 A very good evening aspirants, welcome to the Hindu newspaper analysis brought to you by Shankare's Academy for the day 2nd of February 2022. Displayed here are the list of articles that we are going to discuss today. See these articles, they are based on the key points discussed in the budget session yesterday for the year 2022-23. So without any delay, let's start our discussion. Look at this editorial article here, this editorial deals with the budget. The editorial says that the budget focuses more on the infrastructure and focuses less on increasing consumer spending. Actually, due to pandemic induced lockdown and the resultant economic downturn, the middle class and the poor faced loss of income and a decline in savings. This has resulted in the reduced demand in the economy. So people were expecting that this budget would be giving tax breaks for the middle class and cash handouts for the poor. So by this way, consumer demand would be revived to pre-pandemic level and India's economic growth story would continue. But instead the government focused on increasing the capital expenditure through infrastructure spending to revive growth. This is the essence of the editorial article given here. It also mentions some infrastructure plans of the government announced in the budget. So in this discussion, first we will be discussing some basic terms mentioned in the editorial, then the infrastructure push of the government in this year's budget and the significance of infrastructure for India's growth. We'll also discuss some shortcomings of the budget mentioned in this editorial article and some suggestions. This is the laid out plan for this discussion today. Before getting into the discussion, the syllabus relevant for this article is given here. For your reference, you can go through it. Now let's start our discussion. We know that the term budget is not mentioned in the constitution, right? Here it is mentioned as the annual financial statement under article 112. When the annual financial statement of the budget is presented, it gives information under four broad heads. They are the budget estimate for the next financial year, revised estimates for the current fiscal year, budget estimates of the current year which must have been presented in the previous budget, actual estimates for the previous financial year. So for example, for this year, the budget table would contain four large volumes, namely budget estimates of the next financial year that is 2022-23, revised estimates of 2021-22 and the budget estimates of 2021-22 and the actuals of the previous financial year that is 2020-21. See here, the budget estimates of the budget allocation announced at the beginning of each financial year. So essentially, budget estimates are like a forecast of the likely expenditure and receipts. Next, let's see the revised estimates. See after six months from the date of the budget presentation, the actual trends of expenditure and receipts are analyzed and the likely trends of the expenditure and revenue for the next six months is announced. This projection based on the mid-term review is called revised estimates. And finally, the actual estimates, once the budget year is over, the government receives the actual data on expenditures and receipts. This actual data on expenditures and receipts are represented as the actuals. I hope you guys understand the difference between the budget estimates, revised estimates and the actual estimates. Now let us look at the various infrastructure proposals made by the government in the budget. The budget outlay on capital accounts is Rs 7.50 lakh crore. This is a 24.4 percentage increase over the 2021-22 revised estimate. See the main aim of the government through this increased allocation is to pump prime demand in the economy. Here pump prime means to stimulate the activity through investment. So by increasing the allocation to capital investment, the government is trying to stimulate the economy. See in case of infrastructure investment, the Finance Minister's budget speech highlighted Pradhan Mantri Gatishakti National Master Plan. The scope of the PM Gatishakti National Master Plan will include the seven engines for economic transformation, seamless multimodal connectivity and logistics efficiency. Here the seven engines being roads, railways, airports, ports, mass transport, waterways and logistics infrastructure. See the projects relating to these seven engines in the national infrastructure pipeline will be aligned with PM Gatishakti framework. This according to the government will bring in transformative growth and bring in sustainable development. See aspirants if you want to know about PM Gatishakti program in detail, please watch Saumya Mam's discussion on 23rd January 2022. Now moving on, the next important infrastructure announcement is master plan for expressways. See the master plan for expressways will be formulated in 2022-2023 for the expansion of national highways network by 25,000 km. For this 20,000 crore is to be mobilized. The next is in regards to multimodal connectivity for seamless movement of people. For enabling the movement of people there will be seamless integration of mass, urban transit systems and railway stations. See here in terms of railways it is announced that 400 new Vande Matram trains are to be added. In addition to this the focus has to be on the use of information technology enabled services that is the ITES for enhancing the customer experience. And this coupled with the master plan for expressways will help people's mobility. Moving on the next is for the efficient freight movement. For this multimodal logistic parks would be implemented at four locations. See 100 PM Gatishakti cargo terminals for multimodal logistic are to be developed during the next three years for freight mobility. And finally it was also announced that the railways will develop new products and efficient logistic services for small farmers and small and medium enterprises. See the efforts will also be taken for the integration of postal and railways networks. This will provide seamless solutions for the movement of parcels. And on this line one station one product concept will be popularized to help local