INDEX S.No. 1
Article Digital Gold Trading
Page No. 3
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Can e-Rupi Revolutionize Digital Payments Ecosystem in India?
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Gender Parity is a growth engine for Global Economy
13
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18
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Tackling Climate Change: Sustainability and "Circular" Business Model is the New Blac CBDC: The Future of Money
6
Steps to improve the Indian agriculture through the Banking sector
27
7
Steps to improve the Indian agriculture through the Banking The Dilemma of Chinese Financial Markets National Monetisation Pipeline: An Attempt to Utilise Languishing Assets
31
8
23
34
By: Ritoriddha Dasgupta (International Management Institute, Kolkata) Introduction: bonding with them. In the current pandemic scenario, Indian people are reluctant to visit jewelry stores and gold dealers, being able to procure gold online has become perhaps the best solution to many investors, and especially those prospected investors who hesitate to open Demat Accounts. In the current digital era, the prominent digital gold trader Augmont Gold Ltd. have seen their topline increase by 40%-50% during the lockdown period. Our motherland India is the 2nd largest importer of gold in the world whose market is primarily culture-driven. The demand in India was approximately 446 metric tons in 2020, due to the panic caused by the global pandemic. Gold Investment ways: The most popular way to invest in Gold has been to buy physical gold in the form of- Bullions, Coins and Jewelry. Keeping them aside, Indian people have Sovereign Gold Bonds, Gold Mutual Funds in addition to Gold exchange-traded funds (ETFs) to choose from. But in the current pandemic, another method of investing in Gold has been gaining immense popularity which is in the form of Digital Gold.
Digital Gold at a glance: Buying physical gold certainly has some major and crucial issues of identifying its legitimacy, purity, problems of safekeeping plus storage. In this global pandemic, it is not quite apt to go out to gold dealers or jewelry stores for purchase and sell of different gold forms abiding by the social distancing norms. On the other hand, digital gold can be purchased via online mode and can be stored thereby in insured vaults by the seller on behalf of its customer. It also helps the general public in the era of the primary requirement is computer/internet/mobile banking and one can invest in gold digitally with much convenience. Work process of digital gold: One can invest in digital gold from several mobile e-wallets such as Paytm, G-Pay, Amazon Pay, Phone Pe etc. ... Brokers such as Motilal Oswal, HDFC Securities also have options for trading of digital gold. Presently, three companies are there in India that offer digital gold in India1. MMTC-PAMP India (P) Ltd. 2. Augmont Gold Ltd. 3. Digital Gold India (P) Ltd. with its SafeGold brand.
Apps/websites like- Paytm, G-Pay, Amazon Pay, Phone Pe etc. only give a platform for metal trading companies SafeGold and MMTC-PAMP. Once a person invests in digital gold, the mentioned trading companies purchase an equivalent amount of physical gold and thereby store it Trade procedure of digital gold: First, a person needs to visit any of the platforms which offer digital gold investments such as Paytm, HDFC Securities, G-Pay, Motilal Oswal, Amazon, Groww, Upstox etc. Once the said person is on their platform, he/she needs to do the below steps: I. II. III. IV. V. VI.
Entering an amount in INR or weight of gold in grams. Selecting the method of payment after completing the KYC process of that particular person; the person will have multiple payment options to choose from such as an account, card, or wallet after that. The gold storage in a secured vault of the gold selling company or a third party is happened instantly which can be accessed 24x7. Later on the gold can be sold digitally by the same person any time after the lock-in period (which varies from company to company) If the person chose to not sell his/her gold, he/she can request for a doorstep delivery of his/her gold in the form of coins or bullion or ornaments paying the requisite delivery fees and making charges (in case of ornaments) to the respective company. GST is levied at the rate of 3% on the total gold value during checkout of purchase.
Fig.1: Digital Gold Trading Process in India [Collated from- https://www.livemint.com/]
Some of the major benefits of investing in digital gold: A person can start investment in gold with an amount as low as INR 1 in addition to other Gold Savings Plans (GSPs). Digital Gold is genuine having the purity of 24 Karat 99.5% for SafeGold and 999.9 in case of MMTC PAMP purchases. It can also be utilized as collateral for the online loans. The purchased gold is stored with utmost safety which is also 100% insured. Gifting options are also available for near and dear-ones with different Customer Loyalty Programs One can take physical delivery of gold at his/her doorstep. Lastly, a person can exchange digital gold for physical jewelry or gold coins and bullion. A couple of disadvantages of investing in digital gold: Absence of an official government-run regulatory body such as SEBI or RBI for overall supervision as it deals with public money. Doorstep delivery and making charges are further levied to the gold prices. A threshold limit is set for trading of gold on most platforms. In some cases, the companies offer storage period with a specific limit, after which a person either have to take physical delivery or sell his/her gold. An illustration of Gold-shine during the current pandemic: Price on 1st January, 2020: INR 39,100 Price as of 14th August, 2021: INR 48,400 Returns: 23.79% (Approx.)
