Initiatives Taken by the Government for Unearthing and Curbing Black Money: A Fact Sheet

Initiatives taken by the Investigation Division of Central Board of Direct Taxes (CBDT) for unearthing black money :

I.                   The Government of India has commissioned a study on unaccounted income/ wealth both inside and outside the country bringing out the nature of activities engendering money laundering and its ramifications on national security. The study is being conducted by three national institutes viz. National Council of Applied Economic Research (NCAER), National Institute of Public Finance & Policy (NIPFP) and National Institute of Financial Management (NIFM), with inputs from various ministries/departments. The study will be completed by the end of 2012.

II.                A  Directorate of Criminal Investigation (DCI) has been created as an attached office of the Central Board of Direct Taxes (CBDT) to track financial transactions relating to illegal / criminal activities, including illicit cross-border transactions, from the direct tax angle and bring such activities to justice. Creation of DCI is also in line with FATF recommendations to exclusively deal with tax crimes, including direct taxes.

III.             CBDT is coordinating with the Election Commission of India (ECI) for controlling political expenditure and verification of affidavits filed by candidates of political parties.

IV.            In order to strengthen the existing laws relating to black money, the Government constituted a Committee under the Chairman, CBDT to examine the measures to strengthen the existing legal and administrative framework to deal with the menace of generation of black money through illegal means including, inter alia,

a) Declaring wealth generated illegally as national asset;

b) Enacting / amending laws to confiscate and recover such assets; and

c) Providing for exemplary punishment against its perpetrators.

The Committee submitted its report to the Government on 29^th March 2012. The report has been sent to different Ministries / Organisations and State Governments for necessary action.

V.               Information received under DTAA – Information from Germany & France has been investigated. Tax evasion of more than Rs.600 crore detected and taxes of Rs.200 crore has already been realized. Prosecution proceedings have been launched in 17 cases pertaining to LGT Bank accounts. Assessment proceedings have been initiated in cases relating to HSBC accounts. Further information from outside the country is awaited in several cases. Information received from different countries under the automatic exchange of information arrangement is appropriately utilized for the purpose of investigation and assessment.

VI.            Search & Seizure, Surveys – In the last three financial years, the Investigation wing of the CBDT has detected undisclosed income of over Rs.32,000 crore besides seizing undisclosed assets valued at over Rs.2,600 crore. The Income Tax Department (ITD) has further detected undisclosed income of Rs.17,325 crore in surveys conducted at business premises.

VII.         Tax Prosecutions – Out of 1,548 prosecution cases disposed of during the last three financial years, the ITD has obtained conviction in 97 cases besides fiscal compounding in 771 cases of admitted tax evasion, leading to a success rate of 56.1 percent.

RBI permitted Banks to lend to Telecom Companies for the Upcoming Auction for Spectrum

The Reserve Bank of India (RBI) permitted banks to lend to telecom companies for the upcoming auction for spectrum, subject to conditions such as mortgaging the spectrum to the lenders. The RBI had laid down a few pre-conditions for financing of telecom firms for the auction of airwaves to protect banks against potential defaults.
The Union cabinet on 3 August 2012 approved a proposal that allows telecom companies bidding for airwaves to mortgage spectrum to raise funds from banks. The government set a reserve or base price of Rs 14000 crore for the auction.
That banks were revising their lending rates in specific maturities without lowering the base rate concerned the RBI. This activity of the banks resulted in the transmission of monetary policy signals by the central bank to be ineffective. The base rate is supposed to be responsive to changes in monetary conditions.
The RBI had formed a committee to assess the monetary policy transmission mechanism and also loan products offering fixed interest rate. The RBI want banks to enact changes in lending rates through their respective benchmark base rates for floating-rate loans.

India’s Stand on ILO Conventions Briefed to the Parliamentary Consultative Committee of M/O Labour & Employment

The Consultative Committee members of the Ministry of Labour & Employment have urged the Government to ensure due patronage to the traditional skill while going for the ratification of Conventions adopted by the International Labour Organisation (IlO) on Labour issues, especially in the arena of Child Labour. The members have also called for expediting the cause of providing a minimum pension of Rs. 1000 per month to the EPF beneficiaries as well as to ensure proper registration of workers in the unorganized sectors particularly the construction workers.

The meeting of Consultative Committee of Labour & Employment Ministry which held yesterday evening was convened for providing in insight to the members of the various conventions of ILO as ratified by the Government of India on time to time. Speaking on the occasion, Union Labour & Employment Minister Shri Mallikarjun Kharge who chaired the meeting, said India, a Founding Member of the ILO, has been a permanent member of the ILO Governing Body since 1922. ILO has now expanded its membership to 185 nations. The first ILO Office in India started in 1928. The decades of productive partnership between the ILO and its constituents has mutual trust and respect as underlying principles and is grounded in building sustained institutional capacities and strengthening capacities of partners. It has a two-directional focus for socio-economic development: overall strategies and ground-level approaches.

The Minister said the approach of India with regard to International Labour Standards has always been positive. The ILO instruments have provided guidelines and useful framework for the evolution of legislative and administrative measures for the protection and advancement of the interest of labour. It has always been the practice in India that we ratify a Convention when we are fully satisfied that our laws and practices are in conformity with the relevant ILO Convention. The ILO has so far adopted 189 Conventions and 201 Recommendations. Out of 189 ILO Conventions, India has so far ratified 43 Conventions which includes 4 (four) core or fundamental human rights Conventions.

