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10 April, 2020

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Paper Topics Subject
GS-II India Revokes Ban on Export of Hydroxychloroquine and India-USA Trade Ties International Relations
400 mn Indian workers to face poverty: ILO
PT Pointer Madhya Pradesh railways designs mobile doctor booth called ‘CHARAK’ Economic Issues
Bank Board Bureau Economic Issues
Important GS Topics Angel Funds Economic Issues
Gadgil-Mukherjee Formula Economic Issues
GDP deflator Economic Issues
GS-II : International Relations
India Revokes Ban on Export of Hydroxychloroquine and India-USA Trade Ties

India Revokes Ban on Export of Hydroxychloroquine and India-USA Trade Ties

Part of: GS Prelims and GS-III-Economy

Recently, India revoked its earlier ban on the export of malaria drug hydroxychloroquine (HCQ), which is being used to treat Covid-19.

Note: India last month banned exports of 16 drugs, including hydroxychloroquine and paracetamol. President Trump had sought the lifting of the embargo placed on hydroxychloroquine exports to the US

Important

  • U.S. Pressure: The ban on HCQ was revoked by India after U.S. President said that India could invite “retaliation” if it withheld supplies of HCQ.
    • Earlier, the government of India placed HCQ on a restricted items list, and later put a blanket ban on any export of the drug.
  • India’s Stand: Revocation has been done in view of the humanitarian aspects of the pandemic.
  • Neighbouring Countries: India has decided to licence paracetamol and HCQ in appropriate quantities to all its neighbouring countries who are dependent on its capabilities.
    • It will also supply these essential drugs to some nations that have been particularly badly affected by the pandemic.
  • Pre-existing Orders: The government will fulfill the pre-existing orders, mainly to the U.S., Brazil and European countries, as they have made advance payments on their orders.
  • Domestic Demand: The orders will be fulfilled depending on the stock position and domestic demand for the drug, which would be continuously monitored.
    • The government said that currently it has sufficient stock of the HCQ drug.

Hydroxy-chloroquine

  • Hydroxy-chloroquine is an oral drug used in the treatment of malaria and some autoimmune diseases such as rheumatoid arthritis.
    • Malaria is a disease caused by mosquito bite of female Anopheles and spreads through parasites.
    • Autoimmune diseases are in which the body's immune system attacks healthy cells.
    • Rheumatoid arthritis is a chronic inflammatory disorder affecting many joints, including those in the hands and feet.
  • Hydroxy-chloroquine against COVID-19:
    • Recent studies show that the HCQ drug alone or in combination with azithromycin appears to reduce the virus quickly.
    • Further, the study suggests that prophylaxis (treatment given to prevent disease) with hydroxy-chloroquine at approved doses could prevent SARS-CoV-2 infection.
    • Although the drug has some side effects, it is linked to instances of cardiac arrhythmia and liver damage. Wide use may handicap the people’s ability to fight the disease.

India –USA trade ties

As per the current way of calculation, India-US trade is becoming more balanced. In 2016, the deficit (US trade deficit with India) was $24 billion. It came down to $22 billion in 2017 and is $20 billion now. The officials said that with increasing imports of oil and gas, this would reduce further.

History: Trade between the United States and India has grown steadily ever since India’s economy began to take off in the mid-1990s and its information technology sector shot to prominence in the early 2000s. From 1999 to 2018, trade in goods and services between the two countries surged from $16 billion to $142 billion. India is now the United States’ eighth-largest trading partner in goods and services and is among the world’s largest economies. India’s trade with the United States now resembles, in terms of volume, U.S. trade with South Korea ($167 billion in 2018) or France ($129 billion).

But as trade between Washington and New Delhi has increased, so too have tensions. U.S. and Indian officials have disagreed for years on tariffs and foreign investment limitations, but also on other complicated issues, particularly within agricultural trade. Concern for intellectual property rights has preoccupied the United States for thirty years, while issues concerning medical devices and the fast-growing digital economy have more recently emerged. On top of this, the Donald J. Trump administration has exacerbated tensions by creating new dilemmas, including a focus on bilateral trade deficits and the application of fresh tariffs, prompting retaliation from Indian government.

