Direct Taxes Code

On 12^th August, 2009 Hon'ble Finance Minister Shri Pranab Mukherjee released the Draft Direct Taxes Code  for public debate. The Code envisages promoting voluntary tax compliance and an equitable and progressive tax regime by eliminating distortions in the tax structure, introducing moderate levels of taxation, expanding the tax base and simplifying the drafting language. Based on the inputs from the public, the Government will finalize the Draft Taxes Code Bill for presentation in the winter session of Parliament, 2009. The new law is proposed to be effective from 1^st April, 2011.

Salient Features of the Code

The Code seeks to consolidate and amend the law relating to all direct taxes, that is, income-tax, dividend distribution tax, fringe benefit tax and wealth-tax so as to establish an economically efficient, effective and equitable direct tax system which will facilitate voluntary compliance and help increase the tax-Gross Domestic Product (GDP) ratio. Another objective is to reduce the scope for disputes and minimize litigation.
Briefly, the salient features of the Code are as under:-

• Single Code for direct taxes: All the direct taxes have been brought under a single Code and compliance procedures unified. This will eventually pave the way for a single unified taxpayer reporting system.
• Use of simple language: With the expansion of the economy, the number of taxpayers can be expected to increase significantly. The bulk of these taxpayers will be small paying moderate amounts of tax. Therefore, it is necessary to keep the cost of compliance low by facilitating voluntary compliance by them. This is sought to be achieved, inter alia, by using simple language in drafting so as to convey, with clarity, the intent, scope and amplitude of the provision of law. Each sub-section is a short sentence intended to convey only one point. All directions and mandates, to the extent possible, have been conveyed in active voice. Similarly, the provisos and explanations have been eliminated since they are incomprehensible to non-experts. The various conditions embedded in a provision have also been nested. More importantly, keeping in view the fact that a tax law is essentially a commercial law, extensive use of formulae and tables has been made.
• Reducing the scope for litigation: Wherever possible, an attempt has been made to avoid ambiguity in the provisions that invariably give rise to rival interpretations. The objective is that the tax administrator and the tax payer are ad idem on the provisions of the law and the assessment results in a finality to the tax liability of the tax payer. To further this objective, power has also been delegated to the Central Government/Board to avoid protracted litigation on procedural issues.
• Flexibility: The structure of the statute has been developed in a manner which is capable of accommodating the changes in the structure of a growing economy without resorting to frequent amendments. Therefore, to the extent possible, the essential and general principles have been reflected in the statute and the matters of detail are contained in the rules/Schedules.
• To ensure that the law can be reflected in a Form: For most taxpayers, particularly the small and marginal category, the tax law is what is reflected in the Form. Therefore, the A-10 structure of the tax law has been designed so that it is capable of being logically reproduced in a Form.
• Consolidation of provisions: In order to enable a better understanding of tax legislation, provisions relating to definitions, incentives, procedure and rates of taxes have been consolidated. Further, the various provisions have also been rearranged to make it consistent with the general scheme of the Act.
• Elimination of regulatory functions: Traditionally, the taxing statute has also been used as a regulatory tool. However, with regulatory authorities being established in various sectors of the economy, the regulatory function of the taxing statute has been withdrawn. This has significantly contributed to the simplification exercise.
• Providing stability: At present, the rates of taxes are stipulated in the Finance Act of the relevant year. Therefore, there is a certain degree of uncertainty and instability in the prevailing rates of taxes. Under the Code, all rates of taxes are proposed to be prescribed in the First to the Fourth Schedule to the Code itself thereby obviating the need for an annual Finance Bill. The changes in the rates, if any, will be done through appropriate amendments to the Schedule brought before Parliament in the form of an Amendment Bill.

Important Aspects and key points of BUDGET 2011-12

Swift and broad based growth in 2010-11 has put the economy back to its pre-crisis growth trajectory. Fiscal consolidation has been impressive. Significant progress in critical institutional reforms that would set the pace for double-digit growth in the near future. Dynamism in the rural economy due to scaled up flow of resources to the rural areas.

CHALLENGES

• Structural concerns on inflation management to be addressed by improving supply response of agriculture to the expanding domestic demand and through stronger fiscal consolidation.
• Implementation gaps, leakages from public programmes and the quality of outcomes pose a serious challenge
• Impression of drift in governance and gap in public accountability is misplaced. Corruption as a problem to be fought collectively. Government to improve the regulatory standards and administrative practices. Inputs from colleagues on both sides of House are important in the wider national interest.
• Budget 2011-12 to serve as a transition towards a more transparent and result oriented economic management system in India.

OVERVIEW OF THE ECONOMY

1. Gross Domestic Product (GDP) estimated to have grown at 8.6 per cent in 2010-11 in real terms. Economy has shown remarkable resilience.
2. Continued high food prices have been principal concern this year.
3. Consumers denied the benefit of seasonal fall in prices despite improved availability of food items, revealing shortcomings in distribution and marketing systems.
4. Monetary policy measures taken expected to further moderate inflation in coming months.
5. Exports have grown by 29.4 per cent, while imports have recorded a growth of 17.6 per cent during April to January 2010-11 over the corresponding period last year.
6. Indian economy expected to grow at 9 per cent with an outside band of +/- 0.25 per cent in 2011-12.
7. Average inflation expected lower next year and current account deficit smaller.

SUSTAINING GROWTH

Fiscal consolidation

• Fiscal consolidation targets at Centre and States have shown positive effect on macro economic management of the economy.
• Amendment to Centre’s FRBM Act, 2003 laying down the fiscal road map for the next five years to be introduced in the course of the year.
• Proposal to introduce the Public Debt Management Agency of India Bill in the next financial year.

Tax Reforms

• Direct Taxes Code (DTC) to be finalised for enactment during 2011-12. DTC proposed to be effective from April 1, 2012.
• Areas of divergence with States on proposed Goods and Services Tax (GST) have been narrowed. As a step towards roll out of GST, Constitution Amendment Bill proposed to be introduced in this session of Parliament.
• Significant progress in establishing GST Network (GSTN), which will serve as IT infrastructure for introduction of GST.

Expenditure Reforms

• A Committee already set up by Planning Commission to look into the extant classification of public expenditure between plan, non-plan, revenue and capital.

Subsidies

• Nutrient Based Subsidy (NBS) has improved the availability of fertiliser; Government actively considering extension of the NBS regime to cover urea.
• Government to move towards direct transfer of cash subsidy to people living below poverty line in a phased manner for better delivery of kerosene, LPG and fertilisers. Task force set up to work out the modalities for the proposed system.

People’s ownership of PSUs

• Overwhelming response to public issues of Central Public Sector Undertakings during current year.
• Higher than anticipated non-tax revenue has led to reschedulement of some disinvestment issues planned for current year.
• Rs. 40,000 crore to be raised through disinvestment in 2011-12.
• Government committed to retain at least 51 per cent ownership and management control of the Central Public Sector Undertakings.

INVESTMENT ENVIRONMENT

Foreign Direct Investment

• Discussions underway to further liberalise the FDI policy.

Foreign Institutional Investors

• SEBI registered mutual funds permitted to accept subscription from foreign investors who meet KYC requirements for equity schemes.
• To enhance flow of funds to infrastructure sector, the FII limit for investment in corporate bonds issued in infrastructure sector being raised.

