OVERVIEW OF THE PREVIOUS CLASS (05:04 PM)

CURRENT ACCOUNT DEFICIT (05:09 PM)

• Balance of Payments (BoP) records the transactions in goods, services, and assets between residents of a country with the rest of the world for a specified time period typically a year.
• The Current Account is one of the two accounts in the Balance of Payments (BoP).
• It records exports and imports of goods and services and transfers payments of a country.
• Transfer payments are receipts received by the residents ‘for free’, without any present or future payments in return.
• It includes remittances, gifts and grants.
• The Capital Account is the second account, recording all international purchases and sales of assets such as money, stocks, bonds, etc. for a specified time, usually a year

REASON FOR HIGH CAD IN INDIA

• Higher trade deficit: Increased imports and decreased exports have contributed significantly to the widening of CAD.
• Services Receipts Decline: Net services receipts decreased, primarily due to reduced exports of computer, travel, and business services.
• Impact of Global Factors: Slowing global growth has implications for India's export-oriented services and remittances, adding to the challenges of maintaining a lower CAD.
• Rising Oil Prices: An anticipated increase in oil prices is expected to further widen the merchandise trade deficit. Higher oil prices contribute to increased import costs, affecting the overall CAD.
• Foreign Direct Investment (FDI) Decline: Net FDI declined in the financial account, influencing the overall balance.

POTENTIAL THREATS OF INCREASING CAD

• Based on a historical perspective, India can sustain a CAD of 2.5-3.0% of GDP without getting into an external sector crisis (Economic Survey 2021-22). But a deficit beyond that can have an impact on the following -
• Foreign investment: Pull out of foreign institutional investors or limited capital flow.
• Exchange Rate: A high Current Account Deficit for the long term decreases the global demand for the currency and can lead to a situation of free fall in currency exchange rate.
• Inflation: Price instability in turn fuels inflationary concerns, leading to further reduction in domestic savings, leading to lower investments or foreign borrowing to fund growth needs.
• Payment imbalances: They can lead to a BoP crisis as was observed in the Asian Financial Crisis (1997) and the recent Sri Lankan crisis. 

DATED SECURITIES (05:43 PM)

• Retail direct scheme
• Any retail investor can invest in government securities in the primary and the secondary market.
• Small investors can now buy or sell government securities (G-Secs), or bonds, directly without having to go through an intermediary like a mutual fund.
• Investors wishing to open a Retail Direct Gilt account directly with the RBI can do so through an online portal set up for the scheme. 
• The minimum amount for a bid is ₹10,000 and in multiples of ₹10,000 thereafter.
• There are two ways to buy Government securities through the Retail Direct platform:
• 1)By placing a bid in the primary auctions of dated G-Sec, T-Bills and SDLs (Non-competitive segment only, i.e., by only entering the desired amount of securities, without entering a price). For Sovereign Gold Bonds (SGBs), you may place a bid during the subscription windows announced by RBI on its website.
• 2)By placing a buy quote in the secondary market portal.

GOODS AND SERVICES TAX (05:57 PM)

• In news: 28% tax on online gaming.
• Game of chance where luck plays a vital role (Here it was already 28%) and game of skill(Where elements of luck are minimal and skills play a role).
• The company will have to pay 28% of the contest entry amount.
• This is hurting the profitability and participation of customers for the company.
• The reservation here of the companies is that the tax is arbitrary as post establishment of the company, the new tax is levied.

IDEA OF GST 

• Pre GST also VAT was levied.
• Taxes to the state were: Professional tax, Octroi, and Excise duty on Drugs used for medicinal purposes.
• So we had VAT, the Centre imposed it as CENVAT, and the state as VAT.
• But the coordination between the center and the state was lagging in availing the Input tax credit so the cascading effect remained intact.
• Also on central sales tax, there was no provision of Input tax credit.
• Custom duty is not part of GST.

WIDENING TAX BASE (06:31 PM)

• ANGEL TAX
• The Ministry of Finance proposed changes in angel taxation and notified foreign entities that will be exempted from the tax provisions.
• Angel tax, introduced in 2012, refers to tax levied on capital raised by unlisted companies.
• The objective was to deter the generation and use of unaccounted money through the subscription of shares of a closely held company, at a value that is higher than fair market value.

