 Hello friends, welcome to Shankara IAS economic summary part 1. In this video, we will be seeing two sections. The first one will be the most important hand-picked topics for prelims 2024. It will be followed by Indian economic trend analysis. Behind me are the list of topics that we are about to discuss. So, without much delay, let's get started. Before entering our discussion, there is an important announcement. Are you ready to AS UPSC prelims? Welcome to Shankara IAS Academy Telegram Life Series, your ultimate guide to UPSC prelims preparation. Join us for our first telegram life session with Mr. Satya Krishnan. He is here to share invaluable insights on maximizing the last 10 weeks for UPSC prelims preparation. Discover the secrets to crafting a rock-solid plan, setting daily and weekly targets, and dwelling deep into the previous year questions of UPSC. But that's not all. We will also dwell deep into the aspects of emotional management because acing the prelims isn't just about knowledge, it's about mindset too. So, don't miss this chance to supercharge your UPSC journey. Tune in to Shankara Academy's Telegrams Life Series on April 10, 2024 at 7pm on Shankara IAS Academy Telegram Channel. The link to Shankara IAS Academy Telegram Channel has been shared in our description and pinned in our comment section. Please do check it out. GST. Since it is important for both prelims and main, let's understand some background about GST. It is a destination-based taxation system and was established by the 101 Constitutional Amendment Act. It is calculated only in the value addition at any stage of goods or services. The final consumer will pay only his part of the tax and not the entire supply chain, which was the case earlier. So, the cascading effect of the taxes has been prevented. Here, know that it is an indirect tax for the whole country on the lines of one nation, one tax. To make India a unified market. Presently, GST is levied at different rates like 5%, 12%, 18% and 28%. Further, it is also important to know that the number of items within the tax lab of 18% remains the highest within the GST goods. The GST would apply on all the goods other than alcoholic liquor for human consumption and five petroleum products. That is petroleum crude, motor spirit, high speed diesel, natural gas and aviation turbine fuel. And they are taxed under central excise duty, central sales tax and value added tax. Know that there are some goods and services exempted from GST. They are depicted here. Please go through this list. Moving ahead, let's see some important points about GST compensation system. See, GST compensation system was introduced as a relief for the states for the loss of revenue arising from the implementation of GST. These states were guaranteed a 14% tax revenue growth in the first five years after GST implementation by the central government. For this purpose, states tax revenue as of financial year 2016 is considered as a base year for the calculation of this 14% growth. And also know that any shortfall against it is supposed to be compensated by the centre using the funds specifically collected as a compensation system. Here note that compensation system is livid on five products considered to be sin or luxury goods like SUV, pan masala, cigarettes. The collected compensation system flows into consolidated fund of India and then transferred to public accounts of India where a GST compensation system account has been created. States are compensated bimonthly from the accumulated funds in this account. Also note that the government of India recently extended the compensation system until 31st March, 2026. Moving forward, let's see about GST Applied Tribunal. Know that recently the finance minister notified the constitution of 31 Applied Tribunal across 28 states and 8 union territories for goods and service tax. See the section 109 of GST Act 2017 empowers union government to constitute Applied Tribunal and its benches. These benches will consist of two judicial members and two technical members with the selection panel including a senior judicial member from state high court. The tribunal is likely to be headed by a former supreme court judge or a former chief justice of a high court. Let's now see about its powers. As per the code of civil procedure 1908, the Applied Tribunal holds the same power as a court and is deemed civil court for trying a case. It has been granted the power to hear appeals and to pass orders and directions including those for the recovery of due amounts and for the enforcement of its orders and for the rectification of mistakes. Also know that it also has a power to impose penalties, revoke or cancel registration and take such other measures as may be necessary to ensure compliance with GST laws. With this brief understanding let's try out a practice question. Consider the question. Which of the following statement accurately describes the GST implication for online gaming companies operating in India? Statement A. Online gaming companies are exempted from GST if their annual turnover is below 20 lakhs. Statement B. GST rates for online gaming service vary based on the type of game and duration of play. Statement C. Input tax credit cannot be climbed by the online gaming companies under GST. Statement D. Online gaming companies are required to pay GST on the value of virtual items exchanged within the game. And the correct answer is option D. Statement C is false because input tax credit can be climbed by the online gaming companies under GST. Whereas Statement B is also false because GST rates for the online gaming service does not vary based on the type of game and duration of play. And the statement A is incorrect because online gaming companies are not exempted from GST if their annual turnover is below 20 lakhs. That's all for this topic. Let's move to the next one. Our next topic is inflation. Recently RBI notice mentioned about the risk of stagflation. So in this regard it is important to know in depth about inflation and other related terminologies. Because the terminology associated in economics are most often directly asked in UPSC problems. So what is inflation? Inflation refers to general increase in prices and the fall in the purchasing power of money. There are two types of inflation which include demand pull inflation. That is it is caused by increase in the consumer demand that outpaces supply. The next one is cost push inflation. It is caused by the increase in the production cost such as wage or raw material cost which leads to higher price level. Let's now discuss about other related terminology. Deflation. Deflation is opposite of inflation and refers to sustained decrease in general price level of goods and services. It occurs when a supply of goods exceed demand leading to reduced prices. Deflation can discredit spending as consumer may delay purchases in anticipation of lower prices which can further slow down economic growth and potentially