Important Economic Terms for Upcoming CDS 2 2016 Paper

Important Economic Terms for Upcoming CDS 2 2016 Paper

Important Economic Terms for Upcoming CDS 2 2016 Paper

cds 2 2016 current affairsWith the recent trend followed in the UPSC Pre paper we are lining up the same set of current affairs notes for the CDS/NDA Aspirants



Negative INTEREST Rates
The term negative interest rates has come into focus ever since Japan announced a reduction in its interest rate to -0.1%. However, the situation is not new as various countries in Europe have managed negative interest rates for at least a couple of years now. Though this may be an alien concept for Indians, as large economies shift to this practice, it is worth taking a look at what the impact could be.
When interest rate goes lower than zero. If a bank keeps its interest negative, the depositors need to pay regularly to keep their money with the bank instead of earning return on deposits. Investors tend to hoard cash in such a sitsuation instead of park ing it with banks.

Example- Simply put, a negative interest rate means you have to pay to leave your money in the bank. Savings bank account returns in India average at 4%; this means you get paid at least 4% per year or Rs.400 on a Rs.10,000 deposit. If this was instead -1% and you deposited Rs.10,000 in a bank, you would be charged for the deposit and only Rs.9,900 of your money will remain.

It may appear counter intuitive for a bank to charge for a deposit as it might deter deposits. Ideally, a bank should welcome funds that it can lend forward and earn money by creating a float. So, why is a situation created where a bank has to charge depositors?

When economic growth is low, often people keep money in the bank and spend less, and tend to invest less. This leads to lower consumption, investments and job creation, which can, in turn, lead to a fall in demand and prices. The continuous cycle of lower spending, investments and prices is referred to as deflation. Deflation accompanied with falling growth is the reason seen for many European economies, and now Japan, to adopt negative interest rates.

This is a policy decision taken by governments and central banks to tax the reserves that the banking system holds with a central bank. Banks are made to either lend more aggressively and pass on the negative rate to borrowers and depositors, thereby returning spending to an economy. It is an attempt to force people to spend and invest rather than holding money in bank accounts. The idea is to force a revival in demand, which will help boost economic growth and turn around the deflationary cycle.

Another impact of this policy decision is on a country’s currency. In a global economic environment, currencies get traded and there is actual trade of goods and services. Negative interest rates cause the yield on sovereign securities to decline and also lead to lower overseas demand for the currency and cause it to weaken. A weaker currency can be useful in making a country’s exports more competitive and thereby help boost production within the economy. If this happens, overall economic growth can improve.

Does it work?

In theory it should, however, the action is still being tested by various economies. In reality, negative interest rates could push people away from banks altogether and threaten banking profitability. The banking system is crucial in the long term, and if in an economy, individuals and companies are forced to hold cash, the impact can be the opposite of what is desired.

The jury is still out on whether slashing rates below zero by itself is enough to revive growth. Increasing government spending is considered by some as a more effective method.

2. Sovereign Wealth Funds
India Overseas Investment Corporation (INOIC) will be like India’s sovereign wealth fund which will function as a development finance institution with the specific mandate to provide equity and debt to Indian public sector enterprises (PSEs) for securing natural resources abroad.

How would INOIC function?

INOIC would like the government’s holding arm and registered with RBI as a nonbanking financial institution with a paid-up capital of Rs 10 crore. The company will raise funds through rupee bonds of 15-20 years with sovereign guarantee. State-run entities, banks and financial institutions will subscribe to these papers using their surplus funds. It will not borrow from the RBI unlike IIFCL. The company will purchase or swap its rupee funds with foreign currency from the RBI at market-related rates. This will provide for a market-oriented mechanism and avoid management of temporary surplus forex funds. The formation of the company will follow amendments in guidelines so that state entities don’t have to seek Public Investment Board’s clearance if the quantum of overseas investment is within INOIC’s ambit. The company will act as a singlewindow clearing and financing framework that will be more expeditious than the current system involving multiple layers of approvals for foreign acquisitions. Basically, it means ready cash for an entity acquiring assets overseas. Note: Formation of INOIC will place India into a select club of economies such as US, Russia, China, South Korea, Singapore, Malaysia, Brunei, Qatar and UAE that have pushed overseas acquisitions and business through such funds.