Gold as an asset class preserves the purchasing power against decreasing values of different national currencies. As a consequence, the demand for gold increases and thereby with that comes an increase in Gold prices. This vicious trap of increased debt burdens leading to a need for stimulus packages always make outcomes in a weakening purchasing power of the currency or inflation. Therefore we can again and again state that during uncertain times, gold absolutely shines! gold buying and selling parameters in India by 4 major players- Paytm, PC Jewellers (PCJ), Safe Gold and Phone Pe via the following table whose data are collected from the respective official websites of the above mentioned 4 companies:
Table: Comparison of four mentioned major players in digital gold buying and selling parameters in India
References: https://paytm.com/ https://www.phonepe.com/ https://www.safegold.com/ https://www.pcjeweller.com/ https://www.financialexpress.com/ https://www.livemint.com/
Can e-Rupi Revolutionize Digital Payments Ecosystem in India? By: Prajjwal Singh (Symbiosis International University (SIU), Pune)
Background The Indian government has been increasingly pushing towards digitization of payments as a way for promoting financial inclusion. On 2nd would serve as a cashless and contactless digital payment solution. He expressed that e-RUPI is going to play a monumental role in making Direct Benefit Transfer (DBT) more effective, and could -RUPI is designed by the National Payments Corporation of India (NPCI), and it has partnered with 11 banks for e-RUPI transactions. These banks are- Axis Bank, Bank of Baroda, Canara Bank, HDFC Bank, ICICI Bank, Indian Bank, IndusInd Bank, Kotak Mahindra Bank, Punjab National Bank, State Bank of India and Union Bank of India. e-RUPI, a broader picture than United Payments Interface (UPI) e-RUPI has been introduced to solve the inefficiencies in the DBT system, although it can be used for many other purposes. It fundamentally has the potential to solve the issues revolving around the DBT system in India. DBT is a system by which the government administers subsidies to the population living below the poverty line as an attempt to uplift them. Initially, this program had many loopholes which reduced the transparency of the system like- middlemen who could transfer the funds to ineligible population or to someone who does not even exist. Then, the government in 2014 launched the account. Although this has improved the transparency of the system, it has also introduced a new problem- majority of the eligible population have no access to banking facilities.
e-RUPI could theoretically solve this problem as it is a prepaid voucher-based system which does not require any b linked mobile phone number may be used to redeem the services as and when required. Essentially, it would ensure a transparent and leak-free usage of funds. Perhaps one could argue that the UPI is also an efficient system of funds transfer. But experts argue that e-RUPI could be much bigger than UPI. The table below compares both digital payment solutions. Bank account Digital applications Internet & smartphone
UPI Required, as the funds are transferred directly to bank account. Required. Apps like Paytm, PhonePe, etc., allow UPI interface. Required during every transaction.
e-RUPI Not required, as it is a prepaid voucher Not required since it is based on a SMS/QR code system. Not required, the service is offline and can be used via cell phones.
Control over usage of funds Not possible since the funds The issuer can ensure that the have to be transferred from funds are being used for allocated purposes by tracking voucher redemptions. Serving similar functionality as e-RUPI yet with a completely different purpose and nature are the Central Bank Digital Currencies (CBDCs), the idea of which was introduced by the Reserve Bank of India (RBI) in July 2021. Can e-RUPI become a pioneer for CBDCs? According to RBI, al form. It is the same as a fiat currency, and is exchangeable one-to-one with the fiat currency. Only its form is most cryptocurrencies, CBDCs are centralized i.e., controlled by a central entity. A former Economic Affairs Secretary has clarified that e-RUPI is not a digital currency and nor is it a substitute for money. It is similar to a digital gift card that replaces physical vouchers. e-RUPI is by nature different from CBDCs in the sense that CBDCs are digital currencies and aim to replace physical money. Nevertheless, they have a few commonalities as they both aim to give away with middle men and transfers happen directly between the intended parties. Hence, e-RUPI can lay the foundations for a CBDC as RBI is increasingly focussing on trying to make a viable plan for the introduction of a digital currency that will give it more control over the monetary policy due to the enhanced real time surveillance over currency circulation. Does India need CBDCs? The government of India has been making efforts to digitize payments and e-RUPI will serve as a predecessor in achieving this. However, with the introduction of e-RUPI, what role will a CBDC play? There are many potential benefits and risks of introducing CBDCs in the Indian economy, such as (1) faster transaction processing, (2) less costly transactions, (3) reduction in storing and transportation costs, (4) possibility of seigniorage and, (5) increased security and reduction of illegal activities due to improved traceability. Nonetheless, there are a few risks that the RBI needs to consider too. The most prominent ones are (1) possibility of bank runs, as people may start withdrawing their bank savings and switch to CBDCs, if they feel that they are safer than physical cash, (2) privacy issues due to increased surveillance over transactions and, (3) decreased money creation by banks, as in case of a bank run, they may not have sufficient cash reserves through which they can create more money by issuing loans. This will simply cause banks to lend less money on higher interest rates. According to RBI, the potential benefits outweigh the risks of CBDCs. It is optimistic about the adoption of CBDCs and will reveal its model by December 2021.
Over the last 5 years, the volume of digital payments has grown impressively at a compounded annual growth rate of 55%. A survey conducted by RBI on retail payment habits of individuals in 2019 reveals the areas where CBDCs could help in digitization of payments. By looking at figures 1 & 2 it can be interpreted that as the value of transactions increase, the preference for digital modes increases. But the preferred mode of payment is still cash for receiving money for regular expenses and for transactions under digital payments in the country is coupled with sustained interest in the usage of cash, predominantly for small value transactions. In cases where the preference for cash is due to an inconvenience of use of digital payment modes, CBDC is unlikely to help. But in cases where the cash is preferred for anonymity, for instance, such usage can be redirected towards CBDC, provided that anonymity is assured.
The success of e-RUPI will pave way for CBDCs. Another hotly debated topic is whether sometime in future the government will accept cryptocurrency as a mode of payment. Cryptocurrency is an encrypted form of digital currency and uses a decentralized system as opposed to CBDC that is centralized. When talking about cryptocurrencies however, one must note that neither the RBI, nor the government is in its favour due to its potential dubious usage and zone. government will surely not make a hasty decision about the legality of cryptocurrencies and is open to allowing a window for experimentation in the cryptocurrency and fintech space.