Financial Sector Legislative Initiatives

• To take the process of financial sector reforms further, various legislations proposed in 2011-12.
• Amendments proposed to the Banking Regulation Act in the context of additional banking licences to private sector players.

Public Sector Bank Capitalisation

• Rs. 6,000 crore to be provided during 2011-12 to enable public sector banks to maintain a minimum of Tier I CRAR of 8 per cent.

Recapitalisation of Regional Rural Banks

• Rs. 500 crore to be provided to enable Regional Rural Banks to maintain a CRAR of at least 9 per cent as on March 31, 2012.

Micro Finance Institutions

•  “India Microfinance Equity Fund” of ` 100 crore to be created with SIDBI. Government considering putting in place appropriate regulatory framework to protect the interest of small borrowers.
• “Women’s SHG’s Development Fund” to be created with a corpus of ` 500 crore.

Rural Infrastructure Development Fund

• Corpus of RIDF XVII to be raised from Rs. 16,000 crore to Rs. 18,000 crore.

Micro Small and Medium Enterprises

• Rs. 5,000 crore to be provided to SIDBI for refinancing incremental lending by banks to these enterprises.
• Rs. 3,000 crore to be provided to NABARD to provide support to handloom weaver co-operative societies which have become financially unviable due to non-repayment of debt by handloom weavers facing economic stress.
• Public sector banks to achieve a target of 15 per cent as outstanding loans to minority communities under priority sector lending at the earliest.

Housing Sector Finance

• Existing scheme of interest subvention of 1 per cent on housing loan further liberalised.
• Existing housing loan limit enhanced to Rs. 25 lakh for dwelling units under priority sector lending.
• Provision under Rural Housing Fund enhanced to ` 3,000 crore.
• To enhance credit worthiness of economically weaker sections and LIG households, a Mortgage Risk Guarantee Fund to be created under Rajiv Awas Yojana.
• Central Electronic Registry to prevent frauds involving multiple lending on the same immovable property to become operational by March 31, 2011.

Financial Sector Legislative Reforms Commission

• Financial Sector Legislative Reforms Commission set up to rewrite and streamline the financial sector laws, rules and regulations.
• Companies Bill to be introduced in the Lok Sabha during current session.

AGRICULTURE

• Removal of production and distribution bottlenecks for items like fruits and vegetables, milk, meat, poultry and fish to be the focus of attention this year.
• Allocation under Rashtriya Krishi Vikas Yojana (RKVY) increased from Rs. 6,755 crore to Rs. 7,860 crore.

Bringing Green Revolution to Eastern Region

• To improve rice based cropping system in this region, allocation of Rs. 400 crore has been made.

Integrated Development of 60,000 pulses villages in rainfed areas

• Allocation of Rs. 300 crore to promote 60,000 pulses villages in rainfed areas.

Promotion of Oil Palm

• Allocation of  Rs. 300 crore to bring 60,000 hectares under oil palm plantations. Initiative to yield about 3 lakh Metric tonnes of palm oil annually in five years.

Initiative on Vegetable Clusters

• Allocation of ` 300 crore for implementation of vegetable initiative to provide quality vegetable at competitive prices.

Nutri-cereals

• Allocation of Rs. 300 crore to promote higher production of Bajra, Jowar, Ragi and other millets, which are highly nutritious and have several medicinal properties.

National Mission for Protein Supplement

• Allocation of ` 300 crore to promote animal based protein production through livestock development, dairy farming, piggery, goat rearing and fisheries.

Accelerated Fodder Development Programme

• Allocation of Rs. 300 crore for Accelerated Fodder Development Programme to benefit farmers in 25,000 villages.

National Mission for Sustainable Agriculture

• Government to promote organic farming methods, combining modern technology with traditional farming practices.

Agriculture Credit

• Credit flow for farmers raised from Rs. 3,75,000 crore to Rs. 4,75,000 crore in 2011-12.
• Interest subvention proposed to be enhanced from 2 per cent to 3 per cent for providing short-term crop loans to farmers who repay their crop loan on time.
• In view of enhanced target for flow of agriculture credit, capital base of NABARD to be strengthened by Rs. 3,000 crore in phased manner.
• Rs. 10,000 crore to be contributed to NABARD’s Short-term Rural Credit fund for 2011-12.

Mega Food Parks

• Approval being given to set up 15 more Mega Food Parks during 2011-12.

Storage Capacity and Cold Chains

• Augmentation of storage capacity through private entrepreneurs and warehousing corporations has been fast tracked.
• Capital investment in creation of modern storage capacity will be eligible for viability gap funding of the Finance Ministry.

Agriculture Produce Marketing Act

• In view of recent episode of inflation, need for State Governments to review and enforce a reformed Agriculture Produce Marketing Act.

Infrastructure and Industry

• Allocation of ` 2,14,000 crore for infrastructure in 2011-12. This is an increase of 23.3 per cent over 2010-11. This also amounts to 48.5 per cent of total plan allocation.
• Government to come up with a comprehensive policy for further developing PPP projects.
• IIFCL to achieve cummulative disbursement target of Rs. 20,000 crore by March 31, 2011 and Rs. 25,000 crore by March 31, 2012.
• Under take out financing scheme, seven projects sanctioned with debt of Rs. 1,500 crore. Another  Rs. 5,000 crore will be sanctioned during 2011-12.
• To boost infrastructure development, tax free bonds of Rs. 30,000 crore proposed to be issued by Government undertakings during 2011-12.

National Manufacturing Policy

• Share of manufacturing in GDP expected to grow from about 16 per cent to 25 per cent over a period of 10 years. Government will come out with a manufacturing policy.
• Two Committees set up for greater transparency and accountability in procurement policy; and for allocation, pricing and utilisation of natural resources.
• Issues relating to reconciliation of environmental concern from various departmental activities including those related to infrastructure and mining to be considered by a Group of Ministers.
• National Mission for hybrid and electric vehicle to be launched.
• Financial Assistance to be made available for metro projects in Delhi, Mumbai,Bengaluru, Kolkata and Chennai.
• Capital investment in fertiliser production proposed to be included as an infrastructure sub-sector.

Exports

• Of 23 suggestions made by Task Force on Transaction Cost, constituted by the Department of Commerce, 21 suggestions already implemented. Action to be taken on the remaining two suggestions. Transaction Cost of ` 2,100 crore will thus be mitigated.
• Self assessment to be introduced in Customs to modernize the Customs administration.
• Proposal to introduce scheme for refund of taxes paid on services used for export of goods.
• Mega Cluster Scheme to be extended for leather products. Seven mega leather clusters to be set up during 2011-12.
• Jodhpur to be included for the development of a handicraft mega cluster.

BLACK MONEY

• Five fold strategy to be put into operation to deal with the problem of generation and circulation of black money.
• Membership of various international fora engaged in anti money laundering, Financial integrity and Economic development, Exchange of information for tax purposes and transparency, secured. Various Tax Information Exchange Agreements (TIEA) and Double Taxation Avoidance Agreements (DTAA) concluded. Foreign Tax Division of CBDT has been strengthened to effectively handle increase in tax information exchange
• and transfer pricing issues.
• Enforcement Directorate strengthened three fold to handle increased number of cases registered under amended Money Laundering Legislation.
• Finance Ministry has commissioned study on unaccounted income and wealth held within and outside the country.
• Comprehensive national policy to be announced in near future to strengthen controls over prevention of trafficking on narcotic drugs.