3. Dogs for Disaster Response

a squad of 162 dogs is being raised by the National Disaster Response Force (NDRF) to aid its personnel in rescuing people trapped under debris in the aftermath of natural calamities like earthquake.
The force is training a batch of 162 dogs for their specialised Urban Search and Rescue (USAR) tasks under which the NDRF teams have to sift through mounds of rubble to look for life trapped beneath.
These canines are different from the regular police and tracker dogs and have immense capabilities in sniffing life from under the debris,”

4. Nada Kushti

Mysuru’s heritage — Nada Kushti (wrestling) — has made it to the cover page of an international publication titled Beyond the Body , with 183 black-and-white pictures by renowned Polish photographer Tomasz Gudzowaty.
Beyond the Body has been edited by Nan Goldin, a well-known American photo journalist.
Garadi is the traditional gym.
Nada Kusti is traditional wrestling played in mud.
The other projects featured in the book include Kalaripayattu and women’s boxing shot in Kerala, Yoga (with Mysore Yoga practitioners shot in Varanasi), and Urban Golf in India (shot with caddies in Mumbai and in other countries.)

5. Zero-Budget Spiritual Farming

Zero-budget spiritual farming Subhash Palekar has claimed that farmers’ suicide in the country was observed among those practicing the chemical-farming methods.
Making a plea for encouraging chemical-free farming, Mr. Palekar said there were nearly 4 million farmers practicing zero-budget farming in the country who were prospering. Mr. Palekar, who interacted with media persons here on Saturday, said there was not a single example of farmers practicing zero-budget farming committing suicide, due to higher yield and low cost input. Zero-budget agriculture entails no external chemical inputs like fertilizers or insecticides.
While chemical farming methods yield about 12 quintals of basmati rice per acre, under the zero-budget farming method, yield was observed to be as high as 18 to 24 quintals, according to Mr. Palekar. Similarly, about 6 quintals of wheat per acre was the normal yield while it was 18 quintals under zero-budget farming.
The country’s food output cannot be doubled through chemically-intensive agriculture methods or even conventional organic agriculture. Only zero-budget farming was could meet the country’s food requirements.
Despite the obvious advantages of alternative methods, not many farmers were switching over to it due to government policies which link all credit, marketing, and insurance facilities to chemical-based agricultural practices

6. Kala Ghoda Festival

The Kala Ghoda Arts Festival is an annual festival,nine days long, commencing always on the first Saturday of February and closing always on the second Sunday in February, in the Kala Ghoda area of South Mumbai, India.

From its inception in 1999, the Festival has grown in stature and popularity, attracting visitors and participants from other parts of the country, and the world. The Festival is organised by the Kala Ghoda Association (a non-profit organisation that states its objectives as “physically upgrading the Kala Ghoda sub-precinct and making it the Art District of Mumbai”) and curated by teams handling each of the 12 sections of the festival.

The festival sections are visual arts, dance, music, theatre, cinema, literature including children’s literature as a sub section, workshops, heritage walks, urban design and architecture (2014), food, a dedicated section for children, and a vibrant street section including stalls selling eco friendly, hand made arts and crafts wares. Entry to all events is free to all (only restricted by the size of the venues) and costs are met through corporate sponsorship. Venues include The auditorium at the National Gallery of Modern Art, the garden at the David Sassoon Library, the lawns and auditoriums at the CSMVS, The Museum, Mumbai, the Cross Maidan, the Horniman Circle garden, the M C Ghia Hall, the Cafeteria at Westside, the Tata store at Army and Navy Building and the entire street area of Kaikashru Dubash Marg and its parking lot, popularly called Rampart Row. Rampart Row is closed off to vehicular traffic for the duration of the festival, with the entire area becoming a street mela, with food stalls, artisans selling their creations, artists who sketch instant portraits, street art installations and the like. In recent years, the Festival has expanded beyond the Kala Ghoda crescent, with events being held in Cross Madian and Horniman Circle as well.