He said we have ratified 4 core conventions and 3 priority/governance conventions. The 4 core conventions ratified by us are Forced Labour Convention (No.29), Abolition of Forced Labour Convention (No.105), Equal Remuneration Convention (No.100) and Discrimination (Employment Occupation) Convention (No.111), and the 3 priority conventions ratified are Labour Inspection Convention (No.81), Employment Policy Convention (No.122) and Tripartite Consultations (International Labour Standards) (No.144). Even where for certain reasons where we may not be in a position to ratify a Convention, we have generally voted in favour of the Convention reserving its position as far as its future ratification is concerned.

The journey of ILO over the last more than nine decades has been eventful and full of important milestones. However, the primary function of ILO is standard setting and their application. Many of the ILO Conventions are outdated and need to be revised as identified by Cartier Working Party. Even the core conventions have failed to achieve universal ratification due to lack of flexibility. Our concern is that ILO should undertake in-depth analysis to put in place a standards strategy which encourages steps like progressive ratification of a Convention. The choice of topics for future standard setting should be widened according to the requirements of all ILO member states having diverse socio-economic conditions. In the years to come, ILO must maintain its leadership in the subjects related to labour since it has the unique advantage of tripartite structure, transparency and the ability to obtain inputs from real economy, Shri Kharge added.

Shri Kharge said the challenges being faced by the Member states on Ratification and promotion of fundamental and governance ILO Conventions are due to non-conformity with national laws and lack of technical assistance. He said India’s stand is that the process of ratification of these conventions should be a gradual one and adequate time should be given to the Member States for creating favourable conditions for ratification, taking into account the socio-economic realities of each Member state. The link-up of the four Governance Conventions to the Social Justice Declaration should be more of promotional in nature. We should adopt a more pragmatic and realistic approach for ratification and promotion of these conventions through creating awareness, building capacities of the constituents, advocacy, training and technical cooperation.

A power point presentation on the preparedness and attention paid by the Government at the ILO meetings was also presented during the meeting.

Inflow of FDI

According to the UNCTAD’s World investment Report, 2012, Foreign Direct Investment (FDI) inflows of US $ 684399 million were received in developing economies of the World during 2011, of which India received 4.6%.  FDI inflows, in respect of some of the developing economies, including India, during 2011, are as under:-

DEVELOPING ECONOMIES	2011 US $ (MILLION)
China	123985
Hong Kong, China	83156
Brazil	66660
Singapore	64003
British Virgin Islands	53717
India	31554
Mexico	19554
Indonesia	18906
Chile	17299

            According to the UNCTAD’s World Investment Report, 2012, Foreign Direct Investment (FDI) inflows of US $ 31554 million have been received in India during 2011, as against FDI inflows of US $ 24159 received during 2010.

India’s Fiscal Deficit reached 37 Percent of the Budget Estimate

According to the latest data released by the Controller General of Accounts (CGA) on 1 August 2012, India's fiscal deficit in the first quarter (April-June) of the fiscal year 2012-13 stood at 1.90 lakh crore rupees which was 37 percent of the entire budget estimate.

The Union Government in the budget 2012 had pegged the fiscal deficit for the financial year 2012-13 at 5.13 lakh crore, or 5.1 percent of total GDP. Fiscal deficit during the corresponding period of fiscal year 2011-12 was 39 percent of the budget estimates amounting 1.63 lakh crore rupees.

The revenue receipts, however, increased in the first three months of fiscal year 2012-13. The revenue receipt during the given period stood at 1.18 lakh crore rupees, which was 12.7 percent of the budget estimates. Total expenditure of the government stood at 3.12 lakh crore rupees, or 21 percent of the budget estimates.

Securities and Exchange Board of India inaugurated their local office in Jaipur

Securities and Exchange Board of India (SEBI) inaugurated their local office here. Jaipur is known as the Pink City. It is the largest city in Rajasthan State.

Securities and Exchange Board of India(SEBI) inaugurated their local office in Jaipur on 4 August 2012. It was inaugurated by Rajeev Kumar Agarwal, the member of SEBI. The office will be responsible to look after all the regulatory aspects of investor protection, investor education and all the other responsibilities within Rajasthan state.

India’s NSE became the World’s Largest Bourse in Equity Segment as per WFE’s Global Ranking

As per the latest global ranking compiled and published by the World Federation of Exchanges (WFE) in August 2012, the National Stock Exchange of India (NSE) become the world’s largest bourse in terms of the number of trades in equity segment for the first six months of 2012. A total of 735474 trades took place in the equity segment of NSE in the January-June period of 2012, making it the world’s largest exchange on this parameter. NSE was followed by NYSE Euronext and Nasdaq OMX at the second and the third positions.
Industry experts attributed the recent position of NSE acquired by the bourse to growing investor base, use of latest technology and new products. NSE's platform is connected to two lakh trading terminals in more than 2000 towns and cities across the country.
NSE is the second largest exchange globally after Korea Exchange for index options. Eurex was the third largest exchange worldwide in terms of total number of index options traded during the first six months of 2012.
BSE recorded a total of 187824 trades during this period in its equity segment. The total number of listed companies is much larger in case of the BSE, the exchange however lags behind NSE significantly in terms of volume and value of trades.
The latest data published by WFE indicated that investors from tier-three cities contributed more than 45 per cent of total cash market retail turnover in the financial year 2011- 12. The tier-three cities account for more than half of the total retail investor base on NSE platform.