businesses and supply chains. Now let us see what is this one station one product is. See the concept is based on the successful one district one product scheme. The one station one product has been introduced with a focus on promoting the supply chain of local products using railways. That is why one station one product. Here the railway station will act as a promotional hub and help showcase the local product. See these are some of the infrastructure based announcements made by the government in 2022-23 union budget. What all we saw? We saw that infrastructure investment highlighted in Pradhan Mantri Gatishakti national master plan which will include seven engines for economic transformation, seamless multimodal connectivity, logistic efficiency and after that we saw master plan for express ways and after that we saw multimodal connectivity for seamless movement of people using railways. Under that we saw that 400 new Vande Madram trains are to be added and the focus has been the use of information technology enabled services. And after that we saw multimodal logistics parks would be implemented for the efficient freight movement and 100 PM Gatishakti cargo terminals would be developed for this purpose. And finally we saw one station one product scheme. In this the railway stations act as promotional hub and help showcase the local product. So far we saw the announcement made in the budget session 2022-23. Now let us see why infrastructure spending is important. See the first and foremost importance is pump prime demand. See the increased infrastructure spending will help stimulate the economy and it will also increase money supply in the economic. As a result it will help boost local demand and help in the economic revival process. While increasing the money supply infrastructure spending will also help in creating productive assets. The second significance is job creation. See a study by S&P Global estimates that one percentage of GDP spent on infrastructure can boost real growth by 2% while creating 1.3 million direct jobs. For example a good transport system and an efficient multimodal connectivity for the farm sector will help move the goods from farms to locations where the value can be added. Here value addition includes processing packaging and sorting and ultimately after the value addition it can be transferred to customers. See the value addition enabled by the transportation infrastructure will help in creation of various direct and indirect jobs. The third significance is multiplier effect. This means that not only does the increase in infrastructure spending contribute to the revival of the economy but also it contributes through increased demand for labour and construction materials. In addition to this infrastructure also brings second order benefits through improved connectivity. Goods and people will move faster between destinations right? And also the cost of logistics comes down. Studies by Reserve Bank of India and the National Institute of Public Finance and Policy have estimated the multiplier effect of the infrastructure to be between 2.5 to 3.5X. This means for every rupee spent by the government in creating infrastructure GDP gains worth of rupees 2.5 to 3.5. And the next significance is competitive pricing. See according to the Logistics Performance Index 2018 released by the World Bank India ranked 44th and China ranked 12th. So to compete with China and to realize the dream of becoming a 5 trillion dollar economy India must boost its score in the Logistics Performance Index by investing in infrastructure. The efficient infrastructure will help bring down the cost of goods manufactured in India. This will also help Indian products to be competitive in the global market. Now having looked at the importance of infrastructure we will see some of the shortcomings of the budget mentioned in the article. The first one is see it is short on specifics. The budget has a grand vision to increase infrastructure in India but except for the railways and the roadways there is no solid specifics regarding other sectors. The second one is excessive focus on fiscal consolidation. The budget aims to bring down the fiscal deficit to 6.4% of GDP in 2022-23 from a revised estimate of 6.9%. To bring down the fiscal deficit spending outlays on various other key sectors including Health, Rural Development and MNREGA have all come down. See the Corona pandemic taught us the importance of public health infrastructure. So reducing expenditure on health sector looks like an ill-informed move by the government. The only positive announcement in the budget in regards to the health sector is the National Daily Mental Health Program and through this program the government is planning to address the mental health crisis in India which has been worsened due to the pandemic and the associated lockdown. And the next shortcoming is difficulty in setting up a new manufacturing facility. See the government to help the local MSMEs it is phasing out concessional rates in imported capital goods. The budget actually proposed a 7.5% tariff on all the important capital goods with some exemption for advanced missionaries that are not manufactured in the country. This in the short term might hurt infrastructure projects. This will also make setting up of new manufacturing capacity a difficult task. Moving on the next shortcoming is twin-track approach on digital assets. See on the one hand the budget had a provision saying that RBI will issue digital currency using blockchain technology. And on the other hand the budget also had provision to tax the income received from the virtual assets. This policy looks contradictory right? So these are all some of the issues in the budget mentioned in the editorial article. See the government must balance infrastructure spending with the social sector spending. Focusing on the one over the other will be detrimental for the growth of Indian economy. See there is a famous code that says if you give a man a fish you feed him for a day. But if you teach a man how to fish you feed him for a lifetime. If the man is poor, hungry and very weak teaching the man to fish will not result in benefiting him because before catching his first