GROSS DOMESTIC PRODUCT (GDP)
There are three primary ways to calculate GDP:
-
Production Approach (GDP by Production): This approach calculates GDP by adding up the value-added at each stage of production. It involves summing up the value of all final goods and services produced in an economy.
-
Income Approach (GDP by Income): This approach calculates GDP by summing up all the incomes earned in an economy, including wages, rents, interests, and profits. The idea is that all the income generated in an economy must ultimately be spent on purchasing goods and services.
-
Expenditure Approach (GDP by Expenditure): This approach calculates GDP by summing up all the expenditures made on final goods and services. It includes consumption by households, investments by businesses, government spending, and net exports (exports minus imports).
3. Measuring GDP
GDP can be measured in three different ways:
-
Nominal GDP: This is the raw GDP figure without adjusting for inflation. It reflects the total value of goods and services produced at current prices.
-
Real GDP: Real GDP adjusts the nominal GDP for inflation, allowing for a more accurate comparison of economic performance over time. It represents the value of goods and services produced using constant prices from a specific base year.
-
GDP per capita: This is the GDP divided by the population of a country. It provides a per-person measure of economic output and can be useful for comparing the relative economic well-being of different countries.
The GDP is a useful measure of economic health, but it has some limitations. For example, it does not take into account the distribution of income in an economy. It also does not take into account the quality of goods and services produced.
Despite its limitations, the GDP is a widely used measure of economic health. It is used by economists, policymakers, and businesses to track the performance of an economy and to make decisions about economic policy
4. Gross Value Added (GVA)
Gross Value Added (GVA) is a closely related concept to Gross Domestic Product (GDP) and is used to measure the economic value generated by various economic activities within a country. GVA represents the value of goods and services produced in an economy minus the value of inputs (such as raw materials and intermediate goods) used in production. It's a way to measure the contribution of each individual sector or industry to the overall economy.
GVA can be calculated using the production approach, similar to one of the methods used to calculate GDP. The formula for calculating GVA is as follows:
GVA = Output Value - Intermediate Consumption
Where:
- Output Value: The total value of goods and services produced by an industry or sector.
- Intermediate Consumption: The value of inputs used in the production process, including raw materials, energy, and other intermediate goods.
Gross Domestic Product (GDP) and Gross National Product (GNP) are both important economic indicators used to measure the size and health of an economy, but they focus on slightly different aspects of economic activity and include different factors. Here are the key differences between GDP and GNP:
-
Definition and Scope:
- GDP: GDP measures the total value of all goods and services produced within a country's borders, regardless of whether the production is done by domestic or foreign entities. It only considers economic activities that take place within the country.
- GNP: GNP measures the total value of all goods and services produced by a country's residents, whether they are located within the country's borders or abroad. It takes into account the production of residents, both domestically and internationally.
-
Foreign Income and Payments:
- GDP: GDP does not consider the income earned by residents of a country from their economic activities abroad, nor does it account for payments made to foreigners working within the country.
- GNP: GNP includes the income earned by a country's residents from their investments and activities abroad, minus the income earned by foreign residents from their investments within the country.
-
Net Factor Income from Abroad:
- GDP: GDP does not account for net factor income from abroad, which is the difference between income earned by domestic residents abroad and income earned by foreign residents domestically.
- GNP: GNP includes net factor income from abroad as part of its calculation.
-
Foreign Direct Investment:
- GDP: GDP does not directly consider foreign direct investment (FDI) flowing into or out of a country.
- GNP: GNP considers the impact of FDI on the income of a country's residents, both from investments made within the country and from investments made by residents abroad.
-
Measurement Approach:
- GDP: GDP can be calculated using three different approaches: production, income, and expenditure approaches.