Bombay Stock Exchange Sensitive Index

The BSE Sensex or Bombay Stock Exchange Sensitive Index is a value-weighted index composed of 30 stocks with the base April 1979 = 100. It consists of the 30 largest and most actively traded stocks, representative of various sectors, on the Bombay Stock Exchange. These companies account for around one-fifth of the market capitalization of the BSE. 

  

Companies in the Sensex 

Name	Sector
ACC	Cement
Bajaj Auto	Automobiles (2/3 wheelers)
BHEL	Capital Goods
Bharti Airtel	Telecom and Retail
Cipla	Pharma
Dr. Reddy’s Laboratories	Pharma
Grasim Industries	Diversified
Gujarat Ambuja Cements	Cement
HDFC	Finance
HDFC Bank	Finance
Hero Honda Motors	Automobile (2 wheelers)
Hindalco Industries	Metal, Metal Products & Mining
Hindustan Lever Limited	FMCG
ICICI Bank	Banking & Finance
Infosys	Information Technology
ITC Limited	FMCG
Larsen & Toubro	Capital Goods & Construction.
Maruti Udyog	Automobiles
NTPC	Power
ONGC	Oil & Gas
Ranbaxy Laboratories	Pharma
Reliance Communications	Telecom
Reliance Energy	Power
Reliance Industries	Diversified
Satyam Computer Services	Information Technology
State Bank of India	Banking & Finance
Tata Consultancy Services	Information Technology
Tata Motors	Automobiles
Tata Steel	Metal, Metal Products & Mining
Wipro	Information Technology

Rural development ministry plans big push to MNREGA to tackle drought

The rural development ministry is preparing for a big push to its flagship employment generation programme as drought has depressed demand for farm labour. The ministry has written to state governments asking them to identify development projects under the Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA) to ensure there's enough work available for those in need.

Rural development minister Jairam Ramesh has already written to state chief ministers affected by deficient rainfall, asking them to prepare a list of new projects that could be incorporated in the MNREGA programme.

Ramesh is now touring drought-hit states of Maharashtra, Karnataka, Gujarat and Rajasthan with agriculture minister Sharad Pawar to assess the water scarcity situation.

While the all-India rainfall deficiency average at 21%, some states like Karnataka, Maharashtra, Gujarat and Rajasthan have been worse off with deficiencies as high as 64% and 78%.

The Centre wants to expedite the implementation of new projects under MNREGA to generate enough jobs as demand for employment goes up, mainly from agricultural workers.

Although allocation for NREGA was curtailed to Rs 33,000 crore this budget from Rs 40,000 crore in 2011-12, states have surplus left over from the previous year.

MNREGA has provided 5.50 crore families or nearly one in four rural households with over 250 crore person-days of work under the programme.

Delay in payments and leakages have, however, dented the scheme's initial popularity, which many attributed as one of the reasons for UPA's return to power in 2009.

Banks may move to screen-based rate for MIBOR

Banks are likely to move to actual dealt rates on a trading platform to determine overnight interbank lending rates, as regulators worldwide push for more transparent systems in the wake of the Libor scandal, officials close to the plan said.

Some Indian bankers fear that the current polling system used to determine the Mumbai interbank offered rate (MIBOR) could be similarly vulnerable to manipulation.

"Traders are closely looking at whether it will be desirable to use traded data as a benchmark."

The moves in India parallel similar efforts by regulators from London to Singapore to reform the way benchmarks for interbank borrowing rates are fixed following the investigations into the rigging of the London interbank offered rate (Libor).

Libor and other similar benchmarks are used to price trillions of dollars worth of loans and derivative contracts.

In India, Reuters and the National Stock Exchange conduct separate polling, asking banks for their assessments MIBOR, which is used as a benchmark for interest rate swaps, overnight call money, collaterised borrowing and lending obligations (CBLO), floating rate bonds and short-term corporate loans.

The debt and money market body Fixed Income Money Market and Derivatives Association ( FIMMDA) is expected to make the final decision on a new system in a month, after sounding out banks and CCIL.

Private sector bank--YES Bank, one of the lenders currently participating in polling for MIBOR, would welcome a switch.

Pakistan allows National Bank of Pakistan & United Bank to open branches in India

Pakistan's central bank has allowed two banks to open branches in India as part of efforts to normalise economic and trade relations between the two countries.

State Bank of Pakistan (SBP) Governor Yasin Anwar told the media that the National Bank of Pakistan and the United Bank Ltd had been given the "green signal" to operate in India.

In a major decision, India  allowed investment from Pakistan paving way for Islamabad to normalise bilateral economic ties by implementing much-delayed Most Favoured Nation (MFN) status for New Delhi.

India's move to allow Pakistani investments has been welcomed by businessmen on both sides of the border.

Earlier this year, Pakistan switched over to a negative list regime for trade with India, paving the way for giving the Most Favoured Nation-status to the neighbouring country.

However, recent reports have indicated that Pakistan has decided to link progress in normalising trade relations to the resolution of other issues, like the Kashmir issue and the Sir Creek border dispute.

Trade between India and Pakistan is worth a little more than $2 billion dollars and the two sides have agreed to increase it to $6 billion dollars by 2014. 