lead to recession. Stagflation. Stagflation is a situation characterized by a combination of stagnant economic growth, high unemployment and high inflation. It presents a challenge for policy makers as traditional measures to stimulate economic growth such as increasing the money supply may exacerbate inflation. Skewflation. It is a type of inflation in which a price of a single commodity or a set of commodities rise while the overall price level remains stable. Next is hyperinflation. Hyperinflation is an extremely high and typically accelerating inflation. It occurs when a price level rises rapidly eroding the values of the currency. This phenomenon often results from a collapse in the currency and it's detrimental to the economy leading to a loss of confidence in the currency and undermining the economic stability. Next is reflation. Reflation is an attempt to stimulate an economy that is experiencing deflation. It involves implementation of monetary or fiscal policies to increase the money supply and boost aggregate demand with the aim of reversing the deflation and stabilizing prices. Disinflation. It refers to a slow down in the rate of inflation while the prices may still be rising they are doing so at a slower pace compared to the previous period. Disinflation does not imply a decrease in price as in the case of deflation but rather a reduction in the rate of increase of general price level in the economy. Disinflation can occur for various reasons such as increased productivity, reduced consumer demand or a drop in the price of commodities. Now let us understand how the inflation is measured in India. In India, inflation is primarily measured by two main indices WPI that is wholesale price index and CPA consumer price index. So what are WPI and CPI inflation rates? CPI it is an index measuring the retail inflation in the economy by collecting the change in the price of the most common goods and service used by the consumers. CPI is also called a market basket. It is calculated for a fixed list of items including food, housing, apparel, transportation, electronics, medical care, education etc. Know that the base year for CPI is 2012. There are several types of CPI that are being calculated in India. They are CPI for industrial workers, CPI for agricultural labourers, CPI for rural labourers and CPI for urban and rural combined. Of these, the first three are compiled by Labour Bureau in the Ministry of Labour and Employment. The fourth one is compiled by the National Statistical Office, NSU in the Ministry of Statistics and Programme Implementation. Note that on 1st April 2014, the Reserve Bank of India adopted consumer price index that is CPI as a primary indicator for inflation. Now let's see about Wholesale Price Index. Its base year is 2011-2012. It also captures the average movement of Wholesale price of goods and primarily used as a GDP deflator. See, WPI records only the basic price and does not include tax, rebate, discounts, transport and other charges. And also know that WPI based inflation data is put together by the Department of Promotion of Industry and Internal Trade under the Ministry of Commerce and Industry. The major difference between WPI and CPI is that WPI takes into account the change in the price of goods only while CPI takes into account the change in the process of both goods and services. With this backdrop, let's understand one more important concept that is inflation targeting. In 2016, Parliament of India amended the RBI Act 1934 to change the monetary policy and introduced an inflation targeting framework. According to the framework, the Union Government in consultation with RBI sets the inflation target with an upper and lower tolerance level for retail inflation. Accordingly, the target has been set at 4% and an upper tolerance limit of 6% and a lower tolerance limit of 2%. Every five years, the target and the bands are set to be revised. Presently, the Government of India has decided to retain the inflation target rate at 4% with the tolerance band of plus or minus 2 percentage points. For the Monetary Policy Committee of RBI, for the period of 1st April 2021 to 31st March of 2026. With this understanding, let us try some practice questions. A rapid increase in the rate of inflation is sometimes attributed to base effect. So, what is base effect? Statement A, it is an impact of drastic deficiency in the supply chain due to the failure of crops. Statement B, it is the impact of the surge in the demand due to the rapid economic growth. Statement C, it is the impact of the price level of previous year on the calculation of inflation rate. Statement D, none of the statements A, B and C given above is correct in this context. And the correct answer is option C, it is the impact of the price level of the previous year on the calculation of inflation rate. Look, similarly, there are several questions based on inflation have been coming in our problems. Please have a look. Our next topic is public debt. C, public debt refers to the total amount of money that a government owes to the external creditors and domestic lenders. In India, public debt comprises all the obligations of union government that are required to be settled using the funds from the consolidated fund of India. Main types of public debt includes external debt. This is a portion of a country's debt owed to foreign creditors including foreign governments, international organization and private entity outside the country. Internal debt, this is a debt owed to the lenders within the country including individual banks and other domestic institutions. Internal debt is further categorized into marketable and non-marketable securities. Know that marketable government securities include GSEC and T-Bills issued through the auction. Whereas non-marketable securities include intermediate treasury bills issued to the state government and the special securities issued to National Small Saving Fund among others. Sometimes the term public debt is used to refer the overall liability of the center on the state government. Therefore, in simple terms, the various sources for the public debt includes as follows. Data government securities or GSEC, treasury bills or T-Bills, external assistance and short-term borrowings. Let's now understand about the measuring mechanism for the public debt in India. Public debt is expressed as a percentage of country's gross domestic product known as debt-to-GDP ratio. A higher ratio indicates a large debt burden related to the size of the economy. In this backdrop, it is important to know that the union government's debt was 155.6 trillion or 57.1% of GDP at the end of March 2023 with the state government adding up to 28% of GDP. India's public debt-to-GDP ratio slightly increased from 81% in 2005 to 2006 to 84% in 2021 to 2023 and then back to 81% in 2022 to 2023. Know that the NK Singh Committee on FRBM i.e. Physical Responsibility and Budget Management Act 2003 has envisaged a