STRENGTHENING INCLUSION

• National Food Security Bill (NFSB) to be introduced in the Parliament during the course of this year.
• Allocation for social sector in 2011-12 (` 1,60,887 crore) increased by 17 per cent over current year. It amounts to 36.4 per cent of total plan allocation.

Bharat Nirman

• Allocation for Bharat Nirman programme proposed to be increased by Rs. 10,000 crore from the current year to Rs. 58,000 crore in 2011-12.
• Plan to provide Rural Broadband Connectivity to all 2,50,000 Panchayats in the country in three years.

MGNREGA

• In pursuance of last years budget announcement to provide a real wage of Rs. 100 per day, the Government has decided to index the wage rates notified under the MGNREGA to the Consumer Price Index for Agricultural Labour. The enhanced wage rates have been notified by the Ministry of Rural Development on January 14, 2011.
• From 1st April, 2011, remuneration of Anganwadi workers increased from Rs. 1,500 per month to  Rs. 3,000 per month and for Anganwadi helpers from Rs. 750 per month to Rs. 1,500 per month.

Scheduled Castes and Tribal Sub-plan

• Specific allocation earmarked towards Schedule Castes Sub-plan and Tribal Sub-plan in the Budget.
• Allocation for primitive Tribal groups increased from Rs. 185 crore in 2010-11 to Rs. 244 crore in 2011-12.

Education

• Allocation for education increased by 24 per cent over current year.

Sarva Shiksha Abhiyan

• Rs. 21,000 crore allocated, which is 40 per cent higher than Budget for 2010-11.
• Pre-matric scholarship scheme to be introduced for needy SC/ST students studying in classes IX and X.

National Knowledge Network

• Connectivity to all 1,500 institutions of Higher Learning and Research through optical fiber backbone to be provided by March, 2012.

Innovations

• National Innovation Council set up to prepare road map for innovations in India.
• Special grant provided to various universities and academic institutions to recognise excellence.

Skill Development

• Additional Rs. 500 crore proposed to be provided for National Skill Development Fund during the next year.
• An international award with prize money of Rs. 1 crore being instituted for promoting values of universal brotherhood as part of National celebrations of 150th Birth Anniversary of Gurudev Rabindranath Tagore.

Health

• Plan allocations for health stepped-up by 20 per cent.
• Scope of Rashtriya Swasthya Bima Yojana to be expanded to widen the coverage.  

Financial Inclusion

• Target of providing banking facilities to all 73,000 habitations having a population of over 2,000 to be completed during 2011-2012.

Unorganised sector

• Exit norms under co-contributory pension scheme “Swavalamban” to be relaxed. Benefit of Government contribution to be extended from three to five years for all subscribers who enroll during 2010-11 and 2011-12.
• Eligibility for pension under Indira Gandhi National Old Age Pension Scheme for BPL beneficiaries reduced from 65 years of age to 60 years. Those above 80 years of age will get pension of Rs. 500 per month instead of  Rs. 200 at present.

Environment and Climate Change

Forests

Rs. 200 crore proposed to be allocated for Green India Mission from National Clean Energy Fund.

Environmental Management

Rs. 200 crore proposed to be allocated for launching Environmental Remediation Programmes from National Clean Energy Fund.

Cleaning of Rivers and Lakes

Special allocation of ` 200 crore proposed to be provided for clean-up of some more important lakes and rivers other than Ganga.

Some Other Initiatives

• To boost development in North Eastern Region and Special Category States, allocation for Special Assistance doubled.
• Rs. 8,000 crore provided in current year for development needs of Jammu and Kashmir.
• Allocation made in 2011-12 to meet the infrastructure needs for Ladakh (` 100 crore) and Jammu region (Rs. 150 crore).
• Allocation under Backward Regions Grant Fund increased by over 35 per cent.
• Funds allocated under Integrated Action Plan (IAP) for addressing problems related to Left Wing extremism affected districts. 60 selected Tribal and backward districts provided with 100 per cent block grant of Rs. 25 crore and Rs. 30 crore per district during 2010-11 and 2011-12 respectively.
• A lump-sum ex-gratia compensation of  Rs. 9 lakh for 100 per cent disability to be granted for personnel of Defence and Para Military forces discharged from service on medical ground on account of disability attributable to government service. Provision of  Rs. 1,64,415 crore, including Rs. 69,199 crore for capital expenditure to be made for Defence Services in 2011-12.
• To build judicial infrastructure, plan provision for Department of Justice increased by three fold to  Rs.1,000 crore.

Census 2011

• To enumerate castes other than Schedule Castes and Schedule Tribes in Census 2011, ‘caste’ to be canvassed as a separate time bound exercise.

IMPROVING GOVERNANCE

UID Mission

• From 1st October, 2011 ten lakh Aadhaar numbers will be generated per day. 

IT Initiatives

• Various IT initiatives taken for efficient tax administration. These include e-filing and e-payment of taxes, adoption of ‘Sevottam’ concept by CBEC and CBDT, web based facility for tax payers to track the resolution of refunds and credit for pre-paid taxes and augmentation of processing capacity.
• Under Mission mode projects, funds released to 31 projects received from States/UTs for computerisation of Commercial taxes. This will allow States to align with roll out of GST.
• Bill to amend the Indian Stamp Act proposed to be introduced shortly.
• A new scheme with an outlay of ` 300 crore to be launched to provide assistance to States to modernise their stamp and registration administration and roll out e-stamping in all the districts in the next three years.
• A new simplified form ‘Sugam’ to be introduced to reduce the compliance burden of small tax payers falling within presumptive taxation.
• Three more benches of Settlement Commission to be set up to fast track the disposal of cases.
• Steps initiated to reduce litigation and focus attention on high revenue cases.

Corruption

• Group of Ministers constituted to consider measures for tackling corruption. Recommendations to be made in a time bound manner.

Performance Monitoring and Evaluation System

• In pursuance of recommendations of Second Administrative Reforms Commission, 62 departments covered under Performance Monitoring and Evaluation System (PMES) to assess their effectiveness.