Credit Rating

Credit rating is done for debt instruments such as debentures, fixed deposits, commercial papers, bonds, etc.
The company which issues debt instruments is called an issuer or issuing company. The issuer, issues these instruments to collect finance from the investors.
The investor looks at the credit rating of the instrument and the issuer before investing. If the credit rating is a high, investor will invest in the company. That is, he will purchase the debentures, etc. issued by that company. If the credit rating is low, he will not purchase the debentures, etc. of that company. So, credit rating guides the investor while investing.
Credit rating is an opinion about a debt instrument and its issuer. It tells the investor, whether the debt instrument is safe or risky. That is, it tells whether the company will be able to pay the interest and repay the principal amount in time. Credit rating is only an opinion. It is not a recommendation. It does not ask an investor to buy, hold or sell an instrument.
So, credit rating is an opinion about the future ability and legal obligation of the issuer to make timely payments of principal amount and interest on their debt instruments. Credit rating is done by independent credit-rating agencies like S & P, which is based in USA, while CRISIL, CARE and ICRA Ltd., which are based in India. Credit rating is done by experts after examining various factors. The rating is expressed in alphabetical or alphanumeric symbols. For e.g. if the rating of debenture is AAA (Triple A), then it is considered to have the highest safety for the investor. However, if the credit rating is D, then the debenture is considered to be very risky for the investor. The issuing company asks the credit-rating agency to rate its instrument. This is done before issuing the instrument. The agency collects and studies information about the issuing company. Then it gives a rating for the instrument. This rating is not permanent. It is reviewed periodically.

Benefits of Credit Rating to Investors

The advantages, importance or benefits of credit rating to the investors are:

1. Helps in Investment Decision : Credit rating gives an idea to the investors about the credibility of the issuer company, and the risk factor attached to a particular instrument. So the investors can decide whether to invest in such companies or not. Higher the rating, the more will be the willingness to invest in these instruments and vise-versa.
2. Benefits of Rating Reviews : The rating agency regularly reviews the rating given to a particular instrument. So, the present investors can decide whether to keep the instrument or to sell it. For e.g. if the instrument is downgraded, then the investor may decide to sell it and if the rating is maintained or upgraded, he may decide to keep the instrument until the next rating or maturity.
3. Assurance of Safety : High credit rating gives assurance to the investors about the safety of the instrument and minimum risk of bankruptcy. The companies which get a high rating for their instruments, will try to maintain healthy financial discipline. This will protect them from bankruptcy. So the investors will be safe.
4. Easy Understandability of Investment Proposal : The rating agencies gives rating symbols to the instrument, which can be easily understood by investors. This helps them to understand the investment proposal of an issuer company. For e.g. AAA (Triple A), given by CRISIL for debentures ensures highest safety, whereas debentures rated D are in default or expect to default on maturity.
5. Choice of Instruments : Credit rating enables an investor to select a particular instrument from many alternatives available. This choice depends upon the safety or risk of the instrument.
6. Saves Investor's Time and Effort : Credit ratings enable an investor to his save time and effort in analyzing the financial strength of an issuer company. This is because the investor can depend on the rating done by professional rating agency, in order to take an investment decision. He need not waste his time and effort to collect and analyse the financial information about the credit standing of the issuer company.

Benefits of Credit Rating to Company

The merits, advantages, benefits of credit rating to the issuing company are:

1. Improves Corporate Image : Credit rating helps to improve the corporate image of a company. High credit rating creates confidence and trust in the minds of the investors about the company. Therefore, the company enjoys a good corporate image in the market.
2. Lowers Cost of Borrowing : Companies that have high credit rating for their debt instruments will get funds at lower costs from the market. High rating will enable the company to offer low interest rates on fixed deposits, debentures and other debt securities. The investors will accept low interest rates because they prefer low risk instruments. A company with high rating for its instruments can reduce the cost of public issue to raise funds, because it need not spend heavily on advertising for attracting investors.
3. Wider Audience for Borrowing : A company with high rating for its instruments can get a wider audience for borrowing. It can approach financial institutions, banks, investing companies. This is because the credit ratings are easily understood not only by the financial institutions and banks, but also by the general public.
4. Good for Non-Popular Companies : Credit rating is beneficial to the non-popular companies, such as closely-held companies. If the credit rating is good, the public will invest in these companies, even if they do not know these companies.
5. Act as a Marketing Tool : Credit rating not only helps to develop a good image of the company among the investors, but also among the customers, dealers, suppliers, etc. High credit rating can act as a marketing tool to develop confidence in the minds of customers, dealer, suppliers, etc.
6. Helps in Growth and Expansion : Credit rating enables a company to grow and expand. This is because better credit rating will enable a company to get finance easily for growth and expansion.

Demerits of Credit Rating

The disadvantages, limitations or demerits of credit rating are listed below.

1. Possibility of Bias Exist : The information collected by the rating agency may be subject to personal bias of the rating team. However, rating agencies try their best to provide an unbiased opinion of the credit quality of the company and/or instrument. If not, they will not be trusted.
2. Improper Disclosure May Happen : The company being rated may not disclose certain material facts to the investigating team of the rating agency. This can affect the quality of credit rating.
3. Impact of Changing Environment : Rating is done based on present and past data of the company. So, it will be difficult to predict the future financial position of the company. Many changes take place due to changes in economic, political, social, technological, legal and other environments. All this will affect the working of the company being rated. Therefore, rating is not a guarantee for financial soundness of the company.
4. Problems for New Companies : There may be problems for new companies to collect funds from the market. This is because, a new company may not be in a position to prove its financial soundness. Therefore, it may receive lower credit ratings. This will make it difficult to collect funds from the market.
5. Downgrading by Rating Agency : The credit-rating agencies periodically review the ratings given to a particular instrument. If the performance of a company is not as expected, then the rating agency will downgrade the instrument. This will affect the image of the company.
6. Difference in Rating : There are cases, where different ratings are provided by various rating agencies for the same instrument. These differences may be due to many reasons. This will create confusion in the minds of the investor.

