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CURRENT AFFAIRS 18-07-2018

Reserve Bank Of India’s Report On State Finances

Relevancy

  • GS Paper-3, Economy

Why in news?

  • The Reserve Bank of India recently brought out the ‘Report on State Finances’.

What did the report say?

  • RBI has warned that many States may face fiscal risks this year.
  • States budgeted a gross fiscal deficit (GFD) to gross domestic product (GDP) ratio of 2.7% in 2017-18.
  • The GFD-GDP ratio crossed the threshold for the third consecutive year.
  • For 2018-19, the states have budgeted for a consolidated GFD of 2.6% of GDP.
  • Outstanding liabilities of States grew at double digits for all years barring 2014-15.
  • Maharashtra, Uttar Pradesh, TN and WB had the largest shares of market borrowings in 2017-18.
  • Among the Special Category States (SCSs), Assam, Himachal Pradesh, J&K and Uttarakhand were the major borrowers.
  • The growth of gross market borrowings of SCSs during 2017-18 outstripped that of non-special category States by a wide margin of 7%.

What are the causes?

  • Fiscal deficit of states is essentially due to shortfalls in own tax revenues and higher revenue expenditure.
  • State budgets have been under pressure due to:
  1. committed expenditures on account of pay commission awards
  2. interest payments
  3. expenditures from State-specific schemes like farm-loan waivers
  4. issuance of UDAY (Ujwal Discom Assurance Yojana) bonds in 2015-16 and 2016-17
  • In the aftermath of the 2008 global financial crisis, States borrowed big from markets.
  • It was mainly due to the additional fiscal space given to states as part of stimulus measures.
  • The 10-year bonds had now reached maturity.
  • This has increased the redemption pressures on the States that issued them.
  • This would imply that the borrowings of States are expected to rise.
  • Also, a substantial portion of the outstanding State Development Loans (SDLs) will mature in the next 3 years.
  • This would keep the redemption pressure high in the near future.

What are the suggestions?

  • The resultant slippage in fiscal deficit target could probably reflect in higher borrowing requirements for 2018-19.
  • This, in turn, could be an impact on borrowing costs.
  • RBI has thus suggested reducing leakages and enhancing efficiency of the public distribution system.
  • This would rationalise the expenditure of the states.
  • Also, improved public financial management practices may be necessary to rebuild the fiscal space.
  • It is essential to undertake fiscal reforms, so as to lower borrowings.
  • Otherwise, borrowings could add to the concerns on debt sustainability.
  • There is also a need for larger and faster corrections in primary deficits.
  • These are essential to adhere to the revised Fiscal Responsibility and Budget Management (FRBM) target.
  • It stipulates a target of 20% for the State-level debt to GDP ratios by 2024-25.

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The Companies Act, 2013- What & Why

Relevancy

  • GS Paper-2, Government Policies, and Intervention

Why in news?

  • The Ministry of Corporate Affairs (MCA) has constituted a committee to review the Companies Act, 2013.

What is the Companies Act, 2013?

  • The Companies Act, 2013 entailed the first massive overhaul of India’s legal regime to govern businesses.
  • The Act consolidates and amends the law relating to companies.
  • The 2013 Act imposes stiff penalties and, in some cases, prison terms as well, for directors and key management personnel.

What has the committee mandated?

  • The committee is mandated to review the overly harsh provisions of the Companies Act.
  • It has been tasked with checking if certain offences under the Act can be ‘de-criminalised’.
  • It will review if any of the violations that can attract imprisonment may instead be punished with monetary fines.
  • It will review the provisions relating to non-compoundable offences which are grave and criminal in nature.
  • Also, it will recommend if any such provisions need to be re-categorised as compoundable offence.
  • It is also mandated to lay down the framework of an in-house adjudicatory mechanism.
  • This will allow penalties to be levied for minor violations, in an automated manner, with minimal discretion available to officials.

What is the rationale behind the Act?

  • The high-pitched anti-corruption discourse of the time led to harsh penalties and prison terms in the 2013 law.
  • Several cases of crony capitalism, massive corporate frauds have tainted the credibility of corporate India’s standards.
  • But the harsh provisions have had an impact on investor sentiment and the ease of doing business.
  • Hence a review of the Companies Act is seen as a means to address the above concerns and revive the economy.
  • The changes in the regulatory regime are expected to allow trial courts to rationalise their time.
  • Courts could pay more attention to serious offences rather than get overloaded with cases of minor violations.

 

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