Financial Inclusion

Financial inclusion or inclusive financing is the delivery of financial Services at affordable costs to sections of disadvantaged and low-income segments of Society, in contrast to financial exclusion where those services are not available or affordable.

Government of India has launched an innovative scheme of Jan Dhan Yojna for Financial Inclusion to provide the financial services to millions out of the regulated Banking sector.

Various program’s for financial inclusion are:-

• Swabhimaan Scheme:under the Swabhimaan campaign, the Banks were advised to provide appropriate banking facilities to habitations having a Population in excess of 2000 (as per 2001 census) by March 2012.
• Extention of  the banking networkin unbanked areas,
• Expansion of Business Correspondent Agent (BCA)Network
• Direct Benefit Transfer(DBT) and Direct Benefit Transfer for LPG (DBTL)
• RuPay, a new card payment scheme has been conceived by NPCI to offer a domestic, open-loop, multilateral card payment system which will allow all Indian banks and financial Institutions in India to participate in electronic payments.
• Pradhan Mantri Jan-Dhan Yojana (PMJDY)was formally launched on 28th August, 2014. The Yojana envisages universal access to banking facilities with at least one basic banking account for every household, financial Literacy, access to credit, insurance and pension. The beneficiaries would get a RuPay Debit Card having inbuilt accident insurance cover of Rs.1.00 lakh. In addition there is a life insurance cover of Rs.30000/- to those people who opened their bank accounts for the first time between 15.08.2014 to 26.01.2015 and meet other eligibility conditions of the Yojana.

Inflation in India

<use fundaes from your MAP> this question is very likely to be asked given the present inflationary trend.

Monetary Policy of India

Topics

1. MP background
2. Evolution of monetary policy in India: Different phases
3. Transmission Mechanism
4. Goals of MP
5. Instruments of MP
6. Determinants of MP
7. Role of RBI: Pre and post-reforms
8. MP: pre and post reforms
9. Committees on Monetary Management in India
10. MP and Money-market/”>Money Market
11. MP and Fiscal Policy
12. MP and the external sector
13. MP and the banking sector
14. MP and Economic Growth
15. MP and Inflation
16. Financial Stability: New Challenge
17. Challenges before monetary policy
18. Criticisms of India’s MP

Some background information

• An important factor that determines the effectiveness of MP is its transmission – a process through which changes in the policy achieve the objectives of controlling inflation and achieving growth
• MP transmission mechanism describes how MP action affects output and inflation, the final objectives of MP
• Various MP transmission channels
  • Quantum Channel relating to Money Supply and credit
  • Interest Rate Channel –this has become important in the post reform period
  • Exchange Rate Channel
  • Asset Price Channel
• How these channels function in an economy depends on its stage of development and its underlying financial structure.
• These channels, however, are not mutually exclusive. There could be considerable feedback and interaction among them.

Evolution of MP

• 1935: Proportional Reserve System
• 1954: Minimum Reserve System
• 1973-76: Minimum and maximum lending rates for bank loans prescribed
• 1985: Flexible monetary targeting with feedback
• 1998: Multiple indicator approach adopted

Divide MP into phases and study

Functions of RBI

• Monetary functions
  • Conduct of monetary policy
  • Bank of issue
  • Banker to the government
  • Banker’s Bank and Lender of the Last Resort
  • Controller of credit
  • Custodian of Foreign Exchange reserves
  • Foreign exchange management – current and Capital Account management
  • Oversight of the payment and settlement systems
• Non-monetary functions
  • Regulation and supervision of the banking and non-banking financial institutions, including credit information companies
  • Regulation of money, forex and Government Securities markets as also certain financial Derivatives
  • Promotional functions: promotion of IFCI, SFC etc
  • Developmental role
  • Research and statistics

Objective of MP

• To catalyse economic growth: by ensuring adequate flow of credit to productive sectors
• Price stability
• After the financial crisis, achieving Financial Stability has emerged as an important objective. Exchange rate management can be yet another objective

Tools of MP

• General Credit Control (Quantitative Control)
  • Bank Rate
  • Open Market Operations
  • Cash Reserve Ratio
• Specific and direct credit control (Qualitative Control)
  • Lending margins
  • Purpose specific credit ceiling
  • Discriminatory interest rates
  • Eg: Credit Authorisation Scheme, Credit Monitoring Arrangement.