PERIODIC LABOUR FORCE SURVEY (06:52 PM)

• Launched by National Sample Survey Organization (NSSO) in 2017.
• The key objective of PLFS is to estimate the key employment and unemployment indicators(viz. LFPR, WPR, UR) annually, evaluated on activity status Current Weekly Status (CWS) for the urban areas only for an interval of three months.
• Usual Status’ and CWS in both rural and urban areas annually.

PLFS FINDINGS ON THE GENDER PAY GAP

• In 2023, the gap in work hours was largest for self-employed workers (50% more for men), and lowest for regular wage workers (19%).
• Also, men earn more than women across all forms of work; the gap is greatest for the self-employed.
• In 2023, male self-employed workers earned 2.8 times that of women, whereas male regular-wage workers earned 24% more.
• Labour Force Participation Rates (LFPRs) for rural women have increased, with a significant rise in the proportion of self-employed women.
• However, the average hours worked per week for rural self-employed women has fallen from 37.1 in 2019 to 30.1 in 2023.

NOBEL PRIZE IN ECONOMICS: WOMEN IN LABOUR FORCE (07:08 PM)

FACTORS AFFECTING FEMALE LABOUR FORCE PARTICIPATION RATE

• Goldin’s U-curve demonstrated that there is no historically consistent association between women’s participation in the labour market and economic growth. They are influenced by the following-
• Social Norms: Legislative gaps or customs known as “marriage bars” often prevented married women from continuing their employment despite increased demand for labour.
• Parenthood Effect: The responsibility of childcare more on women than men affected their career progression.
• Technological Innovations: Contraceptive pills resulted in women delaying marriage and childbirth, thus increasing their education and career prospect.

GIG ECONOMY (07:12 PM)

• A Gig economy is a free market system in which temporary positions are common and organizations contract with independent workers for short-term engagements.
• Gig Workers are those engaged in livelihood outside the traditional employer-employee arrangement. They can be broadly classified intoo Platform Gig Workers:
• Those whose work is based on online software, apps, or digital platforms such as food aggregator platforms- Zomato, Swiggy, Ola, and others.
• Non-Platform Gig Workers: They are generally casual waged and own-account workers in the conventional sector, engaged part-time or full-time.

RECENT DEVELOPMENT 

• The Standing Committee on Labour, Textiles, and Skill Development has asked the Ministry of Labour and Employment to formulate and implement welfare schemes for Gig workers in the country.
• The G20 Labour and Employment Ministers Meeting 2023 concluded by adopting an outcome document on "Sustainable Social Protection for Gig & Platform Workers."
• Rajasthan State Government has pioneered in creating a welfare bill for the Gig workers in the state by passing a "Platform Based Gig Workers (Registration and Welfare) Bill, 2023".

INCREMENTAL CASH RESERVE RATIO (07:24 PM)

• Incremental Cash Reserve Ratio (ICRR): I-CRR is similar to the CRR, wherein banks need to set aside a certain portion of their money with the RBI. They do not earn any interest on this. It has the following differences:
• RBI has the option to impose ICRR in addition to the CRR.
• The interest rate charged would be different from CRR.

EFFECT OF ICRR 

• Manage Liquidity: There was a recent increase in liquidity in the economy due to a pickup in government spending, sustained foreign inflows, and withdrawal of Rs. 2000 notes, among others.
• Inflation Control: India’s retail inflation (measured by the Consumer Price Index (CPI)) rose to 7.5% in July compared with 4.9% in June. Hence requiring a tighter monetary policy.
• Banking Resilience: The incremental CRR increases protection against the potential threat of Bank Run.
• Bank Run is when the customers of a bank or other financial institution withdraw their deposits at the same time over fears about the Bank’s solvency.
• Decreased Lending: Lower lending will, in turn, bring down demand for goods and services, reducing the Aggregate Demand of the Economy.

SURPLUS TRANSFER BY RBI (07:36 PM)

• As RBI is not required to pay income tax, it transfers surplus amount to the government in accordance with Section 47 (Allocation of surplus profits) of RBI Act, 1934.
• RBI’s total expenditure is significantly lower than its total net interest income, thereby generating a surplus.
• Earlier, RBI used to keep a major chunk of this surplus for its Contingency Fund (CF) and Asset Development Fund (ADF).
• However, after the Malegam Committee (2013) recommendations and later under the revised Economic Capital Framework (2014-15) by the Bimal Jalan committee, its transfer of surplus to the government increased.

The topic for the next class: LIBOR.