Deficits and Tariffs

The Trump administration’s approach to trade resulted in three new areas of friction that had not previously been on the already extensive menu of economic tensions with India. Bilateral trade deficits Previously not a top U.S. trade concern, these became a major focus when Trump issued an executive order in 2017 requiring a study of the United States’ most significant trade deficits. India has slightly narrowed the trade deficit in goods with the United States, which went from $24.3 billion in 2016, the tenth-largest that year, to $23.3 billion in 2019, the eleventh-largest. Indian negotiators have proposed reducing the deficit via major purchases of products including liquefied natural gas and aircraft.

 

Tariffs. The Trump administration began applying new tariffs in 2018 on steel and aluminum imports from dozens of countries, including India, using a national security exemption in U.S. trade law. In response, New Delhi drew up a list of retaliatory tariffs and filed it with the World Trade Organization (WTO), but held off on applying them.

Generalized System of Preferences (GSP): Following a public review process, the Trump administration removed India from the GSP program, a special trade treatment for developing countries. One qualification of the program is “equitable and reasonable” access to that country’s markets for U.S. goods and services, and the administration noted still-significant trade barriers in India. Shortly after the Trump administration pulled India from the GSP, India pulled the trigger on its retaliatory tariffs, after which the United States filed a dispute at the WTO. These retaliatory tariffs remain in place.

Agricultural Products: Although agricultural products are not the largest component of U.S.-India trade, tensions over them are long-standing and remain among the most difficult to resolve. The United States exported around $1.5 billion worth of agricultural products to India in 2018 and imported $2.7 billion. Exports to India include fruit, nuts, legumes, cotton, and dairy products, which are important to the economies of California, Montana, and Washington. Spices, rice, and essential oils are the top agricultural items imported from India to the United States.

India’s 2019 retaliatory tariffs included U.S. almonds, walnuts, cashews, apples, chickpeas, wheat, and peas—and came on top of globally applied tariff hikes by New Delhi. India imposed a retaliatory tariff of 20 percent on in-shell walnuts, added to a 2018 global duty hike to 100 percent. U.S. in-shell walnuts now carry a duty of more than 120 percent in India, according to the California Walnut Board and Commission. Apples, an iconic product of Washington State, were hit with a 20 percent tariff, on top of an existing 50 percent duty for all countries.

Negotiations over U.S. dairy products have gone on for years. It is difficult for U.S. dairy farmers to sell their products in India, according to the International Dairy Foods Association, because India requires that dairy products are “derived from a dairy cow that has been fed a vegetarian diet for its entire life.” India defends its position on religious and cultural grounds, whereas the association calls these requirements “scientifically unwarranted.”

India rejected U.S. proposals in 2015 and 2018 for consumer labels indicating the diet of dairy animals. Frustrated, the National Milk Producers Federation and the U.S. Dairy Export Council sought India’s removal from the GSP program.

Intellectual Property Rights: Intellectual property rights in India have been a chief U.S. concern since at least 1989, the year of the first “Special 301 report” mandated by Congress to identify intellectual property issues in trade. Concerns include piracy of software, film, and music and weak patent protections, among others. In that first report, India was one of eight countries placed on a priority watch list.

India has remained on the watch list, despite some progress. To comply with its obligations as part of the WTO’s Agreement on Trade-Related Aspects of Intellectual Property Rights, India amended its patent act to recognize product rather than process patents, meaning that replicating a product using a different process would qualify as an infringement. This came into force in 2005. However, the United States has sought further improvements. By 2018, Washington still cites insufficient patent protections, restrictive standards for patents, and threats of compulsory licensing. Other U.S. concerns include India’s copyright regime and whether current approaches can deliver “pro-innovation and -creativity growth policies.”