MP pre-reforms

• MP in India was conducted under the monetary targeting framework till 1997-98 with M3 as an intermediate target. This amounted to regulating money supply consistent with the expected growth in real income and a projected level of inflation.
• During the monetary targeting phase (1985-1998), while M₃ growth provided the nominal anchor, reserve money was used as the operating target and   cash reserve ratio (CRR) was used as the principal operating instrument.  Besides CRR, in the pre-reform period prior to 1991, given the command and control nature of the economy, the Reserve Bank had to resort to direct instruments like interest rate regulations and selective credit control. These instruments were used intermittently to neutralize the expansionary impact of large fiscal deficits which were partly monetised. The administered interest rate regime kept the yield rate of the government securities artificially low. The demand for them was created through periodic hikes in the Statutory Liquidity Ratio (SLR) for banks. The task before the Reserve Bank was, therefore, to develop the Financial Markets to prepare the ground for indirect operations.

MP post-reform

• In the wake of the financial reforms, questions were raised about the appropriateness of this framework.
• Working Group on Money Supply (1998)
  • Highlighted that the interest rate channel of transmission mechanism was gaining importance
• On the recommendation of this working group, RBI shifted over to a multiple-indicator approach from 1998-9
• Multiple Indicator Approach: Interest rates or rates of return in different markets (money, capital and g-sec), along with such data as on currency, credit extended by banks and financial institutions, fiscal position, trade, capital flows, inflation rate, exchange rate, refinancing and transactions in foreign exchange available on high-frequency basis, are juxtaposed with output data for drawing policy perspectives.
• LAF: Another important feature post reform is the increased use of LAF. It has enabled RBI to modulate short-term liquidity under varied financial market conditions, including large capital inflows from abroad.
• CRR: Reduced
• 1992-93: market borrowing programme of the government was put through the auction process
• SLR was brought down to its statutory minimum of 25 pc by Oct 1997 and 24 pc in 2010
• CRR was brought down from 15 pc of NDTL of banks to 9.5 pc in Nov 1997 which has stabilised at 6 pc for a long time. Not bound by its statutory limit (lower) of 3 pc now.
• Narsimhan Committee (1998) recommended reforms in the money market
  • RBI introduced LAF in 2000 to manage market liquidity on a daily basis and also to transmit interest rate signals to the market. In the post-reform period, LAF, with OMO, has emerged as the dominant instrument of MP, though CRR continued to be used as an additional instrument of policy.
  • Call Money market was transformed into a pure inter-bank market by 2005.
  • With the introduction of prudential limits on borrowing and lending by banks in the call money market, the collateralized money market segments developed rapidly
• To absorb the capital inflows in excess of the absorptive capacity of the economy MSS was introduced in 2004. Interestingly, in the face of reversal of capital flows during the recent crisis, unwinding of the sterilised liquidity under the MSS helped to ease liquidity conditions.
• Increased Micro-finance: To strengthen rural finance RBI has focused on SHGs.
• Fiscal Monetary Separation: Automatic monetization of deficit faced out since 1994. Thus it has separated the monetary policy from the fiscal policy.
• Changed interest rate structure: Phased deregulation of lending rates in the credit market. Minimum lending rates had been abolished and lending rates above Rs. 2 lakh were freed. In 2010, the Base Rate mechanism was adopted. Savings rate was deregulated in 2011
• Higher market orientation for banking: the banking sector got more autonomy and operational flexibility.

