The finance commission is constituted by the president of India under the provision of article 280 of the Indian constitution for five years. It decides the share of states in the total tax collection of the centre government. The 14th finance commission is headed by the former RBI governor Mr. Y.V. Reddy.
The Group of Eight (G-8) refers to the group of eight highly industrialized nations—France, Germany, Italy, the United Kingdom, Japan, the United States, Canada, and Russia—that hold an annual meeting to foster consensus on global issues like economic growth and crisis management, global security, energy, and terrorism. The G6 was made up of France, Germany, Italy, Japan, the UK and America. It then changed to G7 when Canada joined in 1976 and G8 with Russia in 1998.
South Asian Preferential Trade Agreement (SAPTA- 1993) was envisaged primarily as the first step towards the transition to a South Asian Free Trade Area (SAFTA) leading subsequently towards a Customs Union, Common Market and Economic Union. In 1995, the Sixteenth session of the Council of Ministers (New Delhi, 18-19 December 1995) agreed on the need to strive for the realization of SAFTA. At the12th SAARC Summit (Jan. 4-6, 2004) at Islamabad, the Capital City of Pakistan, SAPTA became SAFTA. ASEAN (1967) is a union of South-East Asian Nations.
The World Bank Group (WBG) is a family of five international organizations that are the International Bank for Reconstruction and Development (IBRD), the International Development Association (IDA), The International Finance Corporation (IFC), The Multilateral Investment Guarantee Agency (MIGA) and the International Centre for Settlement of Investment Disputes (ICSID). IFC was established in July 1956 that provides loans to private industries for developing nations without any government guarantee and also promotes the additional capital investment in these countries. MIGA came into existence on April 1988.
BRICS (Brazil, Russia, India and China, South Africa) was initially formulated in 2001 by economist Jim O'Neill, of Goldman Sachs, in a report on growth prospects for the economies of Brazil, Russia, India and China – which together represented a significant share of the world's production and population. In 2006, the four countries initiated a regular informal diplomatic coordination, with annual meetings of Foreign Ministers at the margins of the General Debate of the UN General Assembly (UNGA).
The European Union (EU) is a unique economic and political partnership between 28 European countries that together cover much of the continent. It was created in the aftermath of the Second World War. The first steps were to foster economic cooperation: the idea being that countries that trade with one another become economically interdependent and so more likely to avoid conflict. It is based on the rule of law: everything that it does is founded on treaties, voluntarily and democratically agreed by all members.
IBSA was Established in June 2003,as a coordinating mechanism amongst three emerging countries(India, Brazil, South Africa), three multi ethnic and multicultural democracies, which are determined to: contribute to the construction of a new international architecture, bring their voice together on global issues, deepen their ties in various areas. Trade between IBSA partners has increased significantly since the Forum's inception and indications are that the target of US$ 25 billion by 2015 will be readily achieved.
The International Bank for Reconstruction and Development (IBRD) was created in 1944 to help Europe rebuild after World War II. Today, IBRD provides loans and other assistance primarily to middle income countries. IBRD is the original World Bank institution. It works closely with the rest of the World Bank Group (IBRD, IDA, IFC, MIGA) to help developing countries reduce poverty, promote economic growth, and build prosperity. IBRD is owned by the governments of its 188 member countries.
The World Trade Organisation (WTO) is an international organisation which sets the rules for global trade. This organisation was set up in 1995 as the successor to the General Agreement on Trade and Tariffs (GATT) created after the Second World War. It has 153 members. All decisions are taken unanimously but the major economic powers such as the US, EU and Japan has managed to use the WTO to frame rules of trade to advance their own interests.
The International Monetary Fund (IMF) is the inter-governmental organisation established to stabilize the exchange rate in the international trade. It helps the member countries to improve their Balance of Payment (BOP) condition thorough the adequate liquidity in the international market, promote the growth of global monetary cooperation, secure financial stability, facilitate international trade. It is one of the Bretton woods twins, which came into existence in 1945, is governed by and accountable to the 188 countries that make up its near-global membership.