STATE BANK OF INDIA RELATED MCQs

1) The Largest commercial bank in India? a) RBI  b) SBI  c) ICICI Bank  d) PNB  e) HDFC Bank 2) The origin of the State Bank of India goes back to the first deca-de of the nineteenth century with the establishment of? a) Bank of Calcutta  b) Bank of Bengal  c) Bank of Bombay  d) Bank of Madras  e) None 3) Which bank came into existence in 1921 when three banks namely Bank of Bengal(1806), Bank of Bombay (1840) & Bank of Madras(1843) were reorganized and amalgamated to form a single banking entity? a) Imperial Bank of India  b) State Bank of India  c) Reserve Bank of India  d) Punjab National Bank e) None 4) SBI act was passed in Parliament in? a) 1935  b) 1949  c) 1955  d) 1969  e) 1980 5) The State Bank of India was constituted on? a) 1 April 1935  b) 1 January 1949  c) 1 July 1955  d) 1 September 1956 e) None 6) The Head Office of SBI is in? a) New Delhi  b) Kolkata  c) Chennai  d) Hyderabad  e) Mumbai 7) The Chairman of SBI is? a) D.Subbarao b) Pratip chaudhuri  c) Chanda Kochhar  d) K.R.Kamath e) None 8) At present, the number of associate banks of SBI? a) 5 b) 6  c) 7  d) 8  e) None 9) Which bank was merged with SBI in 2008? a) State Bank of Travancore  b) State Bank of Patiala  c) State Bank of Mysore d) State Bank of Indore e) State Bank of Saurashtra 10) Which bank was merged with SBI in 2010? a) State Bank of Travancore  b) State Bank of Patiala  c) State Bank of Mysore d) State Bank of Indore e) State Bank of Saurashtra 11) The first associate bank of SBI?  a) State Bank of Travancore  b) State Bank of Patiala  c) State Bank of Mysore d) State Bank of Indore e) State Bank of Hyderabad 12) Which bank has the largest branch network in India? a ) RBI b) PNB  c) HDFC Bank  d) ICICI Bank  e) None 13) SBI Life Insurance is a joint venture between State Bank of India and? a) ABN Amro Bank b) Deutsche Bank c) Life Insurance Corporation (LIC) d) American International Group (AIG) e) BNP Paribas Assurance 14) SBI General Insurance is a joint venture between State Bank of India and? a) American International Group (AIG) b) Insurance Australia Group (IAG)  c) BNP Paribas d) General Insurance Corporation  e) None 15) The country's largest lender? a) IDBI Bank  b) ICICI Bank  c) SBI  d) HDFC Bank  e) None 16) SBICI Bank (a Private Sector Bank) is wholly owned subsidiary of? a) ICICI Bank  b) HDFC Bank  c) RBI  d) IDBI Bank  e) None 17) The government passed the State Bank of India (Subsidiary Banks) Act in? a) 1934  b) 1949  c) 1955 d) 1959  e) None 18) Which of the following taglines is not associated with SBI? a) With you all the way  b) Pure banking nothing else  c) The Banker to every Indian d) The Nation banks on us  e) India's International Bank 19) Which bank became the State Bank of India in 1955? a) General Bank of India  b)Bank of Hindustan  c) Imperial Bank of India  d) Federal Bank of India e) None 20) Which of the following pairings is not correct? (Banks & Head Offices)? a) State Bank of Bikaner & Jaipur - Jaipur b) State Bank of Hyderabad - Hyderabad c) State Bank of Mysore - Mysore d) State Bank of Patiala - Patiala e) State Bank of Travancore - Thiruvananthapuram 21) Which of the following banks is/are 100 per cent owned by SBI? a) State Bank of Travancore b) State Bank of Hyderabad and State Bank of Patiala c) State Bank of Mysore d) State Bank of Bikaner and Jaipur e) State Bank of Indore and State Bank of Saurashtra 22) The largest Associate Bank of State Bank of India? a) State Bank of Hyderabad b) State Bank of Bikaner and Jaipur c) State Bank of Mysore d) State Bank of Patiala e) State Bank of Travancore 23) The Managing Director of State Bank of Hyderabad(SBH)? a) Pratip Chaudhuri b) Renu Challu c) Chanda Kochhar d) Shikha Sharma  e) None 24) Which of the following rural banks is sponsored by State Bank of India? a) Andhra Pragathi Grameena Bank b) Andhra Pradesh Grameena Vikas Bank c) Deccan Grameena Bank d) Chaitanya Godavari grameena Bank e) None 25) Consider the following statements? A. State Bank of Hyderabad was constituted as Hyderabad State Bank on 08.08.1941 under Hyderabad State Bank Act, 1941. In 1956, the Bank was taken over by Reserve Bank of India as its first subsidiary and its name was changed from Hyderabad State Bank to State Bank of Hyderabad. The Bank became a subsidiary of State Bank of India on the 1st October 1959 and is now the largest Associate Bank of State Bank of India. B. State Bank of Bikaner and Jaipur was established in 1963 after amalgamation of erstwhile State Bank of Jaipur (established in 1943) with State Bank of Bikaner (established in 1944) as a subsidiary of SBI. C. State Bank of Mysore was established in the year 1913 as Bank of Mysore Ltd. under the patronage of the erstwhile Govt. of Mysore, at the instance of the banking committee headed by the great Engineer- Statesm-an,Late Dr.Sir M.Visvesvar-aya. Subsequently, in March 1960,the Bank became an Associate of State Bank of India. D. 'Patiala State Bank' was christened as the Bank of Patiala and was became a subsidiary of the State Bank of India on 1st April,1960 when it was named as the State Bank of Patiala E. State Bank of Travancore (SBT) was originally establi-shed as Travancore Bank Ltd. in 1945 sponsored by the erstwhile princely state of Travancore. Under a special statute of the Indian Parliam-ent (SBI subsidiary Banks Act 1959) it was made an Associate of the SBI. Which of the statements given above is/are correct? a) A & B only  b) B & C only  c) C & D only  d) A, B & C only  e) All are correct 26) Which among the following acquired the RBI's stake in SBI in 2007? a) IDBI Bank b) ICICI Bank  c) Government of India  d) Life Insurance Corporation e) None 27) SBI Card is a joint venture between State Bank of India and a) Standard Chartered? b) Hongkong and Shanghai Banking Corporation(HSBC) c) ABN Amro Bank d) BNP Paribas  e) GE Capital 28) The Commercial Bank of India LLC, Moscow, a 60:40 joint venture of the State Bank of India and? a) Punjab National Bank b) Corporation Bank c) Bank of India d) Canara Bank e) Central Bank of India 29) SBI day is observed on? a) January 1  b) April 1  c) July 1  d) August 1  e) None 30) The Net Profit of State Bank of India for the period 2010-2011? a) 9166.05 crores  b) 8264.52 crores  c) 8500 crores  d) 9100 crores  e) None ANSWERS 1) b 2) a 3) a 4) c 5) c 6) e 7) b 8) a 9) e 10) d 11) e 12) e 13) e 14) b 15) c 16) e 17) d 18) e  19) c 20) c 21) b 22) a 23) b 24) b 25) e 26) c 27) e 28) d 29) c 30) b

India at a Glance

Located in South Asia, India is the seventh largest, and the second most populous country in the world. Home to the Indus Valley civilisation and known for its historic trade routes and vast empires, India is recognised for its commercial and cultural wealth. It is the centre of amalgamation of many religions and ethnicities which have shaped the country's diverse culture. Colonised by the United Kingdom from early eighteenth century, India became a modern nation state in 1947, after a struggle for independence that was remarkable for its largely non-violent resistance and is the most populous democracy in the world today. Location: South Asia, bordering the Arabian Sea and the Bay of Bengal, between Mynamar and Pakistan. Geographic Coordinates: 20 00 N, 77 00 E Border Countries: Afghanistan and Pakistan to the north-west; China, Bhutan and Nepal to the north; Myanmar to the east; and Bangladesh to the east of West Bengal. Sri Lanka is separated from India by a narrow channel of sea, formed by Palk Strait and the Gulf of Mannar. Coastline: 7,516.6 km encompassing the mainland, Lakshadweep Islands, and the Andaman & Nicobar Islands Climate: Mainly tropical in southern India but temperatures in the north range from sub-zero degrees to 50 degrees celsius. There are well-defined seasons in the northern region: winter (Dec - Feb), Spring (Mar - Apr), Summer (May - Jun), Monsoons (Jul - Sep) and Autumn (Oct - Nov). Area: total: 3,287,263 sq km Land: 2,973,193 sq km Water: 314,070 sq km

