of States based on which future allocations of SDRF could be done.<br />
<br />
In the post GST era, with regard to the contribution of states and the centre in SDRF, it has been decided to implement the 14th FC recommendation (para 10.40 of Chapter 10(Vol.-I)) w.e.f 01.04.2018. Accordingly, all states will contribute 10 per cent to the SDRF and rest 90 per cent will be contributed by the Union Government during 2018-19 and 2019-20 as per the recommended allocation by 14th FC. Currently the allocation pattern is 90:10 (center : state). <br />
<br />
<br />
'''Features of SDRF'''<br />
<br />
*SDRF is located in the [http://www.arthapedia.in/index.php?title=Public_Accounts ‘Public Account’] under ‘Reserve Fund’. (But direct expenditures are not made from Public Account.)<br />
*State Government has to pay interest on a half yearly basis to the funds in SDRF, at the rate applicable to overdrafts. <br />
*The aggregate size of the SDRF for each state, for each year, is as per the recommendations of the [http://www.arthapedia.in/index.php?title=Finance_commission Finance Commission]. <br />
*Government of India (GoI) used to contribute 75% of the SDRF of the general category states and 90% of the [http://www.arthapedia.in/index.php?title=Special_Category_States special category states] in the form of a non-plan grant, made in two instalments - in June and December. The balance was contributed by the state government within 15 days from the receipt of central share. (If the state government delays its contribution, interest rate at the rate of [http://www.arthapedia.in/index.php?title=Bank_Rate bank rate] will have to be paid for the number of days of delay) <sup class="reference">[[#ref3|[3]]]</sup>.<br />
*Currently the allocation pattern is 90:10 (center : state) for all states. <br />
*The share of GoI to the SDRF is treated as a ‘grant in aid’. <br />
*Ministry of Home Affairs (MHA) can recommend an earlier release of 25% of the central share due to a state in the following year, if the exigencies of the particular calamity so warrants. This advance release is adjusted against future instalments due from the center. <br />
*The accretions to the SDRF together with the income earned on investment are to be invested in central government securities or in interest earning deposits with banks, which when needed are liquidated. <br />
*The financing of relief measures out of SDRF are decided by the State Executive Committee (SEC) constituted under Section 20 of the DM Act. SEC is responsible for the overall administration of the SDRF. However, the administrative expenses of SEC are borne by the State Government from its normal budgetary provisions and not from the SDRF or NDRF. <br />
*The norms regarding the amount to be incurred on each approved item of expenditure (type of disaster) are fixed by the Ministry of Home Affairs with the concurrence of Ministry of Finance. Any excess expenditure has to be borne out of the budget of the state government. <br />
*In the wake of natural calamities, a state Government is empowered to undertake necessary relief measures from SDRF, which is readily available with them. If additional financial assistance is required from National Disaster Response Fund ((NDRF) they have to submit a memorandum for the same and in the mean time utilize contingency fund of the State, if SDRF is exhausted. <br />
*Ministry of Home Affairs is the nodal ministry for overseeing the operation of the SDRF and monitors compliance with prescribed processes. <br />
*State Government has to furnish to Ministry of Home Affairs twice in a year –in the months of April and October-, the details of amount credited to SDRF along with the expenditures incurred and balance available in the SDRF. Further, an Annual Report has to be submitted in September based on which the December instalment of the central government is released. <br />
*[http://www.cag.gov.in/ Comptroller and Auditor General of India] (CAG) audit the SDRF every year. <br />
<br />
<br />
'''Background'''<br />
<br />
A dedicated fund for calamity relief was first recommended by the 9th Finance Commission (FC-IX; submitted its report in 1990). Prior to this, the Commissions set apart specific amounts under the 'margin money' scheme (which envisaged setting apart specific amounts by states in order to meet the expenditure on relief measures), recommended by the FC-II (submitted its report in 1957) to meet expenditures on relief measures. FC-VI was the first to be given a formal term of reference relating to the financing of relief expenditure. However the existing system was recommended to be continued till the 9th Finance Commission. The FC-IX (submitted its report in 1990) recommended the establishment of a [http://arthapedia.in/index.php?title=Calamity_Relief_Funds_(CRF) Calamity Relief Fund] (CRF) in each State, with 75% contribution by the Union Government and 25% by the State. For calamities of ‘rare severity’, the Union Government was asked to render assistance and support beyond that envisaged in the CRF. <br />
<br />
The FC-X (submitted its report in 1995) put in place a formal mechanism and recommended the setting up of a National Fund for Calamity Relief (NFCR) to assist a State affected by a `calamity of rare severity' through contributions from the Union and State Governments. The fund was to be managed by a National Calamity Relief Committee with representation from both the Union and State Governments. The FC-XI modified this and recommended the setting up of a [http://arthapedia.in/index.php?title=National_Calamity_Contingency_Fund_(NCCF) National Calamity Contingency Fund] (NCCF) with an initial corpus of Rs. 500 crore. The funds were to be recouped by levying a special surcharge on Central taxes. The FC-XII (submitted its report in 2004) continued with this arrangement.<br />
<br />
With the enactment of the Disaster Management Act in 2005 and consequent changes in the design and structure of disaster management, the FC-XIII (submitted its report in 2009) recommended the merger and transfer of NCCF balances, as on 31 March 2010, to the NDRF which was accepted and notified by the Union Government. Thus, based on the recommendations of the FC-XIII, the available balances in the NCCF on 1 April 2010 were merged with the NDRF. Similarly the funds lying with CRF were merged with State Disaster Response Funds. <br />
<br />
<br />
'''Present Status'''<br />
<br />
CRF ceased to exist from 1 April 2010 onwards. The SDRF, which has substituted CRF was reconstituted on the basis of [http://finmin.nic.in/14fincomm/14thFinanceCommission.htm 14th Finance Commission's] (report submitted in Feb 2015) recommendations on [http://ndmindia.nic.in/NDRFSDRF_300715.pdf 30 July 2015]. The revised norms for assistance from SDRF were issued on [http://www.ndma.gov.in/images/pdf/SDRF.pdf 8 April 2015].<br />
<br />
<br />
<span class="small_footernote" id="ref1">1. In fact, life/property /crop insurance is the financial tool to insure people against crop losses or damages to life and property. Government also runs certain micro insurance and crop insurance schemes. Under the insurance schemes claims are paid to only those who insured their crops/property/life and paid premium under any of the notified insurance scheme. Admissible claims are worked out and paid as per the provisions of the respective schemes. </span><br />
<br />
<span class="small_footernote" id="ref2">2. The DM Act provides that like state and national level funds, there shall be analogous provision for the district disaster response funds (DDRFs). Presently, there are 660 districts in the country and the Disaster Management Act requires as many DDRFs to be constituted. However, the setting up of DDRFs in each district may, in some cases, lock up funds and lead to a fragmentation of resources across districts. Considering that technology has made it possible to move funds quickly wherever needed, their utility may be limited in States with adequate penetration of technology. The 14th FC was, therefore, in agreement with the views of the FC-XIII that the decision of constituting DDRFs shall best be left to the wisdom of the State Governments, and hence, did not recommend separate grants for the financing of DDRFs.</span><br />
<br />
<span class="small_footernote" id="ref3">3. The July 2015 Guidelines specify that central share to the SDRF would be provided only when the state constitutes a state executive committee (SEC) as per Section 20 of the DM Act, with Chief Secretary of the State as its ex-officio Chairperson, for the management of the fund and upon certification that they have put in place the required accounting reforms specified by the central government in this regard.</span><br />
<br />
<br />
<br />
==Also See==<br />
*[http://arthapedia.in/index.php?title=Calamity_Relief_Funds_(CRF) Calamity Relief Funds (CRF)]<br />
*[http://arthapedia.in/index.php?title=National_Calamity_Contingency_Fund_(NCCF) National Calamity Contingency Fund (NCCF)]<br />
*[http://arthapedia.in/index.php?title=National_Disaster_Response_Fund_(NDRF) National Disaster Response Fund (NDRF)]<br />
*[http://www.arthapedia.in/index.php?title=Drought Drought]<br />
*[http://www.ndmindia.nic.in/guidelines NDMA Guidelines]<br />
<br />
==References==<br />
*[http://fincomindia.nic.in/writereaddata%5Chtml_en_files%5Coldcommission_html/fincom13/discussion/report23.pdf A study by NIDM for the 13th Finance Commission] - Financing Disaster Management in India , August 2009<br />
*Chapter 11 of [http://fincomindia.nic.in/writereaddata%5Chtml_en_files%5Coldcommission_html/fincom13/tfc/Chapter11.pdf 13th Finance Commission Report] on Disaster Relief<br />
*Chapter 10 of [http://finmin.nic.in/14fincomm/14fcreng.pdf 14th Finance Commission Recommendations] in respect of handling disaster management funds<br />
<br />
<br />
==Contributed by==<br />
* [http://www.ies.gov.in/myaccount-profile-view.php?memid=338 Ms. Rose Mary K Abraham (IES 2006)]<br />
*Email- [mailto:rosemary.a@nic.in rosemary.a@nic.in]<br />
<br />
[[Category:concepts|StateDisasterResponseFund(SDRF)]]</div>Rosemary.ahttp://arthapedia.in/index.php/State_Disaster_Response_Fund_(SDRF)State Disaster Response Fund (SDRF)2018-09-05T12:27:25Z<p>Rosemary.a: </p>
<hr />
<div>The State Disaster Response Fund (SDRF) is the primary fund available with States for disaster response and is constituted under Section 48 of the [http://www.ndma.gov.in/images/ndma-pdf/DM_act2005.pdf Disaster Management Act, 2005] (DM Act). <br />
<br />
The SDRF is used for meeting expenditures for providing immediate relief to the victims of cyclone, drought, earthquake, fire, flood, tsunami, hailstorm, landslide, avalanche, cloud burst, pest attack, and frost and cold wave. Besides, for providing immediate relief to the victims of State-specific disaster within the local context, which are not included in the list of the above notified natural calamities, [http://mha.nic.in/ Ministry of Home Affairs] has authorized the State Governments to incur an expenditure of 10% of funds available under SDRF, subject to the procedures laid down therein. This flexibility is applicable only after the state has listed the natural disasters for inclusion and has notified clear and transparent guidelines for relief, in case such disasters occur.<br />
<br />
Any amount spent by the state for such disasters over and above the specified ceiling would have to be borne out of its own resources and it would be subject to the same accounting norms.<br />
<br />
If the amount available under the SDRF is not sufficient, states can request for making available assistance from a similar fund managed by the central Government - [http://arthapedia.in/index.php?title=National_Disaster_Response_Fund_(NDRF) National Disaster Response Fund] (NDRF).<br />
<br />