- GNP: GNP is primarily calculated using the income approach, as it focuses on the income earned by residents from their economic activities.
|
For Prelims: GDP, GVA, FDI, GNP
For Mains: 1.Discuss the recent trends and challenges in India's GDP growth
2.Examine the role of the service sector in India's GDP growth
3.Compare and contrast the growth trajectories of India's GDP and GNP
|
|
Previous Year Questions
1.With reference to Indian economy, consider the following statements: (UPSC CSE, 2015)
1. The rate of growth of Real Gross Domestic Product has steadily increased in the last decade. 2. The Gross Domestic Product at market prices (in rupees) has steadily increased in the last decade. Which of the statements given above is/are correct? (a) 1 only (b) 2 only (c) Both 1 and 2 (d) Neither 1 nor 2 Answer (b)
2.A decrease in tax to GDP ratio of a country indicates which of the following? (UPSC CSE, 2015) 1. Slowing economic growth rate 2. Less equitable distribution of national income Select the correct answer using the code given below: (a) 1 only (b) 2 only (c) Both 1 and 2 (d) Neither 1 nor 2 Answer (a)
Previous year UPSC Mains Question Covering similar theme: Define potential GDP and explain its determinants. What are the factors that have been inhibiting India from realizing its potential GDP? (UPSC CSE GS3, 2020) Explain the difference between computing methodology of India’s Gross Domestic Product (GDP) before the year 2015 and after the year 2015. (UPSC CSE GS3, 2021) |
PRAVASI BHARATIYA DIVAS
-
In January 2002, a High-Level Committee on the Indian Diaspora, led by jurist and parliamentarian LM Singhvi, recommended that the government enhance and reinforce connections between overseas Indians and their homeland, as well as among themselves.
-
The committee also suggested the establishment of a Pravasi Bharatiya Bhavan to serve as a hub for fostering ties between India and its global Indian community and as a space to honor the experiences and contributions of the Indian diaspora. This led to the idea of dedicating a day for the government to acknowledge the diaspora, which was first celebrated in 2003.
-
January 9 was selected for the celebration as it marks the day in 1915 when Mahatma Gandhi returned to India from South Africa, beginning his leadership in the freedom struggle and transforming the lives of Indians. Starting in 2015, which marked the centenary of Gandhi’s return, the event’s format was revised to be held every two years.
-
The 18th Pravasi Bharatiya Divas Convention is being organized in collaboration with the Odisha State Government from January 8 to 10, 2025, in Bhubaneswar. This year’s theme, “Diaspora’s Contribution to a Viksit Bharat,” highlights the enduring bond between India and its overseas Indian community
-
Overseas Indians are broadly divided into three groups: Non-Resident Indians (NRIs), Persons of Indian Origin (PIOs), and Overseas Citizens of India (OCIs).
-
NRIs are Indian nationals residing in other countries. In 2015, the PIO category was discontinued and integrated into the OCI category.
-
As per the Ministry of External Affairs, a PIO referred to a foreign citizen (excluding nationals of Pakistan, Afghanistan, Bangladesh, China, Iran, Bhutan, Sri Lanka, and Nepal) who either previously held an Indian passport, had parents, grandparents, or great-grandparents born and permanently settled in India under the Government of India Act, 1935, or was married to an Indian citizen or a PIO.
-
The OCI category was introduced in 2006. OCI cards were issued to foreign nationals who qualified to become Indian citizens on January 26, 1950, were Indian citizens on or after that date, or belonged to territories that became part of India after August 15, 1947. Minor children of such individuals, except those with citizenship in Pakistan or Bangladesh, were also eligible for OCI cards
-
The Pravasi Bharatiya Samman Award is presented as part of the Pravasi Bharatiya Divas programme. As stated on the official website, it is the highest recognition awarded to a Non-Resident Indian, a Person of Indian Origin, or an organization or institution established and managed by them.
-
The award acknowledges the Indian diaspora's contributions in promoting a better understanding of India internationally, advocating for India’s interests, and supporting the welfare of Indian communities abroad.
-
This year, 27 individuals and organizations from countries such as the US, Fiji, Guyana, Mauritius, Moldova, Myanmar, Russia, and Saudi Arabia will be recognized. President Droupadi Murmu will present the Pravasi Bharatiya Samman during the concluding session of the PBD Convention
-
The Indian diaspora has expanded significantly since the first group of Indians was sent to countries in the East Pacific and the Caribbean islands as indentured laborers under the ‘Girmitiya’ system.
