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Indian Economy

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Home/Indian Economy/Page 18

Mains Answer Writing Latest Questions

Aryan Ps
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Aryan PsBegginer
Asked: July 13, 2024In: , ,
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What could be the key highlights in the 2024 budget to be presented by Mrs. Nirmala Sitaraman?

question
  1. Khushi
    Khushi Begginer

    The 2024 budget presented by Finance Minister Nirmala Sitharaman is likely to focus on several key areas aimed at fostering economic growth and stability in India. Key highlights might include: Infrastructure Development: Significant investments in infrastructure projects to boost economic activityRead more

    The 2024 budget presented by Finance Minister Nirmala Sitharaman is likely to focus on several key areas aimed at fostering economic growth and stability in India. Key highlights might include:

    1. Infrastructure Development: Significant investments in infrastructure projects to boost economic activity and job creation. This could include new highways, railways, and urban infrastructure projects.
    2. Digital Economy and Technology: Increased funding for digital initiatives and technology development, promoting innovation, and expanding the digital infrastructure to enhance connectivity.
    3. Healthcare and Education: Enhanced budget allocations for healthcare and education to improve public health systems and educational outcomes, reflecting lessons learned from the COVID-19 pandemic.
    4. Agriculture and Rural Development: Initiatives to support farmers, such as subsidies, loan waivers, and investment in rural infrastructure, to ensure sustainable agricultural growth and rural development.
    5. Tax Reforms: Possible changes in tax structures, including relief for the middle class, rationalization of GST rates, and measures to improve tax compliance and administration.
    6. Environmental Sustainability: Investments in green energy and sustainability projects to address climate change and promote renewable energy sources.
    7. MSME Support: Enhanced support for Micro, Small, and Medium Enterprises (MSMEs) through credit facilities, subsidies, and policy support to stimulate growth and employment in this sector.
    8. Foreign Investment: Policies to attract foreign investment by simplifying regulations and offering incentives.

    These measures aim to balance economic growth with social welfare and environmental sustainability, ensuring inclusive development.

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unnati_narayan
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unnati_narayanBegginer
Asked: July 16, 2024In: ,
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finance
  1. Sakshi Mohankumar Dongre
    Sakshi Mohankumar Dongre Begginer

    Bitcoin's price volatility stems from a complex interplay of factors that collectively shape its market dynamics. At its core, Bitcoin's value is significantly influenced by market demand and speculative trading activities. Fluctuations can be drastic as investors react to perceived opportunities orRead more

    Bitcoin’s price volatility stems from a complex interplay of factors that collectively shape its market dynamics. At its core, Bitcoin’s value is significantly influenced by market demand and speculative trading activities. Fluctuations can be drastic as investors react to perceived opportunities or risks, driving rapid price changes. Moreover, regulatory developments play a pivotal role; positive news such as regulatory acceptance or institutional adoption often boosts prices, while regulatory crackdowns or negative scrutiny can lead to sell-offs.

    Market liquidity is another critical determinant, with Bitcoin’s relatively smaller market size compared to traditional assets amplifying price movements in response to large trades. Investor sentiment, influenced by media coverage and social media trends, further fuels volatility, as sentiment shifts can trigger mass buying or selling. Technological factors, such as network upgrades or security vulnerabilities, also impact prices by affecting investor confidence.

    Additionally, macro-economic events like global economic instability or inflation concerns can position Bitcoin as a hedge or safe-haven asset, influencing demand. Finally, the decentralized nature of Bitcoin markets can make them susceptible to manipulation, contributing to sudden and dramatic price fluctuations.

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Ayushi jain
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Ayushi jainBegginer
Asked: June 19, 2024In:
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What are assets that do not perform (NPAs)? Describe the steps the government has recently made to combat the threat posed by non-performing assets (NPAs) in India. (Answer in 200 words)

upsc: banking & monetary policy
  1. Diksha Jadhav
    Diksha Jadhav Begginer
    This answer was edited.

