14 December, 2019
Syllabus subtopic: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.
Prelims focus: NBFC, Capital expenditure, Alternative Investment Funds
Mains focus: about the recent slowdown in the economy and measures taken by the govt. to check it
News: A series of measures taken by the government in the last few months to revive growth has started showing some results and the Centre will continue to support the industry and intervene as and when required, finance minister Nirmala Sitharaman said.
Background: India’s economic downturn had deepened in the September quarter with growth down to 4.5%, its slowest pace since March 2013. Tepid consumption and sluggish private investment have been the pain points for the economy.
Measures were taken by the government to boost consumption and improve liquidity in the system.
What more is to be done?
Non-banking finance companies (NBFCs) are a fundamental part of the Indian financial system playing a significant role in nation building and financial inclusion. It plays a complementary role to the banking system in promoting financial inclusion. There are multiple varieties of NBFCs and so the sector demands a well-coordinated response from all stakeholders keeping in mind the differential contextual requirements of different categories of NBFCs.
The Non-Banking Financial Companies (NBFCs) are the financial institutions that offer the banking services, but do not comply with the legal definition of a bank, i.e. it does not hold a bank license. Both banks and NBFCs are financial intermediaries. NBFCs can lend and make investments. Hence, their activities are akin to that of banks. However, there are a few differences between NBFCs and banks:
Capital expenditure (Capex)
Capital expenditure has strong multiplier effects as it involves acquisition of assets such as land, buildings, machinery, and equipment.
Alternative Investment Funds
As defined in Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012, AIFs refer to any privately pooled investment fund, (whether from Indian or foreign sources), in the form of a trust or a company or a body corporate or a Limited Liability Partnership (LLP).
AIF does not include funds covered under the SEBI (Mutual Funds) Regulations, 1996, SEBI (Collective Investment Schemes) Regulations, 1999 or any other regulations of the Board to regulate fund management activities.
Hence, in India, AIFs are private funds which are otherwise not coming under the jurisdiction of any regulatory agency in India.
As per SEBI (AIF) Regulations, 2012, AIFs shall seek registration in one of the three categories:
Category I: Mainly invests in start- ups, SME’s or any other sector which Govt. considers economically and socially viable.
Category II: These include Alternative Investment Funds such as private equity funds or debt funds for which no specific incentives or concessions are given by the government or any other Regulator
Category III : Alternative Investment Funds such as hedge funds or funds which trade with a view to make short term returns or such other funds which are open ended and for which no specific incentives or concessions are given by the government or any other Regulator.
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