Structure of Indian Money Market

The entire money market in India can be divided into two parts. They are organised money market and the unorganized money market. The unorganised money market can also be known as an unauthorized money market. Both of these components comprise several constituents. The following chart will help you in understanding the organisational structure of the Indian money market.

Components, SubMarkets of Indian Money Market:

After studying above organisational chart of the Indian money market it is necessary to understand various components or sub markets within it. They are explained below.

1. Call Money Market : It an important sub market of the Indian money market. It is also known as money at call and money at short notice. It is also called inter bank loan market. In this market money is demanded for extremely short period. The duration of such transactions is from few hours to 14 days. It is basically located in the industrial and commercial locations such as Mumbai, Delhi, Calcutta, etc. These transactions help stock brokers and dealers to fulfill their financial requirements. The rate at which money is made available is called as a call rate. Thus rate is fixed by the market forces such as the demand for and supply of money.
2. Commercial Bill Market : It is a market for the short term, self liquidating and negotiable money market instrument. Commercial bills are used to finance the movement and storage of agriculture and industrial goods in domestic and foreign markets. The commercial bill market in India is still underdeveloped.
3. Treasury Bill Market : This is a market for sale and purchase of short term government securities. These securities are called as Treasury Bills which are promissory notes or financial bills issued by the RBI on behalf of the Government of India. There are two types of treasury bills. (i) Ordinary or Regular Treasury Bills and (ii) Ad Hoc Treasury Bills. The maturity period of these securities range from as low as 14 days to as high as 364 days. They have become very popular recently due to high level of safety involved in them.
4. Market for Certificate of Deposits (CDs) : It is again an important segment of the Indian money market. The certificate of deposits is issued by the commercial banks. They are worth the value of Rs. 25 lakh and in multiple of Rs. 25 lakh. The minimum subscription of CD should be worth Rs. 1 Crore. The maturity period of CD is as low as 3 months and as high as 1 year. These are the transferable investment instrument in a money market. The government initiated a market of CDs in order to widen the range of instruments in the money market and to provide a higher flexibility to investors for investing their short term money.
5. Market for Commercial Papers (CPs) : It is the market where the commercial papers are traded. Commercial paper (CP) is an investment instrument which can be issued by a listed company having working capital more than or equal to Rs. 5 cr. The CPs can be issued in multiples of Rs. 25 lakhs. However the minimum subscription should at least be Rs. 1 cr. The maturity period for the CP is minimum of 3 months and maximum 6 months. This was introcuced by the government in 1990.
6. Short Term Loan Market : It is a market where the short term loan requirements of corporates are met by the Commercial banks. Banks provide short term loans to corporates in the form of cash credit or in the form of overdraft. Cash credit is given to industrialists and overdraft is given to businessmen.

Indian Money Market - Features

Every money is unique in nature. The money market in developed and developing countries differ markedly from each other in many senses. Indian money market is not an exception for this. Though it is not a developed money market, it is a leading money market among the developing countries.

Indian Money Market has the following major features or characteristics :-

1. Dichotomic Structure : It is a significant aspect of the Indian money market. It has a simultaneous existence of both the organized money market as well as unorganised money markets. The organized money market consists of RBI, all scheduled commercial banks and other recognized financial institutions. However, the unorganized part of the money market comprises domestic money lenders, indigenous bankers, trader, etc. The organized money market is in full control of the RBI. However, unorganized money market remains outside the RBI control. Thus both the organized and unorganized money market exists simultaneously.
2. Seasonality : The demand for money in Indian money market is of a seasonal nature. India being an agriculture predominant economy, the demand for money is generated from the agricultural operations. During the busy season i.e. between October and April more agricultural activities takes place leading to a higher demand for money.
3. Multiplicity of Interest Rates : In Indian money market, we have many levels of interest rates. They differ from bank to bank from period to period and even from borrower to borrower. Again in both organized and unorganized segment the interest rates differs. Thus there is an existence of many rates of interest in the Indian money market.
4. Lack of Organized Bill Market : In the Indian money market, the organized bill market is not prevalent. Though the RBI tried to introduce the Bill Market Scheme (1952) and then New Bill Market Scheme in 1970, still there is no properly organized bill market in India.
5. Absence of Integration : This is a very important feature of the Indian money market. At the same time it is divided among several segments or sections which are loosely connected with each other. There is a lack of coordination among these different components of the money market. RBI has full control over the components in the organized segment but it cannot control the components in the unorganized segment.
6. High Volatility in Call Money Market : The call money market is a market for very short term money. Here money is demanded at the call rate. Basically the demand for call money comes from the commercial banks. Institutions such as the GIC, LIC, etc suffer huge fluctuations and thus it has remained highly volatile.
7. Limited Instruments : It is in fact a defect of the Indian money market. In our money market the supply of various instruments such as the Treasury Bills, Commercial Bills, Certificate of Deposits, Commercial Papers, etc. is very limited. In order to meet the varied requirements of borrowers and lenders, It is necessary to develop numerous instruments.

Recent Reforms in Indian Money Market

Indian Government appointed a committee under the chairmanship of Sukhamoy Chakravarty in 1984 to review the Indian monetary system. Later, Narayanan Vaghul working group and Narasimham Committee was also set up. As per the recommendations of these study groups and with the financial sector reforms initiated in the early 1990s, the government has adopted following major reforms in the Indian money market.