      NPA stands for Non-performing assets (NPAs). As per the Reserve Bank of India NPAs are loans or advances, due for more than 90 days. In other words, an asset becomes non-performing when it stops generating income for the bank. In case of agricultural advances cropping seasons are taken into cRead more

     

    NPA stands for Non-performing assets (NPAs). As per the Reserve Bank of India NPAs are loans or advances, due for more than 90 days. In other words, an asset becomes non-performing when it stops generating income for the bank. In case of agricultural advances cropping seasons are taken into consideration instead of 90 days. Increasing NPAs is not a good sign for the banking sector and economy as it shows the inability of people to repay the loan.

    Types of NPAs

    Non-performing assets are categorized into various types based on specific criteria.

    1. Substandard Assets: The assets have remained NPA for a period less than or equal to 12 months.

    2. Doubtful Assets: Assets that have remained in the substandard category for 12 months.

    3. Loss Assets: Assets where loss has been identified by the bank or external auditors or the RBI, but the amount has not been written off.

    Measures Taken to Control NPAs by the Government

    1. Insolvency and Bankruptcy Code (IBC), 2016:

    It aims to improve the ease of doing business and a single-step solution to resolve insolvency issues.

    To oversee the implementation of the law and insolvency professionals.

    The incorporation of the IBC has significantly improved the recovery rates of bad loans by providing quicker resolution and restructuring of assets.

    2. Asset Quality Review (AQR):

    The RBI introduces an AQR to identify stressed assets in the banking system. This exercise focused on bringing transparency and improving the recognition of NPAs on the bank’s books.

    3. Strategic Debt Restructuring (SDR), 2015:

    If corporations are unable to repay their bank loans, the banks have the option to convert part or all of the loans into equity shares.

    4. Mission Indradhanush:

    This initiative was launched to revise the functioning of PSBs and identify issues like accountability, governance, and the overall condition of the banking sector.

    It includes appointing professionals to major positions, empowering risk control measures, and improving the efficiency of bank operations.

    5. Debt Recovery Tribunal (DRT), 2013:

    It is governed by the Recovery of Debt Due to Banks and Financial Institutions Act, of 1993.

    The aim was to shorten the time needed for case settlements.

    6. Joint Lenders Forum (2014):

    This measure is implemented to prevent the situation where a loan is taken from one bank to repay loans from other banks.

    7. 5:25 Rule (2014):

    It is also known as the Flexible Restructuring of Long Term Project Loans to Infrastructure and Core Industries and involves the refinancing of long-term projects.

    8. Corporate Debt Restructuring (2005):

    It minimizes the company’s debt burden by extending the repayment period and lowering the interest rates.

    9. Asset Reconstruction Companies (ARC) 

    This measure helps in recovering value from distressed loans without going through the time-consuming process of court.

    10. The SARFAESI Act (Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act), 2002:

    This act allows banks and financial institutions to auction residential or commercial properties to recover loans of defaulters.

    The amendment in 2016 aimed to encourage banks to take possession of collateral security and sell them without the interference of courts.

    11. Bad Bank – National Asset Reconstruction Company Limited (NARCL):

    The government suggested setting up a ‘bad bank’ to manage and dispose of stressed assets of banks.

    It will facilitate the aggregation and resolution of large-value NPAs along with the India Debt Resolution Company Limited (IDRCL).

    12. Empowering Governance in Banks:

    It includes the establishment of the Banks Board Bureau (BBB) to recommend appointments of directors and ensure the professionalization in bank management.

    Improved investigation and accountability norms to avoid the reoccurrence of large frauds.

    13. One-Time Settlement Schemes:

    Banks have been encouraged to offer one-time settlement schemes to borrowers, especially in the MSME sector, to expedite the recovery process.

    14. MSME Debt Restructuring:

    The government and RBI have provided relief to the MSME sector by allowing the restructuring of their stressed assets without devaluing them.

     

     

     

     

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Anshika Singh
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Anshika SinghLearner
Asked: June 25, 2024In:
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Order of importance India’s sector lending industry has a number of obstacles. Talk about its usefulness as a tool for policy in this situation. (Answer in 150 words)

upsc: banking & monetary policy
  1. Ritika Sharma
    Ritika Sharma Learner

    Priority Sector Lending (PSL) mandates increased lending by the banks towards specified sectors and activities in the economy, which may not get timely and adequate credit in the absence of the special dispensation. Presently, categories under priority sector include Agriculture; Micro, Small and MeRead more

    Priority Sector Lending (PSL) mandates increased lending by the banks towards specified sectors and activities in the economy, which may not get timely and adequate credit in the absence of the special dispensation. Presently, categories under priority sector include Agriculture; Micro, Small and Medium Enterprises; Export Credit; Education; Housing; Social Infrastructure; Renewable Energy; and Others. The rate of interest on PSL loans is charged as per the directives of the RBI.

