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VAJIRAM & RAVI Institute for IAS Examination ECONOMICS FOR GENERAL STUDIES By Jayant Parikshit (Alumnus of Delhi School of Economics, IIM Lucknow) Economics by Jayant Parikshi...

VAJIRAM & RAVI Institute for IAS Examination ECONOMICS FOR GENERAL STUDIES By Jayant Parikshit (Alumnus of Delhi School of Economics, IIM Lucknow) Economics by Jayant Parikshit Extracted by :- KING R QUEEN P[ऋषभ राजपूत]  HANDOUT NO -1: TRADE-BASICS & ADVANCE Economics By Jayant Parikshit Page 1 of 12 Extracted by :- KING R QUEEN P[ऋषभ राजपूत]  ECONOMICS HANDOUT by Jayant Parikshit SYLLABUS: BASICS OF TRADE § Some concepts & Definitions TRADE AGREEMENTS: 1. Preferential Trade Agreement (PTA) 2. Free Trade Agreement (FTA) 3. Comprehensive Economic Cooperation Agreement (CECA) 4. Comprehensive Economic Partnership Agreement (CEPA) 5. Custom Union (CU) 6. Single Market (SM) 7. Economic Union (EU) 8. Early Harvest Deal (EHD) EXAM PRACTICE: 1. MCQs for Prelims 2. Questions for mains 3. MULTIPLE CHOICE QUESTIONS (MCQs) Question-1: Which of the following are considered as a component of “Trade Openness” of a nation? 1. Exports 2. Imports 3. GDP Chose the correct option: a. Only1 b. Both 2&3 c. Both 1&3 d. 1,2&3 Question-2: Which of the following tools are used as an instrument to indulge in Trade War? 1. Tariff Barriers (TB) 2. Non-Tariff Barriers (NTB) Chose the correct option: a. Only1 b. Only2 c. Both 1&2 d. None of these Economics By Jayant Parikshit Page 2 of 12 Extracted by :- KING R QUEEN P[ऋषभ राजपूत]  Question-3: Which of the following is/are true about Preferential Trade Agreement (PTA)? 1. In PTA, two or more partners give preferential right of entry to all the products. 2. The tariffs on selected products are abolished completely. 3. There are two lists in PTAs: a positive list & a negative list. 4. A PTA is a stepping-stone towards better economic relations between the countries involved. Choose the correct answer: a. Only 1 b. Only4 c. Both 1&3 d. 1,2,3,4 Question-4: Consider the following statements about Free Trade Agreement (FTA): 1. The tariffs on items covering substantial bilateral trade are eliminated between the partner countries. 2. FTA might or might not have an exclusion list. 3. The members maintain coordinated trade policies with non-member countries. Choose the correct answer: a. Only 1 b. Only3 c. Both 1&2 d. Both2&3 e. 1,2&3 Question-5: Consider the following statements about Comprehensive Economic Partnership Agreement (CEPA): 1. CEPA consists of an integrated package on goods & services. 2. CEPA has a narrow coverage compared to CECA. 3. CEPA might contain a positive list. Choose the correct answer: a. Only 1 b. Only2 c. 1,2&3 d. None of these Question-6: Consider the following statements about Custom Union: 1. It has provisions to facilitate free movements of labour and capital, harmonize technical standards across members etc. 2. The members impose a common external tariff on imports from non-members. Choose the correct statement: a. Only 1 b. Only2 c. Both 1&2 d. None of these Economics By Jayant Parikshit Page 3 of 12 Extracted by :- KING R QUEEN P[ऋषभ राजपूत]  Question-7: Consider the following statements about Common Market: 1. A common market is a deeper form of Customs Union. 2. The members eliminate internal trade barriers, adopt common external trade barriers, and allow free movement of resources, for example labour & capital, among member countries. Choose the correct statement: a. Only 1 b. Only2 c. Both 1&2 d. None of these Question-8: Arrange the different types of Trade Agreements given below according to their strength from low to high: 1. Free Trade Agreements 2. Customs Union 3. Economic Union 4. Common Market Select the correct answer using the codes given below: a. 1-2-4-3 b. 3-4-1-2 c. 4-3-2-1 d. 1-2-3-4 QUESTIONS FOR MAINS Question-1: What are Preferential Trade Agreements? Why has India renegotiated the PTAs esp. in South American countries? Question-2: What are Free Trade Agreements? Explain its importance for a country like India. Question-3: Discuss the features which separate FTAs from PTAs? Has India benefited from FTAs? Discuss. Question-4: Discuss the role of FTAs in boosting India’s export. Have we succeeded in harnessing FTAs so far? Economics By Jayant Parikshit Page 4 of 12 Extracted by :- KING R QUEEN P[ऋषभ राजपूत]  TRADE AGREEMENTS Preferential Trade Agreement (PTA): § In this type of agreement, two or more partners give preferential right (via. reduce import duties) of entry to certain products. § The tariffs are not abolished completely. Tariffs are reduced on goods traded between the members. § In general PTAs do not cover substantially all trade. § The list of products on which the partners agree to reduce duty is called positive list. § Example: India and Mercosur, India and Chile Free Trade Agreement (FTA): § It is more robust and improved over preferential trade agreements. § In FTAs, tariffs on more items are eliminated between the partner countries. § In general, under FTA- both goods and some services might be covered. § These members continue to maintain independent trade policies with non-member countries. § A FTA can also have a negative list on which tariffs are neither reduced nor eliminated. § India-Sri Lanka FTA, India- ASEAN FTA, USMCA (earlier called as NAFTA) Comprehensive Economic Cooperation Agreement (CECA) § CECA involves only tariff reduction/elimination in a phased manner on listed items except the negative list and few other cases. § Items covered under CECA might be goods, services or even investment. § A high quality CECA with India would provide legal certainty for foreign exporters and investors in Indian market where unpredictable policy changes make doing business difficult. § Example: India-Malaysia CECA, India-Singapore CECA Comprehensive Economic Partnership Agreement (CEPA) 4. CEPA describes agreement which consist of an integrated package on goods, services, and investment along with other areas including IPR etc. 5. So CEPA is a wider term than CECA and has the wider coverage. 6. Example: India-Japan CEPA, India-Korea CEPA Custom Union: § A customs union is defined as a group of states that have agreed to eliminate customs duties (import taxes) on trade between themselves, as well as reduce other administrative requirements. § The members impose a common external tariff on imports from non-members. § Example: An example is Southern African Customs Union (SACU) amongst South Africa, Lesotho, Namibia, Botswana and Eswatini. Common/Single Market: § Integration provided by a Common market is one step deeper than that by a Customs Union. Economics By Jayant Parikshit Page 5 of 12 Extracted by :- KING R QUEEN P[ऋषभ राजपूत]  § In a single market, the members eliminate internal trade barriers, adopt common external trade barriers, and allow free movement of resources, for example labour & capital & harmonize technical standards across member countries. § Examples include Mercosur, East African Common Market Economic Union: § This is the most advance type of trade agreement. § Economic Union is a Common Market extended through further harmonization of fiscal/monetary policies and shared executive, judicial & legislative institutions. European Union (EU) is an example. § The Economic Union establishes a Single Financial and Economic Space within which goods, people and capital move freely; harmonized monetary and fiscal policies are recognised and a common approach is in place to trade, health, education and environment, as well as a common approach to the development of critical sectors. EXAMPLES OF TRADE AGREEMENTS INDIA-MERCOSUR PTA 2009: § MERCOSUR: It is a 4-country trade bloc with Brazil, Argentina, Paraguay and Uruguay as its original members. § Founding member countries decided to remove Venezuela, which had joined Mercosur in 2012, for its failure to incorporate standards on trade and human rights into national laws, although the country could re-join if it were to adopt the necessary norms. § The existing INDIA-MERCOSUR PTA was signed in New Delhi on January 25, 2004 which came into effect from 1st June, 2009. This agreement was strengthened by increasing the number of items covered under it in 2017. INDIA-SRILANKA FREE TRADE AGREEMENT (ISFTA): 1999: § ISFTA was signed in 1999 and entered into force with effect from 2001, provides duty free concessions to a wide range of products traded between the two countries. § The Indo-Sri Lanka engagements are in diverse areas including petroleum retail, IT, financial services, real estate, telecommunication, hospitality & tourism, banking and food processing (tea & fruit juices), metal industries, tires, cement, glass manufacturing, and infrastructure development (railway, power, water supply). 