fish the man might fall sick and might not catch any fish at all. So the pragmatic approach would be first feed the man and make him healthy and once he is healthy teach him to fish so that he can sustain himself. This analogy can be applied to India as well. While investing in physical infrastructure will help in the long term investing in social security, human capital and social infrastructure is also necessary. Equal importance should be given to both. So with this we have come to the end of our discussion. Let's have a quick recap of this editorial article. What all we saw today? We saw what is budget and the fact that it is not mentioned in the constitution. It is mentioned as the annual financial statement under article 112. And we saw the financial statements that are tabled in the budget session. Number one is budget estimate for the next financial year. Number two is revised estimates for the current fiscal year. Budget estimates for the current year which must have been presented in the previous budget. Actual estimates for the previous financial year. And we saw what are these budget estimates, revised estimates and actual estimates. And after that we moved on to see some of the important infrastructure proposals made by the government in the budget. The first one is Pradhan Mantri Gatishakti National Master Plan for Expressways. Multimodal connectivity for seamless movement of people through railways and 400 new Vande Mataram trains to be added. And the next one is Multimodal Logistics Parks. 100 Pradhan Mantri Gatishakti Cargo Terminals for Multimodal Logistics. And finally we saw one station, one product where the railway station acts as a promotional hub and help showcase the local product. And after that we saw why infrastructure spending is important. The first one is to pump prime demand. The second one is to create jobs. Third significance is that it has multiplayer effect. And the final one is competitive pricing. And after that we moved on to see some of the shortcomings in the budget mentioned in the article. The first one is they are short on specifics, excessive focus on fiscal consolidation, difficulty in setting up a new manufacturing facility and the twin track approach on digital assets. So with these points in mind, let's move on to the next article discussion. Look at this news article here. The article says that the finance minister, Mrs. Nirmala Sita Raman in a budget speech proposed a 30% tax on income from virtual digital assets such as cryptocurrencies and non-fungible tokens. That is NFTs. So this is the crux of the article given here. Now we'll see what are the virtual digital assets and non-fungible tokens. First of all, what are these virtual digital assets as far as taxation is concerned? See, in simple words, it basically means cryptocurrencies, decentralized finance and non-fungible tokens. Here, the decentralized finance is an emerging financial technology based on secure distributed ledgers similar to those used by cryptocurrencies. This decentralized finance removes the control banks and institutions have on money, financial products and financial services. See, the decentralized finance uses the blockchain technology that the cryptocurrencies use. We all know a blockchain is a distributed and secure database or a ledger. In case of decentralized finance, applications called the Dapps are used to handle transactions and run the blockchain. See, note the difference here. Blockchain is the technology and the cryptocurrencies, decentralized finance and non-fungible tokens are products that are using the blockchain technology. See, the main component of decentralized finance is peer-to-peer financial transactions. So what are these peer-to-peer financial transactions? See, in case of this financial transaction, two parties or two individuals agree to exchange cryptocurrency instead of traditional currency for goods and services with a third party involved. To fully understand, consider how you get a loan in centralized finance. You would need to go to your bank or another lender or you have to apply for one. If you were approved, you would pay the interest and service fees for the privilege of using bank services. But in decentralized finance, you would use your decentralized finance application that is the Dapp to enter your loan needs. And an algorithm would match you up with the peers that meet your needs. You would then need to agree to one of the lender's terms and receive your loan. The transaction is recorded in the blockchain. You receive your loan after the consensus mechanism verifies it. Then the lender can begin collecting payments from you at the agreed upon intervals. When you make a payment via this app, that is the Dapp, it follows the same process in the blockchain and then the funds are transferred to the lender. Note here, the peer to peer lending under the decentralized finance doesn't mean there won't be any interest or fees. However, it does mean that you will have many more options since the lender can be anywhere in the world. So you have unlimited options in front of you. That is the major advantage. I hope you have a fair understanding about decentralized finance. Now we'll see some points about NFTs. That is the non fungible token. Something that is fungible can be exchanged with an equivalent item. So if something can be exchanged with an equivalent item, that is called fungible. For example, a 100 rupee note can be exchanged for something that worth 100 rupee or for another 100 rupee note. Here it is very important to note that cryptocurrencies which use the blockchain technology are also fungible. The similarity between the cryptocurrencies and the NFTs is that they both use blockchain technology. But the difference is that the NFTs are non fungible. NFTs are nothing but the digital items that can be bought and sold using this blockchain technology. They are essentially a different type of asset. Look at this image here. This image was recently auctioned for $69.3 million. What happens here is that the buyer does not receive the painting in physical form. What changes hands is a certificate of ownership of the NFT. That too registered on a blockchain. The certificate must be kept