The success of the Kala Ghoda Arts Festival has, arguably, encouraged the setting up of several other arts and cultural festivals at that time of the year, when the weather in Mumbai is cool and the sun sets early. These include the Mumbai Festival, the Celebrate Bandra Festival, and in 2007, the Kitab Festival.


The EU-India Bilateral Trade and Investment Agreement (BTIA) saga is a culmination of a series of negotiations (launched in 2007) which set an ambitious agenda comprising of contentious market access, investment protection and intellectual property enforcement issues.

The talks were designed to enhance trade relations between two large economic partners.

While much has been written on the outstanding issues in the BTIA negotiations, this piece will briefly highlight these issues in order to contextualize the arguments regarding the EU’s recalcitrant and arm-twisting approach in this whole process.

The EU concern :- From their perspective, EU negotiators are seeking a reduction in automobile duties; reduction in tax for wines and spirits and dairy products coupled with a stronger intellectual property regime, which is in alignment with European pharma’s business agenda.

In addition, the EU wants further liberalization in key services such as the insurance and legal sectors.

It must be noted here that the Indian Parliament last March passed the Insurance Bill, which allows 49 per cent FDI in the insurance sector.

his was one of the longstanding demands of the EU government as part of the BTIA. The measure is estimated to attract $8-10 billion in capital to the Indian insurance industry and offer greater leverage to foreign investors.

The Indian concern :-
From Delhi’s standpoint, one of the most pressing goals for Indian negotiators is to reach a favorable agreement on acquiring data secure nation status, which would allow Indian IT companies greater market access under Mode 1.
There are four Modes – or types – of services trade stipulated under the 1995 General Agreement on Trade in Service (GATS). Mode 1 refers to cross border trade.
Acquiring this status is vital for India.
Current EU laws demand that European nations outsourcing business to nations, which do not qualify as data secure, should establish onerous contractual obligations that significantly raise operating costs and affect business competitiveness.
While India has made changes to the Information Technology Act, to align it further with the EU legislative requirements, Brussels has been reluctant to grant India a data secure nation status because of the lack of a law that recognizes privacy as a comprehensive and fundamental right.
To India’s credit, Delhi has been mulling a national privacy law since 2010 and has also shown willingness to work with EU counterparts in developing a compliant data secure regime.
India has also been pushing for changes in Mode 4, which covers the movement of skilled professionals – like software engineers – and allows them to temporarily reside and work in EU countries.
This would naturally entail significant changes to visa requirements, work permits as well as directives of recognition of professional qualifications and wage-parity conditions.
It must be noted here that software and Mode 4 services exports to the EU have declined in the past six years, according to data published by the Reserve Bank of India.
Enduring friction
While resolution of these issues is extremely crucial for any conclusive deal between these mega-trading partners, a thorny issue that has remained a source of constant friction between India and the EU, since the establishment of the generic pharmaceutical industry in India, is the difference in outlook towards intellectual property protection.
It is important to note here that the Indian intellectual property regime is entirely compliant with the Trade Related Intellectual Property Rights (TRIPs) as stipulated by the World Trade Organization (WTO).
However the EU has been pressuring India to adopt TRIPs plus provisions as part of the BTIA. In fact, the text of the IP Chapter in the BTIA leaked about two years ago highlights the widespread ramifications that an EU oriented IP Chapter would have on access to affordable medicines.
Upon analysis of the IP Chapter, it becomes increasingly clear that EU is trying to advance its failed attempt at securing a deal on the Anti-Counterfeit Trade Agreement (ACTA), through bilateral channels.
In an analysis for reputed news magazine Frontline, veteran journalist Sagnik Dutta has argued that the provisions in the leaked text, which stipulate issuance of injunctions and seizure of medicines on a mere suspicion of a patent infringement coupled with measures such as freezing of assets of generic drug industries, will severely curtail the access to affordable generic medicine being exported from India to the developing world.