The financial assistance from SDRF/NDRF is for providing immediate relief and is not compensation for loss/damage to properties /crops<sup class="reference">[[#ref1|[1]]]</sup>. Further, the provision for disaster preparedness, restoration, reconstruction and mitigation are not a part of SDRF (The DM Act specifies that for such activities a separate fund called Disaster Mitigation Fund has to be constituted). However, 5% of the annual allocation to SDRF can be kept for specified capacity building activities by the states in the area of disaster management.<br />
<br />
The norms of assistance, is reviewed comprehensively after the award of successive [http://www.arthapedia.in/index.php?title=Finance_commission Finance Commissions], taking into account various factors, including the price rise.<br />
<br />
The Disaster Management Act, 2005 mandates that States shall constitute SDRF once the constitution of the State Disaster Management Authority is notified.<br />
<br />
<br />
'''Source of Financing SDRF'''<br />
<br />
The hitherto existing [http://arthapedia.in/index.php?title=Calamity_Relief_Funds_(CRF) calamity relief Fund] (CRF) / Disaster Relief Funds with the state Government was renamed as State Disaster Response Fund (SDRF) by the 13th Finance Commission and the balance in the former was merged with SDRF with effect from 1 April 2010.<br />
<br />
While the DM Act clearly provides two sources of financing the NDRF, no source has been laid down for the SDRF. It is implied that the corpus of the SDRF will be the grant recommended by the Finance Commission (FC) under [http://indiacode.nic.in/coiweb/welcome.html Article 275 (1) of the Constitution].<br />
<br />
Thus, financing of the SDRF is based on the recommendations of the [http://www.arthapedia.in/index.php?title=Finance_commission Finance Commissions], which determine the annual size of the Funds as well as the respective contributions of the Union and State Governments<sup class="reference">[[#ref2|[2]]]</sup>. <br />
<br />
Since financial year 2010-11, the Union Government has been financing the NDRF through the levy of a cess and the SDRF as grants-in-aid. The FC-XIII (Submitted the report in 2009) had recommended differential State shares, with general category States contributing 25 per cent and special category States contributing 10 per cent, and the balance being contributed by the Union Government as grants-in-aid. Even though the FC –XIV (submitted its report in Feb 2015) had recommended 10% contribution for all state Governments, irrespective of being general or [http://www.arthapedia.in/index.php?title=Special_Category_States special category], the central Government continued with the existing formula of 75:25 for general category states and 90:10 for [http://www.arthapedia.in/index.php?title=Special_Category_States special category states]. <br />
<br />
FC- XIV also recommended that in view of the very wide responsibility cast on governments at different levels by the statute, the Union Government should expedite the development and scientific validation of the Hazard Vulnerability Risk Profiles of States based on which future allocations of SDRF could be done.<br />
<br />
In the post GST era, with regard to the contribution of states and the centre in SDRF, it has been decided to implement the 14th FC recommendation (para 10.40 of Chapter 10(Vol.-I)) w.e.f 01.04.2018. Accordingly, all states will contribute 10 per cent to the SDRF and rest 90 per cent will be contributed by the Union Government during 2018-19 and 2019-20 as per the recommended allocation by 14th FC. Currently the allocation pattern is 90:10 (center : state). <br />
<br />
<br />
'''Features of SDRF'''<br />
<br />
*SDRF is located in the [http://www.arthapedia.in/index.php?title=Public_Accounts ‘Public Account’] under ‘Reserve Fund’. (But direct expenditures are not made from Public Account.)<br />
*State Government has to pay interest on a half yearly basis to the funds in SDRF, at the rate applicable to overdrafts. <br />
*The aggregate size of the SDRF for each state, for each year, is as per the recommendations of the [http://www.arthapedia.in/index.php?title=Finance_commission Finance Commission]. <br />
*Government of India (GoI) used to contribute 75% of the SDRF of the general category states and 90% of the [http://www.arthapedia.in/index.php?title=Special_Category_States special category states] in the form of a non-plan grant, made in two instalments - in June and December. The balance was contributed by the state government within 15 days from the receipt of central share. (If the state government delays its contribution, interest rate at the rate of [http://www.arthapedia.in/index.php?title=Bank_Rate bank rate] will have to be paid for the number of days of delay) <sup class="reference">[[#ref3|[3]]]</sup>.<br />
*Currently the allocation pattern is 90:10 (center : state) for all states. <br />
*The share of GoI to the SDRF is treated as a ‘grant in aid’. <br />
*Ministry of Home Affairs (MHA) can recommend an earlier release of 25% of the central share due to a state in the following year, if the exigencies of the particular calamity so warrants. This advance release is adjusted against future instalments due from the center. <br />
*The accretions to the SDRF together with the income earned on investment are to be invested in central government securities or in interest earning deposits with banks, which when needed are liquidated. <br />
*The financing of relief measures out of SDRF are decided by the State Executive Committee (SEC) constituted under Section 20 of the DM Act. SEC is responsible for the overall administration of the SDRF. However, the administrative expenses of SEC are borne by the State Government from its normal budgetary provisions and not from the SDRF or NDRF. <br />
*The norms regarding the amount to be incurred on each approved item of expenditure (type of disaster) are fixed by the Ministry of Home Affairs with the concurrence of Ministry of Finance. Any excess expenditure has to be borne out of the budget of the state government. <br />
*In the wake of natural calamities, a state Government is empowered to undertake necessary relief measures from SDRF, which is readily available with them. If additional financial assistance is required from National Disaster Response Fund ((NDRF) they have to submit a memorandum for the same and in the mean time utilize contingency fund of the State, if SDRF is exhausted. <br />
*Ministry of Home Affairs is the nodal ministry for overseeing the operation of the SDRF and monitors compliance with prescribed processes. <br />
*State Government has to furnish to Ministry of Home Affairs twice in a year –in the months of April and October-, the details of amount credited to SDRF along with the expenditures incurred and balance available in the SDRF. Further, an Annual Report has to be submitted in September based on which the December instalment of the central government is released. <br />
*[http://www.cag.gov.in/ Comptroller and Auditor General of India] (CAG) audit the SDRF every year. <br />
<br />
<br />
'''Background'''<br />
<br />
A dedicated fund for calamity relief was first recommended by the 9th Finance Commission (FC-IX; submitted its report in 1990). Prior to this, the Commissions set apart specific amounts under the 'margin money' scheme (which envisaged setting apart specific amounts by states in order to meet the expenditure on relief measures), recommended by the FC-II (submitted its report in 1957) to meet expenditures on relief measures. FC-VI was the first to be given a formal term of reference relating to the financing of relief expenditure. However the existing system was recommended to be continued till the 9th Finance Commission. The FC-IX (submitted its report in 1990) recommended the establishment of a [http://arthapedia.in/index.php?title=Calamity_Relief_Funds_(CRF) Calamity Relief Fund] (CRF) in each State, with 75% contribution by the Union Government and 25% by the State. For calamities of ‘rare severity’, the Union Government was asked to render assistance and support beyond that envisaged in the CRF. <br />
<br />
The FC-X (submitted its report in 1995) put in place a formal mechanism and recommended the setting up of a National Fund for Calamity Relief (NFCR) to assist a State affected by a `calamity of rare severity' through contributions from the Union and State Governments. The fund was to be managed by a National Calamity Relief Committee with representation from both the Union and State Governments. The FC-XI modified this and recommended the setting up of a [http://arthapedia.in/index.php?title=National_Calamity_Contingency_Fund_(NCCF) National Calamity Contingency Fund] (NCCF) with an initial corpus of Rs. 500 crore. The funds were to be recouped by levying a special surcharge on Central taxes. The FC-XII (submitted its report in 2004) continued with this arrangement.<br />
<br />
With the enactment of the Disaster Management Act in 2005 and consequent changes in the design and structure of disaster management, the FC-XIII (submitted its report in 2009) recommended the merger and transfer of NCCF balances, as on 31 March 2010, to the NDRF which was accepted and notified by the Union Government. Thus, based on the recommendations of the FC-XIII, the available balances in the NCCF on 1 April 2010 were merged with the NDRF. Similarly the funds lying with CRF were merged with State Disaster Response Funds. <br />
<br />
<br />
'''Present Status'''<br />
<br />
CRF ceased to exist from 1 April 2010 onwards. The SDRF, which has substituted CRF was reconstituted on the basis of [http://finmin.nic.in/14fincomm/14thFinanceCommission.htm 14th Finance Commission's] (report submitted in Feb 2015) recommendations on [http://ndmindia.nic.in/NDRFSDRF_300715.pdf 30 July 2015]. The revised norms for assistance from SDRF were issued on [http://www.ndma.gov.in/images/pdf/SDRF.pdf 8 April 2015].<br />
<br />
<br />
<span class="small_footernote" id="ref1">1. In fact, life/property /crop insurance is the financial tool to insure people against crop losses or damages to life and property. Government also runs certain micro insurance and crop insurance schemes. Under the insurance schemes claims are paid to only those who insured their crops/property/life and paid premium under any of the notified insurance scheme. Admissible claims are worked out and paid as per the provisions of the respective schemes. </span><br />
<br />
<span class="small_footernote" id="ref2">2. The DM Act provides that like state and national level funds, there shall be analogous provision for the district disaster response funds (DDRFs). Presently, there are 660 districts in the country and the Disaster Management Act requires as many DDRFs to be constituted. However, the setting up of DDRFs in each district may, in some cases, lock up funds and lead to a fragmentation of resources across districts. Considering that technology has made it possible to move funds quickly wherever needed, their utility may be limited in States with adequate penetration of technology. The 14th FC was, therefore, in agreement with the views of the FC-XIII that the decision of constituting DDRFs shall best be left to the wisdom of the State Governments, and hence, did not recommend separate grants for the financing of DDRFs.</span><br />
<br />
<span class="small_footernote" id="ref3">3. The July 2015 Guidelines specify that central share to the SDRF would be provided only when the state constitutes a state executive committee (SEC) as per Section 20 of the DM Act, with Chief Secretary of the State as its ex-officio Chairperson, for the management of the fund and upon certification that they have put in place the required accounting reforms specified by the central government in this regard.</span><br />
<br />
<br />
<br />
==Also See==<br />
*[http://arthapedia.in/index.php?title=Calamity_Relief_Funds_(CRF) Calamity Relief Funds (CRF)]<br />
*[http://arthapedia.in/index.php?title=National_Calamity_Contingency_Fund_(NCCF) National Calamity Contingency Fund (NCCF)]<br />
*[http://arthapedia.in/index.php?title=National_Disaster_Response_Fund_(NDRF) National Disaster Response Fund (NDRF)]<br />