-
During the 19th and early 20th centuries, thousands of Indians were transported to these regions to work on plantations in British colonies, which faced a labor shortage following the abolition of slavery in 1833-34.
-
In the second wave of migration, around 2 million Indians moved to Singapore and Malaysia to work on farms. The third and fourth waves saw professionals migrating to Western nations and workers heading to Gulf and West Asian countries, particularly during the oil boom.
-
Today, the Indian diaspora stands at over 35.4 million, comprising 19.5 million Persons of Indian Origin (PIOs) and 15.8 million Non-Resident Indians (NRIs). The United States and the UAE host the largest diaspora groups, with over 2 million PIOs in the US and more than 3.5 million NRIs in the UAE. These communities continue to play a vital role in strengthening India’s economy and fostering international relations
- The Indian diaspora plays a vital role in the economies of their host countries, particularly in sectors such as technology, healthcare, education, finance, and entrepreneurship.
- They are significant contributors to India’s economy as well, with remittances from NRIs amounting to over $100 billion in 2022, the highest globally. These remittances help boost India’s foreign exchange reserves and support its development goals
- The diaspora acts as cultural ambassadors, promoting Indian traditions, cuisine, festivals, and art globally. This enhances India’s soft power and fosters cultural exchange.
- Events like Diwali and Yoga Day celebrated worldwide showcase India’s rich heritage and help build positive perceptions about the country
- The Indian diaspora often holds key positions in politics, business, and academia in their host nations, influencing policies and strengthening bilateral ties with India. Prominent examples include leaders of Indian origin in countries like the US, UK, Canada, and Singapore.
- Diaspora organizations often advocate for India’s interests and contribute to shaping international opinions on Indian policies and issues
- Indian professionals, particularly in fields like IT, engineering, and medicine, contribute to innovation and technological advancements globally.
- Many diaspora members actively engage in knowledge-sharing and skill development initiatives in India, aiding its growth in critical sectors.
- The presence of a significant Indian community in various countries strengthens India’s diplomatic relations with those nations.
- For example, India’s strong ties with Gulf countries are partly influenced by the large Indian workforce contributing to their economies
|
For Prelims: Indian Diaspora: Includes NRIs, PIOs, and OCIs
For Mains: General Studies Paper 2 (International Relations)
|
HEAT AND CLIMATE CHANGE
- In the context of microscopy, the temperature of an object reflects the average kinetic energy of its particles.
- When two objects at different temperatures come into contact, the cooler one will heat up while the warmer one cools down. Here, heat refers to the thermal energy exchanged between the objects to cause this change in temperature.
- On a larger scale, heat is treated as a type of energy with distinct properties, analyzed through thermodynamics, statistical mechanics, and related disciplines.
- A substance can take in heat at one location and release it at another, a principle that underlies many contemporary technologies such as thermal and nuclear power plants and air conditioning systems.
- Engineers have devised methods to transform heat into mechanical energy, enabling the creation of machines like the internal combustion engine
- One of the best ways to grasp the concept of heat is by looking at its applications, such as internal combustion engines (ICEs) and thermal power plants.
- An ICE transforms heat into mechanical work, effectively applying the theoretical Carnot cycle, which defines the highest efficiency an engine can achieve in converting heat to work.
- The engine consists of four main components: a hot reservoir (with more heat), a cold reservoir (with less heat), an ideal gas between the reservoirs (transferring heat), and a piston next to the gas. Each cycle includes four stages.
- In the first stage, isothermal expansion, the ideal gas is insulated from the cold reservoir and exposed to the hot reservoir.
- Heat from the hot reservoir, produced for example by burning petrol, transfers to the gas, causing it to expand and push the piston. The second stage, isentropic expansion, continues the gas expansion while insulated from both reservoirs.
- The gas cools slightly as it does work on the piston without a temperature change due to insulation. These two steps involve the piston doing work on its surroundings.
- The third stage, isothermal compression, exposes the gas to the cold reservoir, where it releases its remaining heat.