2005: § India-Sri Lanka started negotiations for CEPA in February 2005 to include services and investments to make the existing FTA comprehensive. § CEPA negotiations dragged on for nearly a decade in the face of increasing opposition within Sri Lanka, particularly by the business community. 2015 onwards: § When CEPA failed to materialise, India pushed for a new trade pact called the Economic and Technological Cooperation Agreement (ETCA). Economics By Jayant Parikshit Page 6 of 12 Extracted by :- KING R QUEEN P[ऋषभ राजपूत]  § ETCA will establish an agreement on trade in services and technological exchange (which CEPA failed to do). § ETCA agreement seeks to boost cooperation in technical areas, scientific expertise, and research among institutions. ASEAN-INDIA FREE TRADE AGREEMENT (AIFTA): 2010: § The ASEAN-India Trade in Goods Agreement was signed and entered into force in 2010. 2014: § ASEAN-India Trade in Services Agreement was signed in November 2014. It contains provisions on transparency, domestic regulations, market access and dispute settlement. § ASEAN-India Investment Agreement was also signed in November 2014. The Investment Agreement stipulates protection of investment to ensure fair and equitable treatment for investors. SOUTH ASIAN FREE TRADE AREA (SAFTA) § SAFTA is a FTA between the 8 members of the SAARC (SOUTH ASIAN ASSOCIATION FOR REGIONAL COOPERATION) group. § The agreement came into force on January 1, 2006, succeeding the 1993 SAARC Preferential Trading Arrangement. SAFTA may eventually lead to a full-fledged South Asia Economic Union. § SAFTA signatory countries are Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka. Economics By Jayant Parikshit Page 7 of 12 Extracted by :- KING R QUEEN P[ऋषभ राजपूत]  AIM OF SAFTA: § Among its aims are: promoting and enhancing mutual trade and economic cooperation by eliminating barriers in trade, promoting conditions of fair competition in the free trade area, ensuring equitable benefits to all and establishing a framework for further regional cooperation to expand the mutual benefits of the agreement. § SAFTA presupposes abolition of all kinds of trade and tariff restrictions. The SAFTA agreement allows any states to pull out of the treaty at any time. INDIA-AUSTRALIA ECONOMIC COOPERATION AND TRADE AGREEMENT (ECTA): § 2010: Australia and India begun negotiating a free trade agreement in 2010. § 2015: Negotiations were suspended in 2015 with neither country willing to concede market access on politically sensitive issues. India was unwilling to grant preferential access to Australian agricultural exports while Australia was reluctant to offer easier visas to Indian professionals. § 2022: ECTA between Australia and India was signed on 2 April 2022. The ECTA is an interim trade deal that would pave the way for a wider and deeper comprehensive economic cooperation agreement (CECA) between the two countries. ECTA mostly covers concessions in trade of goods & services. BENEFIT FOR INDIA: § Several labour-intensive Indian exports (which currently attract 4% to 5% tariff), including textiles, apparels, agriculture and fish products, leather, footwear, furniture and sports goods, jewellery, engineering goods, and selected pharmaceuticals and medical devices, are expected to gain from the immediate duty-free access. § Under the agreement, Indian graduates from STEM (Science, Technology, Engineering and Mathematics) will be granted extended post-study work visas. INDIA-KOREA CEPA- 2009, 2018 § The India-Korea CEPA signed in 2009 had provisions for substantial reduction of both tariffs and non-tariff barriers in a phased manner & expected to take India-Korea relations to a higher level and enhance India’s presence in East Asia. India-Korea CEPA – Harvest deal negotiated (July 10, 2018) § India & Korea signed a joint statement on July 10,2018 upgrading negotiations under CEPA, with early harvest offers made for 35 items. § In addition, yoga and taekwondo instructors were included in the list of professionals under the Sporting and Other Recreational Services category. This means Indians can now open yoga institutes in South Korea and Koreans can open taekwondo institutes in India under the Early Harvest Package (EHP). INDIA-UAE CEPA § India-UAE CEPA was signed in 2022. § Highlights: Goods, Services, Investment, Digital Trade, Government Procurement, Pharmaceuticals Digital Trade: § It discusses provisions like paperless trading, domestic electronic transactions frameworks, online consumer protection, cross-border flow of information, access to and use of internet for digital trade, cybersecurity and cooperation. Economics By Jayant Parikshit Page 8 of 12 Extracted by :- KING R QUEEN P[ऋषभ राजपूत]  Government Procurement: § Under the India-UAE CEPA, India has granted UAE-based companies treatment on par with domestic companies. This is the first instance of India including government procurement in a Free Trade Agreement (FTA). § India has previously been unwilling to discuss government procurement in bilateral or multilateral trade agreements to protect domestic firms which rely on it. § Under the agreement, only government procurement contracts worth over about Rs 200 crore will be open to UAE-based companies on the same terms as Indian firms. § The move is aimed at protecting the interests of MSMEs that supply goods and services to the government. § The list of 34 ministries and departments for which government procurement would be open to UAE-based companies includes the ministries of power, health, and education. Benefits to India: § Overall, India will benefit from preferential market access provided particularly to labour- intensive sectors such as Gems and Jewellery, Textiles, leather, footwear, sports goods, plastics, furniture, agricultural and wood products, engineering products, pharmaceuticals, medical devices, and Automobiles. § As regards trade in services, Indian service providers will have enhanced access to around 111 sub-sectors from the 11 broad service sectors. § Also, for the first time in any Trade Agreement, a separate Annex on Pharmaceuticals has been incorporated to facilitate access of Indian pharmaceuticals products. EUROPEAN UNION (EU) EU & Trade § The European Union is the largest trade block in the world. It is the world's biggest exporter of manufactured goods and services, and the biggest import market for over 100 countries § European Union members have coordinated economic and fiscal policy and follow a common monetary policy. 19 out of 27 members use Euro as their national currency as of now. EUROZONE: § Currently, the euro (€) is the official currency of 20 out of 27 EU member countries which together constitute the Eurozone, officially called the euro area. § Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, Spain, Croatia (2023). Economics By Jayant Parikshit Page 9 of 12 Extracted by :- KING R QUEEN P[ऋषभ राजपूत]  FLOWCHARTS: Economics By Jayant Parikshit Page 10 of 12 Extracted by :- KING R QUEEN P[ऋषभ राजपूत]  Economics By Jayant Parikshit Page 11 of 12 Extracted by :- KING R QUEEN P[ऋषभ राजपूत]  Economics By Jayant Parikshit Page 12 of 12 Extracted by :- KING R QUEEN P[ऋषभ राजपूत]  HANDOUT NO -2: INDUSTRIES Economics by Jayant Parikshit Page 1 of 12 Extracted by :- KING R QUEEN P[ऋषभ राजपूत]  ECONOMICS HANDOUT by Jayant Parikshit STEPS UNDERTAKEN TO BOOST MANUFACTURING IN INDIA: Recently, Government has taken various steps in addition to ongoing schemes to boost domestic investments in India. These include: 1. National Manufacturing Policy-2011 2. National Industrial Corridor Programme 3. Make in India (& Make in India 2.0) 4. Phased Manufacturing Programme (PMP) 5. Production Linked Incentives Scheme (PLI) MUPTIPLE CHOICE QUESTIONS FOR SELF PRACTICE Question-1: Consider the following statements regarding NMP-2011: 1. It aimed to increase the sectoral share of manufacturing in GDP to at least 25% 2. NMP would enhance global competitiveness, domestic value addition, technological depth in Indian manufacturing sector. 3. Niti Aayog is responsible for coordination between centre & state for development of National Investment & Manufacturing Zones. Choose the correct option: a. Only1 b. Only2 c. Both1&2 d. 1,2&3 Question-2: Consider the following statements regarding National Industrial Corridor Programme (NICP): 1. Asian Development Bank (ADB) is one of the financers in India’s the National Industrial Corridor Development Program (NICDP). 2. Projects under National Industrial Corridor Programme form part of National Infrastructure Pipeline. 