*[http://www.arthapedia.in/index.php?title=Drought Drought]<br />
<br />
==References==<br />
*[http://fincomindia.nic.in/writereaddata%5Chtml_en_files%5Coldcommission_html/fincom13/discussion/report23.pdf A study by NIDM for the 13th Finance Commission] - Financing Disaster Management in India , August 2009<br />
*Chapter 11 of [http://fincomindia.nic.in/writereaddata%5Chtml_en_files%5Coldcommission_html/fincom13/tfc/Chapter11.pdf 13th Finance Commission Report] on Disaster Relief<br />
*Chapter 10 of [http://finmin.nic.in/14fincomm/14fcreng.pdf 14th Finance Commission Recommendations] in respect of handling disaster management funds<br />
<br />
<br />
==Contributed by==<br />
* [http://www.ies.gov.in/myaccount-profile-view.php?memid=338 Ms. Rose Mary K Abraham (IES 2006)]<br />
*Email- [mailto:rosemary.a@nic.in rosemary.a@nic.in]<br />
<br />
[[Category:concepts|StateDisasterResponseFund(SDRF)]]</div>Rosemary.ahttp://arthapedia.in/index.php/Saansad_Adarsh_Gram_Yojana_(SAANJHI)Saansad Adarsh Gram Yojana (SAANJHI)2018-07-13T17:15:22Z<p>Rosemary.a: </p>
<hr />
<div>[http://saanjhi.gov.in/ Saansad Adarsh Gram Yojana (SAGY)] is a village development project launched by Government of India in October 2014, under which each Member of Parliament will take the responsibility of developing physical and institutional infrastructure in three villages by 2019. The goal is to develop three Adarsh Grams or model villages by March 2019, of which one would be achieved by 2016. Thereafter, five such Adarsh Grams (one per year) will be selected and developed by 2024. (Saansad means Sansad Sadasya or Member of Parliament, Adarsh refers to model, Gram refers to village and Yojna means Scheme)<br />
<br />
The Project was launched on the occasion of birth anniversary of Lok Nayak Jai Prakash Narayan and is inspired by the principles and values of Mahatma Gandhi. It aims to provide rural India with quality access to basic amenities and opportunities. <br />
<br />
The Scheme has a holistic approach towards development. It envisages integrated development of the selected village across multiple areas such as agriculture, health, education, sanitation, environment, livelihoods etc. Far beyond mere infrastructure development, SAGY aims at instilling and nurturing values of national pride, patriotism, community spirit, self-confidence people's participation, dignity of women, etc. in the people. <br />
<br />
The scheme is implemented through Members of Parliament (MPs) with District Collector being the nodal officer. The MP would be free to identify a suitable gram panchayat for being developed as Adarsh Gram, other than his/her own village or that of his/her spouse. Gram Panchayat, which has a population of 3000-5000 in plain areas and 1000-3000 in hilly, tribal and difficult areas, would be the basic unit for development.<br />
<br />
A village development plan would be prepared for every identified gram panchayat with special focus on enabling every poor household to come out of poverty. The [http://arthapedia.in/index.php?title=Member_of_Parliament_Local_Area_Development_Scheme_(MPLADS) constituency fund, MPLADS], would be available to fill critical financing gaps. The outcomes include 100% immunization, 100% institutional delivery, reduced infant mortality rate, maternal mortality rate, reduction in malnutrition among children etc. <br />
<br />
If each MP adopts three villages, the scheme will be able to develop 2,379 gram panchayats over the next five years. (The Lok Sabha has 543 MPs and the Rajya Sabha 250, of which 12 are nominated. There are 2,65,000 gram panchayats in India. )<br />
<br />
Prior to this, a scheme called [http://pmagyonline.in/ Pradhan Mantri Adarsh Gram Yojana (PMAGY)] was launched in March, 2010 on a pilot basis, for the integrated development of 1000 villages each with more than 50% scheduled caste (SC) population. Under this Scheme, each village would be able to avail gap funding of Rs.10 lakh over and above the allocations under Rural Development and Poverty Alleviation Schemes. The scheme was being implemented in five States of the Country viz Assam (100-villages), Bihar (225-villages), Himachal Pradesh (225-villages), Rajasthan (225-villages) and Tamil Nadu (225-villages). The expected time-frame for implementation of the pilot phase was 3 years. Expansion of the scheme was to be based on successful implementation of the pilot phase. PMAGY also focuses on basic needs- housing, sanitation, water supply, electricity, communications, banking, infrastructure connectivity, health care, nutrition etc. and aims for convergence of existing programs in these sectors. <br />
<br />
For more details see the guidelines [http://saanjhi.gov.in/ here].<br />
<br />
<br />
==References==<br />
* [http://www.saanjhi.gov.in/aboutus.aspx About SAANJHI]<br />
<br />
<br />
<br />
==Contributed by==<br />
* [http://www.ies.gov.in/myaccount-profile-view.php?memid=338 Rosemary Abraham, IES(2006)]<br />
*Email- [mailto:rosemary.a@nic.in rosemary.a@nic.in]<br />
<br />
[[Category:concepts|SaansadAdarshGramYojana]]</div>Rosemary.ahttp://arthapedia.in/index.php/E-CommerceE-Commerce2018-05-30T08:14:54Z<p>Rosemary.a: </p>
<hr />
<div><p><br />
Electronic Commerce or e-commerce means buying and selling of goods and services including digital products over digital and electronic networks like networked computers, television channels, mobiles or any other internet based application used in an automated manner such as [https://en.wikipedia.org/wiki/Extranet extranets], etc. In other words, it refers to online, internet-based selling and buying using a digital instrument like, computer or mobile or tablet. </p><br />
<p> The above definition has been adopted by the [http://dipp.nic.in/English/Investor/FDI_Policies/FDI_policy.aspx Department of Industrial Policy and Promotion] (DIPP), Ministry of Commerce and Industry, Government of India in respect of allowing foreign direct investment (FDI) in such companies. The same was notified on [http://dipp.nic.in/English/acts_rules/Press_Notes/pn3_2016.pdf 29 March 2016 (Press Note No. 3).]</p><br />
<br />
<p>E-commerce activities are governed by number of Regulations/Acts of the Government like the Shop and Establishment Act, Sales of Goods Act, Companies Act, Income Tax Laws, Information Technology Act, the Competition Act, the Consumer Protection Act, etc. </p><br />
<br />
<p>IT Act provides legal recognition for these activities. The Consumer Protection Act, 1986, addresses the interests of the consumers. It covers all goods and services and all mode of transactions including e-commerce. [The Consumer Protection Bill, 2018, already introduced in Parliament, intends to replace the existing Act and seeks to provide for establishment of a Central Consumer Protection Authority (CCPA) to deal with unfair trade practices and misleading advertisements and to promote, protect and enforce the rights of the consumers, CCPA will be empowered to investigate, recall, refund and impose penalties. The salient features of the bill include provision for product liability action in cases of personal injury, death, or property damage caused by or resulting from any product; provision for mediation as an Alternate Dispute Resolution (ADR) making the process of dispute adjudication simpler and quicker and simplification of the process of adjudication by the Consumer Fora. The provisions of the Bill will cover the whole country.]</p><br />
<br />
<p>A Committee was constituted to examine various issues relating to e-commerce under the Chairmanship of CEO, NITI Aayog. The Committee inter-alia comprises representatives from Department of Industrial Policy & Promotion, Department of Economic Affairs, Department of Electronics & Information Technology, Department of Consumer Affairs and certain State Governments namely Assam, Karnataka, Madhya Pradesh, Maharashtra, Odisha and Punjab.</p> <br />
<br />
<p>In 2018, a Think tank on the Framework for National Policy on E-commerce has been established by the Department of Commerce. It will provide a credible forum for an inclusive and fact-based dialogue leading to informed policy making, so that the country is adequately prepared to take advantage of the opportunities, and meet the challenges, that would arise from the next wave of advancements in the digital economy.</p><br />
<br />
<p>The think tank on the Framework for National Policy on E-commerce will seek to collectively deliberate on the challenges confronting India in the arena of digital economy with a view to developing recommendations for a comprehensive and overarching national policy on e-commerce. Some of the issues that will be discussed by the think tank include the following aspects of e-commerce and digital economy: physical and digital infrastructure, regulatory regime, taxation policy, data flows, server localisation, intellectual property rights protection, FDI, technology flows, responding to disruptions in industrial organisation, need for skill development and trade-related aspects. Developments on e-commerce at the WTO and evolving appropriate national position on the underlying issues, would be another important dimension of the discussions of the think tank on the Framework for National Policy on E-commerce. The think tank will explore options for providing a fillip to entrepreneurship in digital economy. It will identify specific policy interventions for nurturing domestic firms and create jobs in e-commerce.</p><br />
<br />
<p>One of the key outcomes of the first meeting of the think tank in April 2018 was the decision to constitute a task force for preparing recommendations for India's national policy on e-commerce. The task force will be divided into various sub-groups, comprising representation from the Government of India, e-commerce industry and experts with domain knowledge. The task force will finalise its recommendations within six months.</p><br />
<p>&nbsp;</p><br />
<p><strong>In what context e-commerce is permitted in India?</strong><br /><br />
E-commerce may be carried out for both wholesale trade<sup class="reference">[[#ref1|[1]]]</sup> or for retail trade (sale towards final consumption). It can be either Business to Business (B2B) trading<sup class="reference">[[#ref2|[2]]]</sup> or Business to Consumers (B2C) trading. There is no restriction on conducting e-commerce per se in India. However, certain restrictions exist, if e-commerce is being done by companies receiving FDI. </p><br />
<p> In India, 100% FDI under automatic route<sup class="reference">[[#ref3|[3]]]</sup> is allowed in Business to Business e-commerce since 2000<sup class="reference">[[#ref4|[4]]]</sup>. When it comes to business to consumers (B2C) trade or retail trade, a distinction is made between single brand retail (selling products of a single brand) and multi-brand retail with respect to permission for FDI and e-commerce<sup class="reference">[[#ref5|[5]]]</sup>. </p><br />
<p> In the business to consumers (B2C) multi-brand retail segment, if the trade is happening on &lsquo;marketplaces&rsquo;, as defined in the subsequent section below, 100% FDI under automatic route is permitted in the entity providing that marketplace. Further, FDI is permitted in Business to Consumers e-commerce retail segment In India, only in the following circumstances. </p><br />
<ul><br />
<li>A manufacturer is permitted to sell its products manufactured in India through e-commerce retail. i.e., Any product manufactured in India whether by foreign entities or domestic entities can be sold through e-commerce. FDI is permissible in such manufacturing entities as per the extant sectoral permissions for FDI. </li><br />
<li>A single brand retail trading entity, (means an entity, whether foreign or domestic, which sells only products of one particular brand) operating through brick and mortar stores is permitted to undertake retail trading through e-commerce. 100% FDI is allowed in single brand retail since 2012, with upto 49% under automatic route. FDI beyond that would require prior Government / RBI approval. </li><br />