References: https://cbdcinsider.com/2021/08/11/is-indias-adoption-of-e-rupi-a-prelude-to-cbdc/ https://www.moneycontrol.com/news/business/explained-what-is-e-rupi-and-does-it-laythe-ground-for-rbis-digital-currency-7270201.html https://www.rbi.org.in/
https://www.financialexpress.com/money/is-there-a-future-for-cryptocurrency-in-india-alook-at-recent-discussions-in-parliament/2226036/ https://www.finextra.com/blogposting/20074/advantages-and-downsides-of-central-bankdigital-currencies https://www.livemint.com/opinion/online-views/the-merits-of-an-rbi-digital-currencyoutweigh-risks-11628788170792.html https://www.thehindu.com/ https://www.theweek.in/news/biz-tech/2021/07/26/rbi-digital-currency-plan-challengesrisks-and-benefits.html https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1743056 https://finshots.in/
Gender Parity is a growth engine for Global Economy By: Nirali Das (Delhi Public School, Hyderabad) There are persistent gender gaps in labour force participation and pay which comes at a significant economic cost. A more gender-equal labour force would have strong, positive GDP effective participation in the workforce and decent work for all are critical to inclusive and sustainable economic growth. Helping women fully participate in the economy not only promotes growth, but also it diversifies the economies, reduces income inequality, mitigates demographic shifts, and contributes to financial sector stability. While women account for half of the total population, they remain an underused resource, comprising less than a third of the actual workforce. As per a strategist at Korn women and men work together, studies show that they actually come up with better solutions, companies hired and promoted women at the same rate as countries like Norway, the economy can grow significantly, Helping the women fully participate in the economy is not only growth promoting, but it also diversifies the economies, reduces income inequality, mitigates demographic shifts, and contributes to financial sector stability. Government policies should be designed to ensure a level playing field for women, such as education, financial services, and technology are not only a matter of human rights, equity, and social justice, but relevant policy levers to boost economic growth benefiting the economy. Women are the gatekeepers in most families, controlling . Many of the microloan and microfinance programs that have become popular over the past decade have proven that women are good credit risks, and that they are more likely than men to funnel earnings back into their families and communities. A Macroeconomic Gains from Gender Equity report released by the the female labor force participation rate to country-specific male levels would, for instance, raise GDP in the United States by 5 percent, in Japan by 9 percent, in the United Arab Emirates by 12 percent, Effect of gender equality on GDP per capita Gender equality has strong, positive impacts on Gross Domestic Product (GDP) per capita which grow over time.By 2050, improving gender equality would lead to an increase in EU (GDP) per capita by 6.1 to 9.6%, which amounts to
Reducing the gender gap at work could add $28tn to the global economy by 2025, according to research by McKinsey Global Institute(MGI). Global GDP potential from closing the gender gap is shown in the below figure by McKinsey.
McKinsey research establishes that the connection between gender parity and economic development is globally relevant and there is a huge upside for every body to getting to gender parity. A new research from MGI now finds that India could add $770 billion to its GDP annually in 2025, or 18% above business-as-usual GDP by pursuing the goal of gender parity. MGI has calculated a gender parity score (GPS) for all Asia-Pacific countries which uses 15 indicators of gender equality in work and three in the society.
labour-force participation on Economy the labour market.
-force participation by 10 percentage points, adding 68 million women to the workforce. IMF has reported that reducing the barriers to women in workplace significantly boosts welfare and growth.
References: https://www.mckinsey.com/featured-insights/diversity-and-inclusion/seven-charts-that-showcovid-19s-impact-on-womens-employment# https://www.nbcnews.com/know-your-value/feature/how-gender-equality-growth-engine-globaleconomy-ncna963591 https://eige.europa.eu/gender-mainstreaming/policy-areas/economic-and-financialaffairs/economic-benefits-gender-equality https://voxeu.org/article/macroeconomic-benefits-gender-diversity Gender Inequality and Economic Growth: Evidence from Industry-Level Data https://www.elibrary.imf.org/view/journals/001/2020/119/article-A001-en.xml Gender equality can lift annual global GDP by 26%, says research by Financial Times https://www.ft.com/content/19e105ca-9a7c-11e5-be4f-0abd1978acaa
Ge https://timesofindia.indiatimes.com/business/india-business/gender-parity-to-boost-india gdp-by18-in-25/articleshow/64655536.cms
Tackling Climate Change: Sustainability and "Circular" Business Model is the New Black By: Attiso Bhowmick (University of Agricultural Sciences (UAS), Bangalore) Introduction It does not take a Shakespearean intellect to comprehend the necessity of the environment in the global economy and its potential as a perpetual engine for sustainable innovation and growth. As business operations that plague the environment, which indirectly would harm businesses themselves in the long run if left unchecked. The solution for this probable mishap is to reorganize the existing business practices at a macro-economic level. The end result would be a circular economy, which despite its name has a simple and linear definition: an economy where the predominant focus is on manufacturing and innovating products that can be reused, recycled or even regenerated once their natural end of useful life is reached. This concept fundamentally contrasts and challenges our current linear economy which hinges on the discard of used products and its subsequent replacement with the newer ones. While most companies continue to argue that they are already capturing most opportunities concerning recycling and regeneration, proponents of the circular economy place the counter argument that a regenerative resource production model will significantly reduce virgin resource dependence, increase employment and ultimately unleashing innovation in inherently profitable circular opportunities.