- The piston moves downward in this stage. In the fourth stage, isentropic compression, the gas is again insulated from the reservoirs while the piston continues downward, compressing and warming the gas, readying it for the next cycle. In these last two steps, the surroundings work on the piston.
- Similarly, a thermal power plant consists of a boiler, turbine, generator, condenser, and pumps, with water as the working fluid. The ideal version of this system is the Rankine cycle, also comprising four stages.
- In the first stage, isentropic compression, a pump compresses the water to high pressure. During the second stage, heat addition, the water is pumped to the boiler and heated by an energy source, such as burning coal or nuclear fission, transforming it into saturated vapor under high pressure.
- The third stage, isentropic expansion, involves the pressurized vapor expanding in the turbine, releasing heat and reducing pressure. This expansion drives the turbine blades, generating power through the generator.
- In the final stage, heat removal, the cooled vapor enters the condenser, where it is condensed back to a saturated liquid at a fixed pressure. The condenser acts as a heat exchanger, using a coolant, such as cold water, to absorb the vapor's heat
- Heat and work share the same physical dimensions, but not all heat can be converted into work. For instance, if a system performs work while losing thermal equilibrium, it will lose some energy.
- This can occur in an internal combustion engine (ICE) if, for example, it isn't well-lubricated, causing friction as the piston moves against the combustion chamber walls. This loss of 'useful heat' is tied to the concept of entropy, which indicates disorder in a system and prevents the associated heat from being converted into work.
- Additionally, when a system performs work without losing or gaining heat—such as during the isentropic expansion and compression steps of the Carnot cycle—the process is considered adiabatic. Fully adiabatic processes are reversible.
- Components of ICEs and thermal power plants are designed to alternate a medium that transports heat through different states, in steps that aim to maximize work output and minimize entropy changes and other energy losses
- Understanding the microscopic and macroscopic properties of heat has been vital in fields such as metallurgy and materials science, mining, refineries, various chemical reactions, semiconductor electronics, meteorology, and transportation.
- Heat plays a significant role in Heating, Ventilation, and Air-Conditioning (HVAC) systems. In many cold regions, heat is generated and transported from centralized facilities to homes and offices.
- Individual homes often use electric heaters, which convert electrical energy to heat by passing a current through a resistor, to stay warm. Recently, experts have advocated for a 'right to air-conditioning' for people in low- and middle-income countries facing extreme heat.
- Heat engines like internal combustion engines (ICEs) and steam engines operate on the Carnot cycle. Heat pumps, which are essentially air conditioners that heat rather than cool, use the reverse Carnot cycle.
- Air conditioners for cooling large spaces, such as halls and car interiors, utilize the reverse Rankine cycle.
- Other cycles, depending on the heat-transporting medium and desired operating conditions, include the Brayton, gas-generator, regenerative, Siemens, and Stirling cycles
- The global response to climate change is focused on two main strategies: mitigation and adaptation. For climate mitigation, researchers worldwide are developing new methods to generate heat energy without burning fossil fuels and finding ways to reduce emissions from existing technologies. Meanwhile, policymakers are working on new incentives to encourage the adoption of these solutions.
- In terms of climate adaptation, heat waves are a significant concern, especially in India. During a heat wave, the impact on health depends on the body's pre-existing health conditions and its ability to prevent heat accumulation.
- Long-term health is influenced by living conditions, access to clean environments, and healthcare. Short-term heat management depends on immediate measures to reduce heat buildup. When the wet-bulb temperature exceeds about 32 degrees Celsius, even brief periods of light outdoor activity can cause severe harm.
- Global warming itself is essentially a heat issue. Solar energy reaches the Earth, with some being reflected, some absorbed by the atmosphere, and some warming the ground. At night, the Earth emits this absorbed energy as infrared radiation.