    Challenges with Priority Sector Lending in India:

    • Sectoral issues: Doubling credit to PSL in the agricultural sector leads to an increase of just 11% of total credit in the agricultural sector as compared to 76% in the export sector and 41% in manufacturing sector. Also, agricultural sector’s susceptibility to vagaries of monsoon increases the credit risks of banks under PSL.
    • Lethargy in lending: Most public sector banks have been continuously underperforming on the total priority sector target. This may be due to difficulty in finding viable options to lend to the rural areas or the MSME sector.
    • Rising NPA: The Second Narasimham Committee (1998) observed that directed credit led to an increase in non-performing loans and adversely affected the efficiency and profitability of banks. It stated that 47% of all non-performing assets have come from the priority sector.
    • Costs of PSL in India: It hinders the banks from expanding their scale of lending, consequently, affecting the banking industry and the flow of credit in the economy as a whole. It also impacts the general lending power of banks and deposit rate, which ultimately impact the general public.

    Notwithstanding the challenges, PSL has proved useful for the following reasons:

    • Promotes equity: It promotes social equity and facilitates increase in employment and investment in less developed regions and gives an impetus to the vulnerable sections of the society.
    • Balanced development: Direct lending allows the commercial banks to generate high social returns along with profits and it also contributes to economic development by increasing investment in strategic sectors like exports.
    • Credit formalisation: It increases institutional credit (including commercial banks, cooperative banks and societies) to the agriculture sector compared to non-institutional credit (such as money lenders).

    Despite the challenges, the policy of priority sector lending (PSL) target has benefitted the vulnerable sections of society, which though creditworthy, are unable to access the formal banking system for adequate and timely credit. In this context, to make the PSL policy more effective, various steps such as Priority Sector Lending Certificates, timely revised guidelines by the RBI, continued increase of the target under PSL year-on-year, etc. have been taken, which are steps in the right direction.

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Ayushi jain
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Ayushi jainBegginer
Asked: June 25, 2024In:
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The internationalization of the rupee is not without risk, despite its many benefits. Talk about it. (Answer in 150 words)

upsc: banking & monetary policy
  1. Sanskriti Mahtolia
    Sanskriti Mahtolia Begginer

    In the process of internationalization of the rupee it comes with the multiple advantages like reduction in the dependence on the US dollar, enhancements in the globally trading Indian businesses and the most important strengthening of our economy. Promoting the rupee will also reduce the transactioRead more

    In the process of internationalization of the rupee it comes with the multiple advantages like reduction in the dependence on the US dollar, enhancements in the globally trading Indian businesses and the most important strengthening of our economy. Promoting the rupee will also reduce the transaction costs which will benefit the Indian importers and the exporters.

    But with every shift comes risk. Increasing exposures to financial markets globally can lead to greater unpredictability because the rupee would be more influenced by the international economical fluctuations. This would lead to higher inflation rates which will destabilize our domestic economy. Additionally the Indian financial system will face challenges in managing the liquidity as well as the exchange rate risks as we have relatively less developed financial infrastructure compared to other global currencies.

    Furthermore, there’s also the risk of revengeful measures from the other powers of the economy which will perceive this internationalization of the rupee as an upcoming threat to their economy.

    In conclusion, while internationalization of the rupee offers a variety of benefits but it comes with greater and parallel risks as well, so it requires careful management and risk mitigation techniques pre – planned to ensure that the advantages overpowers potential economic instabilites.

