RBI CONCEPT:CLASSIFICATION OF ECONOMIES#61

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  • There are numerous classifications to categorize economies based on their economic development. The most popular classification is the one designed by the World Bank where the economies are categorized into different income groups in terms of their per capita income. World Bank classification also helps us to understand the size and importance of the Indian economy compared to other economies while taking the criterion of per capita income.
  • World Bank classification is widely followed as an evaluation criterion for economic development. Continue reading “RBI CONCEPT:CLASSIFICATION OF ECONOMIES#61”

RBI CONCEPT:IMF QUOTA #60

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What is IMF’s Quota?

  • An important factor that helps the IMF’s functioning is the quota. This quota is basically money that a member country has to give to the IMF.
  • As per the norms, each member has to subscribe a quota of the IMF. It is out of this quota which is basically money, that the IMF gives loans to its members.
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RBI CONCEPT:WHAT IS THE GREENFIELD VERSUS BROWNFIELD FDI DEBATE?

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What is the Greenfield versus Brownfield FDI debate?

  • The classification between Greenfield FDI and Brownfield FDI has its origin in two types of investment- Greenfield investment and Brownfield investment.

Greenfield and Brownfield investments

  • Greenfield investment is investment in new plants. It is establishing new production capacity by an investor or company. On the other, Brownfield investment is an investor investing in an existing plant. Brownfield investment is mainly made through merger and acquisitions.

Greenfield and Brownfield FDI Continue reading “RBI CONCEPT:WHAT IS THE GREENFIELD VERSUS BROWNFIELD FDI DEBATE?”

RBI CONCEPT:DOMESTIC SUPPORT UNDER WTO’S AGREEMENT ON AGRICULTURE

What is domestic support under WTO’s Agreement on Agriculture?

Oracle IAS, the best coaching institute for RBI grade B/NABARD/SEBI in Dehradun (Uttarakhand), brings to you views on important issues.

  • The World Trade Organization’s basic objective is to promote international trade.
  • In the case of agricultural goods also, it stipulates rules and regulations for conducting as well as promoting international trade in agriculture goods. These rules and regulations are contained in the Agreement on Agriculture (AoA). The AoA contains the policies to be adopted by member countries while promoting agricultural trade.
  • For this, the AoA has three important clauses:
  • Market Access
  • Domestic Support and
  • Export Subsidy
  • The market access clause instructs the level of tariff or import duty that members can impose on imports. Obviously, the AoA’s attempt is to limit tariff as low as possible.
  • The second clause, domestic support is the most important of the three. It generally contains regulations regarding the provision of domestic support or subsidy by member countries to their farmers.
  •  The third clause of Export subsidy or export competition restricts member countries to give subsides for the promotion of agricultural exports.

Domestic Support

  •  Domestic supports are subsidies given by member countries to promote their agricultural sector. On the contrary, export subsidy is to promote exports.
  •  Different types of subsidies are given by governments to the farmers–including input subsidies, subsidies for R&D, subsidies for food security etc.
  • The AoA classifies domestic support into trade distorting (reducible) and non-distorting (which are non reducible) categories. For trade distorting type of subsidies, the WTO sets limit beyond which members can’t give subsidies.
  •  The AoA classifies domestic subsidies into different types; under various boxes by assigning certain colours– Green Box, Blue Box and AMS (Amber Box). This colour classification is based upon their effects on trade.
  • The colour of the boxes is as in traffic lights: green (permitted), amber (slow down — i.e. be reduced) and a red box (prohibited); which symbolically indicates whether they have to be continued or not.
  • The AoA signed at Uruguay has no red box.
  •  The amber box is directly linked to production and prices and hence is considered to be trade distorting.
  • Blue box is production limiting programs that may not distort trade.
  • The green box doesn’t distort trade or may cause only minimum distortion.
  • Out of these domestic support measures, WTO agreement requires reduction (non exempt/not permissible/reducible) only in AMS (amber box), whereas, support under all other heads is exempted (permissible).
  • Besides these, three, there is a De minimis support and a Special and differential treatment box. The de minimis indicates the level trade distorting domestic support that can be given by a country within prescribed limit. For developing countries including India, the de minimis support is 10 per cent of the agricultural GDP.

 

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RBI CONCEPT:WHAT IS A SHELL COMPANY?

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  • Shell Company is a corporate entity without active business operations or significant assets. They are often created to avoid taxes and many big companies create shell corporations to avoid taxes without attracting legal actions.
  • It can’t be asserted that shell corporations are illegal. They are deliberate financial arrangements to avoid taxes.  But many shell companies park black money, carryout illegal transactions and sometimes act as facilitators of money laundering.  Continue reading “RBI CONCEPT:WHAT IS A SHELL COMPANY?”

RBI CONCEPT:SHADOW BANKING#56

Oracle IAS, the best coaching institute for RBI grade B/NABARD/SEBI in Dehradun (Uttarakhand), brings to you views on important issues.

What is shadow banking?

  • Shadow banking is that part of the financial system where ‘credit intermediation involving entities and activities remains outside the regular banking system’.
  • The term “shadow bank” was coined by economist Paul McCulley in 2007.  After the financial crisis, central banks including the US, UK and EU have introduced many strong measures to control shadow banking. A global institution called Financial Stability Board is coordinating and designing these measures at the request of the G20.

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RBI CONCEPT:WHAT IS LIQUIDITY ADJUSTMENT FACILITY; HOW IT WORKS?#55

Oracle IAS, the best coaching institute for RBI grade B/NABARD/SEBI in Dehradun (Uttarakhand), brings to you views on important issues.

What is Liquidity Adjustment Facility?

  • Liquidity Adjustment Facility is the mechanism by the RBI for managing the liquidity needs of the commercial banking system. The LAF is an important instrument of monetary policy.

Components of LAF

RBI CONCEPT:WHAT IS CAPITAL ACCOUNT CONVERTIBILITY?#54

Oracle IAS, the best coaching institute for RBI grade B/NABARD/SEBI in Dehradun (Uttarakhand), brings to you views on important issues.

  • Current account convertibility means freedom to convert domestic currency into foreign currency and vice versa to execute trade in goods and invisibles.
  • On the other hand, capital account convertibility implies freedom of currency conversion related to capital inflows and outflows.
  • Compared to current account convertibility, capital account convertibility is a complex issue because of the peculiar feature of capital account transactions.

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RBI CONCEPT:DIRECT INCOME SUPPORT SCHEME (PM-KISAN)#53

Oracle IAS, the best coaching institute for RBI grade B/NABARD/SEBI in Dehradun (Uttarakhand), brings to you views on important issues.

  • In agriculture, there are two major types of government support measures. The first one is price support measure and the second one income support measures.
  • Price support means the government is procuring the agricultural produce from farmers at a remunerative price. India’s Minimum Support Price based procurement is a classic example.

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RBI CONCEPT: CESS vs SURCHARGE

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  • A cess imposed by the central government is a tax on tax, levied by the government for a specific purpose. Generally, cess is expected to be levied till the time the government gets enough money for that purpose.
  • For example, a cess for financing primary education – the education cess (which is imposed on all central government taxes) is to be spent only for financing primary education (SSA) and not for any other purposes.

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