Challenges in the post-reform period

• A major challenge is the conduct of monetary policy in surplus liquidity conditions.
• Increased capital inflows
  • To deal with this, RBI initiated the Market Stabilization Scheme (MSS) in 2004
  • Under the scheme RBI issues Treasury Bills and dated government securities. The money generated from sale of these bills is kept in a different account held by the government and maintained and operated by RBI. This money is not available for government’s expenditure. Thus, liquidity in the market is mopped.
  • The operationalisation of the MSS to absorb liquidity of more enduring nature has considerably reduced the burden of sterilization on the LAF window.
• Financial stability is an emerging concern
• The ongoing modernisation of the payments system with the introduction of RTGS would have a significant impact on MP.
• The transmission of policy signals to banks’ lending rates has been rather slow. <base rate system introduced to correct this?>
• Central bank independence

Criticisms/Limitations

• In case of high Fiscal Deficit, monetary expansion has continued to happen
• Limited coverage: The MP covers only commercial banking system and leaves out the non-bank institutions. This limits the effectiveness of MP
• Unorganised money market: Its pretty large and does not come under the control of the RBI. Hence, MP does not affect them.
• Predominance of cash transcation (?): <check out the current situation> In India, still there is huge dominance of cash in total money supply. It is one of the main obstables in the effective implementation of MP. Because MP operates on the bank credit rather than cash.
• Increase volatility: As MP has adoptged changes in accordance to the changes in the external sector as well, it could lead to a high amount of volatility.

Evaluation of the changes in MP and Money Market

• In response to the reforms, over the years the turnover in various market segments increased significantly
• The reforms have also led to improvement in liquidity management operations by the RBI as is evident from the stability in call money rates, which also helped improve integration of various money market segments and thereby effective transmission of policy signals
• The rule based fiscal policy pursued under the FRBM Act, by easing fiscal dominance, contributed to overall improvement in monetary management.
• With the changing framework of monetary policy in India from monetary targeting to an augmented multiple indictors approach, the operating targets and processes have also undergone a change. There has been a shift from quantitative intermediate targets to interest rates, as the development of financial markets enabled transmission of policy signals through the interest rate channel. At the same time, availability of multiple instruments such as CRR, OMO including LAF and MSS has provided necessary flexibility to monetary operations. While monetary policy formulation is a technical process, it has become more consultative and participative with the involvement of market participant, academics and experts. The internal process has also been re-engineered with more technical analysis and market orientation. In order to enhance transparency in Communication the focus has been on dissemination of information and analysis to the public through the Governor’s monetary policy statements and also through regular sharing of policy research and macroeconomic and financial information.
• The availability of multiple instruments and their flexible use in the implementation of monetary policy have enabled the RBI to successfully influence the liquidity and interest rate conditions in the economy.

Changes in MP

Money Market

• RBI operationalises its monetary policy through its operations in government securities, foreign exchange and money markets
• 1985: Money Market reforms begin
• 1992: Introduction of auction system for government securities
• 1996: Primary Dealer System initiated
• 2002: Electronic trading and guaranteed settlement through CCIL for G-Sec starts
• 2006: RBI expressly empowered to regulate money, forex, G-sec and gold related securities markets

Role of RBI

The term Sustainable growth became prominent after the World Conservation Strategy Presented in 1980 by the International Union for the Conservation of Nature and Natural Resources. Brundland Report(1987) define Sustainable Development as the a process which seek to meet the needs and aspirations of the present generation without compromising the ability of the future generation to meet their own demands.

Natural Resources are limited and thus sustainable development promotes their judicious use and put emphasis on conservation and protection of Environment.Global Warming and Climate change has brought the issue of Sustainable development in prominence.

Inclusive Growth is economic growth that creates opportunity for all segments of the population and distributes the dividends of increased prosperity, both in monetary and non-monetary terms, fairly across society.Indian Plans after the independence were based on the downward infiltration theory, which failed to bring equitable growth to all the sections of the Indian Society.

Approach paper of 11th five year plan talked about “Inclusive and more faster growth” through bridging divides by including those in growth process who were excluded. Divide between above and Below POVERTY Line, between those with productive jobs and those who are unemployed or grossly unemployed is at alarming stage.

Liberalization-2/”>Liberalization and Privatization after 1990’s have brought the nation out of the hindu growth rate syndrome but the share of growth has not been equitably distributed amongst different sections of Indian Society.

Various dimensions of Inclusive growth are:-

1. economic
2. social
3. financial
4. environmental

Important issues that are needed to be addressed to achieve the inclusive growth are:-

1. Poverty
2. Unemployment
3. Rural Infrastructure-2/”>INFRASTRUCTURE
4. Financial Inclusion
5. Balanced regional development
6. Equality/”>Gender Equality
7. Human resource development (Health, Education, Skill development)
8. Basic Human Resources like sanitation, drinking water, housing etc.