- Greenhouse gases like carbon dioxide, methane, and water vapour absorb this radiation, convert it to kinetic energy, and heat the atmosphere, which reduces the Earth's ability to cool down efficiently
|
For Prelims: COP28, Organisation for Economic Cooperation and Development, Climate Finance, Climate Change, United Nations Framework Convention on Climate Change, Nationally Determined Contributions, COP27, Copenhagen Accord, Paris Agreement
For Mains:
1. Discuss the impact of climate change on developing economies. How can climate finance be effectively utilized to promote sustainable development in these economies? (250 Words)
|
|
Previous Year Questions
1. With reference to the Agreement at the UNFCCC Meeting in Paris in 2015, which of the following statements is/are correct? (UPSC 2016)
1. The Agreement was signed by all the member countries of the UN and it will go into effect in 2017.
2. The Agreement aims to limit greenhouse gas emissions so that the rise in average global temperature by the end of this century does not exceed 2°C or even 1.5°C above pre-industrial levels.
3. Developed countries acknowledged their historical responsibility for global warming and committed to donate $1000 billion a year from 2020 to help developing countries cope with climate change.
Select the correct answer using the code given below
A. 1 and 3 only
B. 2 only C. 2 and 3 only D. 1, 2 and 3 Answer: B
2. The term ‘Intended Nationally Determined Contributions’ is sometimes seen in the news in the context of ( UPSC 2016)
A. pledges made by the European countries to rehabilitate refugees from the war-affected Middle East
B. plan of action outlined by the countries of the world to combat climate change
C. capital contributed by the member countries in the establishment of the Asian Infrastructure Investment Bank
D. plan of action outlined by the countries of the world regarding Sustainable Development Goals
Answer: B 3. The UN Framework Convention on Climate Change (UNFCCC) has announced which country to host the 28th Conference of the Parties (COP28) in 2023? (SSC CGL 2023) A. UAE B. US C. UK D. Russia Answer: A
4. Consider the following statements with reference to Organisation for Economic Co-operation and Development (OECD): (RBI Grade B 2022)
1. OECD is an official Permanent observer to the United Nations and is referred to as a think-tank or as a monitoring group.
2. India is not a member of OECD.
3. OECD is funded by its member countries.
Which of the statement given above is/ are correct?
A. 1 only B. 1 and 2 only C. 2 and 3 only D. 1, 2 and 3 E. 2 only Answer: D 5. Which of the following statements regarding 'Green Climate Fund' is/are correct? (UPSC 2015)
1. It is intended to assist the developing countries in adaptation and mitigation practices to counter climate change.
2. It is founded under the aegis of UNEP, OECS, Asian Development Bank and World Bank.
Select the correct answer using the code given below.
A. 1 only B. 2 only C. Both 1 and 2 D. Neither 1 nor 2 Answer: A 6. The 27th annual UN meeting on climate, COP27 (Conference of Parties) took place from 6th to 18th November, in which of the following country? (SSC GD Constable 2023) A. France B. Brazil C. Indonesia D. Egypt Answer: D 7. According to the Copenhagen Accord, what percentage of India has promised to reduce carbon emissions by the year 2020 as compared to 2005? (UP Police SI 2017) A. 20-25 percent B. 10-15 percent C. 30-35 percent D. 5-10 percent Answers: 1-B, 2-B, 3-A, 4-D, 5-A, 6-D, 7-A Mains 1. Describe the major outcomes of the 26th session of the Conference of the Parties (COP) to the United Nations Framework Convention on Climate Change (UNFCCC). What are the commitments made by India in this conference? (upsc 2021) |
EARTHQUAKE
1. Context
2. What is an Earthquake?
3. How do exactly Earthquakes Occur?
- As we know, the earth’s outermost surface, crust, is fragmented into tectonic plates. The edges of the plates are called plate boundaries, which are made up of faults.
The tectonic plates constantly move at a slow pace, sliding past one another and bumping into each other. - As the edges of the plates are quite rough, they get stuck with one another while the rest of the plate keeps moving.
- Earthquake occurs when the plate has moved far enough and the edges unstick on one of the faults.
- The location below the earth’s surface where the earthquake starts is called the hypocenter, and the location directly above it on the surface of the earth is called the epicenter.”
4. Earthquake waves
There are two types of body waves. They are called P and S-waves.
5. Measuring of Earthquakes
- The earthquake events are scaled either according to the magnitude or intensity of the shock.