Key Components for Constructing a Circular Economy
The circular economy which stands in direct contrast of the linear economy relies on key components which serve as the foundation for building a circular economy. The concepts of circular economy with its semi-quantitative targets and abstract modulation owes its theoretical significance to these components for application. The circular economy is restorative by design. It recognizes the importance of collaborative efforts for all small and big business, globally and locally to be actualized as a concrete plan. The Ellen MacArthur Foundation recognizes three main principles of the circular economy designing out wastes and pollutants, reuse of products and materials and regeneration of natural systems. To define tangible components, an agency called Circular Economy analyzed the data from 20 different institutions ranging from government and corporate organizations to NGOs, academia and consultancies. From the vast plethora of research, they identified eight core components that directly relate to handling a circular economy. They include: prioritizing regenerative resources, stretching the lifetime of products, identifying wastes as a potential resource, restructuring of current business models, systemic partnership between corporates and the governments, innovative designing for sustainable manufacturing, diffusion of digital innovations and advancement of knowledge followed by capacity building to manage the new economy. Beyond Pen and Paper
Implementation of Circular Economy
Nevertheless, given that the circular economy emanates from the sustainable development targets, the implementation of circular economy has many thermodynamic drawbacks that economically constraints the costs of transforming a linear into circular economy, which infers that such loops shall only be supported when they are socially desirable and systematic. Regarding renewable resources, to meet the semi-quantitative target as mentioned in the SDGs, the extraction must be well-within the regenerative rates so as to stay well-within the net extraction rates as dictated by the Planetary Boundary Framework. In the aim of minimizing wastes, a process of human transformation needs to be assimilated into the economic system. Advanced circular economic practices and business models such as manufacturing, closed-loop supply chains require more efforts in skill-training, capacity building support and a multistakeholder partnership as indicated in SDG 17. Active business engagements with greener and sustainable, closed-loop supply chains are required. A crucial measure is to establish a synergistic relationship with SDG 4 (Quality Education) to scale-up and effectively replicate the circular economic practices in multifarious business environments. This can help to formulate a list of working blueprints and protocols for the business to follow-up with less leverage to risks. An analysis by Schroeder et al., (2018) shows that circular economy practices pertaining to
recycling of wastes will require additional efforts through skill training to prevent unfortunate trade-offs for human health and well-being. Refurbishments and repair business models which utilize disposed electronic and automobile products especially from the Western markets can help to reinforce the reuse aspect of the circular economy for the developing countries. In developing countries this already offers new employment opportunities, promotes low-cost connectivity and poverty reduction.
Developing Resilient Operations through a Circular Economy A positive aspect of the pandemic is that it has magnified the importance of a circular economy as a goldmine for innovative solutions. According to the UN Environment Programme report 2021 only about 15 % of small and medium enterprises (SMEs) can survive after 2 months of complete lockdown in any given region. This sector also employs 50 % of the total working population in the world and accounts for 99 % of the total companies in the world. The situation may appear beyond repair but this also calls for better effort to include SMEs for smarter innovations in terms of design, production, waste management and supply chain management. The develop resiliency of operations the dependency of economies on foreign imports must be reduced, even from an
environmental perspective, with an increasingly larger participation of local suppliers at a fraction of previous costs. This can help to achieve complete visibility of the entire supply chain, therefore guaranteeing better surveillance for sustainable practices. The International Resource Panel estimated that remanufacturing and refurbishment of consumer products can account to reductions in GHG emissions by 59 to 99 % depending on the sector. New material requirements can be reduced by 80-90 % in remanufacturing and up to 99 % in refurbishments. Repairs and direct reuse can negate the use of new inputs completely. By incorporation of these fundamentals, the operations can significantly lower its strategically key points in production to reduce waste generation altogether, thus developing a resilient and closed-loop business framework. An Example: Walmart GSCM Initiatives Walmart is an American multinational retailer company that is owned by the Walton family who ntries it is ranked as one of the most valuable companies in the world. The company undertook new measures in October 2005 to promote a circular economy for all its products. It aimed to power all its retail stores, warehouses with 100 % renewable energy, follow eco-friendly packaging, and reduce wastes in every level of its supply chain. It designed a sustainability index (SI) which takes into account the resources used, energy saved and energy wasted to make the product available to the consumer. This can help the customer involved to take rational decisions and analyze his/her individual contribution to ensure a more sustainable future. They were able to achieve 100 % visibility in terms of suppliers. This has helped them to prefer better suppliers who rely on more sustainable practices. They have served as an industry leader in cold chain logistics by introducing innovations like shipper boxes for perishables which included dry ice and cooling blankets for perishables for short and moderate distances without the use of refrigerated trucks, thus reducing the carbon footprint. It has reduced transportation costs by 25 % in Mexico. A study revealed that in 2011 their improved backhaul
practices have cut down almost 56000 trips and have also achieved about 69 % fleet efficiency, thus avoiding about 4878 tons of CO2 emissions.
Final Thoughts The complex novelty of the circular economy poses a myriad of practical challenges which require a collaborative effort between experts of different disciplines. A major challenge of the circular economy is the fact that it is generally more expensive to manufacture a long-lasting equivalent of a non-durable product. Theoretically the circular economy aims to internalize the costs of environmental damages into the production and supply chain expenses, which the linear economy is only partially successful at. Furthermore, circular economy also has a comprehensive approach when it comes to recycling and reusing materials. Finding cost-effective ways to internalize these environmental damages is another certain challenge for this novel concept. In terms of re-orienting the consumer behavior in favor of functionality, the efforts of circular economy depend on the education and awareness level of the masses. However, on an optimistic outlook, it is not fair to compartmentalize the challenges as drawbacks to the necessity for a circular economy. The sole reason behind the momentum behind a circular economy is because it has offered an angle of counterattack against the environmental problems. A life-cycle approach is therefore indispensable to essentially adopt and implement the circular economy in the future.