safe in a digital wallet which can take various forms. So a sale does not necessarily involve the transfer of the object depicted by the token. So where are these NFTs traded? Like cryptocurrencies, NFTs are bought and sold on specialized platforms. OpenSea is the best known NFT marketplace. Note here that NFTs aren't always images. On several websites such as Decentraland and the Sandbox, you can buy virtual land in the NFT's form. Critics say investors are spending money on meaningless items. But the supporters of the NFTs insist that NFTs are much more than digital decoration. Some predict that using the blockchain to record the ownership history of an item will eventually become much more widespread, revolutionizing how we think about property. So with this we have come to the end of our discussion. Let's have a quick recap. What all we saw in this discussion? We saw about decentralized finance which is an emerging financial technology based on secure distributed ledgers similar to those used by cryptocurrencies. And we saw that the main component of the decentralized finances peer to peer financial transactions and we saw the application that is the DEA that enables you to make the financial transactions. And after that we saw non-fungible token which is similar to cryptocurrency in the way that they both use the blockchain technology and they differ from the cryptocurrency in the way that they are non-fungible. In most cases they are digital items and it varies from pictures to even properties. And finally we saw that the NFTs are bought and sold on specialized platforms like cryptocurrencies and one such platform is OpenSea. With these key points in mind let's move on to the next article discussion. See this article here. It talks about a proposal made by the government in budget session yesterday. The proposal is to replace the existing law governing special economic zones with the new legislation. See this is planned in order to enable states to become partners in the development of enterprise and service hubs. So in this context let us discuss about the special economic zones, the law that governs them and its importance for Indian economy. But before that the syllabus relevant to the article is given here for your reference. Kindly go through it. Now let us start our discussion by seeing what are special economic zones. They are shortly called as SEZs in India. These are nothing but the areas that offer incentives to businesses in that particular area. See a special economic zone is an area in a country that is subject to different economic regulations than the other regions within the same country. The SEZ economic regulations tend to be conducive to attract the foreign direct investment. So let us see what are these different regulations. Typically they offer competitive infrastructure, duty free exports, tax incentives and other measures designed to make it easier to conduct business. So note here the other regions do not have these kind of incentives. Only the special economic zones have them. Thus in simple words SEZs aim to create export hubs and boost manufacturing in the country. Now let us see the genesis of it. See the concept of SEZ is not new to India. The Indian government had used export processing zones to promote exports before. In fact Asia's first export processing zone was established in India. It was in 1965 at Kandala in the state of Gujarat. Since these export processing zones had a similar structure to the special economic zones the government began to establish SEZs in 2000. These SEZs were established under the foreign trade policy. Why do you think these SEZs are needed for India? We will see one by one. Firstly to overcome the shortcomings experienced on the account of multiplicity of controls and clearances. Secondly to overcome the absence of world-class infrastructure. Thirdly to overcome an unstable fiscal regime. And finally to attract larger foreign investments in India. So these four points these are the shortcomings that India were facing. So in order to overcome them special economic zones are much needed in India. And why is that? Because these special economic zones have incentives that promote the businesses in that particular area. Here one important thing to be aware of is India's special economic zones are structured closely on China's successful model. Okay now moving on let us see how these special economic zones are governed. See the government's commitment to a stable special economic zone policy regime has led to the parliament enacting a special act called special economic zones act 2005. And this act was supported by the SEZ rules and it came into effect on February 2006. Now we will see the main objectives of the act. Firstly its objective is to generate additional economic activity. Secondly to promote exports of goods and services. Thirdly to promote investment from domestic and foreign sources. Fourthly to create employment opportunities and finally to develop infrastructure facilities. So these are the objectives of the act. Now let us see how these objectives are achieved through actions. See the act provided for a single window SEZ approval mechanism. There is a 19 member inter ministerial SEZ board of approval BOA. Here the applications recommended by the respective state governments or the Union Territory Administration are considered periodically. See all the decisions of the board of approvals are taken with consensus. Moving on the act envisages key role for the state government. And what is that key role? It is nothing but the export promotion and creation of related infrastructure. Now let us see the provisions of the rules which addresses the objectives of the act. See the rules provides for simplified procedures for development, operation and maintenance of the special economic zones. And also note that the SEZ rules provides simplified procedures for setting up units and conducting business in the zones. Moving on the rules also provide for simplified compliance procedures. They also provide simplified procedures for documentation with an emphasis on cell certification. And one more provision is that it provides for different minimum land requirement for different classes