- The magnitude scale is known as the Richter scale. The magnitude indicates the energy released during the quake. It is expressed in absolute numbers 0-10.
- The intensity scale is named after Mercalli, an Italian seismologist. The intensity scale indicates the visible damage caused by the event. The range of intensity scale is from 1-12.
6. Turkey and Syria lie in a seismically active region
- The region where the earthquake struck lies along a well-known seismic fault line called the Anatolia tectonic block that runs through northern, central, and eastern Turkey.
- It is a seismically active zone-though not as active as, say, the Himalayan region which is one of the most dangerous regions in the world from the perspective of earthquakes.
- Large earthquakes, of magnitude 5 or higher, have not been very frequent in recent years. According to USGS, only three earthquakes of magnitude 6 or more have happened in the region since 1970. The last major quake in this area came in January 2020.
- The seismicity in this region is a result of interactions between the African, Eurasian, and Arabian plates. The Arabian plate is known to be pushing northward, which results in a slight westward movement for the Anatolian plate, where Turkey is located.
- The earthquake happened around the near-vertical fault line on the eastern Anatolian block, close to the Syrian border.
7. Shallow Earthquakes cause much greater damage
- Earthquakes in Turkey emerged from relatively shallow depths which made them devastating. The first earthquake, of magnitude 7.8, originated 17.9 km below the earth's surface.
- All the subsequent ones, including one of 7.5 magnitudes, emerged from even closer to the surface.
- Shallow earthquakes are generally more devastating because they carry greater energy when they emerge on the surface.
- Deeper earthquakes lose much of their energy by the time they come to the surface. The deeper quakes spread farther though- the seismic waves move conically upwards to the surface even as they lose energy while traveling greater distances and hence cause less damage.
8. Can earthquakes be predicted?
- An accurate prediction of an earthquake requires some sort of a precursory signal from within the earth that indicates a big quake is on the way.
- Moreover, the signal must occur only before large earthquakes so that it doesn’t indicate every small movement within the earth’s surface. Currently, there is no equipment to find such precursors, even if they exist.
- Theoretically, it is possible to offer a lead time of a few seconds between the time of the origin of the earthquake and the time it reaches the Earth’s surface.
- Seismic waves travel significantly slower than the speed of light between 5 and 13 km
per second. So if the earthquake is detected as soon as it is triggered, information about it can be related a few seconds ahead of it reaching the ground. - Such systems are already in use in some locations to issue alerts about earthquakes. However, these are not predictions. The alerts are issued post-event.
- Attempts to find reliable predictors of earthquakes have not been fruitful so far. Scientists have been able to map the areas that are earthquake-prone, and are likely to generate earthquakes in the future, but there is no way to predict when.
For Prelims & Mains
|
For Prelims: Earthquake, Tectonic plates, Hypocenter, Epicenter, Body waves, Surface waves, P-waves or ‘primary waves’, S-waves or secondary waves, Richter scale, and Seismic waves.
For Mains: 1. What is an Earthquake? How do exactly Earthquakes Occur? Discuss the effects of Earthquakes.
|
NON BANKING FINANCIAL COMPANIES (NBFC)
- Non-Banking Financial Companies (NBFCs) are financial institutions that provide banking services but do not hold a banking license.
- They are crucial to the financial system as they cater to the financial needs of sectors where traditional banks may not reach or provide services.
- NBFCs offer various financial services such as loans and advances, acquisition of shares/stocks/bonds/debentures/securities issued by Government or local authority, leasing, hire-purchase, insurance business, chit business, etc.
- They differ from traditional banks because they cannot accept demand deposits and do not form part of the payment and settlement system like banks do.
- However, they play a significant role in providing credit to individuals, small businesses, and the unorganised sector, thereby contributing to financial inclusion and economic growth. Examples of NBFCs include companies engaged in equipment leasing, hire-purchase finance, vehicle finance, and microfinance
3. Classification of NBFCs
NBFCs can be classified into various categories based on their activities, ownership structure, and regulatory requirements.
Here are some common classifications:
-
Asset Financing NBFCs: These NBFCs primarily provide financing for the purchase of assets such as vehicles, machinery, equipment, etc.