3. NICP entails the development of smart cities which can attract manufacturers and investors. Choose the correct option: a. Only1 b. Only2 c. Both1&2 d. 1,2&3 Economics by Jayant Parikshit Page 2 of 12 Extracted by :- KING R QUEEN P[ऋषभ राजपूत]  Question-3: Consider the following statements regarding Make in India 2.0 Initiative by GoI: 1. Department for Promotion of Industry and Internal Trade is coordinating action plans for manufacturing & service sectors under MII 2.0 2. MII mainly aims to promote foreign investment in domestic industries. Choose the correct option: a. Only1 b. Only2 c. Both1&2 d. None of these Question-4: India is trying to boost its manufacturing sector. In this regard which of the following is correct: 1. Share of manufacturing sector in India’s GDP is one-third in comparison to share of Chinese manufacturing in its GDP. 2. India wants to achieve nearly 13% growth rate in manufacturing sector. Choose the correct option: a. Only1 b. Only2 c. Both1&2 d. None of these Question-5: Which of the following is not regarded as pillars under Make in India? 1. New Process 2. New Infrastructure 3. New Sectors 4. New Governance Choose the correct option: a. Only1 b. Both2&3 c. 1,2&3 d. 1,2,3,&4 Question-6: Which of the following are potential impacts of Make in India___________________ 1. Reduce red tapism 2. Make Indian industries competitive 3. Construct infrastructure in India 4. Promote MSMEs Choose the correct option: a. Only1 b. Both2&3 c. 1,2&3 d. 1,2,3,&4 e. None of these Economics by Jayant Parikshit Page 3 of 12 Extracted by :- KING R QUEEN P[ऋषभ राजपूत]  Question-7:Make in India aims to promote Indian manufacturing landscape. Which of the following is correct regarding Make in India? 1. It promotes skill based employment. 2. M.I.I. slowed down post-covid mainly because of inflation. Choose the correct option: a. Only1 b. Only2 c. Both1&2 d. None of these Question-8: Consider the following statements regarding PLI Scheme: 1. Subsidies are provided over incremental sales and investment in plant and machinery 2. Incentives are released only after production has occurred in India. 3. It promotes global champions. 4. PLI currently covers 13 sectors Choose the correct option: a. Only1 b. Only2 c. Both2&3 d. 1,2&3 e. 1,2,3,&4 Question-9: Consider the following statements regarding PLI Scheme: 1. PLI currently covers 13 sectors 2. The latest sector to be covered under PLI is Drone sector. Choose the correct option: a. Only1 b. Only2 c. Both1&2 d. None of these Question-10: The Industrial Sector depends on the Agricultural Sector because _______ a. Agriculture Sector provides food and other products for the consumption purposes of Industrial Sector b. Agriculture Sector provides raw-materials for the development of a agro-based industries of the economy c. Agricultural Sector provides market for the industrial products. d. All of the above Economics by Jayant Parikshit Page 4 of 12 Extracted by :- KING R QUEEN P[ऋषभ राजपूत]  INDIAN MANUFACTURING SECTOR The contribution of the manufacturing sector at just around 15-17% of India's GDP is much below its potential and a cause of concern especially in the context of other Asian countries in similar stages of development. This also has its socio-economic manifestations and prevents India from fully leveraging the opportunities of globalization. India is a young country with over 60% of its population in the working age group. With over 220 million people estimated to join the work force in the next decade, the manufacturing sector will have to create gainful employment for at least half this number. With a view to accelerating the growth of the manufacturing sector, the manufacturing policy needs to create an enabling environment suitable for the sector to flourish in India. NATIONAL MANUFACTURING POLICY-2011 The Government of India has announced a National Manufacturing Policy with the objective of enhancing the share of manufacturing in GDP to 25% within a decade and creating 100 million jobs. The National Investment & Manufacturing Zones (NIMZs) are an important instrumentality of the manufacturing policy The major objectives of the National Manufacturing Policy were to: 4. increase the sectoral share of manufacturing in GDP to at least 25% by 2022 5. increase the rate of job creation so as to create 100 million additional jobs by 2022 6. enhance global competitiveness, domestic value addition, technological depth 7. environmental sustainability of growth NATIONAL INVESTMENT & MANUFACTURING ZONES (NIMZ): § The National Investment & Manufacturing Zones (NIMZs) are an important instrumentality of the manufacturing policy. § The NIMZs are envisaged as integrated industrial townships with state of the art infrastructure; land use on the basis of zoning; clean and energy efficient technology; necessary social infrastructure; skill development facilities etc. to provide a productive environment for persons transitioning from the primary to the secondary and tertiary sectors. § The policy is based on the principle of industrial growth in partnership with the States. INDUSTRIAL CORRIDORS Industrial Corridors provide an effective way of achieving this by integrating industry and infrastructure. § An industrial corridoris a package of infrastructure spending allocated to a specific geographical area, with the intent to stimulate industrial development. Economics by Jayant Parikshit Page 5 of 12 Extracted by :- KING R QUEEN P[ऋषभ राजपूत]  § An industrial corridor aims to create an area with a cluster of manufacturing or another industry. Such corridors are often created in areas that have pre-existing infrastructure, such as ports, highways and railroads. § The Industrial Corridors also support the region by developing sustainable, futuristic, industrial cities at major nodes. EXAMPLES OF INDUSTRIAL CORRIDORS (ICs) 1. Delhi Mumbai Industrial Corridor (DMIC) 2. Chennai Bengaluru Industrial Corridor (CBIC) 3. Amritsar Kolkata Industrial Corridor (AKIC) 4. East Coast Industrial Corridor (ECIC) with Vizag Chennai Industrial Corridor (VCIC) as Phase 1 5. Bengaluru Mumbai Industrial Corridor (BMIC) 6. Extension of CBIC to Kochi via Coimbatore 7. Hyderabad Nagpur Industrial Corridor (HNIC) 8. Hyderabad Warangal Industrial Corridor (HWIC) 9. Hyderabad Bengaluru Industrial Corridor (HBIC) 10. Odisha Economic Corridor (OEC) 11. Delhi Nagpur Industrial Corridor (DNIC) Economics by Jayant Parikshit Page 6 of 12 Extracted by :- KING R QUEEN P[ऋषभ राजपूत]  Economics by Jayant Parikshit Page 7 of 12 Extracted by :- KING R QUEEN P[ऋषभ राजपूत]  Make in India, the flagship program of the Government of India that aspires to facilitate investment, foster innovation, protect intellectual property, enhance skill development, and build best-in-class manufacturing infrastructure to make India a global manufacturing hub. To achieve this goal, targets were identified and policies outlined. 1. To increase the manufacturing sector’s growth rate to 12-14% per annum in order to increase the sector’s share in the economy 2. To ensure that the manufacturing sector’s contribution to GDP is increased to 25% by 2025 from the current 15-16% 3. To create 100 million additional manufacturing jobs in the economy by 2025 FOUR PILLARS OF MAKE IN INDIA 1. New Processes: 'Make in India' recognizes 'ease of doing business' as the single most important factor to promote entrepreneurship. A number of initiatives have already been undertaken to ease business environment. 2. New Infrastructure: Government intends to develop industrial corridors and smart cities, create world class infrastructure with state-of-the-art technology and high-speed communication. Innovation and research activities are supported through a fast paced registration system and improved IPR registration. The requirement of skills for industry are to be identified and accordingly development of workforce to be taken up. 3. New Sectors: FDI has been opened up in Defence Production, Insurance, Medical Devices, Construction and Railway infrastructure in a big way. Similarly FDI has been allowed in Insurance and Medical Devices. 4. New Mindset: In order to partner with industry in economic development of the country Government shall act as a facilitator and not a regulator. 