8. GIFT city

India’s only global Financial and IT hub, Gujarat International Finance Tec-City (GIFT City), is attracting interest from domestic and global IT & ITeS companies to set up operations there. More than 500 employees are working in some of the leading institutions that have already begun operations in GIFT domestic zone as well as in GIFT’s Special Economic Zone (SEZ) area.

The companies functioning out of GIFT City include MNC players like Oracle; Maxim Integrated, a US$ 2 billion plus US-based integrated solutions company and Befree, a leading book-keeping company from Australia. Leading E-commerce player Infibeam has acquired space in GIFT City and is in advance stages of commencing its corporate office and overall back office operations. (n)Code Solutions – a subsidiary of GNFC has set up a world class PKI facility to offer digital signature certificate & a range of PKI-based solutions at GIFT City.

9. Triple -E Benefit

EEE stands for exempt, exempt, exempt. Here, the first exempt means that your investment is allowed for a deduction. So, you don’t have to pay tax on part of the salary that equals the invested amount. Similarly, the second exempt implies that you don’t have to pay any tax on the returns earned during the accumulation phase. The third and final exempt means that your income from the investment would be tax-free in your hands at the time of withdrawal.
EEE status is generally enjoyed by long-term investment vehicles, such as Public Provident Fund and Employees Provident Fund. Currently, other instruments such as equity-linked savings schemes (ELSS) and life insurance policies also enjoy the EEE status. However, under the revised draft Direct Taxes Code, the New Pension System will also enjoy the EEE status, but insurance-cum-investment plans and ELSS will move to the EET category.


Environment Information System (ENVIS) is a web portal which provides information on environment and related subject areas to researchers, academicians, policy planners, environmentalists, scientists, engineers and the general public. It is a decentralized network of databases in operation since 1982-83 (Sixth Plan) and is run by the Ministry of Environment and Forests.
ENVIS network, as on February 2016, consists of 69 Centres housed in reputed institutions with expertise in specific subject areas as well as in various State Governments/UTs Departments(29 are hosted by the environment/forest department of State governments/UT Administrations and deal with “State of the environment and related issues”, while 40 Centres are being hosted by environment-related governmental and non-governmental organisations/institutes of professional excellence and have a thematic mandate). These ENVIS Centres serve as information collection, collation, storage, retrieval and dissemination points on specific subject areas, and for the State/ UT as a whole, on 17 environmental modules.
The output of ENVIS is presented with the help of geographic information system (GIS) in an user friendly manner through the India State-level Basic Environmental Information Database (ISBEID). This provides for charting and tabular presentation of data. Information is disseminated to all stakeholders and national and international users. Query-answer, documentation, and referral services to individual, NGOs/ institutions are also provided by ENVIS.

11. Delimitation Act, 2002

The Union Cabinet has given its approval to amend section 11 of the Delimitation Act, 2002 and section 9 of the Representation of the People Act, 1950.


It will enable Election Commission to carry out limited delimitation of Assembly and Parliamentary Constituencies in the Cooch Behar District of West Bengal consequent upon the exchange of 51 Bangladeshi enclaves and 111 Indian enclaves respectively between India and Bangladesh in July, 2015.
This is in pursuance of the Constitution (One Hundredth Amendment) Act, 2015 and also allows for introduction of a Bill, namely, the Election Laws (Amendment) Bill, 2016 in Parliament.


In a historic pact between India and Bangladesh, 51 Bangladeshi enclaves (Chhitmahals) in Indian Territory and 111 Indian enclaves in Bangladesh territory were exchanged with effect from 31st July, 2015.

The move altered the geography and demography of the district of Cooch Behar in West Bengal. With a view to carry out consequential geographic and demographic alterations vis-à-vis the electoral mosaic of the affected areas, the Election Commission requested to amend section 11 of the Delimitation Act, 2002 and section 9 of the Representation of the People Act, 1950 to enable it to carry out limited delimitation of constituencies in the affected areas.
Since the newly acquired area consequent upon the exchange of territory between India and Bangladesh has become the part of the Indian territory, it is required to make delimitation exercise within the limited constituency area before the ensuing State Assembly elections in West Bengal. Accordingly, the Election Laws (Amendment) Bill, 2016 has been proposed for enactment.