-
Investment and Credit NBFCs: These NBFCs primarily make investments in securities or extend credit facilities.
-
Infrastructure Finance Companies (IFCs): These NBFCs focus on financing infrastructure projects such as roads, ports, power, telecommunications, etc.
-
Housing Finance Companies (HFCs): These NBFCs specialize in providing finance for housing and related activities.
-
Microfinance Institutions (MFIs): These NBFCs provide financial services, including small loans, savings, and insurance, to low-income individuals and microenterprises.
-
Non-Deposit Taking NBFCs: These NBFCs do not accept deposits from the public. They rely on other sources of funding such as borrowings from banks, financial institutions, and capital markets.
-
Deposit Taking NBFCs: These NBFCs accept deposits from the public and are regulated more closely, similar to banks, to ensure the safety of depositor funds.
-
Systemically Important NBFCs (SI-NBFCs): These are NBFCs whose failure could potentially disrupt the financial system. They are subject to additional regulatory requirements to mitigate systemic risks.
-
Core Investment Companies (CICs): These NBFCs are primarily engaged in the business of acquisition of shares and securities and hold not less than 90% of its Total Assets in the form of investment in equity shares, preference shares, bonds, debentures, debt, or loans in group companies.
-
Infrastructure Debt Funds (IDFs): These NBFCs are set up to facilitate the flow of long-term debt into infrastructure projects.
- The 50-50 criteria of principal business refers to a regulatory guideline set by the Reserve Bank of India (RBI) for determining whether a company's principal business is that of a Non-Banking Financial Company (NBFC).
- According to this criterion, if more than 50% of a company's total assets or gross income comes from financial assets or income derived from financial assets, it is considered to be primarily engaged in the business of an NBFC. In other words, if at least 50% of the company's assets or income is from financial activities, it falls under the purview of NBFC regulations.
- This guideline helps to differentiate between companies engaged primarily in non-financial activities with some incidental financial activities and those whose main business revolves around financial services, thereby ensuring appropriate regulation and supervision of NBFCs by the RBI. It is an important criterion used by regulators to determine the regulatory classification of companies operating in the financial sector
5.RBI rules on Non Banking Financial Companies
- NBFCs need to obtain a Certificate of Registration (CoR) from the RBI to commence or carry on the business of non-banking financial institution.
- RBI imposes prudential regulations on NBFCs to ensure the safety and soundness of their operations. These norms cover aspects such as capital adequacy, income recognition, asset classification, provisioning, liquidity management, and exposure limits.
- NBFCs are required to adhere to a Fair Practices Code (FPC) prescribed by the RBI, which outlines the principles of transparency, fairness, and responsible lending practices.
- NBFCs are mandated to follow KYC norms while onboarding customers, including verification of identity, address, and other relevant information, to prevent money laundering and terrorist financing activities
- NBFCs are required to implement effective AML/CFT measures, including customer due diligence, transaction monitoring, and reporting of suspicious transactions, to mitigate the risks of money laundering and terrorist financing.
- RBI mandates NBFCs to adhere to good corporate governance practices, including the composition of the board of directors, risk management framework, internal controls, and disclosure requirements
- NBFCs are required to have robust risk management systems in place to identify, assess, monitor, and mitigate various risks such as credit risk, market risk, liquidity risk, and operational risk.
- NBFCs need to submit various regulatory returns and reports to the RBI periodically, providing details of their financial performance, capital adequacy, asset quality, and compliance with regulatory requirements.
- RBI conducts regular inspections and supervisory reviews of NBFCs to assess their financial health, compliance with regulations, and adherence to best practices.