<li>Retail trading, in any form, by means of e-commerce, would not be permissible, for brick and Mortar companies with FDI, engaged in the activity of multi-brand retail trading. </li><br />
<li>An Indian manufacturer (which means that more than 50% shareholding is with the Indian entity and rest can be with a foreign entity) is permitted to sell its own single brand products through e-commerce retail. The Indian manufacturer should be owner of that Indian brand and manufactures, in terms of value, at least 70% of its products in-house and can source at most 30% from Indian manufacturers (eg.FabIndia or Reliance may be producing some of its branded products in its own manufacturing facilities located in India. But it may also be sourcing some of these products from other manufacturing entities in India while putting the brand name /label of FabIndia or Reliance on it. Here outside sourcing from other Indian manufacturers is limited to 30% of the products sold). In this instance, even though the entity is actually engaged in multi-brand retailing, FDI is permissible in such cases and is treated similar to Category I entities mentioned above. Here, there is no need for a brick and mortar retail presence by the manufacturer. All his manufactured items may be sold through e-commerce provided it is all coming under a single brand and conforms to the sourcing norms. </li><br />
</ul><br />
<p><br><br />
Thus, e-commerce mode with FDI is permitted for: </p><br />
<ul><br />
<li>Any B2B transaction </li><br />
<li>Any B2C transaction in products made in India by its manufacturer (whether foreign or domestic)</li><br />
<li>Any B2C transaction by a brick and mortar single brand retail company </li><br />
<li>Any B2C transaction by an Indian manufacturer, without any brick and mortar presence and using one single brand, provided 70% of his single brand products are manufactured in India or at most 30% is sourced from India</li><br />
<li>Any B2C &lsquo;marketplace&rsquo; transaction</li><br />
</ul><br />
<p><br><br />
E-commerce, would not be permissible, for brick and Mortar companies with FDI, engaged in the activity of multi-brand retail trading.<strong></strong></p><br />
<p>&nbsp;</p><br />
<p><strong>Types of e-commerce in the B2C multi-brand retail trading, as recognised in India:</strong></p><br />
<ul><br />
<li><strong>Inventory based model of e-commerce:</strong> which means an e-commerce activity where inventory of goods and services is owned by the e-commerce entity and is sold to the consumers directly. eg. Third party stores which stock up others products of a specific nature and sell online to consumers (eg. Grocery items but of different brands). </li><br />
</ul><br />
<p><br><br />
FDI is not permitted in inventory based model of e-commerce. </p><br />
<ul><br />
<li><strong>Marketplace based model of e-commerce: </strong>which means providing an information technology platform by an e-commerce entity on a digital and electronic network to act as a facilitator between buyer and seller. In other words, it refers to an online aggregator /platform which matches the interest of buyers and sellers, who are distinct from the entity providing and operating that platform. Eg. [http://www.flipkart.com/ Flipkart,] [http://www.snapdeal.com/ Snapdeal,] [http://www.amazon.in/ Amazone] etc. </li><br />
</ul><br />
<p><strong>&nbsp;</strong></p><br />
<p>Such marketplaces can provide support services to sellers in respect of warehousing logistics, order fulfilment, call center services, payment collection and other services. However, they cannot exercise ownership over the inventory of goods purported to be sold. For the same reason, post sales on the e-commerce site, ultimate delivery of goods to the customers, ensuring his satisfaction, implementation of any warrantee / guarantee etc. will be the responsibility of the seller. If there is any ownership over the inventory, it will render the business into inventory based model of e-commerce. To ensure that the marketplace does not own the inventory, it is stipulated that name, address and contact details of the sellers should be clearly made available while displaying the nature and price of these goods on the online platform. </p><br />
<p>Further, e-commerce entities/marketplace provider cannot directly or indirectly influence the sale price of goods and services and has to maintain the level playing field with other brick and mortar retailers in the country. That is, the marketplace provider cannot offer any discount on their own unless the original seller is giving it. </p><br />
<p>A marketplace provider can enter into transactions with sellers registered on its platform on a business to business (B2B) basis. However, it cannot source more than 25% of the sales affected on its platform from a single vendor or their group companies. This is to ensure that a variety of sellers are available on the order matching platform. </p><br />
<p>Payments effected on the marketplace have to conform to the RBI guidelines issued in this regard. </p><br />
<p>Subject to the above conditions, 100% FDI under automatic route is allowed in this model of e-commerce. </p><br />
<br />
<br />
<br />
<br />
<br />
<span class="small_footernote" id="ref1">1. Wholesale trade means sales for the purpose of trade, business and profession, as opposed to sales for the purpose of personal consumption. Wholesale trading, would mean sale of goods/merchandise to retailers, industrial, commercial, institutional or other professional business users or to other wholesalers and related subordinated service providers. The yardstick to determine whether the sale is wholesale or not would be the type of customers to whom the sale is made and not the size and volume of sales.</span><br />
<br />
<span class="small_footernote" id="ref2">2. Business to business (B To B or B2B) refers to a transaction that exists between businesses, such as those involving a manufacturer and wholesaler, or a wholesaler and a retailer. Business to business refers to business that is conducted between companies, rather than between a company and individual consumers.</span><br />
<br />
<span class="small_footernote" id="ref3">3. That means prior approval either of the Government or the Reserve Bank of India is not required</span><br />
<br />
<span class="small_footernote" id="ref4">4. 100% FDI was allowed in cash and carry wholesale trading since [http://eaindustry.nic.in/handbk/chap008.pdf 1997]. In 2000 ([http://dipp.nic.in/English/policy/changes/press2_00.htm 11 Feb 2000 press note No. 2]), India allowed 100% FDI in B2B ecommerce subject to the condition that such companies would divest 26% of their equity in favour of the Indian public in five years, if these companies are listed in other parts of the world.</span><br />
<br />
<span class="small_footernote" id="ref5">5. The Government decided to allow FDI up to 51%, with prior Government approval, in retail trade of &lsquo;Single Brand&rsquo; products in 2006 ([http://dipp.nic.in/English/policy/changes/pn3_2006.pdf Press Note No. 3 dated 10 February 2006]). Later, government removed this 51% cap on FDI in January 2012 ([http://dipp.nic.in/English/acts_rules/Press_Notes/pn1_2012.pdf Press Note No. 1 dated 10 January 2012]), and opened the single-brand retail market fully to foreign investors by permitting 100 % foreign investment under government approval route subject to certain conditions like mandatory sourcing of 30% of the products from Indian small industries in case FDI is beyond 51% etc.. In [http://dipp.nic.in/English/acts_rules/Press_Notes/pn6_2013.pdf August 2013] (Press Note No.6) upto 49% of FDI was made permissible under the automatic route and certain conditions were clarified /modified further.<br> <br />
FDI, up to 51%, under the Government route, in Multi-Brand Retail Trading was permitted in September 2012, subject to many specified conditions and excluding certain sectors ([http://dipp.nic.in/english/acts_rules/Press_Notes/pn5_2012.pdf Press Note No. 5/2012 dated 20 September 2012]). Some of these conditions were fine tuned in [http://dipp.nic.in/English/acts_rules/Press_Notes/pn5_2013.pdf August 2013] (press Note No. 5 dated 22 August 2013).</span><br />
<br />
<br />
<br />
<br />
==Also See==<br />
*[http://www.arthapedia.in/index.php?title=Marketplace Marketplace]<br />
<br />
<br />
<br />
==References==<br />
*[Notification by Ministry of Commerce dated *[http://dipp.nic.in/English/acts_rules/Press_Notes/pn3_2016.pdf 29 March 2016.] <br />
*[http://dipp.nic.in/English/Investor/FDI_Policies/FDI_policy.aspx Consolidated FDI Policy of the Government]<br />
*[http://dipp.nic.in/English/acts_rules/Press_Notes.aspx Various Press Notes issued by Department of Industrial Policy and Promotion] as linked in this write up.<br />
<br />
<br />
<br />
==Contributed by==<br />
*[http://ies.gov.in/myaccount-profile-view.php?memid=338 Ms. Rose Mary K Abraham] (IES 2006) and [http://ies.gov.in/myaccount-profile-view.php?memid=283 Ms. Reetu Jain] (IES 2001)<br />
*Email- [mailto:rosemary.a@nic.in rosemary.a@nic.in] and [mailto:reetuj@nic.in reetuj@nic.in]<br />
<br />
<br />
[[Category:concepts|E-Commerce]]</div>Rosemary.ahttp://arthapedia.in/index.php/E-CommerceE-Commerce2018-05-30T08:13:37Z<p>Rosemary.a: </p>
<hr />
<div><p><br />
Electronic Commerce or e-commerce means buying and selling of goods and services including digital products over digital and electronic networks like networked computers, television channels, mobiles or any other internet based application used in an automated manner such as [https://en.wikipedia.org/wiki/Extranet extranets], etc. In other words, it refers to online, internet-based selling and buying using a digital instrument like, computer or mobile or tablet. </p><br />
<p> The above definition has been adopted by the [http://dipp.nic.in/English/Investor/FDI_Policies/FDI_policy.aspx Department of Industrial Policy and Promotion] (DIPP), Ministry of Commerce and Industry, Government of India in respect of allowing foreign direct investment (FDI) in such companies. The same was notified on [http://dipp.nic.in/English/acts_rules/Press_Notes/pn3_2016.pdf 29 March 2016 (Press Note No. 3).]<br />
<br />
E-commerce activities are governed by number of Regulations/Acts of the Government like the Shop and Establishment Act, Sales of Goods Act, Companies Act, Income Tax Laws, Information Technology Act, the Competition Act, the Consumer Protection Act, etc. <br />
<br />
IT Act provides legal recognition for these activities. The Consumer Protection Act, 1986, addresses the interests of the consumers. It covers all goods and services and all mode of transactions including e-commerce. [The Consumer Protection Bill, 2018, already introduced in Parliament, intends to replace the existing Act and seeks to provide for establishment of a Central Consumer Protection Authority (CCPA) to deal with unfair trade practices and misleading advertisements and to promote, protect and enforce the rights of the consumers, CCPA will be empowered to investigate, recall, refund and impose penalties. The salient features of the bill include provision for product liability action in cases of personal injury, death, or property damage caused by or resulting from any product; provision for mediation as an Alternate Dispute Resolution (ADR) making the process of dispute adjudication simpler and quicker and simplification of the process of adjudication by the Consumer Fora. The provisions of the Bill will cover the whole country.]<br />
<br />
A Committee was constituted to examine various issues relating to e-commerce under the Chairmanship of CEO, NITI Aayog. The Committee inter-alia comprises representatives from Department of Industrial Policy & Promotion, Department of Economic Affairs, Department of Electronics & Information Technology, Department of Consumer Affairs and certain State Governments namely Assam, Karnataka, Madhya Pradesh, Maharashtra, Odisha and Punjab. <br />