Investment Barriers: India has limited foreign investment in sectors such as insurance and banking for decades. While India has substantially liberalized foreign direct investment (FDI) procedures, issues remain. The insurance industry has an FDI limit of 49 percent and a requirement that companies be Indian-controlled. In banking, foreign ownership is capped at 74 percent. Media also face foreign investment limits: 49 percent for cable television, 26 percent for FM radio, 74 percent for direct-to-home satellite broadcasting, 49 percent for television news, and 26 percent for print newspapers and periodicals.

In single-brand retail, which comprises companies such as Nike that sell only their own goods, Indian rules permit 100 percent FDI but have some local sourcing requirements. Multi-brand retail is permitted up to 51 percent FDI, however Indian states can opt in or opt out of allowing this type of foreign investment; currently, only around nine of India’s twenty-nine states permit it (plus a small union territory). Additional requirements for multi-brand include at least $100 million in infrastructure investment, as well as local sourcing conditions.

Harley-Davidson Motorcycles

President Trump has often bemoaned India’s high tariffs on motorcycles—they stand at 50 percent for some Harley-Davidson models. However, Trump is not the first U.S. president to focus on market access for America’s iconic bike. In 2007, during the George W. Bush administration, trade negotiators agreed to a deal under which Harley-Davidsons would be able to enter India in exchange for Indian mangoes gaining access to the U.S. market.

However, the mangoes-for-motorcycles deal wasn’t about tariffs, and instead worked through issues over emissions regulations and a pest-control irradiation process for mangoes in India to open up new trade. It turned out that high Indian duties on large-engine motorcycles made Harleys too expensive for Indian consumers. To make the bikes more affordable, Harley-Davidson built an assembly plant in India for less expensive models, which were imported unassembled and subject to much lower duties. The managing director for Harley-Davidson India told at the time that assembly in India would bring down duties by around 40 percent.

When Trump raised the issue of India’s motorcycle duties in 2017, tariffs were at 75 percent for the largest engine imports. Harley-Davidson sold fewer than 3,700 units in India that year, and most were cheaper models assembled in India. The tariffs on these more expensive, larger motorcycles fell to 50 percent after Trump discussed the issue with Modi in 2018, but Trump has said that 50 percent is “still unacceptable.”

Medical Devices: The Office of the U.S. Trade Representative (USTR) expressed concern for years about customs duties on medical equipment and devices, and tensions were exacerbated in 2017 when the Indian government applied new price controls on coronary stents and knee implants. The following year, USTR explained the impact of the price controls in its National Trade Estimate report. U.S. manufacturers sought permission from the Indian regulatory authority to pull these devices from the market but were denied, forcing U.S. suppliers to “sell their products at a loss in the Indian market for up to eighteen months.”

Digital Economy: With the rise of the digital economy, and with India’s growing heft as a hub for information technology services and for digital businesses, new frictions have emerged over data localization, data privacy, and e-commerce. Unlike China, which largely operates on its own digital systems, India uses many U.S. platforms, and many U.S. companies have back-office operations in India. These platforms, enjoyed by India’s half a billion internet users, generate enormous data flows, and Indian leaders are well aware of the tremendous value of this data. Prime Minister has called it the “new oil” and “new gold.”

But the United States is concerned about how India has handled this new resource. In 2018, India’s central bank ordered companies “that operate a payment system in India”—meaning credit card companies and digital payment platforms such as PayPal—to store all data on local servers. This at first led to confusion about jurisdiction for cross-border transactions, and then a clarification that such data could be processed abroad but must ultimately be stored in India. 

e-commerce sector: In the e-commerce sector, long-standing rules prohibit foreign investment in platforms that sell directly to consumers, so foreign e-commerce operators in India use a marketplace model. That means they provide the technology platform to connect buyers with sellers. A midstream change in December 2018 to e-commerce rules about subsidiaries of foreign-owned platforms earned mention in the 2019 U.S. National Trade Estimate about limiting access to India’s market.