of special economic zones. See every special economic zone is divided into a processing area and a non-processing area. Processing area is that portion in SEZ where the units are located for manufacture of goods and services. Here the duty and tax benefits are available both for initial setting up and for the operation of maintenance of facilities. The other category is the non-processing area. This area is intended to support the activities in the processing area which include commercial and social infrastructure. So this categorization is provided under the SEZ rules. And let us see the final provision which is nothing but the tax exemption. The units in the SEZ used to enjoy 100% income tax exemption on export income for the first five years, then 50% for the next five years and 50% of the plowed back export profit for another five years. See the important thing to be noted here is the zone started losing their significance. This is because of the imposition of minimum alternate tax and the introduction of sunset clause. I'll explain what they are. See a sunset provision or a sunset clause is a measure within a statute. A statute is nothing but a law. So this clause under the law provides that the law shall cease to have effect after a specific date. Let us take the example of tax benefit here. If the law is saying that the companies can have the tax benefits until a particular date, then the companies can only avail the tax benefits until that specific date. It can be extended by taking further legislative actions. So this is only sunset clause. We'll see what is minimum alternate tax. It is a provision in the direct tax clause which is for the companies and it is used for limiting the tax exemptions availed by the companies. See as a result of tax exemptions, number of non tax paying companies started to increase. So due to the increase in the zero tax paying companies, this provision was introduced. This provision requires that the company shall not avail more exemptions and they should pay at least a minimum amount of tax to the government. So these provisions led to the removal of tax incentives which the SCZs were enjoying and this is exactly the reason why they started losing their significance also. But the importance of the special economic zones cannot be overlooked. See the table here, it shows you the numbers regarding the exports in India. Take the example of the first one here that is the Madras exports processing zone, special economic zone. See in the year 2018-19, exports from this area was 1.866 billion and in the year 2019-20 it has increased to 16.188 billion. The amount here I mentioned in rupees. So from this table you can see the vast differences in exports in the year 2018-19 and in the year 2019-20. And again look at this data from Ministry of Commerce and Industry. See in the year 2005 and 2006 the exports in the special economic zones accounted for 228.40 billion and in the year 2020-21 it accounted for 7595.24 billion. See the investments also it has also increased tremendously. In the year 2005-6 it was 40.355 billion and in the year 2020-21 it was 6,074.99 billion and see the employment that has created by these units and again in 2005-6 it created employment for 1,034,704 persons and in the year 2020-21 it created employment for 23,058,136 persons. Like I said the zones are very important for the growth of Indian economy and they are very much important for exports, employment and investments in India. Now let us conclude our discussion by seeing what the Finance Minister has said in the 2020-23 budget. Firstly she said that the SEZ Act will be replaced with a new legislation so that it will enable the states to become partners in the development of enterprise and service hubs. See this will cover all large existing and new industrial enclaves to optimally utilize the available infrastructure and enhance the competitiveness for exports. And secondly she said that the government will undertake reforms in the customs administration of SEZ. We all know that customs is an authority or agency in a country responsible for collecting tariffs and for controlling the flow of goods including animals, transport, personal effects and hazardous items into and out of the country. So this is what customs is. So Finance Minister Mrs. Nirmala Sitaraman has said that reforms will be taken in this customs administration and what are those reforms? It will be fully made as IT driven which is nothing but information and technology driven and it will function on the customs national portal. And this step is mainly to promote ease of doing business and this reform will be implemented by September 2022. So with this we have come to the end of our discussion. Let's have a quick recap. What all we saw today? We saw what are special economic zones? These are areas that offer incentives to the businesses in that particular area. What will they offer? They offer competitive infrastructure, duty-free exports, tax incentives and other measures designed to make it easier to conduct business. And after that we saw the first export processing zone in India which was established at Kandlah in Gujarat in 1965. And we saw the importance of special economic zones. They are to overcome the shortcomings of multiplicity of controls and clearances to overcome the absence of world-class infrastructure to overcome an unstable fiscal regime and to attract larger foreign investments in India. And after that we saw about the act that governs these zones which is nothing but the special economic zones act 2005 and we saw the objectives of the act and we moved on to see how these objectives are achieved through actions under the act and the rules of special economic zones. So under the provisions we saw that the act provided for single-window special economic zone approval mechanism. It envisages key role for the state government in export promotion and creation of infrastructure. It provides for simplified procedures for development, operation and maintenance of SEZs. It provides for simplified compliance procedures. It provides for different minimum land requirement for different classes of SEZs. And we also saw the different categories of SEZ which is a processing