Reforms made in the Indian Money Market are:-

1. Deregulation of the Interest Rate : In recent period the government has adopted an interest rate policy of liberal nature. It lifted the ceiling rates of the call money market, short-term deposits, bills rediscounting, etc. Commercial banks are advised to see the interest rate change that takes place within the limit. There was a further deregulation of interest rates during the economic reforms. Currently interest rates are determined by the working of market forces except for a few regulations.
2. Money Market Mutual Fund (MMMFs) : In order to provide additional short-term investment revenue, the RBI encouraged and established the Money Market Mutual Funds (MMMFs) in April 1992. MMMFs are allowed to sell units to corporate and individuals. The upper limit of 50 crore investments has also been lifted. Financial institutions such as the IDBI and the UTI have set up such funds.
3. Establishment of the DFI : The Discount and Finance House of India (DFHI) was set up in April 1988 to impart liquidity in the money market. It was set up jointly by the RBI, Public sector Banks and Financial Institutions. DFHI has played an important role in stabilizing the Indian money market.
4. Liquidity Adjustment Facility (LAF) : Through the LAF, the RBI remains in the money market on a continue basis through the repo transaction. LAF adjusts liquidity in the market through absorption and or injection of financial resources.
5. Electronic Transactions : In order to impart transparency and efficiency in the money market transaction the electronic dealing system has been started. It covers all deals in the money market. Similarly it is useful for the RBI to watchdog the money market.
6. Establishment of the CCIL : The Clearing Corporation of India limited (CCIL) was set up in April 2001. The CCIL clears all transactions in government securities, and repose reported on the Negotiated Dealing System.
7. Development of New Market Instruments : The government has consistently tried to introduce new short-term investment instruments. Examples: Treasury Bills of various duration, Commercial papers, Certificates of Deposits, MMMFs, etc. have been introduced in the Indian Money Market.

These are major reforms undertaken in the money market in India. Apart from these, the stamp duty reforms, floating rate bonds, etc. are some other prominent reforms in the money market in India. Thus, at the end we can conclude that the Indian money market is developing at a good speed.

Public Debt In India

During recent years, public debt in India has been growing at an alarming rate. The under developed nature of the economy & institutional credit deficiencies makes the financing of economic development a complicated problem.  Hence the government has to play a key role in stimulating the rate of capital formation & in promoting the economic development of the economy.

So public debt can be used by the government as means for mobilising the resources.
  

Internal Debt

The internal debt is a major component of public debt of the central government of India.
The following are the various components of internal debt. 

1. Market Loan
These have a maturity period of 12 months or more at the time of issue and are generally interest bearing. The government issues such loans almost every year. These loans are raised in the open market by sale of securities or otherwise. Total market loans as at the end of March 2005 are estimated at Rs. 7,58,999 crores. 

2. Bonds

The Government borrows funds by way of issue of bonds. The government obtains funds through the issue of bonds such as National Rural Development Bonds, Central Investment Bonds. The bonds are issued at different maturity periods, which may range from 3 years to 10 years period. They provide medium-term to long-term funds to the government.

3. Treasury Bills
A major source of short-term funds for the government is obtained by issue of treasury bills. At present, government issues 91 day and 364 day treasury bills. The treasury bills are purchased by commercial banks and others. 

4. Special Floating and Other Loans

These represents India's contribution towards share capital of international financial institutions like IMF, World Bank, International Development Agency and so on. These are non-negotiable and non-interest bearing securities. The Government of India is liable to pay the amount at the call of these institutions. Accordingly, it is a short-term debt upon the Government of India.

5. Special securities issued by RBI
The government obtains temporary loans for a period of maximum 12 months from RBI and issues special securities, which are non-negotiable and non-interest bearing. Such securities provide short term funds to the Government.

6. Ways and Mean Advances
The Government of India obtains ways and means advances from the Reserve Bank of India to meet its short period expenditure. These debts are purely temporary in nature and are usually repaid within three months.

7. Securities against small savings

Since 1999-2000, under the new accounting system, national small savings have been converted into the Central Government securities. As a result there has been a sharp increase in internal debt and corresponding decline in small savings.

External Debt

External debt refers to the liabilities of the Indian Government, public sector, private sector and financial institutions to overseas parties.
The government of India has raised foreign loans from U.S.A, U.K, France, U.S.S.R, Japan, etc.
External Debt rose from Rs. 31,525 crores in 1990-91 to Rs. 68,392 crores in 2005-06.
The external debt can be broadly divided into two groups :

A. Long term debt :

1. Multilateral borrowings,
2. Bilateral borrowings
3. Loans from IMF, World Bank, etc.

B. Short term debt :
It is to be noted that the overall external debt of India comprises of Government debt and Non-government debt. The Government debt is owed by Govemment authorities, both Central and State Governments, whereas the non-Government debt is owed by private parties in India. In terms of composition, India's external debt has shifted in favour of private debt over the last decade.

 Other Internal Liabilities

The government does not include liabilities under Public Debt. However, the government is liable to make repayment of these liabilities. 

1. Small Savings

In recent years small savings have increased due to rising money income in the economy.
Recently the Government of India launched a number of small savings instruments. These include 9% Relief Bonds 1987, Kisan Vikas Patras, Indira Vikas Patras, etc.