Finally, India is developing a comprehensive data protection policy. Digital economy experts say a new bill introduced in Parliament in December 2019 is similar to the European Union’s General Data Protection Regulation. The current draft offers provisions for individual data protections, provides carve-outs for specific government requests for data, and creates a new identity verification proposal for social media. Much could change as legislators review and debate the bill, but given the size of India’s digital economy, these issues will only become more central to U.S.-India trade relations.

Visas in Services Trade: Most of the above flash points center on U.S. concerns about the Indian economy, mostly because the U.S. economy presents fewer barriers. Yet, the Indian government has continued to highlight services trade and the “movement of natural persons,” or procedures typically involving a visa regime by which a citizen of one country can perform services work in another country. For India, this falls squarely in the world of trade, but for the United States, these are immigration matters that cannot be negotiated in trade deliberations. In the United States, H1B and L1 visas permit highly skilled workers from other countries to be employed, with an annual limit of sixty-five thousand regular applications and another twenty thousand for those who have earned an advanced degree in the United States.

Due to its large pool of highly skilled workers, India is extremely competitive in services, and its professionals work around the world. Of the top ten companies with H1B-approved petitions in 2018, four are Indian firms, three of which are at the very top. Over the past fifteen years, the proportion of approved H1B petitions from India went from just under 40 percent to more than 70 percent. India’s negotiating posture has long prioritized further opening other countries’ visa regimes for services workers; this was an unmet ambition, for example, of India’s in talks on the Regional Comprehensive Economic Partnership, a trade pact of fifteen countries, including China, that India opted out of after years of negotiations.

The Indian government continues to object to U.S. laws passed in 2010 and 2015 that apply higher fees on companies with more than fifty employees if more than half of those employees are in the United States as nonimmigrants. In 2016, India filed a trade dispute at the WTO over these visa fees, arguing that the higher fees “raised the overall barriers for service suppliers from India.” The WTO dispute is ongoing. India has also expressed concerns over visa processing delays, including more requests for evidence, which prolong review times, and increased rejection rates under the Trump administration.

Way Forward: In recent times both countries can understand the significance of each other and can cooperate. In the time of COVID-19 USA has been realising the significance of India which is still the largest market of the world and can help USA in countering China rise.

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GS-II :
400 mn Indian workers to face poverty: ILO

400 mn Indian workers to face poverty: ILO

Part of: GS Prelims and GS-III- Economy-Labour

 

The impact of COVID-19 is gaining momentum on the negative front. In order to prevent coronavirus spread and to save lives our Indian economy has put lockdown in the whole nation which is adversely affecting the market and labour specially in the unorganized sectors.

Recently the International Labour Organization (ILO) has released a report titled ‘ILO Monitor 2nd edition: COVID-19 and the world of work- Updated estimates and analysis’ which has also stated that about 400 million people working in the informal economy in India are at risk of falling deeper into poverty due to the coronavirus crisis.Current lockdown measures in India are at the high end of the University of Oxford’s COVID-19 Government Response Stringency Index, which have forced many of the workers to return to rural areas. This report is a follow-up of first edition of the ILO Monitor regarding COVID-19.

  • On the global front, employment losses are rising rapidly as there are two billion people working in the informal sector (mostly in emerging and developing economies).
  • As of April 1, 2020, ILO’s new global estimated that there are chances of expulsion of 195 million full-time jobs or 6.7% of working hours globally in the second quarter of 2020.

Key Points from ILO Report:

-The coronavirus pandemic is the worst global crisis since World War II. Four out of five people (81%) in the global workforce of 3.3 billion are currently affected by full or partial workplace closures.

-Along with India, the number of workers in the informal economy of Nigeria and Brazil are also facing the same crisis due to lockdown.

Most affected region: Arab States are facing severe decline in the working hours and employment with 8.1% reduction in working hours which is equivalent to 5 million full-time workers. These are followed by Europe (7.8%, or 12 million full-time workers) and Asia and the Pacific (7.2%, 125 million full-time workers).

Most affected income group: Huge losses are expected across different income groups but especially in upper-middle income countries (7.0%, 100 million full-time workers).