debt-to-GDP ratio of 40% for the central government and 20% for the state government aiming for a total 60% debt-to-GDP ratio. Further, it is to be noted that the trend of India's debt-to-GDP have been fluctuating over the years and is clearly evident from the graph given here. To manage the public debts, there are some arrangements, so let's go through it in brief. As per Reserve Bank of India Act 1934, the Reserve Bank is both the banker and public debt manager for union government. The RBI handles all the money, remittances, foreign exchanges and the banking transaction on the behalf of government. The union government also deposits its cash balance with RBI. In 2015, the creation of statutory body called Public Debt Management Agency was envisaged in India. But presently, we have Public Debt Management Cell as an interim arrangement before setting up an independent and statutory debt management agency. With this understanding, let's try to answer the following question. The question is, with respect to public debt-to-GDP ratio, consider the following statements. It measures the financial leverage of an economy and it used to gauge a country's ability to repay its debt. A higher ratio indicates a higher risk of default. Public debt consists of external debt only. Which of the statements given above are correct? Option A, 1 and 2 only. Option B, 1 and 3 only. Option C, 2 and 3 only. And option D, 1, 2 and 3. The correct answer is option A, 1 and 2 only. Statement 3 is wrong because public debt consists of external debt which has been borrowed from the foreign lenders and internal debt like government securities, treasurables. Having discussed about the public debt in brief, it is certainly very important to know about another type of borrowing practice existing in India. That is, off-budget financing, also known as extra-budget borrowing, is used by the centre to finance its expenditure while keeping the debt off from its annual statement. Such borrowing are not countered in the calculation of fiscal deficit. Know that off-budget borrowings are the loans that are taken not by the centre directly but by another public institution which borrows on the direction of the central government. Such borrowings are used to fulfil the government expenditure needs. But since the liability of the loan is not formally on the centre, the loan is not included in the national fiscal deficit. This keeps the country's fiscal deficit within the acceptable limits. As a result, Comptroller and Auditor General's report of 2019 points out this route of financing puts major sorts of funds outside the control of parliament. Please have a look of a previous year question on the similar topic. That's all about the public debt. Now let's see about foreign direct investment which is not only important for 2024 prelims but also one of the most repeated topic in prelims. Firstly, we need to understand what is the difference between FTI and portfolio investment. FTI is a class of investment made by a firm or individual in one country into business interests located in another country. See, these are the investments made with the intention of establishing a lasting interest. Know that this lasting interest differentiates FTI from foreign portfolio investment and FII that is foreign institutional investment where the investors passively hold securities from a foreign country. See, foreign portfolio investment is any investment made by a person resident outside India in capital instruments where such investment is less than 10% of the post issue paid up equity capital on a listed Indian company or less than 10% of a paid up value of the capital instrument of a listed Indian company. Foreign institutional investment is a portfolio investment in a stock market by buying shares and debentures in another country by foreign institutions like mutual funds, insurance and pension funds etc. These are registered with the Securities and Exchange Board of India that is CB. Now let us see the basic characteristics of FTI. See, FTI are the class of investments which are done in an unlisted Indian company or in 10% or more of the equity capital of a listed Indian company. Not an important exception that an investor may be allowed to invest below the 10% threshold and still can be treated as FTI. These statements sound contradictory, right? The rational is if the FTI stake or rise to 10% or beyond within one year from the date of the first purchase, on the contrary, if the stake is not raised to 10% or above, then the investment shall be treated as a portfolio investment. Moreover, in any case, the existing FTI falls below a 10% mark it can be continued to be treated as FTI. Remember this saying, once an FTI, always an FTI. Apart from being a critical driver of economic growth, FTI have been a major non-depth financing resource for the economic development of India. With this understanding, let's now try a practice question. Look at this question. With reference to foreign direct investment in India, which one of the following is considered its major characteristics? Option A, it is an investment through capital instruments especially in a listed company. Option B, it is largely non-depth creating capital flow. Option C, it is an investment which involves depth servicing. Option D, it is an investment made by a foreign institutional investor in the government securities. And the correct answer is option B, it is largely non-depth creating capital flow. Let's see why other options are incorrect. Look at the statement A, it says it is an investment through the capital instrument especially in a listed company. This statement is more aligned with the portfolio investment rather than FTI. Look at option C, it says it is an investment which involves depth servicing. This is incorrect as FTI by its nature is a equity based and does not involve depth servicing like loan or bonds. Look at statement T, it is an investment made by a foreign institutional investor in a government security. This describes foreign portfolio investment rather than FTI. Foreign institutional investors buying government security is a form of portfolio investment, not a direct investment in a productive capacity of another country. Have a look at this similar plumes question based on foreign direct investment. That's all about this discussion. With this, let's move to our next topic. Our next topic is internationalization of rupee. Look, internationalization of rupee means that rupee can be freely transacted by both resident and non-resident and can be used as a reserve currency for global trade. It also involves promoting rupee for import and export trade and then other current account transaction followed by its use in capital account transactions. Moving further, it is important to know that the settlement in rupee is aimed particularly at facilitating trade with the sanctioned hit Russia, possibly Iran and Farak's starved Sri Lanka. Additionally, the move was expected to