Natural Resources: coal (fourth largest reserves in the world), iron ore, manganese, mica, bauxite, titanium ore, chromite, natural gas, diamonds, petroleum, limestone, arable land. Land Use: arable land: 48.83 per cent Irrigated Land: 60.2 million hectares (2005-06) Political Profile Political System and Government: The 1950 Constitution provides for a parliamentary system of Government with a bicameral parliament and three independent branches: the executive, the legislature and the judiciary. The country has a federal structure with elected governments in States. Administrative Divisions: 28 States and 7 Union Territories Constitution: The Constitution of India came into force on 26th January 1950

Executive Branch: The President of India is the Head of State, while the Prime Minister is the Head of the government and runs office with the support of the Council of Ministers who form the Cabinet. Legislative Branch: The Federal Legislature comprises of the Lok Sabha (House of the People) and the Rajya Sabha (Council of States) forming both the Houses of the Parliament. Judicial Branch: The Supreme Court of India is the apex body of the Indian legal system, followed by other High Courts and subordinate Courts. Chief of State: President Mrs Pratibha Patil (since 25 July 2007) Head of Government: Prime Minister Dr Manmohan Singh (since 22 May 2009) Demographic profile Population: 1,173,108,018 (July 2010 est.) Population Growth Rate: 1.376 per cent (2010 est.) Ethnic Groups: Indo-Aryan 72 per cent, Dravidian 25 per cent, Mongoloid and other 3 per cent (2000) Religions: Hindu 80.5 per cent, Muslim 13.4 per cent, Christian 2.3 per cent, Sikh 1.9 per cent, other 1.8 per cent, unspecified 0.1 per cent (2001 census) Languages: Apart from Hindi, which is the Official Union Language and mother tongue of 30 per cent of the people, there are 21 other official languages. English is the preferred language for national, political, and commercial communication. Literacy: Total population: 64.8 per cent (2001 census) Male: 75.3 per cent Female: 53.7 per cent Suffrage: 18 years of age; universal Economic Profile Indian Economy Per capita income (average income) of Indians has grown by 10.5 per cent to US$ 947.21 in 2009-10 as against US$ 857.43 in 2008-09, at the current price. In its recent review, the Centre for Monitoring Indian Economy (CMIE) has estimated India’s gross domestic product (GDP) to expand at an impressive 9.2 per cent in 2010-11 and further 8.8 per cent in 2011-12. Per capita income in real terms (at 2004-05 prices) is predicted to have increased by 6.7 per cent to US$ 794.5 in 2010-11 compared to the previous fiscal’s US$ 744.4. At current prices, per capita income is estimated at US$ 1203.3 in 2010-11, registering an increase of 17.3 per cent from US$ 1025.97 in 2009-10. The industrial output registered a robust growth of 8.6 per cent year-on-year (y-o-y) in April-December 2010-11. Among the three major constituents of the IIP, mining and manufacturing recorded higher growth rates of 7.7 per cent and 9.1 per cent during the period. The third constituent electricity index registered 4.7 per cent in April-December 2010-11.

• GDP Composition by Sector in 2009-10 (RBI estimate):
• Services: 56.9 per cent
• Industry: 28.5 per cent
• Agriculture: 14.6 per cent
• Forex Reserves (2009-10): US$ 277 billion
• Labour Force: 467 million (2009 est.)
• Gross Fixed Capital Formation (GFCF) at current prices: 32.4 per cent of GDP at market prices (April 2009-March 2010)
• Industrial output in April-December 2010: 10.8 per cent
• Cumulative Value of Exports: US$ 184.63 billion (April 2010-January 2011)
• Exports Commodities: Petroleum products, precious stones, machinery, iron and steel, chemicals, vehicles, apparel
• Export Partners: US 11.12 per cent, UAE 13.55 per cent, China 5.30 per cent, Singapore 4.41 per cent, Hong Kong 4.54 per cent (Apr-Sep 2010 P)
• Currency (code): Indian rupee (INR)
• Exchange Rates: Indian rupees per US dollar - 1 USD = 44.67 INR (March 25, 2011)
• Fiscal Year: 1 April - 31 March
• Cumulative FDI Inflows: US$ 17,081 million (April 2010-January 2011)
• Share of Top Investing Countries FDI Equity Inflows: Mauritius, Singapore, US, UK, Netherlands, Japan and Cyprus (as on January 2011)

Major Sectors Attracting Highest FDI Equity Inflows: Services Sector, Computer Software & Hardware, Telecommunications, Housing and Real Estate, Construction Activities, Automobile (as on January 2011)

• Transportation in India
• Airports: 454
• International Airports: Ahmedabad, Amritsar, Bengaluru, Chennai, Goa, Guwahati, Hyderabad, Kochi, Kolkata, Mumbai, New Delhi, Thiruvananthapuram
• Railways: total: total: 64,000 route km (January 2011)
• Roadways: total: total: 4.2 million km
• Waterways: 14,500 km (2008)
• Major Ports of Entry: Chennai, Ennore, Haldia, Jawaharlal Nehru Port Trust (JNPT), Kolkata, Kandla, Kochi, Mormugao, Mumbai, New Mangalore, Paradip, Tuticorin and Vishakhapatnam.

Indian Economy Quick Facts

	The overall growth of Gross Domestic Product (GDP) at factor cost at constant prices, as per Advance Estimates, was 8.6 per cent in 2010-11 representing an increase from the revised growth of 8.0 per cent during 2009-10, according to the Advance Estimate (AE) of Central Statistics Office (CSO).
	Exports from Special Economic Zones (SEZs) in the first quarter of 2010-11 were US$ 12.47 billion 67.8 per cent higher than in the corresponding period of the previous year, according to the Export Promotion Council for Export Oriented Units and SEZs.
	India's foreign exchange (Forex) reserves increased by US$ 1.807 billion to US$ 302.593 billion for the week ended March 4, 2011, according to the Weekly Statistical Bulletin released by the Reserve Bank of India (RBI).
	Core industries grew by 6.8 per cent in February against 4.2 per cent a year ago, boosted by surge in crude oil and finished steel output.
	India has been ranked at the second place in global foreign direct investments in 2010 and will continue to remain among the top five attractive destinations for international investors during 2010-12 period, according to United Nations Conference on Trade and Development (UNCTAD) in a report on world investment prospects titled, 'World Investment Prospects Survey 2009-2012'.
	Spice exports have seen risen three-fold in value terms in the last five years. The Exports of spices and spice products stood at US$ 1.33 billion during the April-February 2010-11.
	The Government has collected an all-time high income tax of US$ 101.27 billion in 2010-11, which is US$ 899.12 million more than the revised budget estimate of US$ 100.37 billion.
	The indirect tax collection for the fiscal year ending March 31, 2011 (provisional) has been US$ 76.51 billion as against the revised Budget estimates of US$ 76.16 billion, registering a growth of 39 per cent in 2010-11 over the previous year.
	The Government will provide an additional US$ 1.33 billion capital to state-owned banks in 2011-12 to help them maintain at least eight per cent capital adequacy ratio in tier-I level.