25 SECTORS IN MAKE IN INDIA The following sectors have been included in the ‘Make in India’ programme: 1. Auto Components 2. Automobiles 3. Aviation 4. Biotechnology 5. Chemicals 6. Construction 7. Defence Manufacturing 8. Electrical Machinery 9. Electronic System Design and Manufacturing 10. Food Processing 11. IT and BPM 12. Leather 13. Media and Entertainment 14. Mining 15. Oil and Gas 16. Pharmaceuticals 17. Ports 18. Railways 19. Roads and Highways Economics by Jayant Parikshit Page 8 of 12 Extracted by :- KING R QUEEN P[ऋषभ राजपूत]  20. Renewable Energy 21. Space 22. Textiles 23. Thermal Power 24. Tourism and Hospitality 25. Wellness MAKE IN INDIA 2.0: The 27 sectors under the initiative are: Manufacturing Sectors 1. Aerospace and Defence 2. Automotive and Auto Components 3. Pharmaceuticals and Medical Devices 4. Bio-Technology 5. Capital Goods 6. Textile and Apparels 7. Chemicals and Petrochemicals 8. Electronics System Design and Manufacturing (ESDM) 9. Leather & Footwear 10. Food Processing 11. Gems and Jewellery 12. Shipping 13. Railways 14. Construction 15. New and Renewable Energy Service Sectors 1. Information Technology & Information Technology enabled Services (IT & ITeS) 2. Tourism and Hospitality Services 3. Medical Value Travel 4. Transport and Logistics Services 5. Accounting and Finance Services 6. Audio Visual Services 7. Legal Services 8. Communication Services 9. Construction and Related Engineering Services 10. Environmental Services 11. Financial Services 12. Education Services Note: § The Department for Promotion of Industry and Internal Trade (DPIIT) is coordinating action plans for 15 manufacturing sectors, while the department of commerce is coordinating for 12 service sectors. Economics by Jayant Parikshit Page 9 of 12 Extracted by :- KING R QUEEN P[ऋषभ राजपूत]  PHASED MANUFACTURING PROGRAMME (PMP): § The PMP aimed to increase the share of locally-procured components in the Indian manufacturing leading to the setting up of a “robust indigenous manufacturing ecosystem in India. § The PMP incentivised the manufacture of low value accessories initially, and then moved on to the manufacture of higher value components. § This was done by increasing the basic customs duty on the imports of these accessories or components. PMP was implemented to improve value addition in the country. PRODUCTION LINKED INCENTIVE SCHEME (PLI) § PLI was aimed at mobile handset assembly in its initial phase. In 2014, 50 million handsets were made in India representing 19 per cent of our national demand. In 2020, 260 million handsets were made in India representing 96 per cent of national demand. Not only has the PLI scheme helped the industry grow explosively, it has all but eliminated the import of mobile handsets. § PLI scheme offers incentives on incremental sales for products manufactured in India. § The scheme, which aimed to boost domestic manufacturing under Atmanirbhar Bharat initiative, was introduced in March 2020 and is expected to result in a minimum production worth more than $500 billion in five years, according to Commerce Ministry. § The scheme provides incentives to companies for enhancing their domestic manufacturing apart from focusing on reducing import bills and improving the cost competitiveness of local goods. PLI scheme offers incentives on incremental sales for products manufactured in India. § The scheme for respective sectors has to be implemented by the concerned ministries and departments. HOW DOES IT WORK? § A PIL scheme provides a company incentive on incremental sales over a base year for production inside the country. § Indian PLI schemes are designed on a direct correlation between the incentives and upscaling of manufacturing capacities. For example, with the textile PLI, the Centre is looking to boost the production of high-value man-made fibre (MMF) fabrics, garments and technical textiles and say that the “incentive structure has been so formulated that industry will be encouraged to invest in fresh capacities. § Government of India has announced PLI Schemes for 14 sectors so far. ELIGIBILITY FOR THE SCHEME § Eligibility criteria for businesses under the PLI scheme vary based on the sector approved under the scheme. For instance, the eligibility for telecom units is subject to the achievement of a minimum threshold of incremental investment and incremental sales of manufactured goods. The minimum investment threshold for MSME is Rs 10 crore and Rs 100 crores for others. Economics by Jayant Parikshit Page 10 of 12 Extracted by :- KING R QUEEN P[ऋषभ राजपूत]  INCENTIVES UNDER THE SCHEME § An incentive of 4-6% was offered in 2020 on mobile and electronic components manufacturing such as resistors, transistors, diodes, etc. § Similarly, 10 % incentives were offered for six years of the scheme for the food processing industry. § For white goods too, the incentive of 4-6% on incremental sales of goods manufactured in India for a period of five years was offered to companies engaged in the manufacturing of air conditioners and LED lights. (Note: Consumer Durables and home appliances are generally referred to as White Goods.) SECTORS UNDER PLI SCHEME: 1. Key Starting Materials (KSMs)/Drug Intermediates (DIs) and Active Pharmaceutical Ingredients (APIs): Department of Pharmaceuticals 2. Large Scale Electronics Manufacturing: Ministry of Electronics and Information Technology 3. Manufacturing of Medical Devices: Department of Pharmaceuticals 4. Electronic/Technology Products: Ministry of Electronics and Information Technology 5. Pharmaceuticals drugs: Department of Pharmaceuticals 6. Telecom & Networking Products: Department of Telecommunications 7. Food Products: Ministry of Food Processing Industries 8. White Goods (ACs & LED): Department for Promotion of Industry and Internal Trade 9. High-Efficiency Solar PV Modules: Ministry of New and Renewable Energy 10. Automobiles & Auto Components: Department of Heavy Industry 11. Advance Chemistry Cell (ACC) Battery: Department of Heavy Industry 12. Textile Products: MMF segment and technical textiles: Ministry of Textiles 13. Specialty Steel: Ministry of Steel 14. Drones and Drone Components: Ministry of Civil Aviation Economics by Jayant Parikshit Page 11 of 12 Extracted by :- KING R QUEEN P[ऋषभ राजपूत]  FLOWCHARTS: Economics by Jayant Parikshit Page 12 of 12 Extracted by :- KING R QUEEN P[ऋषभ राजपूत]  HANDOUT NO -3: INDUSTRIES-II (Start-Up, Stand-Up & MSMEs) Economics by Jayant Parikshit Page 1 of 10 Extracted by :- KING R QUEEN P[ऋषभ राजपूत]  ECONOMICS HANDOUT by Jayant Parikshit Question-1: Consider the following statements regarding Start-Up India Scheme: 1. Start-up means an entity registered in India not prior to 10 years, with annual turnover not exceeding Rs 100cr in last 10 years in total. 2. Such entity is not formed by splitting up or reconstruction of a business already in existence. Choose the correct option: a. Only1 b. Only2 c. Both1&2 d. None of these Question-2: Under Stand-up India: 1. Government is reaching out to the underserved sector of people to enable them to participate in the economic growth of the nation. 2. Government provides collateral free loans to the concerned entrepreneurs. Choose the correct option: a. Only1 b. Only2 c. Both1&2 d. None of these Question-3: Which of the following funds are utilised for proof of concept and product test by a start-up: 1. Bootstrapping 2. Pre-seed fund 3. Seed Fund Choose the correct option: a. Only1 b. Only2 c. Only3 d. None of these Question-4: Consider the following statements regarding funding of Start-ups: 1. Venture Capitalists fund initial stages of start-ups. 2. Angel Investors provide mature financing to Start-ups. Choose the correct option: a. Only1 b. Only2 c. Both1&2 d. None of these Economics by Jayant Parikshit Page 2 of 10 Extracted by :- KING R QUEEN P[ऋषभ राजपूत]  Question-5: Consider the following statements regarding ASPIRE Fund: 1. It is being promoted by the Ministry of Micro, Small and Medium Enterprises (MSME). 2. It seeks to promote start-ups for innovation in the agro-industry & rural industry. Choose the correct option: a. Only1 b. Only2 c. Both1&2 d. None of these Question-6: Consider the following statements regarding India Aspiration Funds (IAF) meant for Start-Ups: 1. IAF is a fund of funds administered by SIDBI. 2. RBI is the sole contributors of the fund. 3. Its focus is mainly MSME startups. Choose the correct option: a. Only1 b. Both1&2 c. Both1&3 d. 1,2&3 Question-7: Consider the following statements regarding Start-UP India Seed Fund Scheme (SISFS): 1. SISFS aims to provide startups with financial assistance at their early stages such as proof of concept, prototyping, product trials, market entry and commercialization. 2. Department for Promotion of Industry and Internal Trade (DPIIT) has created an Experts Advisory Committee (EAC) to execute and monitor the Startup India Seed Fund Scheme. Choose the correct option: a. Only1 b. Only2 c. Both1&2 d. None of these Question-8: SETU is a Techno-Financial, Incubation and Facilitation Programme to support all aspects of start up businesses. Which of the following are important attributes of SETU: 1. The scheme was launched by the NITI Aayog. 2. Initially, Rs.1,000 crore is being set up by the NITI Aayog towards the scheme to enhance skill development and set up incubation centres. 3. It aims to create 1 Lakhs jobs through start ups. Choose the correct option: a. Only1 b. Both1&2 c. Both1&3 d. 1,2&3 Economics by Jayant Parikshit Page 3 of 10 Extracted by :- KING R QUEEN P[ऋषभ राजपूत]  Question-9: Consider the following statements regarding PM-MUDRA Yojana: 1. It provides collateral to MSMEs. 