reduce the pressure on India's Farak's reserve. Using the rupee for international trade transaction will help check the flow of dollars out of India and slow the depreciation of the currency. Currently, Russia, Sri Lanka and Mauritius have opened Vastro accounts. Know that a Vastro account is an account that a domestic bank holds for foreign banks in the form of domestic currency. In this case, the rupee. Domestic banks use it to provide international banking services to their clients who have global banking needs. Let's now go through the mechanism for international trade settlements. Indian importers make payment in rupee, which will be credited to a Vastro account called Special Vastro Rupee Account called Special Vastro Rupee Account of the corresponding bank of the partner country. While Indian exporters will be paid from the balances in the designated Vastro account, banks from 18 countries have been permitted by Reserve Bank of India to open Special Vastro Accounts and also know that a Vastro account is just another name for Nastro account. It is an account held by a bank that allows the customers to deposit money on the behalf of another bank. With this backdrop, let us try to answer your prelims practice question given here. Consider the following statement with reference to Vastro account. It is an account that a correspondent bank holds on the behalf of another bank. Vastro accounts are maintained in the foreign currency whereas Nastro account is in domestic currency. Vastro account serves as an economic way for small domestic banks to access the financial resources and services of a larger foreign bank. Which of the statements given above are correct? 1 and 2 only, 2 and 3 only, 1 and 3 only, 1, 2 and 3 only. And the correct answer is option C, 1 and 3 only. Statement 1 is correct. Vastro account is an account that a correspondent bank holds on the behalf of another bank. It is an account held by the domestic bank for the foreign banks. For example, HSBC Vastro account being held by SBI in India. Statement 2 is incorrect because Vastro accounts are maintained in domestic currency whereas Nastro account is in foreign currency. Statement 3 is correct. Vastro account serves as an economic way for a small domestic bank to access the financial resources and services of a foreign bank. With this, let's now move on to the next most important topic for 2024 plans, CBDC. That is central bank digital currency. So what is it? Let's see. On December 1, 2022, RBI introduced a digital currency or a central bank digital currency. As per official definition, a CBDC is a legal tender issued by a central bank in a digital form. A legal tender means that they cannot be refused by any citizen of the country for the settlement of any kind of transaction. Here, remember that CBDC were different from cryptocurrencies which are a special type of digital money controlled by cryptographic algorithm and are unregulated. But whereas CBDC is regulated by RBI. In order to make our digital rupee more effective, RBI has divided it into two categories. One is called retail E-rupee and other one is wholesale CBDC. Here, retail E-rupee is an electronic version of cash primarily meant for retail transaction. It can be used by almost everyone and can provide access to safe money for payment and settlement. On the other hand, wholesale CBDC is restricted to a selected few financial institutions. It is available only for the financial transaction involving government securities that is GSEC and inter-bank transactions. With this understanding, let us now try to answer a practice question. Look at this question. Which of the following statements are correct with reference to central bank digital currency recently seen in news? It is a digital money. It is a legal tender but different from a fiat currency. India is the first country to launch CBDC. Select the correct answer using the code given below. 1 only, 2 only, 2 and 3 only, none of the above. And the correct answer is option A. Let's see the explanation for it. Statement 1 is correct because CBDC is a kind of digital money which represents fiat currency. Statement 2 is incorrect. As it mentioned that it is different from fiat currency, CBDC is as same as fiat currency and it is exchangeable 1 to 1. Statement 3 is incorrect because Bahamas is the first country to launch a CBDC called as Bahamian Sand Dollar. Now, have a look at the previous year questions given here and try to solve it. Our next topic is RBI. Recently, RBI turned 90. So in this backdrop, RBI becomes a point of focus for UPSC prelims 2024. Let's see some related facts about RBI and other associated news that are important for us. The Reserve Bank of India was established on April 1, 1935 in accordance with the provisions of Reserve Bank of India Act 1934. The central office of RBI was initially established in Kolkata but was permanently moved to Mumbai in 1937. Though originally privately owned, since nationalization in 1949, the Reserve Bank of India is fully owned by government of India. The preamble of Reserve Bank of India describing the basic functions of RBI is given here for your reference. Please go through it. Moving ahead, it is imperative to know about Board of Financial Supervision. It was constituted in November 1994 as a committee of Central Board of Directors and the Reserve Bank of India Regulation 1994. The BFS exercises integrated supervision over commercial banks, financial institutions and non-banking financial intermediaries. Now let's understand about the RBI reserves. See, RBI maintains forex reserves to limit external vulnerability by maintaining foreign currency liquidity to absorb shocks during the times of crisis or when the access to borrowing is curtailed. The components of India's forex reserves include foreign currency assets, gold reserves, special drawing rights, reserve position with the International Monetary Fund. Next, let's see some important facts about RBI Governor. Know that the RBI Governor is appointed after the proposal made by the Financial Sector Regulatory Appointment Search Committee headed by the Cabinet Secretary. The Governor and Deputy Governors hold the office for a period not exceeding five years. The term of the Governor may be fixed by the government at the time of his appointment. Governor and also the Deputy Governor is eligible for reappointment or extension according to RBI Act. Let's now move to an important topic, Basal Norms. Know that the Basal Framework or the Capital Regulation developed by Basal Committee on Banking Supervision in response to the deficiencies in the financial regulation revealed by the financial crisis of 2007-2008. It mandates banks to maintain a minimum capital-to-risk weighted asset i.e. CRAR at least 8%. See, CRAR is a ratio that compares the value of banks' capital or the net worth against the value of its various assets weighted according to the risk. The CRAR ratio is calculated by dividing the bank's capital