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Garima Singla
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Garima SinglaBegginer
Asked: July 9, 2024In:
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What are the impacts of reduction of Cash Reserves Ratio by RBI on the credit creation in the market?

monetary policy and budgeting
  1. Garv Joshi
    Garv Joshi Begginer

    When the Reserve Bank of India (RBI) reduces the Cash Reserve Ratio (CRR), it impacts directly on the credit creation process in an economy. CRR is a certain percentage of a bank's total deposits that has to be maintained in form of cash with RBI. By reducing CRR, RBI can increase the amount availabRead more

    When the Reserve Bank of India (RBI) reduces the Cash Reserve Ratio (CRR), it impacts directly on the credit creation process in an economy. CRR is a certain percentage of a bank’s total deposits that has to be maintained in form of cash with RBI. By reducing CRR, RBI can increase the amount available with banks for lending.
    Here is the explanation:-

    1.Increased Liquidity: As explained above, reduction in CRR leads to release of some part of [banks near-cash asset] as reserves and therefore permits banks to supply more credit.
    2.Lower Borrowing Costs: When banks have access to more funds to lend, they may reduce interest rates on loans because they do not need to compete as aggressively for deposits as they would when their reserves are limited.
    3.Boost to Economic Activity: With greater lending capacity at lower rates of interest, banks are able to assist not only new businesses† but also existing firms in expanding and generating additional employment and output. Consumers, too, are more likely to borrow in order to make purchases† thus contributing† to further spending.
    4.Multiplier Effect: The additional lending leads to a multiplier effect in the economy – when banks lend more, it increases the deposits with banks by borrowers, which in turn increases the possibility of further lending, thus creating more credit on its own.
    So, effectively, RBI reduces CRR to infuse liquidity in banking system, increase borrowings at lower cost and boost economic growth through increased credit creation.

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SAGUN MODI
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SAGUN MODIBegginer
Asked: July 11, 2024In:
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Please describe the infrastructural and regulatory changes and compliances traditional banks and financial institutions must undergo to stay on par with technological advancements and protect consumers/investors.

  1. Anna Khan
    Anna Khan Begginer

    The managers and owners of the current financial institutions are feeling the changes by implementing them and obeying the strict regulations of creating a buffer against future fintech. Here are some practical known approaches that one may use to ensure calmness in the process of dealing with conflRead more

    The managers and owners of the current financial institutions are feeling the changes by implementing them and obeying the strict regulations of creating a buffer against future fintech. Here are some practical known approaches that one may use to ensure calmness in the process of dealing with conflicts: 

    Investment in Technology and Infrastructure:

    • Blockchain Integration: Blockchain is gradually finding its way in the various institutions of the world’s banking and financial structures which have been visibly trying to strengthen the security in the execution of their business initiatives, fight frauds while bringing a revolutionary change to the universally accepted conventional methodologies of employing cross border payments, trade finance and many of the other related endeavors. 
    •  AI and Machine Learning: Cutting-edge application areas are using AI in customer service where requests are taken by bots, in financial purchase where users get a customized service, in fighting fraud and risk management. 
    •  Digital Currencies: CBDCs are discussed by some banks to enable them to offer safer digital currencies that would assist in containing the monetary issue, competing with opponents from the private entities. 
    1. Enhancing Cybersecurity Measures 
    •  Advanced Cybersecurity Protocols: As a result of increased insecurity in the financial industries, the security features; such as; two-factor and multi-factor authentication; the encryption of information; and surveillance measures are being integrated in the financial organizations. 
    •  Collaboration with Cybersecurity Firms: This can entail developing contingents with cybersecurity firms in order to have proper access with the emerging incidences as well as ways of protection. 
    1. Regulatory Compliance and Adaptation 
    •  Adapting to New Regulations: Flexibility in alternatives in rules and policies of users of digital assets, personnel data protection and Cyber security to suit the consumers. 
    •  Regtech Solutions: Mainly by using the so-called regulatory technology or Regtech to enhance the effectiveness of compliance activities, reduce costs and increase the effectiveness of reports. 
    1. Customer Experience and Engagement
    •  Omnichannel Banking: Ensuring customers receive a cohesive experience through a combination of digital platforms such as applications for mobile, Internet banking and brick and mortar branches. 
    •  Personalized Financial Services: Employing data analysis techniques to make changes to the financial products and service to fit the specific needs and/or wants of the clients. 
    1. Partnerships and Collaborations 
    •  Fintech Partnerships: Partnering with other fintech firms to adopt recent solutions into the industries and be relevant. Such partnerships can be useful when the firm does not need to develop any unique technology itself. 
    •  Consortiums and Alliances: As well as incorporating into industry consortiums to create and implement new industry standards and technologies. 
    1. Agile and Flexible Operations 
    •  Agile Methodologies: Adapting the business models to improve the speed of responding to the market fluctuations and customers’ demand. This has the advantage of faster and quicker development and deployment of new products and services. 
    •  Cloud Computing: Adopting the cloud services solution for improving company scalability, for reducing costs that are associated with the upgrade of IT infrastructure and strengthening the business continuity disaster recovery solutions. 
    1. Education and Workforce Development 
    •  Continuous Learning: Training of employees so that they can be fit for that modern world in terms of technology and other regulations that may apply. 
    •  Hiring Tech Talent: To procure the best talent pool in the specialized sectors like Artificial Intelligence, Blockchain, Cybersecurity, and data analytics for its establishments, employing and retaining methods.
    1. Sustainable and Ethical Practices 
    •  Sustainable Finance: Including ESG factors for investment decisions to cover environmental issues and considering ESG factors of the company’s activities regarding the customer base of patriotic and environmentally conscious citizens. 
    •  Transparency and Accountability: Enhancing the degree of operation and decision-making disclosure to enhance stakeholders confidence and belief in the organization’s operations and decisions. 