2. It provides collateral free funding to MSMEs. Choose the correct option: a. Only1 b. Only2 c. Both1&2 d. None of these Question-11: Who can apply for subsidy under Credit Linked Subsidy Scheme for MSMEs: a. SCs led MSMEs b. STs led MSMEs c. Women led MSMEs d. North East MSMEs e. Hilly Areas MSMEs f. Only a g. Both a & b h. a,b&c i. a,b,c,d,&e START-UP INDIA SCHEME The company must meet the following criteria to be considered eligible for DPIIT startup recognition. 1. Company Age: Period of existence and operations should not be exceeding 10 years from the Date of Incorporation 2. Company Type: Incorporated as a Private Limited Company, Partnership Firm or a Limited Liability Partnership 3. Annual Turnover: Should have an annual turnover not exceeding Rs. 100 crore for any of the financial years since its Incorporation 4. Original Entity: Entity should not have been formed by splitting up or reconstructing an already existing business 5. Innovative & Scalable: Should work towards development or improvement of a product, process or service and/or have scalable business model with high potential for creation of wealth & employment STAND-UP INDIA SCHEME § Government of India launched the ‘Stand up India’ scheme on 5 April 2016. It seeks to leverage the institutional credit structure to reach out to the underserved sector of people such as Scheduled Caste, Scheduled Tribe and Women entrepreneurs so as to enable them to participate in the economic growth of the nation. Economics by Jayant Parikshit Page 4 of 10 Extracted by :- KING R QUEEN P[ऋषभ राजपूत]  § The Stand-Up India portal provides a digital platform based on 3 pillars to support enterprises promotion among entrepreneurs from SC, ST and Women category through: 1. Handholding support 2. Providing Information on financing 3. Credit Guarantee Loan Under Stand-Up India Scheme: § The loan under the Stand-Up India scheme would be appropriately secured and backed by a credit guarantee through a credit guarantee scheme by government of India. § Stand Up India Scheme facilitate bank loans between 10 lakh and 1 crore to atleast one scheduled caste (SC) or Scehduled Tribe, borrower and atleast one women per bank branch for setting up a greenfield enterprise. This enterprise may be in manufacturing, services or the trading sector. KEY PILLARS OF SUPPORT FOR STARTUPs: 1. Simplification and Handholding: Easier compliance, easier exit process for failed startups, legal support, fast tracking of patent applications and a website to reduce information asymmetry. 2. Funding & Incentives: Exemptions on Income Tax and Capital Gains Tax for eligible startups; a fund of funds to infuse more capital into the startup ecosystem 3. Incubation & Industry-Academia Partnerships: Creation of numerous incubators and innovation labs, events, competitions and grants. What is an Incubator? Business incubators are institutions that work with startups. Also, they help entrepreneurs develop their businesses at the beginning of their development. They assist these startups with their financial and other needs to accelerate the growth. Incubators may have multiple startups under their wing and work together to accelerate their development process. Technical facilities and guidance, the provision of initial growth, capital networks and links, co-working space, mentoring, lab facilities and advice are just a few examples of incubation assistance. HOW TO FUND STARTUPS? Funding is the lifeblood of any new startup and ventures typically raise funding at different stages such as pre-seed, seed etc. Bootstrapping: Simply put, Bootstrapping refers to the act of starting a company without seeking external funding. If we are building up a company with whatever money we have on hand and from the profits we are earning, that’s bootstrapping. Crowdfunding: Crowdfunding is the process of raising capital through small amounts of money from large numbers of people. Crowdfunding “investors” don’t get equity. Instead, they usually receive the product or other perks in exchange for their “investment. Economics by Jayant Parikshit Page 5 of 10 Extracted by :- KING R QUEEN P[ऋषभ राजपूत]  Pre-seed funding: It is a type of funding that's designed to help a startup with its initial formation and beginning of operations. The investors who usually provide startups with pre- seed funding include the founder of the startup, close friends, family members, and supporters of the startup in question. Seed Fund: It is the initial stage of funding a new startup. It is basically the first official round of funding that a startup goes through. Seed funding can help startups that can come up with an original idea but lack the funds to carry out proof of concept, product testing, or prototype development tests. ANGEL INVESTOR Vs VENTURE CAPITAL Angel Investors: Angel investors are early-stage investors. They are often independently wealthy private individuals, though angel investing networks do exist. Venture Capital: Venture capital typically invest in more established businesses with high- growth potential. They help the start-ups to scale up and become profitable. They invest large capital for long time period. NOTE: For schemes related to start-ups, please refer to class notes. The schemes are dynamic in nature, so we must update the schemes a month before the exam. MICRO, SMALL & MEDIUM ENTERPRISES (MSMEs) § The Indian Government has modified the definition of MSMEs under the Atmanirbhar Package announced in the year 2020 to increase the number of enterprises eligible for being classified as micro, small and medium enterprises. For this purpose, the threshold limits of investment and turnovers of MSMEs have been raised higher and have been extended to both goods-based and service-based businesses. § According to the new definition of MSMEs, businesses in the manufacturing industry, the wholesale industry, the retail industry, and the service industry are classified as “micro” enterprises, when they meet the following criterions: TYPE INVESTMENT IN PLANT, MACHINERY & TURNOVER EQUIPMENT MICRO < 1 cr < 5 cr SMALL 1-10 cr 5-50 cr MEDIUM 10-50 cr 50-250 cr Economics by Jayant Parikshit Page 6 of 10 Extracted by :- KING R QUEEN P[ऋषभ राजपूत]  MSMEs- Relevance for India § > 40% of industrial production § > 48 % share in total exports § Around 30-33% to GDP § Around 20% MSMEs = Rural Areas § Around 8000 products § Employment: 11-12 cr across è 2nd largest employment generator after agriculture § Unregistered MSMEs > 94% ISSUES FACED BY MSMEs 1. Lack of availability of adequate and timely credit 2. High cost of credit 3. Collateral requirements 4. Limited access to equity capital 5. Problems in supply to government departments and agencies 6. Procurement of raw materials at a competitive cost 7. Problems of storage, designing, packaging and product display 8. Lack of access to global markets 9. Inadequate infrastructure facilities, including power, water, roads, etc. 10. Low technology levels and lack of access to modern technology ONE MAN COMMITTEE FOR MSMEs § The One Member Committee under the chairmanship of Dr. Prabhat Kumar was constituted by the Ministry of MSME in 2015 to help in formulating National MSME Policy. § Dr. Prabhat Kumar, presented his report for MSMEs in 2017. POPULAR SCHEMES FOR MSMEs PRADHAN MANTRI MUDRA YOJANA (PM-MUDRA): § The purpose of Micro Units Development and Refinance Agency (MUDRA) is to provide collateral free funding to the small business sector. § 2017: 70% women borrowers Eligibility: § Mudra loans extend credit to enterprises in manufacturing, trading and services whose credit needs are < Rs. 10 lakhs THREE TYPES OF LOANS: § Based on the stage of growth and funding needs of the micro unit / entrepreneur, the beneficiary can avail of the following types of loans: Shishu, Kishor & Tarun. 