References: 1. Alonso-Muñoz, S., González-Sánchez, R., Siligardi, C., & García-Muiña, F. E. (2021). New Circular Networks in Resilient Supply Chains: An External Capital Perspective. Sustainability, 13(11), 6130. 2. Schroeder, P., Anggraeni, K., & Weber, U. (2019). The relevance of circular economy practices to the sustainable development goals. Journal of Industrial Ecology, 23(1), 7795. 3. Suárez-Eiroa, B., Fernández, E., Méndez-Martínez, G., & Soto-Oñate, D. (2019). Operational principles of circular economy for sustainable development: Linking theory and practice. Journal of cleaner production, 214, 952-961. 4. Fiksel, J., Sanjay, P., & Raman, K. (2021). Steps toward a resilient circular economy in India. Clean Technologies and Environmental Policy, 23(1), 203-218. 5. Sauvé, S., Bernard, S., & Sloan, P. (2016). Environmental sciences, sustainable development and circular economy: Alternative concepts for trans-disciplinary research. Environmental Development, 17, 48-56..
CBDC: The Future of Money By: Kuldeep Singh (Department of Commerce (DoC), Delhi School of Economics (DSE), New Delhi) The 3rd Bank of International Settlements (BIS) survey on Central Banks Digital Currencies published in the month of January this year has quite some revelatory findings i. With over 60 Central Banks across the world participating and representing about 91% of the global economic output. The vast majority about 86% has expressed their engagement with CBDCs be it at a level of conceptual research or practical experimentation. The Reserve Bank of India has also made clear their intentions of exploring the need to issue CBDC in India. But to understand the motivations of RBI behind this endeavor, we must first understand what a CBDC is, how it is different from cryptocurrencies, the motivations behind it and what it means for India. What is CBDC? How is it Different from Cryptocurrencies? To understand what a CBDC is we must first understand what a currency is. A currency is a form of money that is issued by a sovereign (or a central bank). It is a liability of the issuing bank and an asset for the holding public. Currency is fiat, legal tender and is generally issued in paper form. A Central Bank Digital Currency (CBDC) is a legal tender issued by the central bank in digital form. It is same as a fiat currency but its form is different. It is different from cryptocurrencies in the regards that cryptocurrencies are issu derive their value from the expectation that they will be valued and used by others. Why such an interest in CBDCs? Does India really need one? In the BIS survey banks were asked about their motivations for exploring CBDCs, and the motivations ranged from financial stability to payments safety ii. The results revealed the differences between the levels of motivations of AEs (Advanced Economies) and EMDEs (Emerging markets and Developing Economies). On Average EMDEs showed stronger motivation for issuing of CBDCs with financial inclusion and payment efficiency being the main motivators.
Now coming to the case of India, between December 2018 and January 2019 RBI conducted a survey to understand the retail payment habits of individuals, results of which are quite substantial.
The results indicate that cash still remains somewhat the preferred mode of payment (graph 2) although the survey has not accounted for the shift in the preferences. But graph 3 is quite interesting it shows that for small value transactions (<Rs. 500) cash is most predominantly used. So, we have a situation which calls for proliferation of Digital payment platforms and quite a strong preference for cash for small value transactions. These findings eventually lead us to discuss the potential benefits of issuing CBDC in India. for CBDCs as large extent of cash usage can be replaced by CBDCs and the cost of printing, transporting and distributing money can be saved. The advent of private virtual currencies (VC) can also work out in favor of the CBDCs, with the increasing preference for VCs, the currencies with limited convertibility would have hard time competing with them and developing your own CBDCs may even become a necessity. CBDC will be able to provide with users all the benefits of the VCs and at the same time retain public interest in the Rupee and will also be able to protect the users from the volatile movements of the VCs.
CBDCs make quite a case for itself at least for EMDEs like India, be it the benefits created in payment systems or be it safeguarding the interest of public and protecting them from the volatility of the VCs while also retaining interest in the national currency.
Banking system and CBDC CBDCs may reduce the transaction demands for banks deposits and since it also decreases settlement risk it may reduce the liquidity needed by banks for settlement of transactions It will have a very limited effect on Bank deposits since it is just like currency but in a digital form and does not pay interests. The reduced disintermediation of banks may have its own risks if the bank deposits reduce their credit creation capabilities may also get affected which may increase the cost of credit. So, the creation and implementation of CBDCs must be in a way to accommodate bank deposits also.