Trade-Related Aspects of Intellectual Property Rights (TRIPS) is arguably the most important and comprehensive international agreement on intellectual property rights. Member countries of the WTO are automatically bound by the agreement. The Agreement covers most forms of intellectual property including patents, copyright, trademarks, geographical indications, industrial designs, trade secrets, and exclusionary rights over new plant varieties. It came into force on 1 January 1995 and is binding on all members of the World Trade Organization (WTO).
The Foreign Direct Investment (FDI) means “cross border investment made by a resident in one economy OR in an enterprise in another economy, with the aim of earning profits in the targeted country. Mostly the investment is into production by either buying a company in the targeted country or by expanding operations of an existing business in that country”. These investments can be made for many reasons, i.e. to take advantage of cheaper wage rate, special investment facilities offered by the country or the conducive atmosphere in the country.
The government of India has liberalized the schemes for the export oriented units and export processing zones, agriculture, horticulture, poultry, fisheries and dairying have been included in the export oriented units. Export promotion capital goods schemes (EPCGS) has been started to permit the exporters to import capital goods on concessional import duties. Under the EPCGS scheme, such importers of capital goods have to export goods of 4 times values of import within next five years. Establishment of the EXIM bank and SEZs promoted the export from country.
In 1950 the Indian share in the world trade was 1.78% which came down to 0.6% in 1995. Currently it is 2.07% ($779 bn.) of the total world trade. The percentage of non traditional goods in total exports has increased the exports of chemical and engineering goods have shown a high growth rate. The manufactured goods constitute the bulk of export over 64% in recent years, followed by crude and petroleum products (including coal) with a 20% share and agriculture & allied with just 13% share.
Under the Agreement on Trade-Related Investment Measures of the World Trade Organization (WTO), commonly known as the TRIMs Agreement, WTO members have agreed not to apply certain investment measures related to trade in goods that restrict or distort trade. The TRIMs Agreement prohibits certain measures that violate the national treatment and quantitative restrictions requirements of the General Agreement on Tariffs and Trade (GATT).
Foreign exchange market is the market in which foreign currencies are bought and sold. Being a member of IMF, India followed the par value system of pegged exchange rate system. But when the Breton Woods system collapsed in 1971, the rupee was pegged to pound sterling for four years after which it was initially linked to the basket of 14 currencies but later reduced to 5 currencies of India’s major trading partners. Currently India has adopted the managed exchange rate system.
In the budget of 1997-98, the government had proposed to replace FERA-1973, by FEMA (Foreign Exchange management act). FEMA was proposed by the both house of the parliament in Dec. 1999. After the approval of president, FEMA 1999 has come into force w.e.f. June, 2000. Under the FEMA, provisions related to foreign exchange have been modified and liberalized so as to simplify foreign trade. Government hopes that the FEMA will make favourable development in the foreign money market.
Fiscal policy deals with the taxation and expenditure decisions of the government. Fiscal policy is composed of several parts, i.e. tax policy, expenditure policy, investment or disinvestment strategies and debt or surplus management. Fiscal policy is an important constituent of the overall economic framework of a country and is therefore intimately linked with its general economic policy strategy. Some of the major instruments of fiscal policy are as follows: Budget, Taxation, Public Expenditure, Public Debt, and Fiscal Deficit
India aims to increase India’s export of merchandise and services from US $ 465 bn. in 2013-14 to approximately US$ 900 bn. by the 2019-20 and to raise India’s share in the world export from 2% to 3.5%. Commerce and Industry minister Nirmala Sita Raman unveiled foreign trade policy (FTP) 2015 -20, which seek to provide higher incentive to agriculture industry. FTP also seeks to establish an institutional framework to work with state governments to boost India’s exports.