2. Provident Funds
Provident funds are divided into two categories :-

1. Employee Provident Funds meant for employees.
2. Public Provident Funds meant for general public.

3. Other accounts

Other accounts include Postal Insurance and Life Annuity Fund, Borrowings against Compulsory Deposits, Income Tax Annuity Deposit, Special Deposit of Non-Government Provident Fund and Outstanding Amount.

4. Reserve Funds and Deposits
Reserve Funds and Deposits are divided into two categories :-

1. Interest bearings and
2. Non-interest bearings.

They include depreciation and reserve funds of Railways, Department of Post, Telecommunication, Deposits of Local Funds, Departmental and Judicial Deposits, Civil Deposits, etc.

NSTFDC and SBI Sign Refinance Agreement

The National Scheduled Tribe Finance and Development Corporation (NSTFDC) and State Bank of India (SBI) signed a Refinance Agreement on August 1 in the presence of Shri V. Kishore Chandra Deo, Union Minister of Panchayati Raj and Tribal Affairs. The agreement was signed by the Shri Gur Saroop Sood, Chairman-cum-Managing Director of NSTFDC and Shri A. Krishna Kumar, Managing Director and Group Executive (NB) of SBI. On the occasion, Shri Kishore Chandra Deo said that this is a significant occasion when State Bank of India, the largest Public Sector Bank in the country, has entered into an arrangement with NSTFDC for channelizing concessional loans to the Scheduled Tribes. This also reflects positively on the SBI that they not only cater to the large business houses and high net worth individuals and industrialists but are also committed to economic upliftment of the weaker sections of the society.

The Minister said that today’s arrangements would open a new era towards micro financing of needy Scheduled Tribes by NSTFDC through SBI. Under the arrangements, NSTFD would provide refinance to SBI for loans extended to Self Help Group comprising all ST members. ST beneficiaries would pay concessional interest rate of 6% p.a. only. This arrangement would open doors of more than 14000 branches of SBI to the needy Scheduled Tribes Community for seeking loans upto RS. 5 lakh at the concessional rate.

He informed that the NSTFDC is an apex organization or economic development of Scheduled Tribes, was set up in April 2001 under the Ministry of Tribal Affairs. This Corporation provides financial assistance to Scheduled Tribes at concessional rates of interest for taking up income generation activities. The Corporation in its 11 years of operations has sanctioned financial assistance for schemes costing around Rs. 2200 crore. of this NSTFDC share is around Rs. 1200 crore, while the balance has been met by way of margin money/subsidy/promoters contribution. This financial assistance has benefited around Rs. 5 lakh STs throughout the country.

Shri Deo said that most of the STs are geographically isolated and under-privileged on most of the development indices. This calls for specific need based intervention from developmental agencies and not a ‘one size fit all’ approach. He said that within the framework of schemes of NSTFDC, a tribal can take up any vocation suited to his/her aptitude, skill set, habitat etc. There is a complete flexibility in this regard. He can opt to obtain assistance for agricultural or services or transport or even industrial sector activity. NSTFDC’s recently launched Education Loan Scheme is also calibrated to empower ST students for obtaining professional/technical education and for pursuing Ph.D in India. The NSTFDC is not only implementing its schemes through State Channelizing Agencies but is also increasingly exploring the avenues of reaching out through Public Sector Banks and Regional Rural Banks who have entered into agreements with NSTFDC.

United States all set to become biggest supplier of Gold to India

India's lust for gold is legendary. Indian households hold over $950 billion of the yellow metal, revealed a recent research by Macquarie research. India imports most of its requirements: a quarter of all the gold sold globally is imported by us.

But in recent times, another country has matched India's hunger for gold. China, the largest producer of the precious metal, became a net importer in 2011, as domestic demand soared.

Sometime this year, China is expected to overtake India as the largest gold consumer. China, which is among the top producers of gold globally, has high entry barriers for private miners and also uses its production for building up national reserves.

Entry barriers for entrepreneurs are high in Russia as well. South Africa and Australia, both big producers of the yellow metal, are becoming unpopular due to, respectively, high taxation and high production costs.

Some European gold reserves, for example the Rosia Montana in Romania, the largest untapped reserves in Europe, are facing problems due to environmental regulations.

That begets the question: where will India get its gold from? The US, and other countries in the Americas. North America has always been significant in the global gold stakes.

Globally, there have been 99 significant gold discoveries (defined as a deposit containing at least 2 million oz of the metal) during 1997-2011.

The Americas hold the greatest share in these discoveries—not surprising given that the Americas have accounted for more than half the industry's discovery-oriented gold exploration spending during the period.

In 2010, the gold exploration budget rose to $5.4 billion, which was 59% more than in 2009. In 2011, mines in the US produced gold worth about $12 billion.

Gold mining companies are again flocking to the Americas. In Canada, miners are making huge new discoveries as well re-starting old mines that were deserted due to lack of funds. In 2011, production rose 21% year-on-year to Canada's highest output in five years. Mexico's large mineral belts have been equally attractive for gold miners.

North America Accounts for Lion's Share

With 2011 production coming in at an estimated 85 mt, Mexico has seen a 254% increase in output. In all, North America was responsible for 16% of mine production in 2011.

And with a year-on-year production growth of 9%, well above the global average, along with a bevy of ongoing junior exploration, North America will be pumping out gold from a lot of new mines.

Post office to launch mobile remittance scheme

Postal Department is launching an instant money remittance scheme, mobile remittance scheme, in tie-up with the BSNL infrastructure by next month, Chief Postmaster General (Kerala Circle) Sobha Koshy said today.