Most affected sectors: Sectors which are at high risk are Accommodation and food services, Real estate; business and administrative activities, Manufacturing, and Wholesale and retail trade; repair of motor vehicles and motorcycles.

Measures needed to revive the COVID-19 impact; focused on 4 pillars

The tragic situations facing by the workers and businesses in both developed and developing economies need urgent measures for revival through international cooperation. As per report large-scale, integrated, policy measures were needed, focusing on four pillars:

  • Supporting enterprises, employment and incomes
  • Stimulating the economy and jobs
  • protecting workers in the workplace
  • Using social dialogue between government, workers and employers to find solutions

 

PT PICKSUP

About International Labour Organization (ILO)

  • International Labour Organization (ILO) is a United Nations agency dealing with labour issues, particularly international labour standards, social protection, and work opportunities for all.
  • ILO was created in 1919, as part of the Treaty of Versailles that ended World War I, to reflect the belief that universal and lasting peace can be accomplished only if it is based on social justice. It became specialized agency of the United Nations in 1946.
  • It is a tripartite organization, the only one of its kind bringing together representatives of governments, employers and workers in its executive bodies.
  • Since 1919, the International Labour Organization has maintained and developed a system of international labour standards aimed at promoting opportunities for women and men to obtain decent and productive work, in conditions of freedom, equity, security and dignity.
  • In 1969ILO received the Nobel Peace Prize for improving fraternity and peace among nations, pursuing decent work and justice for workers, and providing technical assistance to other developing nations.
  • India is a founder member of the International Labour Organization.
  • The Headquarter of ILO is in Geneva, Switzerland.

 

In NEWS

In 2019, the International Labour Organization (ILO), the UN specialized agency celebrates its 100th anniversary.

  • In the run up to the anniversary seven Centenary Initiatives are being implemented as part of a package of activities aimed at equipping the Organization to take up successfully the challenges of its social justice mandate in the future.

Seven Centenary Initiatives

  • The future of work initiative : Initiating and cultivating a global dialogue on the future of work, to build the ILO’s ability to prepare and guide governments, workers and employers to better meet the world of work challenges of the next century.
  • The end to poverty initiative: Promoting a multidimensional response through the world of work, labor markets, and social and employment protection to eradicate global poverty.
  • The women at work initiative: Reviewing the place and conditions of women in the world of work and engaging workers, employers and governments in concrete action to realize equality of opportunity and treatment.
  • The green initiative: Scaling up the ILO’s office-wide knowledge, policy advice and tools for managing a just transition to a low carbon, sustainable future.
  • The standards initiative: Enhancing the relevance of international labour standards through a standards review mechanism and consolidating tripartite consensus on an authoritative supervisory system.
  • The enterprises initiative: Establishing a platform for ILO engagement with enterprises which would contribute to their sustainability and to ILO goals.
  • The governance initiative: Reforming the ILO’s governance structures, assessing the impact of the 2008 Declaration as set out in its final provisions, and act on its finding.

Eight Core International Labour Organisation (ILO) Conventions

  • India has ratified six out of the eight core/fundamental ILO Conventions. These are
    • Forced Labour Convention, 1930 (No. 29),
    • Abolition of Forced Labour Convention, 1957 (No. 105),
    • Equal Remuneration Convention, 1951 (No. 100),
    • Discrimination (Employment and Occupation) Convention, 1958 (No. 111),
    • Minimum Age Convention, 1973 (No. 138) and
    • Worst Forms of Child Labour Convention, 1999 (No. 182).
  • India has not ratified the core/fundamental Conventions, namely Freedom of Association and Protection of the Right to Organise Convention, 1948 (No. 87) and Right to Organise and Collective Bargaining Convention, 1949 (No. 98).
  • The main reason for non-ratification of ILO Conventions No.87 & 98 is due to certain restrictions imposed on the Government servants.
  • The ratification of these conventions would involve granting of certain rights that are prohibited under the statutory rules, for the Government employees, namely, to strike work, to openly criticize Government policies, to freely accept financial contribution, to freely join foreign organizations etc.
  • In India Convention is ratified only when the national laws are brought fully into conformity with the provisions of the Convention.
  • Ratification of ILO Convention is a voluntary process and no time frame has been agreed for the same.