12. DELP

Objective of the campaign

To enhance the awareness of LED bulbs with rural people in small villages. Government of India’s initiative – Distribution of LED bulbs and educate them about the need of saving energy. The campaign exchanged theincandescent LED with the normal bulbs.

Target Areas:

•    All districts of Maharashtra and Uttar Pradesh


The integrated marketing campaign was rolled out across 16 territories with Bills Boards, Banners, Hoardings, Posters, Look Walkers, etc.

Van Campaign – Around 16 vans were deployed, covering all the major places of Maharashtra and UP. Van crew distributed the Leaflets and the promoters gave valuable information to the people on energy saving.
Sunpack Boards were fixed at all the major General Stores.
Door-to-Door campaign was also conducted targeting all the major places along with which leaflets were also distributed.
Banners were put up and Look Walkers were appointed, to increase the reach of people in all the areas.
Standees were installed in all the junctions and Business Streets.
Hoardings and Billboards were set up at commercial areas.
A School Connect Programme was done in villages schools and children as well as their parents were sensitized about the product.
Advertisements were shown in the local television channels and Posters were displayed at all the prominent places.
A Television Commercial was shown through the C&S route effectively and the TV spots reached every home.


The campaign resulted in the reduction of energy consumption.
Awareness was created among 10-15 lakh people, promoting the use of efficient LED lighting.
It has also addressed environmental issues like energy conservation, by reducing GHG emissions with the use of LED bulbs.
10 lakhs bulbs were distributed across the 2 states.
3 lakh people were covered in Maharashtra.

13. ‘Made in India’ Plane

One of the highlights at the recently concluded Make-in-India event was a locally manufactured six-seater aircraft. What’s surprising, however, is that the aircraft has not taken to the skies yet, having been grounded by bureaucratic hurdles that its creator has been fighting for the past five years.

Amol Yadav, the brain behind the aircraft, has been working on building indigenous aircraft for the past 17 years. He finally succeeded in 2011 when he finished making the TAC 03 (named for the third attempt by his company, Thrust Aviation Company).

The aircraft has a 350 horse-power engine, which is capable of reaching speeds of 192 knots (about 355 km per hour). It can reach an altitude of 13,000 feet and has a range of up to 1,200 km. The aircraft is also fitted with high-end navigation systems.

But the aircraft has been gathering dust for the past five years since the DGCA (Directorate-General of Civil Aviation) is not even allowing Yadav to conduct test flights, leave alone start commercial operations.

Yadav, a Mumbai-based pilot who works for Jet Airways, got lucky recently when he was introduced to Defence Minister Manohar Parrikar by a relative.

“The Minister was quite impressed when he heard our story and our intention to build indigenous aircraft and hence save billions of dollars of foreign exchange for the country. But the DGCA has not even responded to our application in the last five years,” Yadav told BusinessLine.

Parrikar seemed convinced enough that he roped in HAL and allowed Yadav to showcase his innovation at the Make-in-India event.

“Mr Parrikar has shown interest in the project in his personal capacity but we haven’t seen any interest so far from the Defence Ministry. We are confident that we can make even fighter jets, if given a chance… As long as I’m fulfilling all the guidelines and following all the rules, why can’t I get clearance from the DGCA?” Yadav asks.

The potential
His six-seater aircraft cost him about ₹6 crore to build, with everything except the engine, navigation system and landing gear being built indigenously.

“We are able to make this aircraft 40 per cent cheaper than a commercial aircraft with the same specifications. If we are allowed to go commercial, we can make it much cheaper.

14. Project insight

Project Insight, the income-tax (I-T) department’s ambitious project to effectively utilize the vast amount of information at its disposal more effectively to track tax evaders, will roll out from May 2017.

As a step in that direction, the tax department has signed a contract with L&T Infotech Ltd for its implementation.

The project will be rolled out in three phases, with the first phase being implemented from May 2017, a statement by the income-tax department said.

“This integrated platform would play a key role in widening of tax base and data mining to track tax evaders. The new technical infrastructure will also be leveraged for implementation of Foreign Account Tax Compliance Act Inter Governmental Agreement (FATCA IGA) and Common Reporting Standard (CRS),” the statement said.