National Rural Livelihoods Mission (NRLM)

  The UPA chairperson is to launch the National Rural Livelihoods Mission (NRLM), a re-christened  version of the ongoing Swarn Jayanti Gram Swarozgar Yojana from Banswara, Rajasthan at June 03.  The Minister for Rural Development, Government of India, Sh. Vilasrao Deshmukh and the Chief Minister of Rajasthan, Sh. Ashok Gehlot will also grace the occasion .

NRLM recognizes that the poor people have the potential to come out of poverty with proper handholding, training and capacity building and credit linkage. The handholding support to the SHGs will be in the form of external and internal. External support structure will consist of dedicated professional institutions at the State level, district level and sub – district level whereas internal support structure will evolve in the form of SHG federations at the village level, and block level and later on at district level. NRLM also recognizes that poor people have multiple livelihoods – wage employment and self employment. It will stabilize and enhance incomes from both the livelihoods. It will also promote diversification of livelihoods.

NRLM will have special focus on the poorest households, who are currently dependant on MGNREGA. These families will be supported to broaden their livelihoods through assets and skill acquisition. This will enhance the quality of their livelihoods significantly.

NRLM is based on large scale successes in states such as Kerala, Andhra Pradesh, Tamil Nadu, Bihar and Madhya Pradesh where social mobilization and building strong institutions of the poor have led to significant reduction in poverty and empowerment of the poor.

The role of Banks will be of prime importance under NRLM as a source of credit for the poor at reasonable rates.  NRLM will focus on getting banks to lend to the poor by making them bankable clients through smart use of subsidy.  NRLM will focus on women as we believe that the best way of reaching out to the whole family is through the woman. There will be a special focus on vulnerable sections: scheduled tribes, scheduled castes, minorities, women headed families, etc. The second focus of NRLM would be rural youth of the country who are unemployed.  They will be supported through placement linked skill development projects through which their skills will be upgraded through short term training courses in sectors which have high demand for services.

A unique feature of NRLM is that it would be led by the poor themselves.  It would utilize the services of Community Resource Persons (CRPs) who are women who have themselves come out of poverty through being a part of the Self Help Group.  They will spread the concept of NRLM from one village to another and from one district to another making NRLM a people’s movement.

Since the level of development of each State is different so also the availability of local resources and the level of skills of the people, therefore, the State will have the flexibility to develop their own action plans based on their local requirements and availability of resources.  It will be a demand driven approach. The main features of NRLM are as follows:

·      Universal social mobilisation through formation of SHGs under NRLM.   To bring each and every BPL household under the SHG network. To ensure that all the poor in the country are made a part of the social mobilization process in order to empower them, socially and economically. During the remaining period of the 11^th Plan it is proposed to form about 10 lakh new SHGs. All existing SHGs will be strengthened.

·      To take the social mobilization process to the next stage of maturity SHG federations will be set up at the levels of villages, cluster of villages, blocks & districts. The Federations will nurture the SHGs; enable them to become good quality institutions, help SHG members in articulating their demands, enable collective action for getting their entitlements with various Government departments, developing backward and forward marketing linkages, maintenance of accounts, conducting audits and documentation.

·      The goal of universal financial inclusion will be furthered by enabling SHGs to be linked to banks and to access credit from them.

·      Capacity Building and Training – Under NRLM it is proposed that upto Rs. 7500 per beneficiary would be provided for capacity building & training in place of the present provision of Rs. 5000 per beneficiary. It is proposed to provide basic orientation training to all the swarozgaris. Skill training will be provided to the swarozgaris who are entering micro enterprise level.

·      In order to ensure institutional arrangement for skill development for self employment and wage employment, dedicated training institute for rural BPL youth i.e Rural Self Employment Training Institutes (RSETIs) are being set up with the aim of having at least one such institution  in each district of the country. These RSETIs will be set up with the partnership of banks.  The Ministry will provide one time grant for construction of RSETIs @ Rs 1.0 crore per RSETI and the land for it would be provided by the State Governments. Recurring expenditure for running the RSETIs would be provided by the concerned banks.

·      Provision of enhanced Revolving Fund & Capital Subsidy- Revolving Fund- To meet the requirement both in terms of consumption and taking up the income generating activities, it is proposed to raise the amount of revolving fund to Rs 15000 per SHG. Capital Subsidy- It is proposed to provide subsidy of Rs 15,000 to individual Swarozgaries of general category and Rs 20,000 to SC/ST and people with disabilities. For SHGs, subsidy will be   Rs. 20,000 per capita subject to a maximum of Rs 2.50 lakh, whichever is less. The capital subsidy will be provided to the SHGs either through their federations or directly. NRLM will attempt to make a smart use of subsidy so that it helps in building a credit track for the SHG members so that they are seen as credit worthy clients by banks for extending loans to them for their various needs.

·      Introduction of Interest Subsidy- Under NRLM, interest subsidy will be provided to SHGs for prompt repayment of loans to banks. The difference between 7% and Prime Lending Rates (PLR), will be provided to the poor households for every loan accessed from the banks, up to a limit of Rs 1 lakh per household.   This is with a view to enhance viability and competitiveness of SHGs and encourage the repayment of loan by them.

·      At present the DRDAs/blocks have skeleton staff and are over burdened with a multiplicity of programmes. Under NRLM it is proposed to provide professional support at all levels – National level, State level, district level to Sub district level in different specializations. This will facilitate in hand-holding of SHGs and taking them through the natural evolution process, whereby they are first geared to meet their consumption needs and then take up micro-enterprises for livelihoods promotion activities through a mix of their own savings, borrowing from the group and from the banks. 

·      Involvement of States for State specific Action Plans: It is proposed to provide flexibility to the States for formulating their own poverty alleviation plans on the basis of available resources and skills. 

·      Special Projects- For skill upgradation and placement, at present there is a provision of 15% of the SGSY allocation for special projects. It is now proposed to make these special projects as a subset of NRLM and earmarking 20% of allocation for special projects. Out of this 15% will be for placement linked skill development projects and 5% for innovative projects. Half of the 15% for placement linked skill development projects will be transferred to the states for projects within the states and the remaining will be retained at the center for inter-state projects.

·      Improved evaluation and monitoring Presently evaluation of SGSY is done by commissioning studies through NIRD and other reputed organizations and the programme is monitored through online Monthly Progress Report, regular meetings of the Performance Review Committee, visit by Area Officers and the mechanism of DLMs (District Level Monitors), NLMs (National Level Monitors) etc.  In addition to these, NRLM will put in place a (i) a comprehensive MIS encompassing database of SHG profiles, federations, training institutions and activities, placements of trained beneficiaries, marketing of products etc., (ii), concurrent and mid-term evaluations, (iii) social accountability practices like social audits etc. to facilitate monitoring & bring in transparency in program implementation.

·       A mission approach will enable time bound achievement of the goals of N.R.L.M.

·      NRLM will have partnerships with:

a)     Civil Society Organizations

b)     Industries

c)      Educational Institutions

d)     Other resource organizations.