About ILO:
It is a specialized agency of the United Nations (UN).
Establishment– 1919
Member States– 187 (including India)
Director General– Guy Ryder
Headquarter– Geneve, Switzerland

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GS-III : Economic Issues
Madhya Pradesh railways designs mobile doctor booth called ‘CHARAK’

 Madhya Pradesh railways designs mobile doctor booth called ‘CHARAK’ for zero-contact check-ups, the West Central Railway’s Coach Rehabilitation Workshop (CRWS) in Madhya Pradesh’s (MP) Bhopal city,has created a  mobile doctor booth called “CHARAK” to eliminate the possibility of physical contact between the doctor and the coronavirus (COVID-19) infected patient.
Key Points:

i.A viral barrier chamber has been built in the railway compartment itself, through which doctors will be able to examine patients without direct physical contact.
ii.This system will prove to be very helpful as there is a shortage of PPE (Personal protective equipment) and medical staff at this time. The mobile booth can go to remote villages & can also be taken up to 500 meters by hand.

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GS-III : Economic Issues
Bank Board Bureau

Centre approves extension of Bank Board Bureau members’

According to the Department of Financial Services, the Appointments Committee of the Cabinet (ACC) has approved the extension of tenure of all members and the current part-time chairman of the Bank Board Bureau(BBB) by 2 years, which is coming to an end on April 11,2020.

Key Points:

i.Bhanu Pratap Sharma,the former Secretary in the Department of Personnel and Training, will continue to hold the post of part-time member of the board.

ii.Other part-time members of the board include Vedika Bhandarkar, former MD (managing director) of Credit Suisse; P Pradeep Kumar, former MD of State Bank of India (SBI); and Pradip P Shah, founder MD of rating agency CRISIL.

About Banks Board Bureau (BBB):

Headquarters: Mumbai, Maharashtra

In February 2016, the government formed the Banks Board Bureau and was given the responsibility of deciding candidates for the top positions in public sector banks and financial institutions.

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GS-III : Economic Issues
Angel Funds

Angel Funds

Part of: GS Prelims and GS-III- Economy-tax

Angel funds refers to a money pool created by high networth individuals or companies (generally called as angel investors), for investing in business start ups. They are a sub-category of venture capital funds with strict focus on startups, while venture capital funds generally invest at a later stage of development of the investee company.

In India the term Angel Funds is defined in SEBI (Alternative Investment Funds) (Amendment) Regulations, 2013. Here, Angel fund is defined as a sub-category of Venture Capital Fund under Category I- Alternative Investment Fund (AIF) (pt) that raises funds from angel investors and invests in accordance with the rules specified in Chapter III –A of SEBI (Alternative Investment Funds) (Amendment) Regulations, 2013.


Regulatory status of Angel Funds in India

Hon’ble Finance Minister announced in Budget for Financial Year 2013-14 that “SEBI will prescribe requirements for angel investor pools by which they can be recognised as Category I AIF venture capital funds.”

Accordingly, SEBI in September 2013, approved amendments to SEBI (Alternative Investment Funds) Regulations, 2012 thereby providing a framework for registration and regulation of angel pools under Category I- Venture Capital Funds.SEBI has issued the notification on the regulations of angel fundson 16 September 2013.

Venture Capital Funds have been allowed pass through status under the Income-tax Act. The relevant regulations of SEBI have been replaced by Alternative Investment Fund Regulations. Hence, vide Budget 2013-14, subject to certain conditions, pass through status has been extended to category I Alternative Investment Funds registered with SEBI as venture capital funds. Angel Investors who are recognised as category I AIF venture capital funds will also get pass through status.


Fund raising by Angel Funds

Angel funds can raise funds only by way of issue of units to angel investors and should have a corpus of at least ten crore rupees. Further, angel funds can accept, over a period of three years, an investment of not less than Rs. 25 lakh from an angel investor. No scheme of the Angel Fund can have more than 49investors to ensure that investment in an investee company is not akin to a public issue.