Risks associated with the CBDCs Not everything about CBDCs paints an optimistic picture there are certain risks associated with it too. CBDCs ecosystems are as much exposed to cyber-attacks as the digital payments platforms so a robust cyber security system is a prerequisite. In countries with limited financial literacy like India users would be at a higher risk of financial frauds. CBDC absorption is also contingent upon technology preparedness of a country, a robust and wide-reaching infrastructure of internet and telecommunication services is crucial for ensuring the wide reach of the technology to general public
Legal Framework around CBDC Although the CBDCs are conceptually no different than bank notes but the introduction of CBDC would require amendments to the Reserve Bank of India Act,1934 iv since the current provisions are made keeping in mind currency in paper form. Specifically, Section 24(Denomination of Notes), Section 25(Form of Bank Notes) and Section 26(Legal Tender Character of Notes) would require quite substantial amendments for the effective implementation of the CBDC in India. CBDCs has the potential to provide benefits such as efficient payment systems, financial inclusion and reduced settlement risks, having said so there are risks associated with it too and they must be evaluated against the potential benefits. References
Steps to improve the Indian agriculture through the Banking sector By: Hitesh Kishore (Great Lakes Institute of Management, Gurgaon)
Impetus for agricultural and animal husbandry to be brought into the formal sector: In my opinion the agriculture sector is the backbone of the Indian economy with it employing close to 51% of the total population. This means that a very significant proportion of the Indian population is reliant on the agricultural and associated sectors for their livelihood. This sector is also immune to any shocks from the global market and only helps us to increase our exports and reduce our credit deficit with countries like China. From all this it is very clear that for having any lasting and meaningful impact on the economy, the agricultural sector is the one where there must be the maximum reform. The main question now is how to bring in reforms to such a wide and extremely varied sector. It would be difficult to arrive at any broad solutions as there are multiple issues ranging from leakages in the MSP system, hoarding which can lead to price shocks, lack of proper cold storage mechanisms for perishables and several more. It is extremely wide and not one solution can be given. However, there are some broad-based solutions that can be adopted for lasting change. 1. Ensuring formal sector financial assistance to farmers: This means that in place of predatory loan sharks and very high interest rates the farmers must have access to the formal banking sector to avail farm loans at subsidised rates. Although they already exist, their penetration is extremely limited and is not availed by a large sector of the farming community. Even when they can avail the loans, they are not able to due to the fact that they require extensive paperwork. This means that it is not just necessary to make it available but also to ensure that they are utilized by them. The NABARD (National agricultural and rural development bank) can play a vital role here. The agency can be tasked by training banking officers to provide a separate and easier channel for the farmers to acquire low interest loans. This ensures credit availability for all. 2. Providing low-cost insurance for agriculture and allied sectors: This can be the most valuable step in encouraging farmers to actually continue with agriculture especially during uncertain times. This provides them with a safety net in case they have any problems and can encourage them to go in for more ambitious returns. This can also help shield them from climate-based disasters and ensure some returns for them. This could also be valuable for other allied sectors like fisheries and horticulture. The banking agencies like NABARD can work along with insurance providers like LIC to provide crop insurance, insurance for vehicles and even life insurance for the sectors. This can also encourage more youngsters to consider agriculture and allied to be a viable field for their livelihood and we can limit the increasing joblessness. 3. Giving preference for modern technologies and best practices: It is important to inefficient methods. This gives us very low productivity and poor yields even if the conditions are ideal. To avoid this, we can go in for modern technologies and begin
adopting new equipment which can give more output for the same inputs. This can be done by providing some financial assistance to farmers who are going in for new technologies. Also, the Ministry of Agriculture can scout the world for best practices like drip irrigation or hydroponics which can help conserve water. This is especially true in countries like Israel which have been able to maximise their productivity even in very arid conditions. The overall picture that we see is that for a country like India, there is a significant scope for improvement in the agriculture sector but this needs to come in from the banking sector and not the government. The government has already given a lot of subsidies and specialised schemes for the small and subsistence farmers and any more would be an enormous drain on the . This is especially important if we see this from the global perspective. This means that the burden of responsibility for supporting the filed falls on the hands of the free market and the banking sector. This is already the norm in various countries around the world. Case Study: Agriculture in the USA and China
United states of America: In the US, the agriculture sector is dominated by individuals and corporations that own large tracts of lands and they have enormous scale of production. The average size of a farmland in the US is 169 hectares while in India it is 1.08 hectares. They have highly mechanised production and the entire field of agriculture is highly automated. They that can sow, plough, irrigate and harvest all with minimal human oversight. This shows the most significant difference with India where we have highly fractured farmlands and hence, we cannot have large scale production as it is financially not viable.
Learnings from the US case There must be a greater free market approach to agriculture and the banking sector must be able to provide large loans to scale up production for farmers. The banks must change its lending criteria and encourage more innovative solutions like community farming in villages. China: China has even smaller land holding capacity than India but it has higher productivity than India. (0.6 hectares per farmland) This shows the various innovative solution that they have adopted to overcome this.
Since 1984 there has been a liberalisation attempt towards the agriculture sector that has given greater control to the free market to dictate prices that has enable them to remain competitive. Also there has been a new push towards organic farming that has given great dividends. Here the banking sector has enabled the widespread adoption of industrial farming, where the factory farms have seen a quadrupling of the total productivity from the 1950s. This is mainly due to large scale lending to commercial farming and adoption of global best practices. Learning from China: The banking sector must be enabled to lend freely for the adoption of industrial farming. Providing financial assistance for the newer and more modern agricultural practices like organic farming.
The big picture: We can note that there must be a robust link between the agriculture and banking sector. This is the norm in most developed countries and has enabled them to reap huge rewards for the economy. In India, where the significant majority of the population is still dependent on agriculture as a source of livelihood, it is vitally important that banking recognises this need and rises up to the challenge. This could be more valuable for the economy in the long run than investments in other sectors like manufacturing which employ much smaller proportion of the population. It is vitally important the we enable our primary sector to grow and account for up to 25% of our GDP by 2025.