Government has launched several programs and policies for Inclusive growth such as:-

1. MNREGA
2. Jan Dhan Yojna
3. Atal Pension Yojna
4. Skill India Mission
5. Deen Dayal Upadhyaya Gram Jyoti Yojana
6. Pradhan Mantri Suraksha Bima Yojana
7. Pradhan Mantri Jeevan Jyoti Bima Yojana
8. Sukanya Samridhi Yojana
9. Pradhan Mantri  Garib Kalyan Yojana
10. Jan Aushadhi Yojana (JAY)
11. Nai Manzil Scheme for minority students
12. The Pradhan Mantri Awas Yojana (PMAY) or Housing for all by 2022

Food Security & Public Distribution System(PDS)

WHO Defines Food security to exists when all people, at all times, have physical, social and economic access to sufficient, safe and nutritious food which meets their dietary needs and food preferences for an active and healthy life.
Food security has three interlinked contents such as :-

1. Availability of food,
2. Access to food and
3. absorption of food.

Food security is a multidimensional concept covering even the  micro level household food security,energy intakes and indicators of Malnutrition.

Major components of food security are:-

1. Production and Procurement
2. Storage
3. Distribution

Indian Agriculture is rightly called as a gamble with Monsoon, variability in food production and rising population creates food insecurity in the nation and worst effected are the downtrodden section of the society.

While India has seen impressive economic growth in recent years, the country still struggles with widespread poverty and hunger. India’s poor population amounts to more than 300 million people, with almost 30 percent of India’s rural population living in poverty. The good news is, poverty has been on the decline in recent years. According to official government of India estimates, poverty declined from 37.2% in 2004-05 to 29.8% in 2009-10.

Need for Self-Sufficiency:

India suffered two very severe droughts in 1965 and 1966. Food Aid to India was restricted to a monthly basis by USA under the P.L. 480 programme.  The Green Revolution made a significant change in the scene. India achieved self-sufficiency in food grains by the year 1976 through the implementation of the seed- water-fertilizer policy adopted by the Government of India.

Food grain production increased four-fold during 1950-51 and 2001-2002 from 51 million tons to 212 million tones. The country is no longer exposed to real famines. But the regional variation in the success of Green Revolution which was chiefly limited to northern- Western states has lead to the divide in the nation. Evergreen revoloution and Bringing green revolution to eastern India is the need of the hour.

Green revolution was focused on wheat and rice and thus the production of pulses was stagnant.

National Food Security Mission comprising rice, wheat and pulses to increase the production of rice by 10 million tons, wheat by 8 million tons and pulses by 2 million tons by the end of the Eleventh Plan (2011-12). The Mission is being continued during 12th Five Year Plan with new targets of additional production of food grains of 25 million tons of food grains comprising of 10 million tons rice, 8 million tons of wheat, 4 million tons of pulses and 3 million tons of coarse Cereals by the end of 12th Five Year Plan.
The National Food Security Mission (NFSM) during the 12th Five Year Plan will have five components

(i) NFSM- Rice;

(ii) NFSM-Wheat;

(iii) NFSM-Pulses,

(iv) NFSM-Coarse cereals and

(v) NFSM-Commercial Crops.

Government through Public Distribution System has tried to counter the problem of food insecurity by providing the food grains through fair price shops.

The central Government through Food Corporation of India has assumed the responsibilities of  procurement,storage,transfer and bulk allocation of food grains to state governments.

The public distribution system (PDS) has played an important role in attaining higher levels of the household food security and completely eliminating the threats of famines from the face of the country, it will be in the fitness of things that its evolution, working and efficacy are examined in some details.

PDS was initiated as a deliberate social policy of the government with the objectives of:

1. i) Providing foodgrains and other essential items to vulnerable sections of the society at resonable (subsidised) prices;
2. ii) to have a moderating influence on the open market prices of cereals, the distribution of which constitutes a fairly big share of the total marketable surplus; and

iii) to attempt socialisation in the matter of distribution of essential commodities.