If the investors are individuals, they shall be required to have early stage investment experience/ experience as a serial entrepreneur/ be a senior management professional with atleast10 years experience. Such investors shall also be required to have tangible net assets of atleast Rs. 2 crore excluding thevalue of the investor's primary residence. If investors are corporate, they shall either have a net worth of atleast Rs. 10 crore or shall be an AIF/VCF registered with SEBI. The sponsor of the fund shall have the onus to ensure the angel investors satisfy these requirements.

Considering that angel investments are highly risky investments, it is thus ensured that only investors who have prior experience/ adequate awareness of such investments and who have sufficient capital invest in such funds.

Angel fund can raise funds through private placement by issue of information memorandum or placement memorandum, by whatever name called. Further the angel fund may launch schemes subject to filing of a scheme memorandum at least ten working days prior to launch of the scheme with the SEBI.


Investment Rules for Angel Funds

Angel funds can make investments only in investee companies that:

  1. are incorporated in India and are not more than 3 years old; and
  2. have a turnover not exceeding Rs 25 crore; and
  3. are unlisted, and
  4. are not promoted, sponsored or related to an Industrial Group whose group turnover is in excess of Rs. 300 crore,(Here "industrial group" shall include a group of body corporates with the same promoter(s)/promoter group, a parent company and its subsidiaries, a group of body corporates in which the same person/ group of persons exercise control, and a group of body corporates comprised of associates/subsidiaries/holding companies) and
  5. has no family connection with the investors proposing to invest in the company.

Thus it is ensured that the investment by such angel funds is genuinely made in Indian start- ups and early stage companies.

Angel funds cannot invest in associates. They cannot invest more than 25 percent of the total investments under all its schemes in one venture capital undertaking.

Further, investment in an investee company by an angel fund shall be not less than Rs. 50 lakhs and more than Rs. 5 crore and shall be required to be held for a period of at least 3 years.


Differences with other AIFs

Angel Funds should have a corpus of atleast Rs.10 crore (as against Rs. 20 crore for other AIFs) and minimum investment by an investor shall be Rs. 25 lakhs (may be accepted over a period of maximum 3 years) as against Rs. 1 crore for other AIFs. Further, the continuing interest by sponsor/manager in the Angel Fund cannot be not less than 2.5% of the corpus or Rs. 50 lakhs, whichever is lesser(as per the AIF Regulations it is 2.5% of corpus/ Rs. 5 crore whichever is lesser).

Inherent nature/structure of angel funds is different from other typical fund structures of Alternative Investment Fund. In typical AIF structures, the manager takes the decision of investment and none of the investors have a role in managing the fund. In typical angel pools (prior to the regulation), however, it is the investor who takes the investment decision. This aspect needed to be incorporated in regulations.Therefore, it has been provided in the regulations that once a suitable investee company is identified by the manager, investor approval would be solicited before the investment is made.This process would imply that out of a total pool funded by several investors, fractional investments would be made in companies by different subsets of investors who have agreed to the investments. For example out of 1000 investors, if 50 investors are agreeable to invest in X company, with given Internal Rate of Return (IRR) (say 10%) as per the scheme, funds will be invested in that company (X company).

In case of angel funds one scheme shall typically have only one investment since every investment would typically have different sets of investors. Therefore,there is provision for separate scheme memorandum (in addition to the fund information memorandum) with lesser disclosures. In addition, provision of filing of the memorandum with SEBI before launching the scheme is reduced to 10 working days (against 30 days for other AIFs) and filing fees has been done away with.

Further, units of angel funds also need not be listed. Since angel funds are typically small in size, the registration fees is proposed to be reduced for such funds from Rs. 5lakhs to Rs. 2 lakhs.