Steps to improve the Indian agriculture through the Banking The Dilemma of Chinese Financial Markets By: Vidyuth Francis (Xavier School of Management (XLRI), Jamshedpur)
If an individual would have invested in Chinese stock market at the time of its inception, i.e 1992 and would have withheld his investment until today, i.e. 2021, We might be thinking that he might have gained massive profit but surprisingly he would have actually been in loss today. The same time time when Chinese economy grew 30 times, investor would have ended up making loss, showcasing a very important perspective that financial market does not always reflect true nature of economy. Well, the Chinese financial system just like everything else involving China have been convoluted and, on the surface, very counter intuitive. China had a mere per capita GDP of 194.80 USD in 1980 and as of 2019 they boast a per capita GDP of 10,261 USD, that translates into a robust 10.43% CAGR over a period of 40 years. As we are aware that financial markets are backbone of an economy, However, the disparity between the two in China is conspicuously visible from the low PE ratio of just around 15 for the SSE in 2019 and a PE ratio of just 15.12 as of 30th August 2021. For comparison the NSE 500 had a PE ratio of 28 in 2019 and 26.91 as of 30th August 2021 and India only had a 5.29% CAGR from 1980 to 2019.
There are many factors that contribute to the discounted valuation of the stocks listed on Chinese exchanges. The differentiating factor being that Chinese economy is a highly regulated and the stock exchange is totally controlled by the government. Generally, the primary objective of stock exchanges is to get maximum number of eligible companies listed and increase the trading volume. However, the Chinese communist government believes that stock exchanges act as a mean to benefit the general public, therefore stock exchanges remain highly controlled and various barriers are placed to prevent companies to get listed. A consequence of which is that majority of big corporation listed on the Chinese stock exchange are state run corporations. Government funded maximize their profit, thus do not serve as
lucrative investment avenues. Furthermore, Chinese government has introduced some very strict rules to stay aversive of foreign influence in Chinese market. The aforementioned conditions n stock exchange. But the Chinese firms have found a work around this issue through a process called a reverse merger. Reverse Mergers work is that a Chinese firm setup up a subsidiary in China and then they transfer assets from the parent company to the subsidiary. After this the subsidiary focuses on growing its business. The subsidiary company tries to showcase continuous growth and improvements in the top line and bottom line. After consistently keeping up for about four to five years the subsidiary starts looking for companies listed on the US exchange not performing well. They buy a significant or controlling stake in the listed company and force this US company to merge with their subsidiary keeping in mind the regulatory requirements of the SEC and stock exchange. Once the merger happens the parent company has access to the US stock exchange. However, the main reason why the Chinese stock markets has a cheaper valuation is because of the inherent risk and uncertainty surrounding the Chinese Communist Party. The CCP, being the only party in China and oblivious of election and public sentiments, has a long history of implementing whimsical policies which inadvertently make lives of investors difficult. Having said that such policies might bear fruit in long term but are scantily reassuring for investors on the
One of the most effective ways of valuing a company is the DCFM and as China showcases higher political risk the future cash projections will be discounted at a higher rate reducing the Present value of the listed firm. A recent example of these iron hand policies is the crackdown of Chinese government on tech companies. down on ed-tech companies can potentially reduce the market size from 100 billion dollars in 2020 to 24 billion dollars in 2024. CCP under Xi Jinping has effectively identified tech companies into two group manufacturing companies which operate in the telecom, battery, semiconductor etc. sector. The Alibaba, Didi, Tencent. Effectively this set includes companies that made it big due to a first mover ese companies some other Chinese company would have filled their shoes. The CCP firmly believes that these companies make more profit and adds less value to society due to their monopolistic practices. The recent crackdown on these tech companies has been to curb the power these companies command over the daily lives of Chinese people and encourage brighter minds of the country to focus on a career in High End tech. Although, this might be good for the country in the long run, investors faced the brunt by having approximately 10% loss in the short run in most of these consumer tech companies. Facing extensive regulation in equity markets, people in China ends up investing in real estate. Having said that, the housing market is very concentrated and has led to one of the most
challenging problems, i.e. Housing bubble for Chinese economy. A bubble-prone housing market has transpired into one of the most convoluted arenas within the array of economic issues faced by market has left dearth of lucrative options to invest. The situation has been further aggravated by the prevailing culture of buying homes and apartments before getting married. The two factors have convincingly been one of the major contributors in exponential growth for the real estate sector. But in turn created a house of cards waiting to fall. Policy makers have tried to limit the ballooning of the sector and create a sustainable growth for the sector but have failed in the goal. They have acted on the idea of limiting loans to property sector, to curb speculative activity, but the long-term applicability of this conspicuous risk of bubble by limiting lending in the real estate sector. The regulation is poised to reduce quantity of loans to both developer and buyers and comes without any expiration date. Though many economists depicted concern that such policies might slow down the growth of second largest economy in the world but reducing the exposure of economy to real estate seems to be more prudent currently to address the situation.