1. SHISHU : Loans up to Rs.50000 2. KISHORE : Loans from Rs.50001 to Rs.5.00 lakhs 3. TARUN : Loans from Rs.5,00,001 to Rs.10.00 lakhs Economics by Jayant Parikshit Page 7 of 10 Extracted by :- KING R QUEEN P[ऋषभ राजपूत]  REVAMPED SCHEME OF FUNDS FOR RENEGATION OF TRADITIONAL INDUSTRIES (SFURTI): § The full form of SFURTI is Scheme of Fund for Regeneration of Traditional Industries. SFURTI scheme was launched in 2005 by the Indian government’s Ministry of MSME to promote the development of clusters in India. § The main motive of the SFURTI scheme is to ensure that the various traditional clusters of industries spread throughout the country of India are met with amenities and benefits that help them become more competitive in the industry and gain larger revenue in profits. § The scheme facilitates this by establishing CFCs, or Common Facility Centers, near the industries and generating employment opportunities for the workers. The scheme targets several important sectors such as the bamboo industry, honey industry, and khadi industry. This assists traditional artisans, local workers, and local entrepreneurs by supporting their business substantially. Objectives: 1. To organize the traditional industries and artisans into clusters in order to make them competitive 2. To provide sustained employment for traditional industry artisans 3. To enhance marketability of products of such clusters by providing support 4. To introduce Public Private Partnership Model in traditional industries 5. The financial support granted for any project shall be a maximum of Rs. 8 Crore. A SCHEME FOR PROMOTING INNOVATION, RURAL INDUSTRY & ENTREPRENEURSHIP (ASPIRE) To set up a network of Livelihood Business Incubators (LBIs) and Technology Business Incubators (TBIs) with an aim to: 1. Create new jobs and reduce unemployment 2. Promote entrepreneurship culture in India 3. Facilitate innovative business solution for un-met social needs 4. Promote innovation to further strengthen the competitiveness of the MSME sector Economics by Jayant Parikshit Page 8 of 10 Extracted by :- KING R QUEEN P[ऋषभ राजपूत]  NATURE OF ASSISTANCE: LIVELIHOOD BUSINESS INCUBATOR § One time grant of 100% of the cost of Plant and Machinery, other than land and infrastructure, up to INR 100 Lakhs, for Government agencies. § For PPP mode with Govt., one-time grant of 50% of cost of Plant & Machinery, other than the land and infrastructure, or INR 50.00 Lakhs, whichever is less. TECHNOLOGY BUSINESS INCUBATOR § One-time grant of 50% of cost of Plant & Machinery excluding the land and infrastructure or an amount up to INR 100 Lakhs, whichever is less. § For existing TBIs, one-time grant of 50% of cost of Plant & Machinery excluding the land and infrastructure or an amount up to INR 30 Lakhs, whichever is less. SAMADHAAN PORTAL: § As per the rules, there is a 45-day credit period for the recipient of any goods or services to pay the MSME supplier. For any delayed payment, the rate of interest would be three times the bank rate notified by the Reserve Bank of India. § The SAMADHAAN portal empower MSMEs to file delayed payment complaints to settle delayed payments mutually between the seller and the buyer. [NOTE: § For more schemes, please refer to class notes. § PLEASE refer to Lecture No 1 & 5 of Economic Survey 2022-23 Lecture Series available on Vajiram Youtube Channel along with this handout. Economics by Jayant Parikshit Page 9 of 10 Extracted by :- KING R QUEEN P[ऋषभ राजपूत]  FLOWCHART: Economics by Jayant Parikshit Page 10 of 10 Extracted by :- KING R QUEEN P[ऋषभ राजपूत]  HANDOUT NO -4: CAPITAL MARKET: BASICS Economics by Jayant Parikshit Page 1 of 9 Extracted by :- KING R QUEEN P[ऋषभ राजपूत]  ECONOMICS HANDOUT by Jayant Parikshit SYLLABUS: MCQ FOR “SELF PRACTICE” Question-1: Consider the following statements about “Financial Markets”: 1. A financial market is a market for the creation and exchange of financial assets. 2. The financial market deals with new financial assets only like shares, bonds etc. Choose the correct option: a. Only1 b. Only2 c. Both1&2 d. None of these Question-2: Which of the following are the constituents of Financial Market in India? 1. Money market instruments 2. Capital Market Instruments 3. Derivative Instruments Choose the correct option: a. Only1 b. Only2 c. Both1&2 d. Both2&3 e. 1,2&3 Economics by Jayant Parikshit Page 2 of 9 Extracted by :- KING R QUEEN P[ऋषभ राजपूत]  Question-3: Consider the following statements regarding “Bonds”: 1. A bond is a debt instrument. 2. A bondholder might get fixed returns at fixed intervals. 3. A bondholder might get floating rate of interest at fixed intervals. How many of the above are correct statements related to bonds? a. Only one b. Only two c. Only three d. None of these Questions-4: Bonds are used to raise capital by firms. Which of the following attributes are correct regarding bonds: 1. Bonds are akin to a non-tradeable loan. 2. Bonds are backed by assets of the issuing entity. Choose the correct statement: a. 1 only b. 2 only c. Both 1&2 d. None of these Question-5: Consider the following Statements regarding “Debentures”: 1. A debenture is a medium to long-term debt that is used by large companies to borrow money. 2. It is secured by physical assets or collateral. 3. It is required that the interest on debenture is paid only after dividends being paid to shareholders. 4. Debenture holders (investors) have very limited rights to vote in the company's general meetings of shareholders. Choose the correct option: a. Only1 b. Only2 c. Both1&2 d. 1,2&3 e. 1,2,3&4 Question-6: Consider the following statements regarding Plain Vanilla Bonds: 1. They have a fixed bond price. 2. They have a fixed coupon rate. 3. Their tenure is fixed. How many of the above are correct statements related to PVBs? a. Only one b. Only two c. Only three d. None of these Question-7: Consider the following statements regarding “Zero” coupon bonds: 1. They are offered at discount on the face value of the bond. 2. On maturity, bondholder gets face value of his investment. Economics by Jayant Parikshit Page 3 of 9 Extracted by :- KING R QUEEN P[ऋषभ राजपूत]  Which one of the following is correct in respect of the above statements? a. Both Statement-I and Statement-II are correct and Statement-II is the correct explanation for Statement-I b. Both Statement-I and Statement-II are correct and Statement-I is the correct explanation for Statement-II c. Statement-I is correct but Statement-II is incorrect d. Statement-I is incorrect but Statement-II is correct Question-8: Consider the following statements regarding “Foreign Currency Convertible Bonds (FCCB)” 1. These are issued by Indian companies & expressed in rupee. 2. Both principal & interest are payable in rupee. 3. They are issued and traded in foreign stock exchange. 4. FCCB holder might convert it into shares to get the benefits of future increase in share prices. Choose the correct option: a. Only1 b. Only2 c. Only4 d. Both1&2 e. Both3&4 f. 1,2&3 g. 1,2,3&4 Question-9:With reference to the India economy, what are the advantages of “Inflation- Indexed Bonds (IIBs)”? 1. Government can reduce the coupon rates on its borrowing by way of IIBs. 2. IIGs provide protection to the investors from uncertainty regarding inflation. 3. The interest received as well as capital gains on IIBs are not taxable. Which of the statements given above are correct? a. 1 and 2 only b. 2 and 3 only c. 1 and 3 only d. 1, 2 and 3 Question-10: Consider the following statements regarding “Shares” 1. Equity shares are the ordinary shares of the company. 2. The holders of the preference shares are the real owners of the company. 3. Preference shareholder gets precedence over equity shares on the matters like distribution of dividend at a fixed rate and repayment of capital in the event of liquidation of the company. 4. Preference shareholders get exclusive voting rights in all matters of the company. Choose the correct option: a. Both1&2 b. Both1&3 c. 1,2&3 d. 1,2,3&4 Economics by Jayant Parikshit Page 4 of 9 Extracted by :- KING R QUEEN P[ऋषभ राजपूत]  FINANCIAL MARKET § A financial market is a market for the creation and exchange of financial assets. § Financial transactions could be in the form of creation of new financial assets such as the initial issue of shares and debentures by a firm or the purchase and sale of existing financial assets like equity shares, debentures and bonds. § Financial markets are classified on the basis of maturity of financial instruments: 1. Instruments with a maturity of less than one year are traded in the money market. 2. Instruments with longer maturity (greater than one year) are traded in the capital market. CAPITAL MARKET § Capital Market could be classified into: 1. Debt Market: Primary Debt Market & Secondary Debt Market 2. Equity Market: Primary Equity Market & Secondary Equity Market DEBT MARKET BONDS A bond is a debt instrument in which an investor loans money to an entity (typically corporate or government) which borrows the funds for a defined period of time at a variable or fixed interest rate. Some examples of bonds: 1. Fixed Interest Bonds: These bonds promise fixed interest to the bondholder to be paid periodically, while interest is returned upon maturity. 2. Floating Rate Bonds: Floating rate bonds are instruments where the interest rate is not fixed, but re-set periodically with reference to a pre-decided benchmark rate. Economics by Jayant Parikshit Page 5 of 9 Extracted by :- KING R QUEEN P[ऋषभ राजपूत]  3. Zero-Coupon Bonds: They are offered at discount on the face value of the bond. On maturity, bondholder gets face value of his investment. They are available for both short run and long run. 4. Deep Discount Bond (DDB): A zero coupon bond with a long maturity is issued at a very big discount to the face value. Such bonds are also known as deep discount bonds. 