|GS-II||Assisted Reproductive Technology Regulation Bill, 2020|
|Law Commission of India|
|Empowered Technology Group|
|Swachh Bharat Mission (Rural): 2nd phase|
|Pradhan Mantri Fasal Bima Yojana (PMFBY)|
|100-day sister cities challenge|
|GS-III||The link between small savings and deficit||Economic Issues|
|Pledging of Shares||Economic Issues|
|Force Majeure Clause||Economic Issues|
News: Getting rid of exemptions under a new tax regime proposed by the budget could make small savings less attractive for individuals and dry up this source of funds for the government.
How do exemptions apply to small savings?
How are the rates of interest determined?
Okay, but how does the government utilize NSSF?
The government uses NSSF as a source of funds for some of its investments through the National Highways Authority of India (NHAI) bonds and also to finance part of its deficit through government securities. NSSF buys these securities and collects the interest on them. Without exemptions in the new tax regime, this steady source of funds may not be available to the government.
How do small savings impact deficits?
Economists has said how state governments till 2003 could borrow from people in the form of postal savings. The rates on postal savings were above the average interest rates and there was no limit on borrowings for the states. The high interest rate led to a 15.2% growth in small savings rates per annum from 1995-2003 compared to 11% nominal growth. This coincided with high state deficits as there was no fiscal discipline and state governments could borrow as much as they wanted through postal savings.
Will a new tax regime bring fiscal discipline?
The removal of exemptions will have implications for the quality of our fiscal statistics. The magnitude of the impact in the short run would depend on how many people switch to the new tax regime. As more people move to the new regime, the Centre will find limited funds in NSSF, which it could earlier tap to finance its deficit or utilize it for off-budget borrowing. Removing exemptions will bring in self-discipline in the way the Centre uses public money.
Syllabus subtopic: Effects of Liberalization on the Economy, Changes in Industrial Policy and their Effects on Industrial Growth.
Prelims and Mains focus: about the move; benefits and significance; about share pledging
News: The Securities and Exchange Board of India (SEBI) has amended the SEBI (Depositories and Participants) Regulations by including an additional explanation that states that ‘pledge’ would also refer to ‘re-pledge of securities for margin or settlement obligations.’
A minor tweak in the manner ‘pledge’ is defined in the regulatory laws is expected to go a long way in minimising instances where stock brokers misuse client securities by pledging such shares for their own benefit in terms of meeting their margin requirements.
The latest SEBI move comes close on the heels of the regulator developing an in-house system to track the movement of client securities that are collected as collateral by the brokers.
What is a pledged share?
Simply put, it is taking a loan against the shares one holds. It can be done by both investors and promoters.
Why do promoters pledge shares?
One of the methods promoters use to raise finance is to take loans against their holding in their company from banks or non-banking financial companies. For these financial institutions, these shares are collateral. Promoters can raise funds for various reasons-for meeting requirements of the business or personal needs.
Can banks sell the shares pledged by promoters?
What is the risk for retail investors in this?
High promoter pledged shares can wreak havoc in stock if price continues to fall and lenders sell these shares in the market. The sudden supply of shares can lead to further price fall and is a risk for retail investors who may have to sell the shares for a significant loss.
What should be the approach of retail investors in stocks with high pledged promoter holding?
Source: The Hindu
Syllabus subtopic: Indian Economy and issues relating to Planning, Mobilization of Resources, Growth, Development and Employment.
Prelims and Mains focus: on the move and its implications; on the force majeure clause
News: The government said supply chain disruptions caused by the novel coronavirus (Covid-19) outbreak in China would allow companies to invoke the force majeure clause
What is the force majeure clause?
The move is potential relief for companies facing difficulty in receiving shipments from China due to issues like the shutdown of operations there or a hold-up at the ports in India.
Sectors facing supply chain issues
Impact of supply chain disruption (CII analysis)
Source: Indian Express
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