<br />
In 2018, a Think tank on the Framework for National Policy on E-commerce has been established by the Department of Commerce. It will provide a credible forum for an inclusive and fact-based dialogue leading to informed policy making, so that the country is adequately prepared to take advantage of the opportunities, and meet the challenges, that would arise from the next wave of advancements in the digital economy.<br />
<br />
The think tank on the Framework for National Policy on E-commerce will seek to collectively deliberate on the challenges confronting India in the arena of digital economy with a view to developing recommendations for a comprehensive and overarching national policy on e-commerce. Some of the issues that will be discussed by the think tank include the following aspects of e-commerce and digital economy: physical and digital infrastructure, regulatory regime, taxation policy, data flows, server localisation, intellectual property rights protection, FDI, technology flows, responding to disruptions in industrial organisation, need for skill development and trade-related aspects. Developments on e-commerce at the WTO and evolving appropriate national position on the underlying issues, would be another important dimension of the discussions of the think tank on the Framework for National Policy on E-commerce. The think tank will explore options for providing a fillip to entrepreneurship in digital economy. It will identify specific policy interventions for nurturing domestic firms and create jobs in e-commerce.<br />
<br />
One of the key outcomes of the first meeting of the think tank in April 2018 was the decision to constitute a task force for preparing recommendations for India's national policy on e-commerce. The task force will be divided into various sub-groups, comprising representation from the Government of India, e-commerce industry and experts with domain knowledge. The task force will finalise its recommendations within six months.</p><br />
<p>&nbsp;</p><br />
<p><strong>In what context e-commerce is permitted in India?</strong><br /><br />
E-commerce may be carried out for both wholesale trade<sup class="reference">[[#ref1|[1]]]</sup> or for retail trade (sale towards final consumption). It can be either Business to Business (B2B) trading<sup class="reference">[[#ref2|[2]]]</sup> or Business to Consumers (B2C) trading. There is no restriction on conducting e-commerce per se in India. However, certain restrictions exist, if e-commerce is being done by companies receiving FDI. </p><br />
<p> In India, 100% FDI under automatic route<sup class="reference">[[#ref3|[3]]]</sup> is allowed in Business to Business e-commerce since 2000<sup class="reference">[[#ref4|[4]]]</sup>. When it comes to business to consumers (B2C) trade or retail trade, a distinction is made between single brand retail (selling products of a single brand) and multi-brand retail with respect to permission for FDI and e-commerce<sup class="reference">[[#ref5|[5]]]</sup>. </p><br />
<p> In the business to consumers (B2C) multi-brand retail segment, if the trade is happening on &lsquo;marketplaces&rsquo;, as defined in the subsequent section below, 100% FDI under automatic route is permitted in the entity providing that marketplace. Further, FDI is permitted in Business to Consumers e-commerce retail segment In India, only in the following circumstances. </p><br />
<ul><br />
<li>A manufacturer is permitted to sell its products manufactured in India through e-commerce retail. i.e., Any product manufactured in India whether by foreign entities or domestic entities can be sold through e-commerce. FDI is permissible in such manufacturing entities as per the extant sectoral permissions for FDI. </li><br />
<li>A single brand retail trading entity, (means an entity, whether foreign or domestic, which sells only products of one particular brand) operating through brick and mortar stores is permitted to undertake retail trading through e-commerce. 100% FDI is allowed in single brand retail since 2012, with upto 49% under automatic route. FDI beyond that would require prior Government / RBI approval. </li><br />
<li>Retail trading, in any form, by means of e-commerce, would not be permissible, for brick and Mortar companies with FDI, engaged in the activity of multi-brand retail trading. </li><br />
<li>An Indian manufacturer (which means that more than 50% shareholding is with the Indian entity and rest can be with a foreign entity) is permitted to sell its own single brand products through e-commerce retail. The Indian manufacturer should be owner of that Indian brand and manufactures, in terms of value, at least 70% of its products in-house and can source at most 30% from Indian manufacturers (eg.FabIndia or Reliance may be producing some of its branded products in its own manufacturing facilities located in India. But it may also be sourcing some of these products from other manufacturing entities in India while putting the brand name /label of FabIndia or Reliance on it. Here outside sourcing from other Indian manufacturers is limited to 30% of the products sold). In this instance, even though the entity is actually engaged in multi-brand retailing, FDI is permissible in such cases and is treated similar to Category I entities mentioned above. Here, there is no need for a brick and mortar retail presence by the manufacturer. All his manufactured items may be sold through e-commerce provided it is all coming under a single brand and conforms to the sourcing norms. </li><br />
</ul><br />
<p><br><br />
Thus, e-commerce mode with FDI is permitted for: </p><br />
<ul><br />
<li>Any B2B transaction </li><br />
<li>Any B2C transaction in products made in India by its manufacturer (whether foreign or domestic)</li><br />
<li>Any B2C transaction by a brick and mortar single brand retail company </li><br />
<li>Any B2C transaction by an Indian manufacturer, without any brick and mortar presence and using one single brand, provided 70% of his single brand products are manufactured in India or at most 30% is sourced from India</li><br />
<li>Any B2C &lsquo;marketplace&rsquo; transaction</li><br />
</ul><br />
<p><br><br />
E-commerce, would not be permissible, for brick and Mortar companies with FDI, engaged in the activity of multi-brand retail trading.<strong></strong></p><br />
<p>&nbsp;</p><br />
<p><strong>Types of e-commerce in the B2C multi-brand retail trading, as recognised in India:</strong></p><br />
<ul><br />
<li><strong>Inventory based model of e-commerce:</strong> which means an e-commerce activity where inventory of goods and services is owned by the e-commerce entity and is sold to the consumers directly. eg. Third party stores which stock up others products of a specific nature and sell online to consumers (eg. Grocery items but of different brands). </li><br />
</ul><br />
<p><br><br />
FDI is not permitted in inventory based model of e-commerce. </p><br />
<ul><br />
<li><strong>Marketplace based model of e-commerce: </strong>which means providing an information technology platform by an e-commerce entity on a digital and electronic network to act as a facilitator between buyer and seller. In other words, it refers to an online aggregator /platform which matches the interest of buyers and sellers, who are distinct from the entity providing and operating that platform. Eg. [http://www.flipkart.com/ Flipkart,] [http://www.snapdeal.com/ Snapdeal,] [http://www.amazon.in/ Amazone] etc. </li><br />
</ul><br />
<p><strong>&nbsp;</strong></p><br />
<p>Such marketplaces can provide support services to sellers in respect of warehousing logistics, order fulfilment, call center services, payment collection and other services. However, they cannot exercise ownership over the inventory of goods purported to be sold. For the same reason, post sales on the e-commerce site, ultimate delivery of goods to the customers, ensuring his satisfaction, implementation of any warrantee / guarantee etc. will be the responsibility of the seller. If there is any ownership over the inventory, it will render the business into inventory based model of e-commerce. To ensure that the marketplace does not own the inventory, it is stipulated that name, address and contact details of the sellers should be clearly made available while displaying the nature and price of these goods on the online platform. </p><br />
<p>Further, e-commerce entities/marketplace provider cannot directly or indirectly influence the sale price of goods and services and has to maintain the level playing field with other brick and mortar retailers in the country. That is, the marketplace provider cannot offer any discount on their own unless the original seller is giving it. </p><br />
<p>A marketplace provider can enter into transactions with sellers registered on its platform on a business to business (B2B) basis. However, it cannot source more than 25% of the sales affected on its platform from a single vendor or their group companies. This is to ensure that a variety of sellers are available on the order matching platform. </p><br />
<p>Payments effected on the marketplace have to conform to the RBI guidelines issued in this regard. </p><br />
<p>Subject to the above conditions, 100% FDI under automatic route is allowed in this model of e-commerce. </p><br />
<br />
<br />
<br />
<br />
<br />
<span class="small_footernote" id="ref1">1. Wholesale trade means sales for the purpose of trade, business and profession, as opposed to sales for the purpose of personal consumption. Wholesale trading, would mean sale of goods/merchandise to retailers, industrial, commercial, institutional or other professional business users or to other wholesalers and related subordinated service providers. The yardstick to determine whether the sale is wholesale or not would be the type of customers to whom the sale is made and not the size and volume of sales.</span><br />
<br />
<span class="small_footernote" id="ref2">2. Business to business (B To B or B2B) refers to a transaction that exists between businesses, such as those involving a manufacturer and wholesaler, or a wholesaler and a retailer. Business to business refers to business that is conducted between companies, rather than between a company and individual consumers.</span><br />
<br />
<span class="small_footernote" id="ref3">3. That means prior approval either of the Government or the Reserve Bank of India is not required</span><br />
<br />
<span class="small_footernote" id="ref4">4. 100% FDI was allowed in cash and carry wholesale trading since [http://eaindustry.nic.in/handbk/chap008.pdf 1997]. In 2000 ([http://dipp.nic.in/English/policy/changes/press2_00.htm 11 Feb 2000 press note No. 2]), India allowed 100% FDI in B2B ecommerce subject to the condition that such companies would divest 26% of their equity in favour of the Indian public in five years, if these companies are listed in other parts of the world.</span><br />
<br />
<span class="small_footernote" id="ref5">5. The Government decided to allow FDI up to 51%, with prior Government approval, in retail trade of &lsquo;Single Brand&rsquo; products in 2006 ([http://dipp.nic.in/English/policy/changes/pn3_2006.pdf Press Note No. 3 dated 10 February 2006]). Later, government removed this 51% cap on FDI in January 2012 ([http://dipp.nic.in/English/acts_rules/Press_Notes/pn1_2012.pdf Press Note No. 1 dated 10 January 2012]), and opened the single-brand retail market fully to foreign investors by permitting 100 % foreign investment under government approval route subject to certain conditions like mandatory sourcing of 30% of the products from Indian small industries in case FDI is beyond 51% etc.. In [http://dipp.nic.in/English/acts_rules/Press_Notes/pn6_2013.pdf August 2013] (Press Note No.6) upto 49% of FDI was made permissible under the automatic route and certain conditions were clarified /modified further.<br> <br />