- RBI has the authority to issue directions, impose restrictions, and take corrective actions against NBFCs that fail to comply with regulatory requirements or pose risks to the financial system.
|
For Prelims: Economy
For Mains: GS-III: Indian Economy and issues relating to planning, mobilisation, of resources, growth, development, and employment.
|
|
Previous Year Questions 1.The RBI acts as a bankers’ bank. This would imply which of the following? (UPSC CSE 2012) 1. Other banks retain their deposits with the RBI. 2. The RBI lends funds to the commercial banks in times of need. 3. The RBI advises the commercial banks on monetary matters. Select the correct answer using the codes given below : (a) 2 and 3 only (b) 1 and 2 only (c) 1 and 3 only (d) 1, 2 and 3 Answer (d)
The central bank, also known as the apex bank, has overarching control over a nation's banking system. It holds the exclusive authority for issuing currency and regulates the money supply within the economy. As outlined in the Reserve Bank of India Act, 1934, the central bank fulfills several key functions:
2.With reference to the Non-banking Financial Companies (NBFCs) in India, consider the following statements: (UPSC CSE 2010)
Which of the statements given above is/are correct? (a) 1 only Answer: (b)
|
FREEBIES TO WELFARE
1. Context
2. About Freebies
- Freebies in politics are goods or services that are given away for free by political parties or candidates to win votes.
- They can be anything from free food and drinks to free laptops and smartphones.
- Freebies have become increasingly common in political campaigns in recent years.
- The freebie culture is not new to India. It has been around for many years, but it has become more prevalent in recent years.
- There are several different reasons why the freebie culture has become so popular. Some people believe that freebies are a way to help the poor, while others believe that they are a way to buy votes.
- The freebie culture has several negative consequences. It can lead to unsustainable debt levels, it can distort the economy, and it can harm the poor.
- The prime minister is not the only one who has spoken out against the freebie culture. Several economists and policymakers have also expressed concerns about the dangers of this culture.
- There are several different ways to address the freebie culture. The government could focus on providing essential services, it could use technology to target welfare programs more effectively, or it could simply raise taxes.
3. The Perils of the Freebie Culture
- They can lead to unsustainable debt levels. When governments give away free stuff, they have to find a way to pay for it. This often means increasing taxes or borrowing money. In the long run, this can lead to a debt crisis.
- Freebies can distort the economy. When people get free stuff, they have less incentive to work and save. This can lead to lower economic growth.
- Freebies can harm the poor. Often, freebies are not targeted at the people who need them the most. Instead, they are given to everyone, regardless of their income level. This means that the poor may not benefit from freebies at all, while the rich may benefit disproportionately.
4. Types of Freebies and Welfare Schemes
- Political parties in India often promise a range of freebies and welfare schemes, such as free healthcare services, subsidized or free education, subsidized housing, free electricity or water, and distribution of essential commodities.
- These schemes are designed to directly benefit certain sections of society, such as farmers, women, students, or low-income households.
5. Impact on Election Outcomes
- Freebies and welfare schemes can have a significant impact on election outcomes, as they appeal to voters who may see immediate benefits from such promises.
- Parties strategically target specific voter groups based on their needs and interests, aiming to secure their support and votes.
6. Criticism and Concerns
- Critics argue that the distribution of freebies and welfare schemes can create a culture of dependency on the government, hinder economic growth, and lead to unsustainable fiscal policies.
- There are concerns about the long-term impact on the economy, such as increased fiscal deficits, inflationary pressures, and a potential burden on future generations.
7. Effectiveness and Implementation
- The effectiveness of freebies and welfare schemes varies. While some schemes have successfully reached their intended beneficiaries and improved their well-being, others have faced challenges in implementation, including corruption, mismanagement, and targeting issues.
- Evaluating the implementation and impact of these schemes is crucial to assess their effectiveness.
8. Role of the Election Commission
- The Election Commission of India plays a crucial role in monitoring election campaigns and enforcing the Model Code of Conduct.
- It aims to ensure a level playing field for all political parties, including monitoring the distribution of freebies during elections and taking action against any violations.
9. Conclusion
For freebies and welfare in Indian elections, it is essential to analyze the potential benefits and drawbacks of such initiatives, their impact on the economy and society, and the role of responsible governance in ensuring their effective implementation while maintaining long-term sustainability.
|
For Prelims: freebies, Election Commission of India, Political Parties
For Mains:
1. Discuss the impact of the freebies culture and welfare schemes on Indian elections. How do these promises influence voter behaviour and election outcomes? (250 Words)
|