The focus of the Targeted Public Distribution System (TPDS) is on “poor in all areas” and TPDS involves issue of     35 Kg of food grains per family per month for the population Below Poverty Line (BPL) at specially subsidized prices. The TPDS requires the states to Formulate and implement :-

1. foolproof arrangements for identification of poor,
2. Effective delivery of food grains to Fair Price Shops (FPSs)
3. Its distribution in a transparent and accountable manner at the FPS level.

Establishment of Various Financial Institutions

Depository Receipt

A depositary receipt (DR) is a type of negotiable (transferable) financial security that is traded on a local stock exchange but represents a security, usually in the form of Equity, that is issued by a foreign publicly listed company. The DR, which is a physical certificate, allows investors to hold Shares in equity of other countries. One of the most common types of DRs is the American depositary receipt (ADR), which has been offering companies, investors and traders global Investment opportunities since the 1920s.

Global Depository Receipt

A bank certificate issued in more than one country for shares in a foreign company. The shares are held by a foreign branch of an international bank. The shares trade as domestic shares, but are offered for sale globally through the various bank branches.

Global Depository Receipts facilitate trade of shares, and are commonly used to invest in companies from developing or emerging markets.

American Depositary Receipt

An American Depositary Receipt (abbreviated ADR) represents ownership in the shares of a non-U.S. company that trades in U.S. financial markets. The stock of many non-US companies trade on US Stock Exchanges through the use of ADRs. ADRs enable U.S. investors to buy shares in foreign companies without the hazards or inconveniences of cross-border & cross-currency transactions. ADRs carry prices in US dollars, pay dividends in US dollars, and can be traded like the shares of US-based companies.

Each ADR is issued by a U.S. depositary bank and can represent a fraction of a share, a single share, or multiple shares of the foreign stock.

Commercial Paper

An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories and meeting short-term liabilities. Maturities on commercial paper rarely range any longer than 270 days. The debt is usually issued at a DISCOUNT, reflecting prevailing market interest rates.

Qualified Institutional Placement – QIP

A designation of a securities issue given by the Securities and Exchange Board of India (SEBI) that allows an Indian-listed company to raise capital from its domestic markets without the need to submit any pre-issue filings to market regulators. The SEBI instituted the guidelines for this relatively new Indian financing avenue on May 8, 2006.

Minimum Alternate Tax (MAT)

The Indian Income tax Act contains large number of exemptions from total income. Besides exemptions, there are several deductions permitted from gross total income. Further, depreciation allowable under the Income Tax Act is not the same as required under the Companies Act. The result of such exemptions, deductions, and other incentives under the Income tax Act in the form of liberal rates of depreciation is the emergence of Zero tax companies which inspite of having high book profit are able to reduce their taxable income to nil.

The system of minimum alternate tax has accordingly been introduced under which a company is required to pay a minimum tax of 7 % of the book profit in case the tax on the total income computed under the normal provisions of law works out to less than this amount [Sec 115JB].

Negotiated Dealing System

Negotiated Dealing System (NDS) is an electronic platform for facilitating dealing in Government Securities and Money Market Instruments.

NDS facilitates electronic submission of bids/application by members for primary issuance of Government Securities by RBI through auction and floatation. NDS also provides interface to Securities Settlement System (SSS) of Public Debt Office, RBI, thereby facilitating settlement of transactions in Government Securities including treasury bills, both outright and repos.

National Spot Exchange

Estd. 2008

HQ: Mumbai

It is a private commodity exchange in India that is a joint venture of Financial Technologies (India) Ltd. (FTIL), Multi Commodity Exchange (MCX) and National Agricultural Cooperative Marketing Federation of India Limited (NAFED).

Basel III

India is a member of the Basel Committee on Banking Supervision. It has actively engaged in the development of the Basel III accord. Proposals entail:

Require banks to hold more and better quality capital

Require banks to carry more liquid assets

This would limit their leverage and mandate them to build up capital buffers in good times that can be drawn down in periods of Stress.

Teaser Loans

Loans – usually house loans – that have low, customer friendly and fixed interest rate for initial some time and high interest rate set on a floating rate basis thereafter.

The problem with such loans is that there is a greater risk of default as the interest rate increases.