This will help in catching tax evaders in a non-intrusive manner and without more intrusive methods like search and seizure.

Project Insight, through implementation of reporting compliance management system, will ensure that third party reporting by entities like banks and other financial institutions is timely and accurate. It will also set up a streamlined data exchange mechanism for other government departments.

The tax department will also a set up a new centralized processing centre for compliance management. It will handle preliminary verification, generation of bulk letters/notices and follow-up arising from information collated through Project Insight.

“The new CPC will not only promote voluntary compliance but also enable taxpayers to resolve simple compliance related issues in an online manner without visiting the Income tax office,”

15. Attukal Pongala

The Attukal Bhagavathy Temple is a Hindu religious shrine at Attukal in Kerala, India. The Goddess Kannaki (Parvathi) is the main deity in this temple. The temple is renowned for the annual Attukal Pongala festival, in which over three million women participate.A festival that has figured in the Guinness Book of World Records for being the single largest gathering of women for a religious activity, the Attukal Pongala continues to draw millions of women with each passing year. According to the Attukal Temple Trust, around 4.5 million devotees are expected to attend the pongala in 2016.Attukal Temple is situated within 2 kilometres of the Sree Padmanabhaswamy Temple in Thiruvananthapuram.

16. Jal Manthan

Union Minister of Water Resources, River Development and Ganga Rejuvenation, Sushri Uma Bharti will inaugurate Jal Manthan -2″ on February 22, 2016 New Delhi. The main theme of two day event is Integrated Approach for Sustainable Water Management.

The two day event will have consultations and discussions on River Basin Approach for Sustainable development, Ground water, Water security, Principles of allocation of water, innovation in water governance, Water management, Coordination between centre and states, Water conservation and need for a National Legislation on water.

Union Ministers of related Ministries/Departments, Chief Ministers of some States/Union Territories, Irrigation/ Water Resources Ministers of States/UTs, eminent experts in water sector, representatives of NGOs and senior officers of the Central and State Governments will be attending the event. The first Jal Manthan was organized in November 2014.

Did you know?
The Ganges River is a 1569 mile long river flowing across India and Bangladesh into the Bay of Bengal.
In Hinduism the Ganges River is the most sacred river, and is worshipped as the Goddess Ganga.
The Ganges River flows through several states including Uttarakhand, Uttar Pradesh, Bihar, Jharkhand, and West Bengal.
The Ganges river dolphin and the Ganges river shark are both endangered because of the massive pollution.
Studies have shown that the Ganges River is capable of decomposing organic waste faster than any other rivers in the world – as much as 25 times faster.
Something in the Ganges Rivers’ water prevents mosquitos from breeding, and when it is added to other water it prevents them from breeding in it as well.

17.  Parole and Furlough


Generally, furlough is granted to prisoners who are serving sentences that are for more than five years. If it is less than five years, a furlough cannot be applied until and unless there is an emergency. A convict, under these circumstances, can apply for a 14-day furlough once a year and the same can be extended for another 14 days under special conditions. Jail authorities and the State Government concerned take a call on whether or not to grant furlough to a convict.


Parole is granted to a prisoner in case of an unavoidable emergency. Prisoners can avail 30 days of parole each year, which could be extended by another 60 days. However, that is considered to be rare. Reportedly, a prisoner, a well-behaved one at that, could stay out of jail for a maximum of 118 days each year.


There is a thorough process of verification before such privileges are granted. A single error could either delay the parole or have it blocked altogether. For instance, prisoners would need a guarantor to stand surety for them; who will vouch that the prisoner would return on the stipulated date. This person will also have to pay a certain amount of money to the authorities concerned. This money will not be refunded if the prisoner fails to return to jail on the designated date.

Also, it is generally preferred if someone outside of a prisoner’s family stands surety. If family members are willing to stand surety, they need to furnish official documents such as the ration card, proof of residence and other properties, and similar identity proofs; otherwise they are not eligible for it. Many convicts are said to have not got parole because no one is willing to stand surety for them. However, in the case of death parole, a prisoner under the death penalty is allowed to attend the last rites of a relative without having to pay the surety amount.