References https://youtu.be/Qsrt6Hultj8 https://youtu.be/DqczxG7mbHU https://youtu.be/3Os-e52MDY4 https://youtu.be/gLWOu0c0lHw https://www.ceicdata.com/en/indicator/china/pe-ratio https://thechinaguys.com/chinas-housing-market-a-tale-of-economic-progress-andcontinued-strife
National Monetisation Pipeline: An Attempt to Utilise Languishing Assets By: Yash Singh (St. Xavier's College (SXC), Kolkata)
On 23rd August 2021, Finance Minister Nirmala Sitharaman launched the National Monetisation Pipeline (NMP). Through the NMP, the government aims to lease out state-owned infrastructure assets over the next four years. It has been estimated to earn about 6 trillion rupees for the GOI over time, which will help it in funding its ambitious 1.5 trillion-dollar pipeline of new infrastructure. The policymakers are contemplating on parting with operating concessions, which helped it generate revenue from its assets, in exchange for either upfront payments or a revenue share. The NMP is looked to serve as a medium-term roadmap assisting in identifying potential monetisation-ready projects across different infrastructure sectors. It has been prepared after insights, feedback, and experiences integrated through multiple stakeholder consultations undertaken by the NITI Aayog, the finance ministry, and infrastructure line ministries. For now, it has included only the assets falling within infrastructure line ministries and central public sector enterprises (CPSEs) working in the infrastructure sector. Given that the infrastructure creation is inseparable from the monetisation policy, its timeframe of four years has been decided to adjoin the balance period under the National Infrastructure Pipeline (NIP). The government has stressed that these are brownfield assets that have the element of execution risk drawn out from them. The NMP can be executed through a bunch of instruments. There can be a direct contractual Public-Private Partnership (PPP), in which a private player can operate the asset in exchange for upfront payments to the government. Some monetisation models on a PPP basis are Operate Maintain Transfer (OMT), Toll Operate Transfer (TOT), which happens to be a variant of OMT, and Operations, Maintenance, & Development (OMD). OMT and TOT are used in the highways sector. OMD is deployed in the case of airports. Another instrument that can be used is Real Estate Investment Trusts (REITs). It is a pool of real estate in which individual investors can invest to gain a small fraction of returns generated from operating the assets present in the pool. It may also include Infrastructure Investment Trusts (InvITs) which functions like a mutual fund enabling direct investment of small amounts of money from possible individual investors. Requirement of NMP With the fiscal deficit already been stretched to its limits due to the misfortune brought by the pandemic, the government needs alternative ways to rejuvenate the economy and fund its public welfare schemes. The NMP will help to realise value from idle assets by temporarily leasing them out to private parties. The finance minister made it clear in her announcement that the Centre will not be transferring its assets permanently to private parties.
The primary ownership of assets under NMP will continue to be with the government and the funds from this will be used for the NIP. Private players will hand over the assets back to the government after the end of the said tenure for which these were given to them in the first place. Sectors and assets involved in NMP Over 66% of the total assets to be monetised will include roads, railways, and the power sector. The remaining sectors to be monetised include telecom, mining, aviation, ports, natural gas and petroleum product pipelines, warehouses, and stadiums. Some of the most prominent assets in the NMP list include 26,700 km of roads, railway stations, train operations, and tracks, 28,608 circuit-km worth of power transmission lines, 14,917 towers in the telecom sector, and 2.86 lakh km of fibre assets. Other assets in the energy sector include 6 GW of solar and hydroelectric power assets, 8,154 km of natural gas pipeline, and 3,930 km of petroleum pipeline. 15 railway stations, 25 airports and the stake of the Central government in the existing airports, 160 coal mining projects, and 31 projects in 9 major ports are some of the other infrastructures included. 210 lakh MT of warehousing assets, 2 national stadia, and 2 regional centres will be up for monetisation as well. The government is planning to roll out 15% of assets with an indicative value of Rs 0.88 lakh crore in the current financial year. In the roads sector, the government has already monetised 1,400 km of national highways worth Rs 17,000 crores and assets through a PowerGrid InvIT that has raised Rs 7,700 crore. Preparatory actions to be taken before undertaking asset monetisation The public sector needs to institutionalise a sustainable framework for asset monetisation that is effective and efficient. For the preparatory stage, they need to follow a structured process as follows: Step 1: Preparation of an asset monetisation and financing plan Step 2: Asset screening and packaging Step 3: Transaction preparation and structuring Step 4: Approval process While preparing the asset monetisation and financing plan, it is crucial to estimate the investment requirement. Once this is done, the financing gap should be taken into consideration, which is the difference between existing infrastructure expenditure and expenditure envisaged under the vision, following to which the public sector entity will be required to lay down a financing plan to meet the investment cost and fulfil the financing gap. The second step will require the public sector entity to identify the assets to be monetised to meet the requirement of the first step. Identifying the feasible assets for monetisation is a multi-
layered task that involves keeping all the stakeholders' interests while making the decision. Once the list of prioritised assets for monetisation is made, the third step starts with selecting one of the assets from the list and preparing for its transaction procedure. Before initiating the transaction process, it is crucial to undertake feasibility studies for monetisation. For the existing brownfield assets with limited capex requirements, the studies may prioritise financial assessment over risk assessment and mitigation. This framework can be useful in the case of REIT and InvIT models. If the transactions require substantial capex, detailed project preparation must be done to ensure feasibility. In the final step of approval, the public sector agency is required to submit the project proposal to the competent authority for sanction. It is a two-stage process with in-principle approval before the issue of Request for Quote (RFQ) and final recommendation of Public-Private Partnership Action Committee (PPPAC) for approval of competent authority before receipt of financial bids. Regulatory requirements Rigorous regulations and well-structured management contracts are the key requirements for the asset monetization plan to succeed. If not, we can expect local monopolies to exploit the assets. Timely arbitration and effective systems for contract management are a few of the things required along with speedy mediation in case of a dispute for this plan to progress. Although it is unclear whether the government has completed the necessary groundwork required to work out norms without harming consumers, it is important to implement such a scheme with assiduous planning rather than showing many rollouts that end up being incomplete. Sources: NITI Aayog: https://www.niti.gov.in/sites/default/files/202108/Vol_I_NATIONAL_MONETISATION_PIPELINE_23_Aug_2021.pdf Economic Times: https://economictimes.indiatimes.com/opinion/et-editorial/policyframework-key-for-capital-recycling/articleshow/85746162.cms Business Line: https://www.thehindubusinessline.com/opinion/columns/slate/all-youwanted-know-about/article36188192.ece Indian Express: https://indianexpress.com/article/explained/explained-what-is-thegovernments-plan-with-the-national-monetisation-pipleline-7468258/
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