area and non-processing area and finally we saw the tax exemption under the act. And we moved on to see some of the data regarding the exports from the special economic zones and data from the Ministry of Commerce and Industry which gave insights on investment and jobs created by the SEZ units. And we finally ended our discussion by seeing what the finance minister has said in the budget session. That is the SEZ act will be replaced with a new legislation and the government will undertake reforms in customs administration of special economic zones. With these key takeaway points let's move on to the next article. See this news article here. It talks about some of the measures announced by the Government of India in the Union budget. The measures offer promoting IFSC. So let us understand what is an IFSC first. See the IFSC stands for International Financial Services Centre. Such a centre caters to the customers who are outside the jurisdiction of domestic economy. So mainly these centres deal with the flow of finance, financial products and services across the borders. And particularly in the Indian context an IFSC is envisaged as a jurisdiction that provides financial services to non-residents that are people who are not residing inside India and residents including institutions. And such financial services are provided in foreign currency other than the Indian rupee. Now let us see what are the financial services provided by IFSC. See the table here gives you the list of financial services for products that are provided under this IFSC. Please go through well. So overall it provides banking, insurance, asset management, etc. Most importantly it provides a well structured and fully developed capital market for debt, equities, commodities as well as derivatives. So what is the need for an IFSC now? See it is required because before IFSC the financial services transactions were carried outside India. It means it was carried out by overseas financial institutions and overseas branches or subsidiaries of Indian financial institutions. But after the establishment of IFSC the financial services transactions were brought to Indian shows and are undertaken by IFSCs. See this table here it gives you the strategic objectives behind setting up of IFSC. They are to realise the vision of Government of India to emerge as a major economic power by facilitating the development of a strong base for international financial services to facilitate the implementation of Government's strategy for the development of financial hub in the South Asian subcontinent. To position IFSC as a world class zone for long term provision of office, service accommodation and high technological, economic and commercial infrastructure to bring the financial service experts sitting off shore back to Indian shows and transform India as a talent hub. So these are the strategic objectives behind setting up of the IFSC. See here note that the IFSC is approved and regulated by the Government of India under the Special Economic Zones Act 2005. So basically IFSC is designated as a deemed foreign territory for all the practical purposes and it would have the same ecosystem like other offshore locations but this one is physically on Indian soil. Therefore a financial institution or its branch in IFSC is deemed as a person resident outside India for exchange control purposes. So far we saw the services that are managed by IFSC and how it is designated. Now for carrying out the financial services the banks, insurance companies and capital market entities require approval from the IFSC authority that is IFSCA. So based on this provision IFSCA was set up in 2020 under International Financial Services Centre Authority Act 2019. So this is a statutory body because it is established based on the Act IFSCA 2019. Under it the IFSCA has been established as a unified regulator for IFSC jurisdiction. So it assumes the power over various regulators such as the RBA Insurance Regulatory and Development Authority IRDAI and the Securities and Exchange Board of India SEBI. So this authority acts as a single window for regulating various financial activities in IFSC. So far we saw the IFSC that is the International Financial Service Centre and the authority from which the approval is needed. The first IFSC setup was the GIFT IFSC. It was set up at the GIFT city in Gandhinagar in Gujarat. Here GIFT stands for Gujarat International Finance Tech City. See this GIFT city was set up to develop a world class smart city that becomes a global financial hub with the development of an IFSC. Also note that this GIFT city is the head office of IFSCA that is the authority. Now let us see the various measures that have been provided to promote the IFSC. One such is tax incentives. For example, 100% income tax exemption is provided for 10 consecutive years out of 15 years. Here the IFSC unit has the flexibility to select any 10 years out of the 15 years block. Plus there is 0% goods and services tax that is no GIFT on services received by unit and IFSC and also the services provided to the IFSC or the SEZ that is the special economic zone units and offshore clients. And then there is this 0% capital gains tax also. So in these lines of tax incentives now the union budget 2022-23 has also proposed some tax incentives. See the union finance minister Mrs. Nirmala Sitaraman proposed income tax exemptions for the IFSCs but they are subject to specified conditions also. Let's see what the exemptions are. See the exemption is provided to income of a non-resident from offshore derivative instruments such as P-Notes or the income from over-the-counter derivatives such as commodity derivatives forex derivatives etc. issued by an offshore banking unit and then the exemption is provided from royalty and interest which is received on account of the lease of ship and then the exemption is provided to the income received from portfolio management services in IFSC. Overall this tax exemption is expected to promote various business activities in the IFSCs such as ship leasing and financing offshore fund management and offshore banking activities. See apart from these tax exemptions two important initiatives have been announced for GIFT IFSC that