18. NON- tariff revenue

The PMO has asked the Railways Ministry to follow the legislative route to set up an independent regulator for freight and passenger tariffs rather than push it through an executive order.


In a bid to bypass the parliament, the Ministry of Railways had proposed Rail Development Authority by issuing a notification through an executive order and subsequently strengthen its powers through the legislative process.

Implications of this decision:

The legislative route may be a major setback for the Railways on this front, as it was banking on creating the independent regulator this year in order to perk up its worse-than-expected financial performance in the first half of this fiscal year.

About the authority:

The proposed Rail Development Authority would be an independent body, housed outside the Ministry of Railways.


The authority will be funded through the annual railway budget sanctioned by the Parliament. The approved Budget would be placed at the disposal of the regulatory authority.
It would also be permitted to arrange funds through adjudication fees, penalties levied and any other source as specified in the proposed Act.

Functions to be performed by the authority:

The proposed Rail Development Authority will be mandated to set passenger and freight tariff, ensure fair play and level-playing field for private investments in Railways, maintain efficiency and performance standards, disseminate information such as statistics and forecasts related to the sector.
The authority will set tariff based on cost recovery principle and “what the traffic can bear.”
All the direct and indirect costs such as pension liabilities, debt servicing, replacements and renewals along with productivity parameters, market-driven demand and supply forces and future investments will be considered by the regulator before setting tariffs.
The authority will be authorised to penalise cartelisation, abuse of dominance and other unfair market mechanisms.

Who sets the Rail Tariff at present?

At present, the tariff is set by the Union government. Earlier, the revised tariff was usually announced by the Union Rail Minister in Parliament but this practice was discontinued after protests by the Members of Parliament over any proposal to hike tariff.


The proposal for setting up a regulator comes at a time when the estimated losses in passenger segment has ballooned from Rs 6159 crore in 2004-05 to provisional estimate of over Rs 30,000 crore in 2015-16, primarily due to sharp increases in input costs and no proportionate increase in fares over the same period.
Keeping fares within affordable limits has led to cross-subsidisation of passenger services leading to erosion of railway’s market share in freight. The total share of railways in the total transportation of freight traffic has declined from 89% in 1950-51 to 36% in 2007-08.
The full potential of the railway sector has not been tapped as “investors have generally been shy of investing in an industry where far too much is still being done or controlled by government and the risk or return trade-off is not always favourable.”

19. 5:25 Scheme ?

Let’s discuss Corporate Debt Restructuring(CDR) first.

There are occasions when corporates find themselves in financial difficulties and becomes unable to pay the debt they owe to certain financial institutions because of factors beyond their control and also due to certain internal reasons. For the revival of such corporates as well as for the safety of the money lent by the banks and financial institutions, timely support through restructuring of genuine cases is called for. However, delay in agreement amongst different lending institutions often comes in the way of such endeavors. Thus a Corporate Debt Restructuring System was evolved and detailed guidelines were issued by Reserve bank of India on August 23, 2001 for implementation by financial institutions and banks.

Having said that CDR has often carried a stigma, though, in its true economic sense this  is meant to be a corrective exercise. In any business you carry the risk  of market uncertainty, timelines, pricing, regulatory and a host of  other factors. If the timeline of repayment itself is erroneously  restricted to 10 or 15 years, whereas, the project’s economic life is  20-25 years and its cash flows are beyond that, the business needs  longer time to honour its debt redemption commitments. To answer this particular problem Reserve Bank of India (RBI) recently extended 5:25 scheme to some existing installed infrastructure projects.

The 5:25 scheme allows banks to extend long-term loans of 20-25  years to match the cash flow of projects, while refinancing them every 5 or 7 years. Until now, banks were typically not lending beyond 10-12 years. As a  result, cash flows of infrastructure firms were stretched as they tried  to meet shorter repayment schedules.  With this change in rule, cash flows will match the repayment schedule and long-term infrastructure projects will become viable.

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