i.e. tier 1, tier 2 and also in addition to additional tier 1 by its risk weighted assets. Let's see the individual components of the capital. Tier 1 capital or the common equity tier 1 includes equity capital, ordinary share capital, intangible assets and audited revenue reserves. Additional tier 1 capital includes unsecured perpetual bonds which carry a fixed coupon payable annually from the past or present profits of the bank with no maturity. Tier 2 capital includes unaudited retained earnings, unaudited reserves and general loss reserves. In this backdrop, recently, the Reserve Bank of India has introduced new norms based on the Basal 3 Capital Framework for all India financial institutions which will take effect from April 2024. It is to be noted that India has five all India financial institutions under RBI regulation. They are Export-Import Bank of India i.e. XM Bank, National Bank for Agriculture and Rural Development i.e. NABAR, National Bank for Financing, Infrastructure and Development and then National Housing Bank and Small Industries Development Bank of India i.e. CIDB. Let's now look at its major provisions. First one is capital adequacy. AIFI i.e. all India financial institutions will be required to maintain a minimum of total capital of 9% by April 2024. This includes a minimum of tier 1 capital of 7%. Second one is investment cap. RBI has imposed limits on AIFI investment in capital instruments of banking, financial and insurance entities capping them at 10% of their capital funds and then equity investment limits. All India financial institution i.e. AIFI equities investment in a single entity cannot exceed more than 49% of an equity of the investing. Now moving ahead, recently RBI has extended prompt corrective action framework for non-banking financial companies that are being regulated by the government starting from October 1, 2024. So prompt corrective action becomes an important topic for this year's problems. So let's discuss about it. See the framework aims to address the financial risk and safeguard the health of the NBFC. Prior to this extension, PCA framework was in place for only scheduled commercial banks since 2002. Its primary focus is on tackling the problem of non-performing assets in the Indian banking sector. And also know that the PCA framework enables supervisory intervention when necessary. With this understanding, now let's see about PCA framework criteria. See the banks are classified as risky if they trigger certain trust holes. The key trigger include capital to risk weighted asset ratio, net non-performing asset, return on investment, tier 1 leverage ratio. Having seen about the capital to risk weighted asset ratio in our brief discussion on Basel III norms, let us understand other criteria involved in PCA framework. Note that firstly NPA. NPA is usually a loan or advance for which the principal or interest payment remained overdue for a certain period of time. In most cases, the debt is classified as non-performing when the loan payment have not been made for a minimum period of 90 days. And especially for agriculture, if the principal and interest is not paid for two cropping season, then the loan is classified as NPA. Here it is important to know one major difference between gross NPA and net NPA. Look, gross NPA is the total amount of NPA without detecting the provisional amount. Net NPA is the gross NPA minus provisions. So what is provision? See provision refers to the funds left aside by the bank to cover potential losses arising from bad loan or NPA. Now let's see about leverage ratio. The leverage ratio as defined under Basel III norms is a tier 1 capital as a percentage of the bank exposure to the risk. The bank's total exposure is defined as a sum of the following exposure. That is on balance sheet exposure, derivative exposure, security financing transaction exposure and off balance sheet items. So these are the most crucial topic with respect to RBI and banking for prelims 2024. Let's now try to answer some of the prelims practice questions. Consider the following statements about Bank of International Settlements. Statement 1. It acts as a bank for central banks. RBI is one of the 63 members of the central bank of BIS. Its mission is to ensure monetary and fiscal stability through international cooperation. Basel norms are the international banking regulations issued by the BIS. How many of the above statements are correct? Only one, only two, only three, all four. And the correct answer is option C only three. The first three statements are correct. The last statement is incorrect because it is actually the Basel Committee on Banking Supervision which issued the Basel norms. Let's now move on to see the previous year questions on these topics. Our next topic is angel tax. Its rules has been recently changed. So let's understand what is angel tax in brief. It is a tax levied on the capital raised via the issue of shares by unlisted companies if it is in the excess of fair market value. The excess fund raised at the price above the fair value is treated as income on which it is taxed. Angel tax essentially derives its genesis from the section 56-2 of Income Tax Act 1961. Presently, it is levied at a rate of 30.9% on the net investment in excess of fair market value. And also know that its major objective is to deter the generation and the use of unaccounted money through the subscription of shares of a closely held company at a value which is higher than fair market value. With this backdrop, government has announced an exemption from angel tax on the fulfilment of certain conditions. These are as follows. Firstly, the government and the government related investors such as Central Bank, Sovereign Wealth Fund and the International or Multilateral Organisation or where the ownership of government is 75% or more. Secondly, banks or the entities involved in insurance business. Thirdly, entities registered with CB as a category 1 foreign portfolio investor, endowment fund and pension funds. Finally, broad-based pooled investment vehicles or the funds where the number of investors is more than 50 and such fund is not a hedge fund too or exempted. Here, note that previously angel tax provisions were applicable only for the investment received from resident investor. However, the finance bill 2023 has extended its applicability to non-resident investor as well. With this understanding, let's try out a practice question. Consider the following statements. Angel tax refers to the income tax payable on a capital raised by a unlisted company. As per the budget 2023 and 2024, start-ups certified with department of promotion of industry and internal trade or exempted from the income tax. Select the correct statement using the quotes given below. 