Basel III or Basel 3 released in December, 2010 is the third in the series of Basel Accords. These accords deal with risk management aspects for the banking sector. So we can say that Basel III is the global regulatory standard on bank capital adequacy, stress testing and market liquidity risk. (Basel I and Basel II are the earlier versions of the same, and were less stringent). Norms to be implemented from March 31, 2015 in phases and would be fully implemented as on March 31, 2018.
The financial system of an economy provides the way to collect money from the people who have it and distribute it to those who can use it best. The financial system enables lenders and borrowers to exchange funds. The global financial system is basically a broader regional system that comprises all financial institutions and borrowers and lenders within the global economy. India has a financial system that is controlled by independent regulators in the sectors of insurance, banking, capital markets and various services sectors.
Financial instruments are tradable assets of any kind. They can be cash, evidence of an ownership interest in an entity, or a contractual right to receive or deliver cash or another financial instrument. Financial instruments can be classified generally as equity based, representing ownership of the asset, or debt based, representing a loan made by an investor to the owner of the asset. Documents (such as a check, draft, bond, share, bill of exchange, futures or options contract) come under this category.
As per the estimation by the Ranjrajan Panel, the number of Below Poverty Line (BPL) declined to 21.9% of the population in 2011-12 from 29.8% in 2009-10 and 37.2% in 2004-05.
Prior to the First World War the whole world was having gold standard under which the currency in circulation was allowed to get converted either in gold or other currencies based on the gold standard. But after the failure of Bretton woods system in 1971 this system changed. Presently convertibility of money implies a system where a country’s currency becomes convertible in foreign exchange and vice versa. Since 1994, Indian rupee has been made fully convertible in current account transactions.
Balance of Payment (BOP) of ac country can be defined as a systematic statement of all economic transactions of a country with the rest of the world during a specific period usually one year. The systematic accounting is done on the basis of double entry book keeping (both sides of transactions credit and debit are included). Economic transaction includes all such transactions that involve the transfer of title or ownership of goods and services, money and assets.
Reserve bank of India defines NBFC-MFI as a non-deposit taking NBFC (other than a company licensed under Section 25 of the Indian Companies Act, 1956) with Minimum Net Owned Funds of Rs.5 crore (for NBFC-MFIs registered in the North Eastern Region of the country, it will be Rs. 2 crore) and having not less than 85% of its net assets as “qualifying assets”. Ultimate goal of microfinance is to give low income people an opportunity to become self-sufficient by providing a means of saving money, borrowing money and insurance.
Reserve Bank of India is the Central Bank of our country. It was established on 1st April 1935 under the RBI Act of 1934. It holds the apex position in the banking structure. RBI performs various developmental and promotional functions. As of now 26 public sector banks in India out of which 21 are Nationalised banks and 5 are State Bank of India and its associate banks. There are total 92 commercial banks in India. Public sector banks hold near about 75% of the total bank deposits in India.
India's external debt stock stood at US$ 475.8 billion at end-March 2015 as against US$ 446.3 billion at end-March 2014. Notwithstanding the increasing external debt stock during 2014-15, crucial debt indicators such as external debt-GDP ratio and debt service ratio remained in the comfort zone. External debt of the country continues to be dominated by the long term borrowings. Government arranges money from deficit financing (borrowing from general public, printing new currency and borrowing from external sources) if its expenditure exceeds revenue.
Government of India launched several programmes for poverty alleviation, employment generation, and better health and education facilities. some programmes are: Antyodaya Anna Yojna, National Gramin Awaas Mission (formerly Indira awas yojna), Bharat Nirman, etc.
India has a well-developed tax structure with clearly demarcated authority between Central and State Governments and local bodies. Central Government levies some direct and indirect taxes on individual and commodities respectively. Direct taxes are, Personal Income Tax, Wealth Tax, and Corporation Tax while indirect tax includes; Sales Tax, Excise Duty, Custom Duty and Service Tax. Currently corporation tax (20% of total tax collection) is the biggest source of income of central government.