FDI, up to 51%, under the Government route, in Multi-Brand Retail Trading was permitted in September 2012, subject to many specified conditions and excluding certain sectors ([http://dipp.nic.in/english/acts_rules/Press_Notes/pn5_2012.pdf Press Note No. 5/2012 dated 20 September 2012]). Some of these conditions were fine tuned in [http://dipp.nic.in/English/acts_rules/Press_Notes/pn5_2013.pdf August 2013] (press Note No. 5 dated 22 August 2013).</span><br />
<br />
<br />
<br />
<br />
==Also See==<br />
*[http://www.arthapedia.in/index.php?title=Marketplace Marketplace]<br />
<br />
<br />
<br />
==References==<br />
*[Notification by Ministry of Commerce dated *[http://dipp.nic.in/English/acts_rules/Press_Notes/pn3_2016.pdf 29 March 2016.] <br />
*[http://dipp.nic.in/English/Investor/FDI_Policies/FDI_policy.aspx Consolidated FDI Policy of the Government]<br />
*[http://dipp.nic.in/English/acts_rules/Press_Notes.aspx Various Press Notes issued by Department of Industrial Policy and Promotion] as linked in this write up.<br />
<br />
<br />
<br />
==Contributed by==<br />
*[http://ies.gov.in/myaccount-profile-view.php?memid=338 Ms. Rose Mary K Abraham] (IES 2006) and [http://ies.gov.in/myaccount-profile-view.php?memid=283 Ms. Reetu Jain] (IES 2001)<br />
*Email- [mailto:rosemary.a@nic.in rosemary.a@nic.in] and [mailto:reetuj@nic.in reetuj@nic.in]<br />
<br />
<br />
[[Category:concepts|E-Commerce]]</div>Rosemary.ahttp://arthapedia.in/index.php/Inflation_Targeting_In_IndiaInflation Targeting In India2018-05-28T14:35:36Z<p>Rosemary.a: </p>
<hr />
<div><p>Inflation targeting is a monetary policy strategy used by Central Banks for maintaining price level at a certain level or within a range. It indicates the primacy of price stability as the key objective of monetary policy. The argument for price stability stems from the fact that rising prices create uncertainties in decision making, adversely affecting savings and encouraging speculative investments. Inflation targeting brings in more predictability and transparency in deciding monetary policy. If the central banks could ensure price stability, households and companies can plan ahead, negotiating wages on the basis of expecting low and stable inflation. Various advanced economies including United States, Canada and Australia have been using inflation targeting as a strategy in their monetary policy framework. The case for inflation targeting has been made in India as the country has been experiencing a high level of inflation till recently. </p><br />
<p> The Reserve Bank of India and Government of India signed a [https://www.finmin.nic.in/sites/default/files/MPFAgreement28022015.pdf Monetary Policy Framework Agreement] on 20th February 2015. As per terms of the agreement, the objective of monetary policy framework would be primarily to maintain price stability, while keeping in mind the objective of growth. The monetary policy framework would be operated by the RBI. RBI would aim to contain consumer price inflation within 6 percent by January 2016 and within 4 percent with a band of (+/-) 2 percent for all subsequent years. </p><br />
<p> The central bank would be seen as failing to meet the targets, if retail inflation is more than 6 per cent for three consecutive quarters from 2015-16 and less than 2 per cent for three consecutive quarters from 2016-17. If this happens, RBI will have to explain the reason for its failure to meet as well as give a timeframe within which it will achieve it. RBI will publish the operating targets as well as operating procedure for the monetary policy though which the target for the monetary policy will be achieved. The RBI will also be required to bring a document every six months to explain the sources of inflation and forecast for inflation for next 6-18 months. </p><br />
<p> RBI has been using headline CPI (Combined) inflation as the nominal anchor for monetary policy stance from April 2014 onwards. </p><br />
<br />
RBI in its [https://rbi.org.in/scripts/PublicationsView.aspx?id=16216 Monetary Policy Report in April 2015] stated that this flexible inflation targeting (FIT) framework greatly enhances the credibility and effectiveness of monetary policy, and particularly, the pursuit of the inflation targets that have been set. The commitment of the Government to this framework enhances credibility significantly since it indicates that the Government will do its part on the fiscal side and on supply constraints to reduce the burden on monetary policy in achieving price stability.<br />
<br />
Management of monetary policy and the express objective of inflation targeting has been enshrined as the responsibility of RBI by amending the preamble of the RBI Act, 1934 through the Finance Act 2016 (Chapter XII). Thus, ensuring price stability through inflation targeting is a legal responsibility of RBI since 2016. A new Chapter (Chapter IIIF, Section 45Z) was introduced in the RBI Act, through this Finance Bill, 2016, for detailing the operation of a [http://www.arthapedia.in/index.php?title=Monetary_Policy_Committee_(MPC) Monetary Policy Committee (MPC)], which would be the institutional arrangement at the disposal of RBI for targeting inflation. <br />
<br />
Under Section 45ZA(1) of the RBI Act, 1934, the Central Government determines the inflation target in terms of the Consumer Price Index, once in every five years in consultation with the RBI. This target would be notified in the [http://egazette.nic.in/(S(usu15wrw2xvbxj1yn325gtsh))/default.aspx?AcceptsCookies=yes Official Gazette]. Amongst other measures, RBI targets inflation primarily by changing the [http://www.arthapedia.in/index.php?title=Policy_Rate "Policy Rate”] which means the rate for repo-transactions as defined under sub-section (12AB) of section 17 of the RBI Act.<br />
<br />
Factors constituting failure to meet inflation target under the MPC Framework was notified on [http://finmin.nic.in/MPC_notification27062016.pdf 27 June 2016]. In exercise of the powers conferred by section 45ZN of the RBI Act, 1934, the Central Government notified the following as factors that constitute failure to achieve the inflation target, namely:—<br />
<br />
(a) the average inflation is more than the upper tolerance level of the inflation target notified under section 45ZA of the RBI Act for any three consecutive quarters; or<br />
<br />
(b) the average inflation is less than the lower tolerance level of the inflation target notified under section 45ZA of the RBI Act for any three consecutive quarters.<br />
<br />
<br />
The provisions of the RBI Act relating to the chapter on Monetary Policy have been brought into force through a Notification in the Gazette of India on 27.6.2016. The Rules governing the Procedure for Selection of Members of Monetary Policy Committee and Terms and Conditions of their Appointment and factors constituting failure to meet inflation target under the MPC Framework have also been notified in the Gazette on 27.6.2016. The Government,<br />
in consultation with the RBI, has notified the inflation target in the Gazette of India dated 5th August 2016, for the five year period beginning from the date of publication of this notification <br />
<br />
==Contributed by==<br />
* [http://www.ies.gov.in/myaccount-profile-view.php?memid=234 P K Abdul Kareem (IES 1996)]<br />
*Email- [mailto:pkakareem@yahoo.com pkakareem@yahoo.com]<br />
<br />
[[Category:concepts|InflationTargetingInIndia]]</div>Rosemary.ahttp://arthapedia.in/index.php/Monetary_Policy_Framework_AgreementMonetary Policy Framework Agreement2018-05-28T14:35:11Z<p>Rosemary.a: </p>
<hr />
<div><p>Monetary Policy Framework Agreement is an agreement reached between Government and the central bank in India – The [https://www.rbi.org.in/ Reserve Bank of India] (RBI) - on the maximum tolerable inflation rate that RBI should target to achieve price stability.</p><br />
<p>&nbsp;</p><br />
<p><strong>Background </strong><br><br />
The Reserve Bank of India and Government of India signed the&nbsp;[https://www.finmin.nic.in/sites/default/files/MPFAgreement28022015.pdf Monetary Policy Framework Agreement]&nbsp;on 20 February 2015 which made [http://www.arthapedia.in/index.php?title=Inflation_Targeting_In_India inflation targeting] and achieving price stability the responsibilities of RBI. Subsequently, the government, while unveiling the [http://indiabudget.nic.in/ Union Budget for 2016-17] in the Parliament, proposed to amend the [https://www.rbi.org.in/scripts/OccasionalPublications.aspx?head=Reserve%20Bank%20of%20India%20Act Reserve Bank of India (RBI) Act, 1934] for giving a statutory backing to the aforementioned Monetary Policy Framework Agreement and for setting up a [http://arthapedia.in/index.php?title=Monetary_Policy_Committee_(MPC) Monetary Policy Committee (MPC)]. Vide this amendment, it was written into the preamble of the RBI Act that the primary objective of the monetary policy is to maintain price stability, while keeping in mind the objective of growth, and to meet the challenge of an increasingly complex economy, RBI would operate a Monetary Policy Framework. Thus, the amendment provides a statutory basis for a Monetary Policy Framework Agreement and the Monetary Policy Committee. India thereby formally joined the list of nations which tasks its central bank with the responsibility for [http://www.arthapedia.in/index.php?title=Inflation_Targeting_In_India inflation targeting]. This amendment to RBI Act was carried out through the [http://indiabudget.nic.in/bill.asp Finance Bill, 2016] presented along with the Union Budget documents. A new Chapter (Chapter IIIF, Section 45Z) was introduced in the RBI Act, through this Finance Bill, 2016, for formalising the inflation targeting regime. The provisions in the Bill become effective once it is passed and notified as an Act of Parliament.</p><br />
<p>&nbsp;</p><br />
<p><strong>Contents of the present Monetary Policy Framework Agreement </strong><br><br />
Under the present Monetary Policy Framework Agreement signed on 20 February 2015, the RBI will be responsible for containing inflation targets at 4% (with a standard deviation of 2%) in the medium term (For more details see [http://www.arthapedia.in/index.php?title=Inflation_Targeting_In_India here]). Under Section 45ZA(1) of the RBI Act, 1934, the Central Government determines the inflation target in terms of the [http://www.arthapedia.in/index.php?title=Consumer_Price_Index Consumer Price Index], once in every five years in consultation with the RBI. This target would be notified in the [http://egazette.nic.in/(S(usu15wrw2xvbxj1yn325gtsh))/default.aspx?AcceptsCookies=yes Official Gazette]. </p><br />
<p> Though the central bank already had a monetary framework and was implementing the monetary policy, the newly designed statutory framework would mean that the RBI would have to give an explanation in the form of a report to the Central Government, if it failed to reach the specified inflation targets. In the report it shall give reasons for failure, remedial actions as well as estimated time within which the inflation target shall be achieved. Further, RBI is mandated to publish a Monetary Policy Report every six months, explaining the sources of inflation and the forecasts of inflation for the coming period of six to eighteen months. </p><br />
<br />
<br />
<br />
<br />
==Also See ==<br />
<ul><br />
<li>[http://www.arthapedia.in/index.php?title=Inflation_Targeting_In_India Inflation Targeting in India]</li><br />
<li>[http://arthapedia.in/index.php?title=Monetary_Policy_Committee_(MPC) Monetary Policy Committee (MPC)] </li><br />
<li>[http://www.arthapedia.in/index.php?title=Monetary_Policy_Dilemmas:_Some_RBI_Perspectives_(Dr._D._subbarao,_Governor,_RBI) Monetary Policy Dilemmas: Some RBI Perspectives (Dr. D. subbarao, Former Governor, RBI)]</li><br />
</ul><br />
<br />
==Contributed by==<br />
*[http://ies.gov.in/myaccount-profile-view.php?memid=568 Mr. Abhishek Anand (IES 2014)]<br />
*Email- [mailto:abhishek_anand444@yahoo.com abhishek_anand444@yahoo.com]<br />
<br />