1 only, 2 only, both 1 and 2, neither 1 nor 2. The correct answer is option A, 1 only. Because the statement 2 is incorrect. As per the budget 2023 and 2024, start-ups registered with the department of promotion of industry and internal trade or exempted from angel tax, the certified ones will have to pay additional tax. That's all about this discussion. With this, let's move to our next topic. That is social bonds. Recently, NABART, that is National Bank for Agriculture and Rural Development, had raised 1040 crores through its listing of its social bond on the Bombay Stock Exchange. This makes social bond a crucial topic for 2024 problems. So, what is social bond? See, social bonds are also known as social impact bonds and abbreviated as SIB. Or fixed income securities whose proceeds are earmarked to finance or refinance new or existing social impact projects. Especially for identified target population such as low income groups, unemployed or otherwise vulnerable. Social bonds have financial characteristics similar to those conventional bonds such as range of maturity, credit quality and the same credit profile as a traditional bond from the same issuer. Like any other bond, social bonds imply that a bond issuer owes a debt to the bond holder. Who becomes the bond issuer's creditor by the virtue of having purchased a bond? In other words, the bond holder gives a loan to the bond issuer. Who uses the capital for some project aimed at greater social good? As an important source of financing for the transition to a more inclusive economy, social bonds can complement investors' fixed income portfolios. So, why do investors choose social bonds? The investor who offers social bond or driven by the same sentiment that drives people who choose sustainable stocks or green cryptocurrency or who might be even very particular about not investing in the company even remotely involved in arms or ammunition. Corporations and large companies might also choose to invest in social bonds as a part of Corporate Social Responsibility Initiative. Now with this understanding, let's try out to answer a prelims practice question. Consider the following statements with respect to social bonds. Social bonds like any other bonds are a form of debt instrument in which the issuer owes the money to the holder. Social bonds are a type of bond instrument whose proceeds are exclusively applied to finance or refinance new and existing commercial projects. Social bonds are typically issued by governments, corporations and non-profit organizations. Which of the statements given above are correct? 1 and 2 only, 2 and 3 only, 1 and 3 only, 1, 2 and 3. And the answer is option C, 1 and 3 only. Statement 1 and 3 are correct. Social bonds like any other bonds are a form of debt instrument in which the issuer owes the money to the holder. Social bonds are typically issued by governments, corporations and non-profit organizations. Statement 2 is incorrect because social bonds are not exclusively used to finance or refinance commercial projects. Commercial projects are financed by other type of bonds such as corporate bonds or project bonds. Social bonds are specifically designed to finance projects that have social benefits. Now have a look at previous year questions on bonds. Our next topic is carbon tax. It is important for 2024 plumes because European Union was ready to consider India's proposal of domestic collection of carbon tax which is levied under the mechanism of carbon border adjustment from January 1, 2026. With this backdrop let us understand what is carbon tax and carbon border adjustment mechanism. See the carbon border adjustment mechanism is a carbon tariff on carbon intensive products such as steel, cement and some electricity imported to European Union. It is legislated as a part of European Green Deal. It takes effect in 2026 with reporting started in 2023. In response to this, India has proposed that it will collect carbon tax that EU is implementing. And also know that the items covered under CBAM includes cement, iron and steel, aluminium, fertilizers, electricity and hydrogen. But the hardest-hit sectors in India could be iron and steel, aluminium followed by cement. One more important thing to be noted here is that India as of now don't have a specific carbon taxation mechanism but there is a coalescence that was introduced few years ago which is almost one-fifth of the cost of coal mining. With this understanding let's try out a practice question. Consider the following statement regarding CBAM. It will impose a border fee on the imports in carbon intensive sectors from nations with lower environmental standards. Recently, European Commission's Fit to 55 package introduced this CBAM. It will be applied throughout Europe. Which of the above statements are correct? One only, two and three only, one and two only, all the above. The correct answer is option C, one and two only. See, recently the European Commission adopted Fit for 55 package of proposal. It aims to make EU climate, energy, land use, transportation and taxation policy fit for lowering greenhouse gas emission by 55% by 2030. Relative to the 1990 levels, the Fit for package opens new markets for the Indian industry for example electric vehicles. However, it also includes a globally unprecedented carbon border adjustment mechanism for pricing imported carbon. CBAM will impose a border fee on imports in carbon intensive sectors. The statement three is wrong because it is being implemented by the member countries of European Union. Our next topic is the classification of Indian industry. This topic becomes certainly important this year because Oil India has become the 13th Maharatna Central Public Sector Enterprise in India. Let's now see the classification in brief. See the major public sector companies are classified by the Department of Public Enterprise and a Ministry of Finance into Maharatna, Navaratna and Miniratna. Moving ahead, let's now see about the criteria for classification. For obtaining Maharatna status, it should be a Navaratna company. Average turnover should be more than 25,000 crore for the last three years. The net profit should be more than 5,000 crore for the last three years and it should be noted that it is a listed company in CB and also it should have a net worth of 15,000 crore for the last three years. Presently there are 13 PSU in Maharatna status namely BHEL, SAIL, GAIL, ONGC, NTPC, IOCL, HPCL, BPCL, COL India Limited, Power Grid Corporation of India Limited, Power Finance Corporation or EC, Oil India Limited. For Navaratna status, it should have excellent rating of Miniratna for 3 to 5 years. Must have 4 independent directors and also it should be noted that high score in net profit, earnings, shares, intersectoral performance, profit, etc. is mandatory. Have a look at the list of Navaratna PSU given here. Going forward, note that the status of Miniratna is divided into two types that is Miniratna 1 and Miniratna 2. For Miniratna 1, the criteria includes a continuous profit for the last three years. Pre-tax profit should be more than 30 crore at least once in the three years. Positive net worth and positive turnover are the other criteria. Similarly, for Miniratna 2 status, the PSU should have made profits continuously for the past three years and should have a positive net worth. Now, have a look at the list of PSU in Miniratna status given here. With this understanding about the categorization of Indian PSU, let's try a practice question given here. The main objective of Maharatna status is to empower mega CPSC to expand their operation and emerge as a global giant. Which of the following are correct regarding the eligibility criteria for CPSC to be granted Maharatna status? Having a Navaratna status, the CPSC need not be listed on Indian stock exchanges and average annual net worth of more than 15,000 crore during the last three years should have a significant global presence or international operations. Select the correct option given below. 