is in Gujarat it is announced that the world class foreign universities and institutions will be allowed in the gift city. They shall offer courses in financial management fintech, science, technology engineering and mathematics. They will be free from domestic regulations other than the regulation by the IFSC authority. This measure is announced to facilitate the availability of high end human resources for financial services and technology in India. Therefore it will boost the human resource development in the IFSC. Secondly, it is also announced that an international arbitration center will be set up in the gift city. This is to enable timely settlement of disputes under international jurisprudence. This measure will strengthen the dispute resolution mechanism in the gift IFSC and it will enhance the ease of doing business. So these measures are announced to further promote the International Financial Services Center. With this we have come to the end of our discussion. Let us have a quick recap. What all we saw today we saw Waters and International Financial Service Center. It is nothing but a center that caters to the customers who are outside the jurisdiction of domestic economy. It is envisaged as a jurisdiction that provides financial services to non-residents including institutions. And we saw a table and after that we saw a list of financial services and products that comes under the IFSC. And after that we saw the need for an IFSC in India and some of the strategic objectives behind setting up of IFSC. And we saw that the regulatory authority of IFSC in India. And we saw that IFSC is approved and regulated by Government of India under the Special Economic Zones Act 2005. And we saw the authority from which the approval is needed that is the International Financial Services Authority which was established under International Financial Services Centres Authority Act 2019. And we also saw that the authority has power over various other regulators such as RBI, IRDAI and SEBI. And finally we saw about the GIFT IFSC. GIFT stands for Gujarat International Finance Tech City and why was it set up? See it is set up to develop a world-class smart city that becomes a global financial hub with the development of an IFSC. And after that we saw some of the tax incentives offered to IFSC. And finally we ended our discussion by seeing the announcement that are made in the Union Budget 2020-23 regarding IFSC. That is nothing but some of the tax exemptions. See why these tax exemptions are given? They are given to promote various business activities in IFSC such as ship leasing, financing, offshore fund management and offshore banking activities. And after that we saw the announcement made two important initiatives announced for GIFT IFSC that is the setting up of world-class foreign universities and institutions and the setting up of International Arbitration Centre. With these points in mind let's move on to the next article discussion. See this news article here it mentions that in the Union Budget Interaction of digital rupee was announced. Yeah you heard me right digital rupee. Here the digital rupee mentioned is the central bank digital currency that is the CBDC without any delay let us see what is it. Here the digital currency refers to any means of payment that exists purely in electronic form. So the digital money is not tangible like a dollar bill or a coin. It exists in the electronic form. Simply it is the virtual money. See it is accounted for and transferred using computers. Since it is virtual it is obviously transferred using computers or other electronic mediums right. Such a digital currency like I said is exchanged using technology such as smartphones, credit cards and online cryptocurrency exchanges. In some cases it can be transferred into physical cash also. So far we saw what is digital currency. Now let us come back to what have been mentioned in this article that is the CBDC central bank digital currency. See it is the kind of digital money which represents the fiat currencies. See we all know what are fiat currencies. What we use in our daily life the currency notes the coins are called fiat money right. They are called as the fiat money because they do not have intrinsic value like gold or silver coin. See gold or silver they have value of its own. But the currency notes it is just a paper right. They don't have intrinsic value. That is exactly why it is called as fiat money. See it is a government issued money but it is not backed by a physical commodity such as gold or silver. So in this context the CBDC that is the central bank digital currency also represents the fiat currencies such as dollars or rupees etc. Here remember that the CBDCs are different from cryptocurrencies which are a special kind of digital money controlled by cryptographic algorithms by private people. But now the CBDC which we are discussing today is the one introduced by the government of India. This digital currency represents fiat currency of India which is the Indian rupee that is why it is mentioned in news as digital rupee. See as per the RBI's definition a CBDC is a legal tender issued by a central bank in digital form. Legal tender means they cannot be refused by any citizen of the country for the settlement of any kind of transaction. So far RBI has been issuing currency notes and coins. Hereafter they will issue money in digital form also. Simply we can say that CBDCs utilize technology to represent a country's official currency in digital form. That means it is issued and regulated by the competent monetary authority of the country. So CBDC it is backed and issued by a central bank. It is the same as a fiat currency and it is exchangeable one to one with the fiat currency. Only its form is different. They both do not possess any intrinsic value. So is there any advantage in having a CBDC actually yes. See the need for digital currencies is high. This is clearly manifested in the increasing use of private virtual or digital currencies. But the private virtual currencies hold a risk and have more damaging consequences. For example crypto currencies which are private digital currencies they cannot be recovered if lost or stolen. So to avoid these