5. Foreign Currency Convertible Bonds (FCCB): a. Definition: These are issued by Indian companies & expressed in foreign currency. Both principal & interest are payable in foreign currency. They are issued and traded abroad. b. Features: I. FCCB holder might convert it into certain number of ordinary shares. II. Generally, issued by the companies in currency of those countries where interest rate is less than rate of interest in domestic economy. 6. Inflation Indexed Bonds: § Inflation risk has been a potential problem especially with the fixed maturity products like bonds. If the inflation rate is higher than the interest rate being received on the fixed income products, it diminishes the purchasing power of the consumer. Inflation indexed bonds are an efficient way to counter the inflation risk. How does it work?: § The amount you invest in a bond is called the ‘principal’ or ‘face value’. Each bond promises a fixed rate of interest called coupon rate. This is used to calculate regular interest payments. In a normal bond, the principal amount never changes, and the returns are constant. In an IIB, the principal amount is adjusted every year according to the inflation. This means, if the prices rise, the returns (in the form of interest earnings) on the bonds too rise, and vice versa. DEBENTURES § A debenture is a medium to long-term debt that is used by large companies to borrow money. § In general, it is not secured by physical assets or collateral. Debentures are backed only by general creditworthiness & reputation of the issuer. § Most debentures pay a fixed rate of interest. It is required that this interest is paid prior to dividends being paid to shareholders. § Debenture holders (investors) do not have any rights to vote in the company's general meetings of shareholders. Convertible Vs. Non-Convertible Debentures: 1. Convertible debentures can convert into equity shares of the issuing corporation after a specific period of time. 2. Non-convertible debentures are regular debentures that cannot be converted into equity of the issuing corporation. Economics by Jayant Parikshit Page 6 of 9 Extracted by :- KING R QUEEN P[ऋषभ राजपूत]  EQUITY SECURITY SHARES § Shares are the financial assets issued by the companies to raise capital from the general public. When a company offers share, for sale, it sells the portion of its ownership for cash. They are traded on stock exchange. § The shares are divided into two categories: 1. Equity shares 2. Preference shares Equity Shares: § Equity shares are the ordinary shares of the company. The holder of the equity shares are the real owners of the company. § Equity shareholders have some privileges like they get voting rights, can appoint or remove the directors and auditors of the company, have the right to get the profits of the company, i.e. dividend. Preference Shares: § Preference Shares, as its name suggests, gets precedence over equity shares on the matters like distribution of dividend at a fixed rate and repayment of capital in the event of liquidation of the company. § The preference shareholders are also the part owners of the company. BASIS FOR EQUITY SHARES PREFERENCE SHARES COMPARISON Meaning Ordinary shares of the company They carry preferential rights on the representing the part ownership matters of payment of dividend and of the shareholder in the repayment of capital. company. Payment of The dividend is paid after the Priority in payment of dividend over dividend payment of all liabilities. equity shareholders. Repayment of In the event of winding up of In the event of winding up of the capital the company, equity shares are company, preference shares are repaid at the end. repaid before equity shares. Convertibility They can never be converted. They can be converted into equity shares. Voting rights Equity shares carry voting rights. Normally, PS don’t carry VR. But, in special circumstances, they might get voting rights. Economics by Jayant Parikshit Page 7 of 9 Extracted by :- KING R QUEEN P[ऋषभ राजपूत]  FLOWCHARTS Economics by Jayant Parikshit Page 8 of 9 Extracted by :- KING R QUEEN P[ऋषभ राजपूत]  Economics by Jayant Parikshit Page 9 of 9 Extracted by :- KING R QUEEN P[ऋषभ राजपूत]  HANDOUT NO -5: CAPITAL MARKET: PRIMARY & SECONDARY MARKET Economics by Jayant Parikshit Page 1 of 10 Extracted by :- KING R QUEEN P[ऋषभ राजपूत]  ECONOMICS HANDOUT by Jayant Parikshit Question-1: Which of the following are correct statements related to “Retail Investors”? 1. They are Individuals. 2. They include NRIs. 3. They can invest upto Rs 5lakhs in IPOs. How many of the above statements are correct? a. Only one b. Only two c. All three d. None of these Question-2: Which of the following category of investors are not included in Qualified Institutional Buyer in India? 1. Insurance Companies 2. Mutual Fund Companies 3. Foreign Portfolio Investors 4. NBFCs Choose the correct option: a. 1 only b. 2 only c. 4 only d. None of these Question-3: Which of the following statements are correct related to Anchor Investors? 1. They have to make an investment of Rs 10 crore or more in the IPO subscription of shares. 2. They have to keep the funds locked in for upto 1 year. Choose the correct statements: a. 1 only b. 2 only c. Both 1& 2 d. None of these Question-4: Consider the following statements: 1. All QIIs are Anchors. 2. All Anchors are QIIs. 3. All QIIs are potential Anchors. How many of the above statements are correct? a. Only one b. Only two c. All three d. None of these Question-5: During the IPO launch, which of the following is correct about allocation of shares for profit making companies: 1. Retail Investors are allocated atleast 35% shares. Economics by Jayant Parikshit Page 2 of 10 Extracted by :- KING R QUEEN P[ऋषभ राजपूत]  2. Qualified institutional investors (QII) can procure a maximum of 50% shares out of which anchors can subscribe upto 60% of the total QII quota. 3. Non-Institutional Investors (NNI) can subscribe to a maximum of 15% IPO shares. Choose the correct option: a. 1 only b. 2 only c. 3 only d. 1,2&3 Question-6: During the IPO launch, which of the following is correct about allocation of shares for non-profit making companies: 1. Retail Investors are allocated atleast 10% shares. 2. Qualified institutional investors (QII) can procure a maximum of 75% shares out of which anchors can subscribe upto 60% of the total QII quota. 3. Non-Institutional Investors (NNI) can subscribe to a maximum of 15% IPO shares. Choose the correct option: a. 1 only b. 2 only c. 3 only d. 1,2&3 Question-7: Consider the following statements: 1. FPO is a type of IPO for the second time. 2. Private Placement can be done only after IPO is launched. Choose the correct statements: a. 1 only b. 2 only c. Both 1& 2 d. None of these Question-8: Which of the following statements is/are correct related to the rights issue: 1. It is offered at a discount to the existing share holders of the company. 2. It can only be availed by the IPO holder of the company. How many of the above statements are correct? a. Only one b. Only two c. All three d. None of these Question-9: Consider the following statements related to New issue of shares: 1. Under it, the company issues new shares for the public. 2. Total number of shares of the company remains the same. 3. The shares are diluted in the new issue of shares. Choose the correct option: a. 1 only b. 2 only c. Both 1&3 d. 1,2&3 Economics by Jayant Parikshit Page 3 of 10 Extracted by :- KING R QUEEN P[ऋषभ राजपूत]  Question-10: Consider the following statements related to “Offer for Sale” of shares: 1. Under it, the existing shareholders holding private shares offer some of their shares to the public. 2. Total number of shares of the company remains the same. 3. The shares remain undiluted in the new issue of shares. Choose the correct option: a. 1 only b. 2 only c. 3 only d. 1,2&3 SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI) § SEBI was established by the Government of India on 12 April 1988 as an interim administrative body under Finance Ministry to promote orderly and healthy growth of securities market and for investor protection. § The SEBI was given a statutory status on 30 January 1992. So, SEBI is both a statutory & regulatory body. SEBI is a non-constitutional body. § Its headquarters is at the business district at the Bandra Kurla Complex in Mumbai, but it also possesses Northern, Eastern, Southern and Western regional branch offices in the cities of New Delhi, Kolkata, Chennai and Ahmedabad, respectively. Management of SEBI: The Board shall consist of the following members, namely:— 1. A Chairman nominated by Central Government. 2. Two members from amongst the officials of the Ministry of Finance. 