1 and 3 only, 1, 2 and 3 only, 1, 3 and 4 only and all the above. The correct answer is option 3, 1, 3 and 4 only. Because for getting a status of Maharatna, the company should be listed on Indian stock exchange with a minimum prescribed public shareholding under CB regulation. Our next topic is UPI. It has been a crucial topic for UPI's prelims. Have a look at this previous year questions. Since UPI and other related terms have been a frequent topic in UPI prelims, let's try to understand some basic facts about UPI. So, what is UPI? UPI is an instant real-time payment system developed by National Payment Corporation of India. It is a system that allows multiple bank accounts into a single mobile application that allows customers to pay directly from bank account to different merchants both online and offline anymore. Know that it is an advanced version of immediate payment service. The daily transaction limit for a single user of UPI is 1 lakh. For specific categories of transaction in UPI like capital markets, collections, insurance, foreign inward remittance, the transaction limit is up to 2 lakhs. To enhance the scope of UPI payment, the Reserve Bank of India on December 8, 2023 increased the transaction limit for UPI payments to hospitals and educational institutions to rupees 5 lakh. Please note that MDR that is merchant discount rate is 0 for the UPI transactions using saving bank accounts. Here, note that the National Payment Corporation of India is an initiative taken by Reserve Bank of India and Indian Bank Association to operate the retail payments and settlement system in India. This organization was founded in the year 2008 under the Payment and Settlement System Act 2007. Let us see some important features of UPI. Firstly, there is a two factor authentication. With this you will be receiving an OTP on your registered mobile number every time when you log into the app. Secondly, there is a virtual address of the customer to pull and push transaction. Know that push transaction means when you send money on your own discretion. Example, sending money to a relative or a friend based on a situation. Whereas pull transaction means when you have given a command that every month electricity company should cut money from a bank account. That's all about this discussion. With this understanding let's have some practice questions. Consider the following statements regarding National Payment Corporation of India. It is initiative of Reserve Bank of India and Indian Bank Association. It is a not profit company. It provides infrastructure to banking system for physical as well as electronic payment systems. How many of the given statements are correct? Only one, only two, all three, none. The correct answer is option C, all the three. Our next topic is National Startup Advisory Council. Recently the government has reconstituted the National Startup Advisory Council with the nomination of 31 non-official members under the department of promotion of industry and internal trade. C, the basic role of NSAC is to advise government on the measures needed to build a strong ecosystem for nurturing innovation and start-ups in the country to drive sustainable economic growth and generate large scale employment opportunity. Look, NSAC will nurture start-ups to aim for higher competitiveness and make India the start-up capital and it will be chaired by the ministry of commerce and industry. And as said before the council will be consist of non-official members nominated by central government. The nominees of the concerned ministry departments, organization not below the rank of joint secretary to the government of India will be the ex-official members of the council. With this understanding let's try out a practice question. With reference to the National Startup Advisory Council consider the following statement. It advices the government on the measures needed to build a strong ecosystem for nurturing innovation and start-ups in the country. It is constituted by the ministry of micro, small and medium enterprises. Which of the statements given above are correct? One only, two only, both one and two, neither one nor two. The correct answer is option A, one only. Because the statement two is incorrect it was constituted by the department for the promotion of industry and internal trade. Let's now move to the next topic. In this discussion we will understand about Global Multidimensional Poverty Index. The Global Multidimensional Poverty Index that is MPI is annually developed and released by UNDP that is United Nations Development Program and Oxford Poverty and Human Development Initiative. Basically MPI is a poverty indicator that takes into account the various disadvantages faced by the poor people across the world. The MPI measures both the occurrence and the degree of multidimensional poverty in the world. Now talking about the indicators, the Multidimensional Poverty Index identifies multiple deprivation at the household and individual level in three-dimension. The three-dimension include health, education and standard of living. The three-dimension in turn comprise of ten indicators. The health and education dimensions are based on two indicators each whereas the standard of living dimension is based on six indicators. See each indicator is assigned with certain weightage. The indicators and the respective weightage are given in this table here. You can go through it. MPI identifies how people are being left behind across these three key dimensions. People who experience deprivation at least one-third of these three weightage indicators then they fall into multi-dimensionally poor category. With respect to this report, India is among the 25 countries including Cambodia, China, Congo, Honduras, Indonesia, Morocco, Serbia and Vietnam that has successfully halved their global MPI values within 15 years. Around 450 million Indians escaped poverty between 2005 and 2019. The incidence of poverty in India declined significantly from 55.1% in 2005 to 16.4% in 2019. With this, let's now look at National Multidimensional Poverty Index released by NITI-IO. Look, India has registered a decline