     Conclusion 

     The strategies which can assist the banks and other financial institutions to effectively tackle the few challenges promoted by the emergence of Fintech include technology enhancement, security enhancement and improvement, a change of tune regarding the changes in regulation, enhancement of efficient customer services, and the creation of partnerships. Thus, this conserves the equity of the investors and the customers of the financial products and the ecological and sound challenging competitiveness of the financial system.

     

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Preeti909
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Preeti909Begginer
Asked: July 14, 2024In:
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  1. Sneha Kumari
    Sneha Kumari Begginer

    Open Market Operations are the monetary tools used by central banks with the purpose of changing the money supply in the economy. Since these operations takes place in the open market for bonds , they heavily impact the interest rates and the money supply in the economy. It happens in the followingRead more

    Open Market Operations are the monetary tools used by central banks with the purpose of changing the money supply in the economy. Since these operations takes place in the open market for bonds , they heavily impact the interest rates and the money supply in the economy. It happens in the following two ways:

    1. Expansionary Open Market Operations: In these operations , Central banks buys bonds in the bond market and pays for them by creating money , thus increasing money supply in the economy. As the central bank buys bonds , the demand for bonds goes up , increasing their price. Conversely, the interest rate on bonds goes down.
    2. Contractionary Open Market Operations: In these operations, Central banks sells bonds in the bonds market, thereby decreasing money supply in the economy . This leads to a decrease in the prices of bonds and increase in the interest rate.
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Chandani Yadav
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Chandani YadavBegginer
Asked: July 16, 2024In:
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What is the role of investment banking in financial markets?

question
  1. Tripti Jain
    Tripti Jain Begginer

    Role of Investment Banking in Financial Markets Investment banking plays a crucial role in financial markets by facilitating large, complex financial transactions, such as mergers and acquisitions, initial public offerings (IPOs), and debt and equity securities underwriting. Investment banks act asRead more

    Role of Investment Banking in Financial Markets

    Investment banking plays a crucial role in financial markets by facilitating large, complex financial transactions, such as mergers and acquisitions, initial public offerings (IPOs), and debt and equity securities underwriting. Investment banks act as intermediaries between companies, governments, and other entities, helping them raise capital, manage financial transactions, and provide expert advice on strategic planning, restructuring, and risk management.

    Key Functions of Investment Banking:

    1. Underwriting Securities: Investment banks help companies issue new stocks or bonds by underwriting them, taking on the risk of selling these securities in exchange for a fee.
    2. Mergers and Acquisitions (M&A): Investment banks advise and facilitate mergers and acquisitions, helping negotiate deals, structure transactions, and find financing solutions.
    3. Advisory Services: They provide expert advice to clients on various financial matters, including strategic planning, restructuring, and risk management.
    4. Sales and Trading: Investment banks help in buying and selling securities for their clients or for their own accounts, connecting buyers and sellers and earning a commission for each trade.
    5. Research: Many investment banks have research divisions that analyze markets, industries, and companies, providing reports and insights that help investors make decisions.
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