3. One member from RBI. 4. Five other members of whom at least three shall be the whole-time members, to be nominated by the Central Government. Functions of SEBI: Its functions are of three types or categories: 1. Quasi-Legislative Functions: These include drafting legislature with respect to the capital markets 2. Quasi-Executive Functions: The implementation of the legislation also falls to SEBI. And when necessary they can conduct investigations as well about any wrongdoings. 3. Quasi-Legal Functions: The SEBI also has the authority to conduct hearings and pass rulings and judgments. Powers of SEBI 1. Registration of brokers and sub-brokers and other players in the market. 2. Registration of Mutual Funds. 3. Regulation of Stock Bankers and portfolio exchanges, and merchant bankers. 4. Prohibition of fraudulent and unfair trade practices. 5. Calling for information by undertaking inspection, conducting enquiries and audits of stock exchanges and intermediaries. 6. Levying fee or other charges for carrying out the purposes of the Act. Economics by Jayant Parikshit Page 4 of 10 Extracted by :- KING R QUEEN P[ऋषभ राजपूत] 7. Investor education 8. Training of intermediaries 9. Promotion of fair practices and code of conduct of all SRO’s. 10. Conducting research and publishing information useful to all market participants. PRIMARY MARKET § It deals with new securities being issued for the first time. The essential function of a primary market is to facilitate the transfer of investible funds from savers to entrepreneurs. § Examples of the investors in this market are banks, financial institutions, insurance companies, mutual funds and individuals. INITIAL PUBLIC OFFERING (IPO) UNDERWRITER: § It is the first sale of shares by the § Any company when decides to go public generally prefers the IPO route, company to public. When a company which it does with the help of big makes an IPO, the shares of the company investment bankers also called becomes widely held. Companies offering underwriters. an IPO are sometimes new, young § These underwriters are responsible companies, or companies which have for making the public issue successful been around for many years and have and find the buyers for company’s shares. They are paid a certain amount finally decided to go public. of commission to do this work. § The money paid by investor goes directly to the company in contrast to the shares at stock exchange where money passes between investors. FRESH ISSUE OF SHARES § New shares are issued by the company to public investors. The issued share capital of the company increases. The percentage holding of existing shareholders will come down due to the issuance of new shares. OFFER FOR SALE § Existing shareholders such as financial institutions offer a part of their holding to the public investors. The share capital of the company does not change since the company is not making a new issue of shares. The proceeds from the IPO go to the existing shareholders who are selling the shares and not to the company. FURTHER PUBLIC OFFER (FPO) § A follow-on public offer is made by an issuer that has already made an IPO in the past and now makes a further issue of securities to the public. RIGHTS ISSUE § This is a privilege given to existing shareholders to subscribe to a new issue of shares according to the terms and conditions of the company. Economics by Jayant Parikshit Page 5 of 10 Extracted by :- KING R QUEEN P[ऋषभ राजपूत]  PRIVATE PLACEMENT § Private placement (or non-public offering) is a funding round of securities which are sold not through a public offering, but rather through a private offering, mostly to a small number of chosen investors like financial institutions and banks. e-INITIAL PUBLIC OFFER (e-IPOs) § A company proposing to go public through the on-line system of the stock exchange has to enter into an agreement with the stock exchange. This is called an e-Initial Public Offer (e-IPO). SECONDARY MARKET § It is a market for the purchase and sale of existing securities- shares, debentures, bonds. § A secondary offering is not dilutive to existing shareholders, since no new shares are created. The proceeds from the sale of the securities do not benefit the issuing company. STOCK EXCHANGES OF INDIA: § Indian secondary market consists of stock exchanges where securities issues by central government, state government, public bodies and other companies are traded. § To trade in a stock exchange, the companies must be listed there. The exchange imposes rules and regulations on the firms & brokers for efficient trading and provides the facility for the issue and redemption of securities. § Those companies which are not listed on the stock exchanges are traded Over the Counter (OTC). These are the smaller, riskier, and less liquid companies. Generally, they do not meet the requirements of getting listed on the stock exchanges and hence trade over the counter. § Timeline: v Real beginning was with the Companies Act 1850 which generated interest in corporate securities. v BSE started in 1875. v Stock Exchange in Ahmedabad, Kolkata & Madras followed. v NSE was setup in 1992 and started operations from 1994. § Regulation: v Stock Market in India is regulated by central government under Securities Contract (Regulation) Act 1956. v Securities and Exchange Board of India (SEBI) Act 1992 established SEBI to protect investors and promote securities market. They supervise the securities market. Economics by Jayant Parikshit Page 6 of 10 Extracted by :- KING R QUEEN P[ऋषभ राजपूत]  SOME PROMINENT STOCK EXCHANGES IN INDIA BOMBAY STOCK EXCHANGE (BSE) § Established in 1875, BSE (formerly known as Bombay Stock Exchange Ltd.), is Asia's first & the fastest Stock Exchange in world with the speed of 6 micro seconds and one of India's leading exchange groups. § In 1956, the government recognized BSE as the first national stock exchange under the Securities Contracts (Regulation) Act. § BSE provides an efficient and transparent market for trading in equity, debt instruments, derivatives, mutual funds. It also has a platform for trading in equities of small-and- medium enterprises (SME). § Around 5,500 companies are publicly listed on the BSE. § The BSE is in world’s top 10 list of largest stock exchange. NATIONAL STOCK EXCHANGE (NSE) § The National Stock Exchange (NSE) is India's leading stock exchange covering various cities and towns across India. § It was setup in 1992 and started operations from 1994. § Overtime, the NSE cornered almost the complete market share in equity derivatives trading, putting BSE firmly into a distant second place. § It was the first exchange in the country to provide a modern, fully automated screen- based electronic trading system that offered an easy trading facility to the investors spread across the length and breadth of the country. § NSE has around 2200 listed companies. Economics by Jayant Parikshit Page 7 of 10 Extracted by :- KING R QUEEN P[ऋषभ राजपूत]  CURRENT DEVELOPMENTS RELATED TO CAPITAL MARKET & SOME EXAM RELATED POINTERS: Allotment of Shares under IPO- New Rules wef. April 2022: A. Companies with a profitability track record: 4. Retail Investors = 35% 5. Qualified institutional investors (QII)= 50% ( Anchor = upto 60% of 50 = 30%) 6. Non-Institutional Investors (NNI): a. 5% of issuance is reserved for small size HNIs with application between ₹2 lakh and ₹10 lakh b. 10% is for HNIs who are putting above ₹10 lakh for an IPO. B. Companies not meeting profitability track record: 1. Retail = 10% 2. QIB= 75% ( Anchor = upto 60% of 75 = 45%) 3. NII = 15% Retail Investors: § SEBI has allowed individual investors applying UPI is an instant payment system in IPOs and public offers to use Unified developed by the National Payments Payment Interface (UPI) for applications up to Corporation of India(NPCI). It allows Rs 5 lakh, from the current limit of Rs 2 lakh per instant transfer of money between application. any two individuals' bank accounts. § The new guidelines of enhanced limit for UPI based applications for public issues will come into force from 1st May 2022. Qualified Institutional Investor (QII): QIBs are entities such as mutual funds, pension funds and foreign portfolio investors (FPIs) registered with market regulator, the Securities and Exchange Board of India (Sebi). Lock-in period for Anchor investors Starting April 1, 2022, the lock-in period for anchor investors has been extended. 50% of shares allotted to anchor investors would be subject to a 90-day lock-in. Offer for Sale conditions The shareholders who hold more than 20% of the pre-issue shareholding, can sell only up to half of their shareholding when going public. If they own below 20%, the limit to sell is set up to 10% shareholding in IPO via OFS (Offer for Sale). Economics by Jayant Parikshit Page 8 of 10 Extracted by :- KING R QUEEN P[ऋषभ राजपूत]  FLOWCHARTS: Economics by Jayant Parikshit Page 9 of 10 Extracted by :- KING R QUEEN P[ऋषभ राजपूत]  Economics by Jayant Parikshit Page 10 of 10 Extracted by :- KING R QUEEN P[ऋषभ राजपूत]