In the first phase the scheme will be implemented in selected states like Kerala, Bihar, New Delhi and Punjab, Koshy told reporters after releasing a special postal cover in connection with the ruby jubilee celebrations of Kottayam Press Club.

In Kerala the scheme will be implemented in selected 30 post offices in Idukki, Aluva and Pathanamthitta. As per the scheme a person can send money through the post office which will send a message to the other post office about the amount to be given to the other person, she said.

Koshy said the process of computerising the entire postal network in the country, numbering 1,55,000 post offices, was going on. In Kerala out of 1507 post offices, except 29 post offices rest are computerised.

The department is also planning to implement a range of products including e-post facility instead of letter, electronic money order scheme by which upto Rs 5000 will be sent with a small message, M O Videsh and pick-up service.

IT-BPO, A Key Sector of Indian Economy

The year 2011-12 was marked by growing global uncertainties. Global recovery has stalled, growth prospects have dimmed and downside risks have escalated. By contrast, the Indian IT-BPO Industry (including hardware) continued to exhibit resilience. It weathered uncertainties in global business environment and reached a significant milestone in the year 2011-12 by aggregating revenue of US $ 101 billion, a growth of about 14.7 per cent over the previous year. Thus, the year 2011-12 is a landmark year for the IT-BPO Industry.

The Indian software and services export including BPO exports is estimated at US $ 68.7 billion in 2011-12, an increase of 16.4 per cent. The IT services exports is estimated to be US $ 39.8 billion, showing a growth of 18.8 per cent. BPO exports are estimated to grow to US $ 15.9 billion in 2011-12, a year-on-year growth of about 12 per cent. IT services contributed 58 per cent of total IT-BPO exports in 2011-12, followed by BPO at 23 per cent and Software products/engineering services at 19 per cent.

USA continues to drive IT-BPO exports growth. Growth is being driven by higher demand for IT services and support. Continental Europe and UK, the second largest markets for Indian IT-BPO exports are seeing their share decline in the last three years. Indian service providers have been aggressively growing business in the Asia-Pacific (APAC) market. Aimed at reducing their geographic dependency and spread currency risk, APAC is growing fastest at nearly 18 per cent; its share in total IT-BPO exports is expected to increase to nearly 8 per cent.

The IT-BPO market is being driven by demand across all key consumer segments. Notwithstanding the growth witnessed in the IT-BPO domestic segment, it accounts for a little over 21 per cent of overall industry revenues. India continued its dominant position as the leading sourcing market as compared to other emerging economies. Its share is global sourcing stood at 58 per cent in 2011.

The IT-BPO sector has become one of the key sectors for the Indian economy because of its economic impact. The sector is responsible for creating significant employment opportunities in the economy. Direct employment within the IT-BPO sector reached 2.77 million, with over 2,30,000 jobs being added in 2011-12.

The spectacular growth performance in the IT-BPO industry in the last decade has helped the industry contribute substantially to India's GDP. In 2011-12, this sector’s contribution to GDP is estimated to be 7.5 per cent. The IT-BPO industry has played a key role in putting India on the world-map. This segment has enormous potential to grow in the year to come. By 2012-13, this would have developed to a potential to touch US $ 100 billion in revenues as compared to US $ 87.7 billion in 2011-12, a growth of about 14 per cent.

Financial Inclusion

In his Budget Speech 2010-11, the Finance Minister had directed all banks to provide appropriate banking facilities to habitations having population in excess of 2000 by March, 2012 using various models and technologies including branchless banking through Business Correspondents (BCs). The Financial Inclusion Campaign has been named ‘Swabhimaan’. The Banks formulated their road maps for Financial Inclusion through the mechanism of the State Level Bankers Committee (SLBCs) and had identified approximately 74,000 habitations across the country having a population of over 2000 for providing banking facilities. These habitations were allocated to Public Sector Banks, Regional Rural Banks, Private Sector Banks and Cooperative Banks for extending banking services by March, 2012. As per information received from SLBC Convener Banks, out of 74,398 villages identified under the campaign, 74,194 villages have been covered and 3.16 crore Financial Inclusion bank accounts have been opened by end of March, 2012.

Further, the banks have been advised to set up Ultra Small Branches in villages covered under Business Correspondent model where the officer designated by the bank would be available with a lap top on predetermined day and time in a week. While the cash services would be offered by the Business Correspondent Agent, the bank officer would offer other services to be offered by the bank, undertake field verification and follow up the banking transactions.

The Government issued Strategy and Guidelines on Financial Inclusion in October, 2011, vide which it was, inter-alia, advised to banks to open bank branches by September 2012 in all habitations of 5,000 or more population in under banked districts and 10,000 or more population in other districts. As per reports received from the Convener Banks of State Level Bankers Committees (SLBCs), of the 3,905 bank branches to be opened, 739 bank branches have been opened by end of April, 2012.

Regional Rural Banks (RRBs) have also been advised to work out branch expansion plan such that there is an increase of 10% in bank branches in 2011-12 and also in 2012-13 over the respective previous years. As per provisional data, RRBs opened 914 branches during 2011-12.

Of the 71 unbanked blocks in the country, as on 31 March, 2011, with the persistent efforts of the Government, banking facilities have been provided in all unbanked blocks by March 31, 2012. As a next step it has been advised to cover all those blocks with Business Correspondents and Ultra Small Branch which have so far been covered by mobile banking only.