Future Plan: The NRLM will be implemented in a phased manner. It is proposed to cover all the blocks of the Country within a period of seven to eight years. The States are expected to fulfill the following norms, at the earliest, before transiting from SGSY to NRLM:

    i.                   State level agencies and the district/sub-district level units are set up

  ii.                   Professional staff has been trained and placed

iii.                   State level poverty reduction strategy has been formulated

iv.                   Formation of State level Core team with a nodal officer

Ministry of Rural Development has already finalised the ‘Framework for Implementation’ for NRLM and circulated to all States. 

Individual Household Latrine under Total Sanitation Campaign

The Cabinet Committee on Economic Affairs June 02 approved the upward revision in the incentive amount to a Below Poverty Line (BPL) household for construction of one unit of Individual Household Latrine (IHHL) from existing Rs.2200 (Rs 2700 for difficult and hilly areas) to Rs 3200 (Rs 3700 for difficult and hilly areas). The central share out of this shall be Rs 2200 (Rs 2700 in case of hilly and difficult areas) and State Government share shall be Rs 1000. Minimum beneficiary share shall be Rs.300. State Governments are allowed the flexibility to provide higher incentive for a household toilet, of the same or higher unit costs from their own funds. The BPL household may also contribute towards value addition to the basic unit at its own expense.

The date of implementation for the revised rates of the incentives would be with effect from 01.06.2011.

The increase in incentive amount is expected to have an additional financial implication to the tune of Rs 1348.26 crore approximately on the Central Government. The State Governments together shall also have to bear an additional financial expenditure of Rs 577 crore approximately.

The revision in the incentive amount being provided to individual households below poverty line is expected to accelerate the pace of construction of these toilets thereby resulting in better sanitation coverage in rural areas of the country. It is expected that all rural households shall have access to sanitation facilities by March 2015.

Background:

Improved sanitation and safe drinking water are the most important elements for improvement in the health conditions of the rural population their development and welfare. Under the centrally sponsored Total Sanitation Campaign (TSC) launched by the Government of India, the main focus has been given on enabling each and every rural household in getting access to improved sanitation through individual household latrines.

The Government has so far motivated 7.14 crore rural households to create sanitation facilities which includes incentives to 3.85 crore BPL households.

Phase-I of Rajiv Awas Yojana approved

In pursuance of the announcement made in June 2009 of creating a 'Slum-Free India' the Cabinet Committee on Economic Affairs has approved the launch of the Phase-I of Rajiv Awas Yojana (RAY) to provide financial assistance to States that are willing to assign property rights to slum dwellers for provision of shelter and basic civic and social services for slum redevelopment, and for creation of affordable housing stock.

The scheme is expected to cover about 250 cities, mostly with population of more than one lakh, across the entire country by the end of 12th Plan (2017). The scheme will progress at the pace set by the States.

The Central Government will bear 50% of the costs of slum redevelopment. To encourage creation of affordable housing stock the existing schemes of Affordable Housing in Partnership and Interest Subsidy Scheme for Housing the Urban Poor have been dovetailed into RAY. To encourage private sector participation in slum redevelopment, Central government assistance can be used by the states and cities towards viability gap funding.

Credit enablement of the urban poor and the flow of institutional finance for affordable housing is an important component of the scheme. The Government has agreed to establish a Mortgage Risk Guarantee Fund to facilitate lending to the urban poor for housing purposes with an initial corpus of Rs.1000 crore.

This scheme has been designed on the basis of experience of the Jawaharlal National Urban Renewal Mission (JNNURM) sub-mission of Basic Services to the Urban Poor (BSUP) and the Integrated Housing and Urban Development Programme (IHSDP). Under these schemes, Government had sought to take action for inclusive urban growth by enabling the redevelopment of slums with basic amenities and decent housing with security of tenure. The foundation laid by the JNNURM is now being built upon by aiming at creation of a Slum-Free India through assignment of Property Rights to slum dwellers with greater inflow of additional Central assistance for slum redevelopment and creation of new affordable housing stock.

As in JNNURM, the central assistance is conditional to reforms by the states. The reforms required here are directly linked to the objectives of the scheme, and necessary for the scheme to be successful. These reforms include the enactment of law and the assigning of property rights, as also reforms in the policy to ease the land and affordable housing shortages. The scheme is expected to begin in 250 cities which have an estimated 32.10 million people living in slums. They will benefit by way of property rights and access to decent shelter, basic amenities and a dignified life. The inclusive city growth process will lead to enhancement of productivity at the bottom of the pyramid and will sustain the contribution of cities to the Gross Domestic Product (GDP).

Microfinance

Over the last few decades, Indian economy has been at the forefront of world trade & industry. The opening up of the economy to encourage foreign investors, financial services providers & global corporations has transformed modern day India into a bustling world power & brought in state-of-the-art technology & wealth across different sectors.
This has however not been transferred to a sizeable section of the population, which continues to remain excluded from the most basic opportunities and services provided by the traditional financial system.
Thus, the idea behind Microfinance is to provide financial services to the low-income proletariat who traditionally lack access to banking and other monetary services.
During the last two decades, substantial work has been done in developing and experimenting with different concepts and approaches to reach financial services to the poor, by the Government, Non-Governmental Organisations (NGOs) and banking institutions in various parts of the country.

Microfinance in India

Microfinance based credit delivery mechanism ensures viable financial services to address issues like actualising equitable gains from development activities on a sustained basis, and plays a vital role in fighting poverty.
National Bank of Agriculture and Rural Development (NABARD) has taken the lead in promoting microfinance in India. Its Self Help Group (SHG) model has created opportunities for commercial banks to lend to the poor. It has been encouraging voluntary agencies, bankers, socially spirited individuals, other formal and informal entities and also government functionaries to promote and nurture SHGs & Microfinance Institutions (MFIs)).
Due to the Government's active promotion & special schemes, Commercial banks have actively started lending capital to SHGs & MFIs, which then further lend to their members overcoming the information asymmetries that the bank would normally have faced. Thus engaging a dormant source of financing for the needy, as in lending to the poor, banks face high risks and transaction costs, while the lack of borrower information and of collateral make it unattractive for the formal financial sector to lend to the very poor.

Dominant Models of Microfinance in India

SHG-Bank Linkage Model:
This model involves Self Help Groups (SHGs) which are financed directly by the Commercial Banks (Public Sector and Private Sector), Regional Rural Banks (RRBs) or Co-operative Banks.
Microfinance programmes focus on organisation at the grassroots level through a process of social mobilisation that enables the poor to build Self Help Groups (SHGs) amongst themselves, consisting of 10-20 persons. They participate fully and directly and take decisions independently in such organisations.
These groups are formed, developed and strengthened to evolve into self-managed people's organisations which provide internal loans to its members from the group corpus. The group corpus is supplemented with Revolving Fund sanctioned as cash credit limit by the banks.

MFI-Bank Linkage Model:

This model covers financing of Microfinance Institutions (MFIs) by banking agencies for on-lending to SHGs and other small borrowers covered under microfinance sector.
MFIs combine flexibility, sensitivity and responsiveness of the informal credit system with technical & administrative capabilities and financial resources of the formal financial sector which rely heavily on collective strength and closeness of social groups for effective social mobilisation to enable financial empowerment.
MFIs have adapted themselves to circle around the shortcomings of traditional financial organisations, by forming a partnership between socially focussed NGOs, which invest in human and social capital at the grass roots, and economically sensitive banking institutions, experienced in mobilising funds for graduating and enabling rural communities.
MFIs enable commercial banks to overcome the formal requirements of paper-work to support transaction costs, information asymmetries and risk, making lending to the poor a commercially attractive proposition. The role of the MFIs therefore is to act as the guarantor to the bank, to support the credit worthiness of the poor.