issues central banks introduce CBDCs they are sovereign backed alternatives to private currencies. They can be easily tracked by the authorities. They also facilitate a more real time and cost effective globalization of payment systems. So as a result this enables an efficient currency management system. Then there is also cheaper currency management system. This is because the cost of printing, distributing the cash to currency notes is higher compared to the cost of issuing electronic CBDCs. So this is cheaper. So due to these advantages and to give a boost to the digital economy plus to re-itrate government of India stand against cryptocurrencies digital rupee is introduced. So as per the announcement the digital rupee will be issued by the reserve bank of India from 2022 to 23 and it will use blockchain and other technologies. So with this we have come to the end of our discussion. So far we saw what is digital currency. It refers to any means of payment that exists purely in electronic form and it is exchanged using technologies such as smartphones credit cards and online cryptocurrency exchanges. And we saw CBDC that is the central bank digital currency. It is a kind of digital money which represents the fiat currencies of the government of India that is the rupee. And we also saw that this digital money also do not have any intrinsic value like the fiat money that is the rupee. And we also saw that it is called as digital rupee and after that we saw the RBS definition of CBDC which is a legal tender issued by a central bank in a digital form. And after that we moved on to see the advantages of having a CBDC which is the advantages related to safety and security because private virtual currencies holder is can have more damaging consequences. See the CBDC they can be easily tracked by authorities and they have facilitated a more real time and cost effective globalization of payment systems. And we also saw that CBDC provides for a cheaper currency management system because it reduces the cost of printing and distributing the cash in currency notes. So with these points in mind let's move on to the next part of our discussion that is the practice problems questions. We have three questions here. We will solve them one by one. The first question is a previous year problems question for which you are going to give me the answer. The question says with reference to blockchain technology consider the following statements. Statement one it is a public ledger that everyone can inspect but which no single user controls. Statement two the structure and design of blockchain is such that all the data in it are about cryptocurrency only. Statement three applications that depend on basic features of the blockchain can be developed without anybody's permission. Which of the following statements given above is or are correct? Option A one only option B one and two only option C two only option D one and three only. Try to solve this question and post your answer in the comment section. Moving on the second question with reference to international finance service center consider the following statements. Statement one the financial services are provided in Indian rupee Statement two it is approved and regulated under special economic zones SES Act 2005. Statement three international finance services centers authority set up to regulate the IFSC assumes power over RBI IRDAI and SEBI. See here statement one is incorrect because in our discussion we saw that IFSC is designated as a deemed foreign territory for all practical purposes which has the same ecosystem like any other offshore locations so it provides financial services in foreign currency other than Indian rupee. So here statement one is incorrect without even seeing statement two and three we can arrive at the option D because statement one is in the other three options that is A, B and C so if you eliminate the statement one you can easily arrive at the option D which is the correct answer. And regarding statement two and three we saw in our discussion that it is approved and regulated under special economic zones act 2005 and the authority which is IFSC A it assumes power over RBI IRDAI and SEBI. So the correct option here is option D two and three only. Moving on to the next question consider the following statements statement one central bank digital currencies that is CBDCs they are crypto currencies CBDCs are backed by a physical commodity like gold or silver Bahmanian sand dollar is the first CBDC to become widely available. See here statement one is incorrect because in our discussion we saw that crypto currency and CBDC are two different kinds of digital money they are not the same. CBDCs are released by the central banks but crypto currencies have no centralized authority for it. In that way the central bank digital currencies differ from crypto currencies. Statement two here is also incorrect because CBDCs they do not have any intrinsic value and they are not backed by any physical commodity like gold or silver they represent the fiat money but they are in digital form. Moving on to the third statement the Bahamian sand dollar is the first CBDC to become widely available is correct because Bahamas is the first country to launch a CBDC called as the Bahamian sand dollar and now India is going to launch it. Note that other than the Bahamas eight other countries have also launched the CBDC E Naira a CBDC of Nigeria launched in October 2021 then the EC dollar or the Eastern Caribbean dollar as the CBDC launched by Eastern Caribbean Central Bank which has been in existence since March 2021 it is the CBDC of seven Caribbean countries namely Anguilla Antigua, Bermuda Dominica, Grenada Montserrat, Saint Kits and Nevis Saint Lucia, Saint Vincent and Grenadines so based on this the correct option here is option B free only. I have given a couple of main questions for your practice so interest or aspirants write it and post it in the comment section. If you have any queries related to the articles that we discussed today post that also in the comment section and if you like the video please like share and comment and do subscribe to the Shankar IAS Academy's YouTube channel for further updates thank you.