in the number of multi-dimensionally poor from 24.85% in 2015 to 14.96% in 2021. In absolute terms, 13.5 crore Indians escaped poverty during the 5 year time period. Still, 1 in 7 Indians is multi-dimensionally poor. See, there is a difference in the indicator involved to calculate index at national level. Have a glance at this pic. The National MPI covers 12 indicators while Global MPI covers only 10 indicators. With this understanding, let's try out some practice questions. How many of the following indicators used to measure the National Multidimensional Poverty Index? School Attendance, Anti-Natal Care, Cooking Fuel, Electricity, Bank Account? Choose the correct code. The correct answer is option D, all the five. Having discussed about the most important topics for PLIMS 2024, let's now see about the trend analysis. See, understanding of macroeconomic trends of India is very important for PLIMS 2024. It helps to answer many questions directly and application-based questions too. It comes really handy in answering these previous year questions. Please have a look. Let's now get into our trend analysis. Let's now see about petrol production and imports in India. Look at this graph. It clearly depicts a gap between domestic crude oil production and imports. Here, the domestic production is stagnating at 28.4 million tons as per 2021 and 2022 data. In the same year, it's at 212 million tons. And also, it is very important to know that India's domestic crude oil production has declined steadily since 2011 and 2012. With this, let's move to the next analysis. Let's now discuss the trends in India's GDP. Look at this picture on the table taken from the recent budget document. It states that in 10 years, India has moved from 10th largest economy of the world to the 5th largest economy. India's GDP growth rate as 10 years has been at an average growth rate of 6 to 7%. From 2006 to 2023, India averaged 6.15% with a high of 8.7% in 2022 and a low of minus 6.6% in 2021. In this aspect, it is to be noted that the Central Statistical Office under the Ministry of Statistics and Program Implementation is responsible for calculating the GDP of India. Our next analysis is about India's capital expenditure. The capital expenditure includes the money spent by the government on the following, acquiring fixed and intangible asset, upgrading an existing asset, repairing an existing asset, repayment of low. Here know that there is another term called effective capital expenditure. The capital expenditure presented in the budget does not include the spending by the government on creating capital asset through the grant in AIDS to states and other agencies. These grants are classified as revenue expenditure in the budget but they also contribute to the creation of fixed assets such as roads, bridges, etc. Have a glance at this graph. It states that the total expenditure grew at an average of 13% during the financial year 2012 and the financial year 2022. And also according to the recent budget and economic survey it is said that India's investment ratio improved to 29.8% of GDP in 2023 to 2024 from 27.3% in 2020 to 2021. The 2025 budget set the highest capital expenditure of 11.11 trillion the highest in two decades focusing on infrastructure and economic development. With this let's move to our next topic. Let's now look at our coal imports. Look at this graph regarding the coal production and its imports. There is a gradual increase in the production but we cannot say it is consistent increase because of its fluctuating nature and one thing should be noted here that is the production is always higher than the import in India and I also know that India ranks fifth among the nations with the largest coal reserves in the world and also second largest coal producer in the world. Not only that even India is the second largest coal importer also after China. One more important fact is that as per the present import policy coal can be freely imported under open general license. As per the present import policy coal can be freely imported under open general license policy. Now let's see about India's export. Look at this graph it shows the trend in India's merchandise trade. Here note that Indian imports are always higher than export but it will get reversed with respect to imports and export of service sector in India. As per this graph the global exports have been increased 44.6 percentage over the years and also the Asian exports have increased to 34.4 percentage over the year. Please note that the top 10 commodities that India has been exporting to other nations. Mineral fuels oils and other products tops the list followed by gems and jewellery, nuclear reactors, iron and steel and organic chemicals. And one more important thing to note that the export of finished or intermediate goods are on rise here. With this backdrop let us understand or let us have a look at India's trade balance with other major countries. This data has been taken from economics away 2021. Have a look. Here India have positive trade balance with USA, Bangladesh Nepal, Turkey, Netherland, UK and Italy. With this let's move on to the next analysis. Our next topic is vegetable oil imports. The total domestic production and the imported oil has been increasing over the years. Here it is to be noted that imports of edible oil is more than the domestic production. Have a look at the graph and the data presented here for the better understanding. Please note that India consumes around 23.5 to 24 million tons of cooking oil annually out of which 13.5 to 14 million tons is imported and the balance 9.5 to 10 million ton produced from a domestically cultivated seeds. Both sunflower and palm oil are almost wholly imported with their domestic production at hardly 50,000 tons and 0.3 million ton respectively. Here it is important to know that Indonesia and Malaysia are the major suppliers of crude palm oil to India. And with respect to mustard and soya bean the share of domestic output is close to 100% and 30 to 32% respectively. With this let's move to the next topic. Let's now look at the trends in India's depth. Have a look at this table from our budget. Here private non-financial depth forms a major share in the core depth of non-financial sector. And also as we have discussed in our public depth discussion, Union government's depth of 57.1% of GDP at the end of March 2023 with the state governments adding about 28% of GDP. It is important to note that India's public depth to GDP ratio slightly increased from 81% in 2005 to 84% in 2021-2022. And then back to 81% in 2022-2023. In this aspect it is also important to note that the encasing community on FRBM has envisaged a depth to GDP ratio of 40% for the central government and 20% for the states aiming at a total of 60% depth to GDP ratio. That's all for today's video. In the coming week, Economic Part 2 will be posted on Monday 1 PM. If you like this video, please like, share and subscribe. Thank you.