National Payments Corporation of India

Incorporated in 2008. To consolidate and integrate the multiple systems with varying service levels into nation-wide uniform and standard business process for all retail payment systems. Promoted by 10 banks.

Multidimensional Poverty Index

Developed by Oxford Poverty and Human Development Initiative supported by UNDP

It was featured in HDR-2010 and replaces Human Poverty Index (HPI) which had been included in HDR since 1997

Was created using a technique developed by Sabina Alkire and James Foster

The Alkire-Foster method measures outcomes at the individual level (person or household) against multiple criteria (dimensions and indicators)

The method is flexible and can be used with different dimensions and indicators to create measures specific to different societies and situations

The method can show the incidence, intensity and depth of poverty, as well as inequality among the poor, depending on the type of data available to create the measure

<details in the file in the economy section>

de-mutualised, online exchange dealing in numerous commodities

Indian Commodity Exchange (ICEX) –

Others are:

Bharat Diamond Bourse – (Diamond Exchange) – Mumbai

International Pepper Exchange – 1997 – Kochi

These are regulated by the Forward Market Commission setup in 1953

Credit Default Swaps

It is a form of insurance against debt default. When an investor buys corporate (or govt) Bonds he/she faces the risks of default on part of the issuing agent. The investor can insure its investment in such bonds against default through a third party. The investor pays a premium to the party providing insurance. In the event of default by the bond issuer, the insurer would step and pay the investor. A CDS is just that insurance, which is bought by those who fear default and sold by those who believe it wont.

Seigniorage

When the cost of production of a note or coin is less than its face value, seigniorage is said to exist. In some cases, especially for low denomination coins, negative seigniorage can exist. This will mean that the cost of producing the coin is more than its face value.

Takeout Finance

Takeout finance is essentially a mechanism designed to enable banks/lenders to avoid asset liability mismatch that may arise out of extending long tenor loans to infrastructure projects. Under this arrangement, banks that extend credit facility to infrastructure projects enter into an arrangement with a financial institution for transferring the loan outstanding in the banks’ books to the books of the financial institution who take out the loan.

Subsequent to the announcement in the Union Budget of 2010-11, the government entrusted India Infrastructure Finance Company Ltd (IIFCL) with the task of introducing the Takeout Finance Schemes (TFS)

The scheme enhances the availability of long tenor debt finance for infrastructure projects, enables availability of cheaper cost of finance available for the borrower, addresses sectoral/group/single party exposure issues of banks etc. three institutions IIFCL, LIC and IDFC signed MoU to provide takeout finance for infrastructure projects.

Impact of Liberalisation

The leading economists of the country differ in their opinion about the socioeconomic and ecological consequences of the policy of liberalisation.Liberalization has led to several positive and negative effects on Indian economy and society. Some of the consequences of liberalisation have been briefly described here:

1. Increase in the Direct Foreign Investment:The policy of liberalisation has resulted in a tremendous increase in the direct foreign investment in the industrial and infrastructural sector (roads and electricity).
2. Enhancement in the Growth of GDP:There is a significant growth in the Gross Domestic Product (GDP). Prior to the liberalisation, the growth rate of GDP was around 4 per cent which rose to around 10 per cent in 2006-07.
3. Reduction in Industrial Recession: The Industrial Sector of India was passing through a period of recession prior to the policy of liberalisation. The foreign and private investment has checked the recession trend. This happened because of the massive investment in modernisation, expansion, and setting up of many new projects. Industries like automobiles, auto-components, coal-mining, consumer electronics, chemicals, food-processing, Metal, petrochemicals, Software, sport-goods, and textiles have undergone a growth rate of about 25 per cent. In addition to these, other industries, like crude-oil, construction, fertilisers, and power generation have shown an increase of about 15 per cent.
4. Employment:The heavy investments in industries and infrastructure by the Indian and foreign investors have generated great employment opportunities for the professionals, and skilled and unskilled workers.
5. Development of Infrastructure: Prior to the liberalisation, the infrastructure (roads and electricity) were in a bad shape affecting the industrial growth and Economic Development of the country adversely. Heavy investment in infrastructure has improved the efficiency of the industrial sector significantly.
6. Rise in Export:There is a phenomenal increase in export after liberalisation. Simultaneously India is importing raw materials, machinery, and finished products. Despite heavy imports, there has been a tangible improvement in the Balance of Payment.