[[Category:concepts|MonetaryPolicyFrameworkAgreement]]</div>Rosemary.ahttp://arthapedia.in/index.php/Crypto_Currency_/_Virtual_Currency_/_Digital_CurrencyCrypto Currency / Virtual Currency / Digital Currency2018-05-15T09:01:17Z<p>Rosemary.a: </p>
<hr />
<div><p> Financial Action Task Force (FATF), which is the global body fighting money laundering and terrorist financing has [http://www.fatf-gafi.org/media/fatf/documents/reports/Virtual-currency-key-definitions-and-potential-aml-cft-risks.pdf defined Virtual currency] as a digital representation of value that can be digitally traded and functions as (1) a medium of exchange; and/or (2) a unit of account; and/or (3) a store of value, but does not generally have legal tender status (i.e., when tendered to a creditor, is a valid and legal offer of payment) in any jurisdiction. As on date, it is not issued nor guaranteed by any jurisdiction, and fulfils the above functions only by agreement within the community of users of the virtual currency. </p><br />
<p> Virtual currency is distinguished from fiat currency (a.k.a. &ldquo;real currency,&rdquo; &ldquo;real money,&rdquo; or &ldquo;national currency&rdquo;), which is the coin and paper money of a country that is designated as its legal tender; circulates; and is customarily used and accepted as a medium of exchange in the issuing country. It is distinct from e-money, which is a digital representation of fiat currency used to electronically transfer value denominated in fiat currency. E-money is a digital transfer mechanism for fiat currency - i.e., it electronically transfers value that has legal tender status. </p><br />
<p> Digital currency can mean a digital representation of either virtual currency (non-fiat) or e-money (fiat) and thus is often used interchangeably with the term &ldquo;virtual currency&rdquo;.</p><br />
<p> Cryptocurrency is a digital currency which makes use of encryption techniques to regulate the generation of units of currency and to verify the transfer of funds, operating independently of a central bank. This is a math-based, decentralised convertible virtual currency that is protected by cryptography.</p><br />
<p>&nbsp;</p><br />
<p> <strong>Types of virtual currencies </strong> </p><br />
<p> Convertible (or open) virtual currency has an equivalent value in real currency and can be exchanged back-and-forth for real currency. The notion of &ldquo;convertible currency&rdquo; does not in any way imply an ex officio convertibility (e.g. in the case of gold standard), but rather a de facto convertibility (e.g. because a market exists). Thus, a virtual currency is &ldquo;convertible&rdquo; only as long as some private participants make offers and others accept them, since the &ldquo;convertibility&rdquo; is not guaranteed at all by law.</p><br />
<p> Non-convertible virtual currencies cannot be exchanged against fiat currency. It is specific to a particular virtual domain or world (say Amazon). It is possible that an unofficial, secondary black market may arise that provides an opportunity to exchange the &ldquo;non-convertible&rdquo; virtual currency for fiat currency or another virtual currency.</p><br />
<p> Centralised Virtual Currencies have a single administrating authority (administrator) - i.e., a third party that controls the system. An administrator issues the currency; establishes the rules for its use; maintains a central payment ledger; and has authority to redeem the currency (withdraw it from circulation). The exchange rate for a convertible virtual currency may be either floating - i.e., determined by market supply and demand for the virtual currency--or pegged - i.e., fixed by the administrator at a set value measured in fiat currency or another real-world store of value, such as gold or a basket of currencies. Currently, the vast majority of virtual currency payments transactions involve centralised virtual currencies.</p><br />
<p> Decentralised Virtual Currencies (a.k.a. crypto-currencies) are distributed, open-source, math-based peer-to-peer virtual currencies that have no central administrating authority, and no central monitoring or oversight. Examples: Bitcoin; liteCoin; and Ripple.</p><br />
<p> Virtual currencies are a worldwide phenomenon that have captured the imagination of millions across rungs of businesses, banks and governments. [https://www.investopedia.com/terms/b/bitcoin.asp Bitcoin], launched in 2009 by Satoshi Nakamoto was the first decentralised convertible virtual currency, and the first cryptocurrency. Bitcoin's success has spawned a number of competing cryptocurrencies, such as [https://litecoin.org/ litecoin], Namecoin, PPCoin, [https://www.ethereum.org/ Ethereum], [https://ripple.com/ Ripple], Monero, Dash, Augur,NEM,etc. A comparative table of major virtual currencies alongwith with their market cap may be seen [https://coinmarketcap.com/ here]. </p><br />
<p> Virtual currency exchange /exchanger is a person or entity engaged in the business of exchange of virtual currency for real currency, funds, or other forms of virtual currency and also precious metals, and vice versa, for a fee (commission). Individuals typically use exchangers to deposit and withdraw money from virtual currency accounts.</p><br />
<p> Users can obtain virtual currency in several ways. For example, they can (1) purchase virtual currency, using real money (from a virtual currency exchange or, for certain centralised virtual currencies, directly from the administrator/issuer); (2) engage in specific activities that earn virtual currency payments (e.g., respond to a promotion, complete an online survey, provide a real or virtual good or service); (3) in case of decentralised virtual currencies (e.g., Bitcoin), self-generate units of the currency by &quot;mining&quot; them and receive them as gifts, rewards, or as part of a free initial distribution.</p><br />
<p> Of late, considering the global interest in digital currencies, some central banks have initiated works on introducing Digital Currencies </p><br />
<p> The Committee on Payments and Market Infrastructures and the Markets Committee of Bank of International Settlements (BIS) has in March 2018 completed a [https://www.bis.org/cpmi/publ/d174.pdf work on central bank digital currencies] (CBDCs). CBDC is potentially a new form of digital central bank money that can be distinguished from reserves or settlement balances held by commercial banks at central banks. There are various design choices for a CBDC, including: access (widely vs restricted); degree of anonymity (ranging from complete to none); operational availability (ranging from current opening hours to 24 hours a day and seven days a week); and interest bearing characteristics (yes or no). A general purpose CBDC might turn out to be an alternative to cash in some situations, thereby reducing the printing and associated costs to the central banks. </p><br />
<p>&nbsp;</p><br />
<p> <U><strong>Genesis of cryptocurrency:</strong></U> Satoshi Nakamoto never intended to invent a currency. In his announcement of Bitcoin in late 2008, Satoshi said he developed &ldquo;a peer-to-peer electronic cash system&rdquo;. It was a decentralized digital cash system like a[https://en.wikipedia.org/wiki/Peer-to-peer_file_sharing &nbsp;peer-to-peer network]&nbsp;for file sharing. Any digital cash payment network hinges upon a record of accounts, balances and transactions and aims to intercept double spending i.e. to prevent one entity from spending the same amount twice. In case of conventional payment networks, this is done by a central server which keeps record about the balances. However, cryptocurrencies&rsquo; self-reliance comes from their system of limited entries in a database that no one can change without fulfilling specific conditions.</p><br />
<p> Anyone can download the free, open-source software from a website to send, receive, and store bitcoins and monitor Bitcoin transactions. Users can also obtain Bitcoin addresses, which function like accounts, at a Bitcoin exchanger or online wallet service. Transactions (fund flows) are publicly available in a shared transaction register and identified by the Bitcoin address, a string of letters and numbers that is not systematically linked to an individual. Therefore, Bitcoin is said to be &ldquo;pseudoanonymous&rdquo;. The underlying technology used by bitcoin for securing the transactions is known as &ldquo;block chain&rdquo;. This technology has many other applications even though bitcoin may not be acceptable. Distributed ledger system or the block chain technology allows organization of any chain of records or transactions without the need of intermediaries.</p><br />
<p>&nbsp;</p><br />
<p> <U><strong>The mechanism</strong></U><strong>:</strong> A cryptocurrency consists of a network of peers where each of the peer has a record of the complete history of all transactions and thus of the balance of every account. A transaction is a file that says, &ldquo;A gives x Bitcoin to B&rdquo; and is signed by A&rsquo;s private key. After being signed, a transaction is broadcasted in the network, sent from one peer to every other peer. This is based on the system of public-key cryptography, or asymmetric cryptography which is an encryption scheme that uses two mathematically related keys - a public key and a private key. The public key is used to encrypt and the private key is used to decrypt. Each public key is published and the corresponding private key is kept secret. In general, to send encrypted data to someone, it is encrypted with the recipient&rsquo;s public key, and then the recipient decrypts the data with the corresponding private key. Public key cryptography enables the following:</p><br />
<ul><br />
<li>Encryption and decryption, which allow two communicating parties to disguise data that they send to each other. The sender encrypts, or scrambles, the data before sending it. The receiver decrypts, or unscrambles, the data after receiving it. While in transit, the encrypted data is not understood by an intruder.</li><br />
<li> Nonrepudiation, which prevents:<br />
<ul><br />
<li>The sender of the data from claiming, at a later date, that the data was never sent</li><br />
<li>The data from being altered.</li><br />
</ul><br />
</li><br />
</ul><br />
<br />
<br />
<br />
<p> When a transaction is confirmed it can&rsquo;t be reversed and it becomes a part of an unalterable record of historical transactions i.e.&nbsp;[http://blockgeeks.com/guides/what-is-blockchain-technology-a-step-by-step-guide-than-anyone-can-understand/ blockchain].</p><br />
<p>&nbsp;</p><br />
<p> <U><strong>Role of a miner:</strong></U> A miner is an individual or entity that participates in a decentralised virtual currency network by running special software to solve complex algorithms in a distributed proof-of-work or other distributed proof system used to validate transactions in the virtual currency system. Miners may be users, if they self-generate a convertible virtual currency solely for their own purposes, e.g., to hold for investment or to use to pay an existing obligation or to purchase goods and services. Miners may also participate in a virtual currency system as exchangers, creating the virtual currency as a business in order to sell it for fiat currency or other virtual currency.</p><br />