Global experience on regulation of Angel Funds

Angel Funds are generally not much regulated entities in other countries except for a few advanced countries like UK or US. Here also, angel funds are generally regulated under venture capital funds. The European Union is seeking to unify the venture capital market in order to provide innovative small businesses with easier access to financing. To achieve this, it is promoting cross-border venture capital investments and a regulatory framework for venture capital funds in European Union has been brought out with effect from July 2013. In fact, certain countries such as Singapore have tax deduction schemes/ tax incentives for such investments. However, in such cases, usually there are guidelines which are specified by the tax authorities which have to be fulfilled by angel investors to obtain tax incentives.

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GS-III : Economic Issues
Gadgil-Mukherjee Formula

Gadgil-Mukherjee Formula

Up to 3rd Five Year Plan (FYP) [1961-66] and during Plan Holiday (1966-69), allocation of Central Plan Assistance was schematic and no formula was in use. The Gadgil Formula comprising (i) Population [60%] (ii) Per Capita Income (PCI) [10%] (iii) Tax Effort [10%] (iv) On-going Irrigation & Power Projects [10%] and (v) Special Problems [10%] was used during 4th FYP (1969-74) and 5th FYP (1974-78).

However, since item (iv) was perceived as being weighted in favour of rich states, the formula was modified by raising the weightage of PCI to 20%. The National Development Council (NDC) approved the modified Gadgil formula in August 1980. It formed the basis of allocation during 6th FYP (1980-85), 7th FYP (1985-90) and Annual Plan (AP) 1990-91. Following suggestions from State Governments, the modified Gadgil Formula was revised to Population (55%), PCI [25% {20% by deviation method and 5% by distance method}], Fiscal Management (5%) and Special Development Problems (15%). However, it was used only during AP 1991-92.

 

Due to reservations of State Governments on revision, a Committee under Shri Pranab Mukherjee, then Deputy Chairman, Planning Commission was constituted to evolve a suitable formula. The suggestions made by the Committee were considered by NDC in December 1991, where following a consensus, the Gadgil-Mukherjee Formula was adopted. It was made the basis for allocation during 8th FYP (1992-97) and it has since been in use. After setting apart funds required for (a) Externally Aided Projects and (b) Special Area Programme, 30% of the balance of Central Assistance for State Plans is provided to the Special Category States. The remaining amount is distributed among the non-Special Category States, as per Gadgil-Mukherjee Formula.

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GS-III : Economic Issues
GDP deflator

GDP deflator

The Gross Domestic Product (GDP) deflator is a measure of general price inflation. It is calculated by dividing nominal GDP by real GDP and then multiplying by 100. Nominal GDP is the market value of goods and services produced in an economy, unadjusted for inflation (It is the GDP measured at current prices). Real GDP is nominal GDP, adjusted for inflation to reflect changes in real output (It is the GDP measured at constant prices).

GDP Deflator             =          Nominal GDP  x 100
                                                 Real GDP

Importance of GDP Deflator

There are other measures of inflation too like Consumer Price Index (CPI) and Wholesale Price Index (or WPI); however GDP deflator is a much broader and comprehensive measure. Since Gross Domestic Product is an aggregate measure of production, being the sum of all final uses of goods and services (less imports), GDP deflator reflects the prices of all domestically produced goods and services in the economy whereas, other measures like CPI and WPI are based on a limited basket of goods and services, thereby not representing the entire economy (the basket of goods is changed to accommodate changes in consumption patterns, but after a considerable period of time). Another important distinction is that the basket of WPI (at present) has no representation of services sector. The GDP deflator also includes the prices of investment goods, government services and exports, and excludes the price of imports. Changes in consumption patterns or the introduction of new goods and services or structural transformation are automatically reflected in the deflator which is not the case with other inflation measures.
However WPI and CPI are available on monthly basis whereas deflator comes with a lag (yearly or quarterly, after quarterly GDP data is released). Hence, monthly change in inflation cannot be tracked using GDP deflator, limiting its usefulness.

Statistics
Ministry of Statistics and Programme Implementation (MOSPI) comes out with GDP deflator in National Accounts Statistics as price indices. The base of the GDP deflator is revised when base of GDP series is changed.

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