		Support in the Formal Sector
		National Bank for Agriculture and Rural Development (NABARD) NABARD is a development bank which facilitates credit flow for promotion and development of agriculture, small-scale industries, cottage and village industries, handicrafts and other rural crafts. Its Financial Inclusion Department (FID) is the nodal agency which oversees the Financial Inclusion Fund (FIF) and Financial Inclusion Technology Fund (FITF) which promote microfinance initiatives. Rashtriya Mahila Kosh The National Credit Fund for Women or the Rashtriya Mahila Kosh (RMK) has a large number of grant and subsidy based poverty alleviation programmes comprising micro-credit & micro-savings schemes with a focus on poor women across the country. RMK takes active initiatives in channelising funds, market development social advocacy. Small Industries Development Bank of India (SIDBI) SIDBI's Foundation for Micro Credit is the apex wholesaler for micro finance in India. It provides a range of financial and non-financial services such as loan funds, grant support, equity and institution building support to the retailing Micro Finance Institutions (MFIs) including two-tier MFIs so as to facilitate their development into financially sustainable entities, besides developing a network of service providers for the sector. Tamil Nadu Womens' Development Corporation The Tamil Nadu Corporation for Development of Women, in partnership with Non Governmental Organisations (NGOs) and Community based organisations, supports 'Mahalir Thittam' or Self Help Groups (SHGs) which inculcate sound habits of thrift, savings and banking amongst the volunteer members of the scheme.

Challenges Faced

Microfinance was first introduced in India in the 1970s. Forty years on, the phenomenal growth rate of the microfinance sector in the country has brought in funds from socially motivated donors and investors, both foreign and domestic.
But cost of capital has been considerable, prompting lenders to charge high interest rates as the average number of loans with borrowers of very small capital has increased across the country. Large numbers of very small loans demand high rates, and artificially lowering rates can de-sensitize MFIs from expanding their reach to the very poor.
The high growth of the industry has meant MFIs have, at times, ignored due diligence and have not taken measures to limit multiple lending. The rapid growth in the for-profit MFI industry, which is still at a nascent stage, has raised several questions on both corporate governance issues as well as the viability of the business model.
The fact that the client base of MFIs is the most vulnerable sections of society makes them a target of political activism and regulatory intervention as well, especially because the high profit growth of these firms is often seen to be at the expense of the poor.
Although many of the Indian Non-profit organizations (NGOs) which have extended themselves and set up their own in-house microfinance units, find themselves flailing, financially. Some of those can be attributed to lack of expertise in the sector, but the primary reason is suspected to be NGOs' alignment towards public service commitment which makes it difficult for them to transition into profit based microfinance sector. The ability to re-gain borrowed capital is necessary for sustainability of the organisations.
The Government has initiated a number of Innovative Pilot Projects  to address these new challenges and improve the outreach and sustainability of the MFIs. It has also been promoting the need for self-regulation by MFIs & NGOs, as over-regulation at a time when the entire sector is at a budding stage of growth, could throttle the growth potentials of the SHGs.

		Impact & Future of Microfinance in India
		Microfinance has been a major success & is growing fast across the country. It has proved to be a powerful tool in initiating a cyclical process of growth and development. The general recovery rates for all services have been very high for all MFIs. Although interest rates are higher than the formal sector due to the perceived risk involved, MFIs still undercut the local moneylenders by a large margin. Although microfinance has helped in providing social and economic empowerment, it cannot eradicate poverty by itself. Good governance, security, health, education and financial inclusion all work hand-in-hand at poverty alleviation. Availability of credit may be a trigger for growth but the credit amount, by design, is too low to eradicate poverty. The Government thus has adopted a multi-pronged strategy to provide credit to the economically backward, with microfinance positioned strategically as a livelihood generator. With the steady growth in reach of microfinance, the SHGs and their federations provide the social space and the political power that the poor need to overcome these hurdles. The scope for expansion in the sector remains the major draw for socially inclined profit-motive organisations & non-profits, both.

India does first urban poverty survey

The first survey to determine how many poor live in India's urban areas will start early in June to ensure the success of the country's ambitious schemes for food security and slum-free cities.

According to the Ministry of Housing and Poverty Alleviation, the survey will be finished by December in all states and cover all urban households. The numbers will be out by the end of January 2012.

"It is for the first time that such a survey is being done. This is important in the context of the proposed food security act and the Rajiv Awas Yojana (RAY) which aims to make cities free of slums besides better targeting of other schemes," a ministry official, who preferred not to be identified, told IANS.

An estimated 90 million of the 300 million living in India's roughly 45 cities and over 5,000 towns are poor, he said.

The Planning Commission, which makes official estimates of poverty, had told the Supreme Court this month that daily consumption expenses per head of Rs.20 in urban areas and Rs.15 in rural areas (at 2004-05 prices) was the poverty cut-off line.

"The figures will be useful for RAY which will be launched next month," the official said, adding the scheme for slum-free cities will have gained critical mass by January next year.

He added that the government had constituted a task force to monitor the progress of the urban BPL survey.

A meeting of chief secretaries and rural and urban housing secretaries has been called Tuesday to discuss the "modus operandi" of the survey and gear up the official machinery.

The union cabinet had May 19 approved BPL census in urban and rural areas along with the caste census.

The official said that a questionnaire has been prepared for ground staff which will carry out the survey and people will be identified on the basis of "definition of urban BPL" being finalised by the Hashim committee.

The Planning Commission had constituted an expert group under S.R. Hashim in May 2010 to recommend detailed methodology for identification of BPL families in urban areas in the context of the 12th Five Year Plan.

The expert group submitted an interim report this month recommending that poverty in urban areas be identified through idenitification of specific vulnerabilities in residential, occupational and social categories.

It said that those who are houseless, live in temporary houses where usage of dwelling space is susceptible to insecurity of tenure and is affected by lack of access to basic services should be considered residentially vulnerable.

Houses with people unemployed for a significant proportion of time or with irregular employment or whose work is subject to unsanitary or hazardous conditions or have no stability of payment for services should be regarded occupationally vulnerable.

Households headed by women or minors or where the elderly are dependent on the head of household or where the level of literacy is low or members are disabled or chronically ill should be considered socially vulnerable, it said.

The expert group is yet to finalise the detailed methodology for an ordinal ranking of the poor on the basis of vulnerability.

The MHUPA official said that the BPL survey will be done by staff of municipalities or urban departments in 45 major cities.

"In smaller towns, district magistrate will be the nodal officer," he said, adding the ministry will provide technical support to the states.

The rural development ministry is mandated to conduct BPL surveys every five years.

The official said the questionnaire prepared for urban BPL survey will obtain information on several parameters including income, number of members, type of house and availability of amenities.

"The survey will also give us information about housing shortage and deficiency in services in urban areas," he said.

Ministry officials said that states had been devising their own criteria to identify urban poor or had based their estimates on rural BPL survey and National Sample Survey Office data, but this did not provide a reliable picture.