<p> The job of a miner in a cryptocurrency transaction is to confirm the transactions by stamping them and spreading them across the network of nodes. The nodes then have to add it to their database to make it a part of the blockchain. The exercise entails rewards for the miners in terms of the cryptocurrency itself. Since the role of a miner is crucial to ensure a fair network and prevent forged transactions, the miners have to find a hash, a product of a cryptographic function, that connects the new block with its predecessor. This is called the&nbsp;&lsquo;[https://blockgeeks.com/guides/proof-of-work-vs-proof-of-stake/ Proof-of-Work]&rsquo;. A hash is a string of random-looking characters that uniquely identifies the data in question. Transactions are bundled together into what we call a block and it is the miners who have to verify that transactions within each block are legitimate. Legitimacy of the transactions is ascertained by miners by solving a mathematical puzzle known as proof-of-work problem and only subsequently the transaction is stored in the blockchain. The first miner to solve the puzzle is rewarded for verifying the transaction and in the form of a reward, the miner has the right to add a coinbase transaction that give him/her a specific number of bitcoins. This is how new bitcoins are created. Solving a cryptographic puzzle with high difficulty entails high computer power that the miner&rsquo;s invest. Thus, only a limited amount of cryptocurrency can be created in a given amount of time. Further, all cryptocurrencies control the supply of the token by a schedule written in the code.</p><br />
<p>&nbsp;</p><br />
<p> <U><strong>Bouquets and brickbats:</strong></U> FATF identifies the following advantages for virtual currencies. </p><br />
<UL><br />
<li><br />
<p> Virtual currency has the potential to improve payment efficiency and reduce transaction costs for payments and fund transfers. Being a global currency it can avoid exchange fees, and is currently processed with lower fees/charges than traditional credit and debit cards.</p><br />
<li><br />
<p> Virtual currency may also facilitate micro-payments, allowing businesses to monetise very low-cost goods or services sold on the Internet, such as onetime game or music downloads. </p><br />
<li><br />
<p> Virtual currency may also facilitate international remittances and support financial inclusion in other ways, as new virtual currency-based products and services are developed that may potentially serve the under- and un-banked. </p><br />
<li><br />
<p> Virtual currency may also be held for investment. </p><br />
</UL><br />
<p> It needs to be seen whether the claimed cost advantages will remain, if virtual currency becomes subject to regulatory requirements similar to those that apply to other payments methods, and/or if exchange fees for cashing out into fiat currency are factored in, and whether volatility, consumer protection and other factors limit their potential for financial inclusion.</p><br />
<p> Cryptocurrencies are being touted as digital gold that seem promising enough to increase their value overtime. Further, they are a fast and comfortable means of payment with a worldwide scope. Cryptocurrencies have given birth to an expanding and dynamic market for investors and speculators. Springing up of crowd funding projects and cryptocurrency exchanges have lent depth to the cryptocurrency market. Recently futures contracts were introduced by [http://www.cmegroup.com/trading/bitcoin-futures.html Chicago Mercantile Exchange] over bitcoin. </p><br />
<p> However, the world of cryptocurrencies is marred by clouds of doubt. While cryptocurrencies are being used for payment, their use as a means of store of value and speculation, with volatility imbued, dwarfs their potential of being used as a medium of exchange. The innate anonymity associated with cryptocurrencies make them highly susceptible to be used as a means of payment in black markets, darknet markets and illegitimate activities. FATF has identified many potential money laundering and terrorist financing risks associated with virtual currency&rsquo;s global reach. There is no central oversight body, and no anti-money laundering software currently available to monitor and identify suspicious transaction patterns. Law enforcement cannot target one central location or entity (administrator) for investigative or asset seizure purposes (although authorities can target individual exchangers for client information that the exchanger may collect). Customer and transaction records may be held by different entities, often in different jurisdictions, making it more difficult for law enforcement and regulators to access them. </p><br />
<p> FATF has issued a risk based approach in its [http://www.fatf-gafi.org/media/fatf/documents/reports/Guidance-RBA-Virtual-Currencies.pdf guidance on virtual currency payment products and services.] </p><br />
<p> The markets for cryptocurrencies is fast expanding and is continuously taking increasing number of people in its fold. But, whether cryptocurrency is here to stay or not, only time will tell.</p><br />
<p>&nbsp;</p><br />
<p><U><strong>India&rsquo;s Stance:</strong></U> </p><br />
<p>Central banks across the world are exploring the option of introducing fiat digital currencies due to the rapid strides being made by online payments technology and rising cost of maintaining fiat paper/metallic currency. Also, technological innovations, including those underlying virtual currencies, have the potential to improve the efficiency and inclusiveness of the &#64257;nancial system. In view of the same, [https://rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=43574 Reserve Bank of India has set up an interdepartmental group] to recommend the feasibility of introducing a digital currency. The Report is due to be submitted by June 2018. </p><br />
<p>Notwithstanding, RBI has always been wary of the concerns related to consumer protection, market integrity and money laundering, among others. Reserve Bank has repeatedly through its public notices on December 24, 2013, February 01, 2017 and December 05, 2017, cautioned users, holders and traders of virtual currencies, including Bitcoins, regarding various risks associated in dealing with such virtual currencies. </p><br />
<p>In the [https://www.indiabudget.gov.in/ub2018-19/bs/bs.pdf Union Budget 2018-19], in para 112, Hon&rsquo;ble Finance Minister stated that the Government does not consider crypto-currencies as legal tender or coin and will take all measures to eliminate use of these cryptoassets in financing illegitimate activities or as part of the payment system. However, the Government promised to explore the use of block chain technology proactively for ushering in digital economy.</p><br />
<p>Subsequently on 6 April 2018, [https://rbi.org.in/Scripts/NotificationUser.aspx?Id=11243&Mode=0 RBI issued a circular] stating that entities regulated by the Reserve Bank shall not deal in virtual currencies (VCs) or provide services for facilitating any person or entity in dealing with or settling VCs. Such services include maintaining accounts, registering, trading, settling, clearing, giving loans against virtual tokens, accepting them as collateral, opening accounts of exchanges dealing with them and transfer / receipt of money in accounts relating to purchase/ sale of VCs. Regulated entities which already provide such services were asked to exit the relationship within three months from the date of the circular.</p><br />
<br />
<p>The RBI noti&#64257;cation means that crypto exchanges /exchangers operating within the country would be left without banking support and payment gateways which are regulated by RBI. Crypto-exchanges will therefore need to work independently of the banking support which means that mode of transaction will have to be tweaked from fiat-crypto to crypto-crypto i.e. exchanging cryptos for each other without any role for fiat currency. This has been done by RBI to steer clear the banking system of the risks associated with cryptocurrencies. . </p><br />
<p>Regulatory approaches of some major countries are outlined in the [http://www.fatf-gafi.org/media/fatf/documents/reports/Guidance-RBA-Virtual-Currencies.pdf FATF Guidance Note]. </p><br />
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==References==<br />
<ul><br />
<li>[http://www.fatf-gafi.org/media/fatf/documents/reports/Virtual-currency-key-definitions-and-potential-aml-cft-risks.pdf Virtual Currencies &ndash; Key definitions], FATF, June 2014</li><br />
<li>[https://bitcoin.org/bitcoin.pdf Bitcoin: A Peer-to-Peer Electronic Cash System], Satoshi Nakamoto</li><br />
<li>[https://www.bis.org/cpmi/publ/d174.pdf Central bank digital currencies], Committee on Payments and Market Infrastructures Markets Committee, BIS, March 2018</li><br />
<li>[https://www.bis.org/cpmi/publ/d137.pdf Digital Currency], BIS, November 2015</li><br />
</ul><br />
<br />
<br />
<br />
==Contributed by==<br />
*Dilasha Vasudev a (IES 2015)<br />
<br />
[[Category:concepts|CryptoCurrency/VirtualCurrency/DigitalCurrency]]</div>Rosemary.ahttp://arthapedia.in/index.php/Payment_SystemPayment System2018-05-14T17:33:47Z<p>Rosemary.a: </p>
<hr />
<div><p><br />
A &ldquo;payment system&rdquo; means a system that enables payment to be effected between a payer and a beneficiary, involving clearing, payment or settlement service or all of them.</p><br />
<p>[http://www.investopedia.com/terms/c/clearing.asp <strong>Clearing</strong>]<strong> </strong>refers to the process wherein the payment service provider acts as the counterparty between the buyer and seller by calculating the obligations between them and guaranteeing its settlement. <strong>Settlement </strong>relates to the final act of changing the records of ownership of the asset transacted, either after [http://www.investopedia.com/terms/n/netting.asp netting] all the cross obligations or for each one transaction individually on gross terms.</p><br />
<p> A &ldquo;payment system&rdquo; as understood in India, can include the systems enabling credit card operations, debit card operations, smart card operations, money transfer operations or such similar operations. All entities operating such systems (money transfer systems or card payment systems or similar systems) are known as payment system providers. To decide whether a particular entity operates the payment system, it must perform either the clearing or settlement or payment function or all of them.</p><br />
<p> The [https://rbidocs.rbi.org.in/rdocs/Publications/PDFs/86706.pdf Payment and Settlement Systems Act, 2007] (PSS Act, 2007)&nbsp;which came into force with effect from 12 August 2008, provides for the regulation and supervision of payment systems in India and designates the Reserve Bank of India (Reserve Bank) as the authority for that purpose and all related matters. The Act excludes stock/commodity exchanges and their clearing corporations from the purview of the Act, even though they constitute payment systems. Stock /commodity exchanges and Clearing Corporations are regulated by the securities market regulator – SEBI -in India. </p><br />
<p> Reserve Bank of India has issued Certificates of Authorisation under the Payment and Settlement Systems Act, 2007 for Setting up and Operating Payment System in India. The names of entities which have received such certificates and the names of their payment facilities are given on the [https://rbi.org.in/scripts/publicationsview.aspx?id=12043 website of RBI]. </p><br />
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'''Data'''<br />
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Data on payment system indicators (extent of digital wallet payments etc.) are given in the RBI Bulletin. <br />
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==Also See==<br />
*[http://www.arthapedia.in/index.php?title=Unified_Payments_Interface_(UPI) Unified Payments Interface]<br />
* [http://arthapedia.in/index.php?title=Pre-paid_Payment_Instruments_(PPIs) Prepaid Payment Instruments (PPIs)]<br />
* [http://arthapedia.in/index.php?title=Payment_System Payment System]<br />
* [http://www.arthapedia.in/index.php?title=Digital_/_Electronic_Wallet_(e-wallet) Digital Electronic Wallet]<br />
<br />
==References==<br />
[https://www.rbi.org.in/scripts/FAQView.aspx?Id=73 FAQ of RBI] on Payment and Settlement Systems Act, 2007<br />
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==Contributed by==<br />
* [http://www.ies.gov.in/myaccount-profile-view.php?memid=338 Rosemary K Abraham (IES 2006)]<br />
*Email- [mailto:rosemary.a@nic.in rosemary.a@nic.in]<br />
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[[Category:concepts|PaymentSystem]]</div>Rosemary.a