7-Increase in Regional Disparities:The policy of liberalisation and New Industrial Policy (1991) could not reduce the regional inequalities in economic development. In fact, investments by the Indians and foreign investors have been made in the states of Andhra Pradesh, Gujarat, Haryana, Karnataka, Maharashtra, Rajasthan, Tamil Nadu, and West Bengal. The states like Bihar, Himachal Pradesh, Jammu and Kashmir, Kerala, Meghalaya, Mizoram, Nagaland, Orissa, Tripura, Uttar Pradesh, and Uttarakhand are lagging behind. This has accentuated the regional imbalance and has lead to north south devide. The maximum investment so far has been done in Maharashtra, Gujarat, Andhra Pradesh, West Bengal, and Tamil Nadu. This uneven industrial development has resulted into many socioeconomic and political problems. The Naxal Movement, ULFA, and political turmoil in Jammu and Kashmir may be partly explained as being caused due to the less industrial and economic development of the regions.
8. Damage to Cottage and Small Scale Industries:Liberalisation in a country like India has adversely affected the traditional cottage and small scale industries which are unable to compete with the large-scale industries established by the multinationals. The cottage and small scale industries need protection in the form of subsidies, technology, technical access, funds, and network to export their products, Indian traditional workers such as silk workers of bihar are threatened by the imported synthetic silk.

9.Sophisticated Technology: The latest technology, being sophisticated, replaces labour and thus results in unemployment. This may be counter productive and detrimental to our industrial structure.

10. Comparatively Little Direct Investment: The foreign investors are more inclined to portfolio investment rather than direct investment. The former may be withdrawn at will at the slightest of hurdles giving a jolt to the economy of the country  and it may create instability to Indian economy.

    11. Investment in Selected Industries: Most of the foreign investment comes to white-goods and not to wage-good sector. Hence, it may be fruitful in improving the high priority sector and bringing in the latest technology. This will be counter productive. India is blessed with demographic dividend and the selective investment has failed to harness it.

    12. Economic and Political Freedoms are at Stake: The over-enthusiasm of liberalisation to attract more investors and foreign exchange might lead to gradual handling over of the whole economy to the multinationals. This will affect adversely our economic and political freedom.

11. Inflation:Since the new industrial policy and liberalisations, the rate of inflation is continuously increasing. A section of the society is becoming more rich and adopting the lifestyle of consumerism. As opposed to this, the absolute number below the poverty line is also increasing. The gulf between the rich and the poor may be the cause of numerous social problems resulting in social tension.

Impacts of Privatization

Privatization in generic terms refers to the process of transfer of ownership, can be of both permanent or long term lease in nature, of a once upon a time state-owned or public owned property to individuals or groups that intend to utilize it for private benefits and run the entity with the aim of profit maximization.
ADVANTAGES OF PRIVATIZATION
Privatization indeed is beneficial for the growth and sustainability of the state-owned enterprises.
• State owned enterprises usually are outdone by the private enterprises competitively. When compared the latter show better results in terms of revenues and efficiency and productivity. Hence, privatization can provide the necessary impetus to the underperforming PSUs .
• Privatization brings about radical structural changes providing momentum in the competitive sectors .
• Privatization leads to adoption of the global best practices along with management and motivation of the best human talent to foster sustainable competitive advantage and improvised management of resources.
• Privatization has a positive impact on the financial health of the sector which was previously state dominated by way of reducing the deficits and debts .
• The net transfer to the State owned Enterprises is lowered through privatization .
• Helps in escalating the performance benchmarks of the Industry in general .
• Can initially have an undesirable impact on the employees but gradually in the long term, shall prove beneficial for the growth and prosperity of the employees .
• Privatized enterprises provide better and prompt services to the customers and help in improving the overall infrastructure of the country.

DISADVANTAGES OF PRIVATIZATION
Privatization in spite of the numerous benefits it provides to the state owned enterprises, there is the other side to it as well. Here are the prominent disadvantages of privatization:
• Private sector focuses more on profit maximization and less on social objectives unlike public sector that initiates socially viable adjustments in case of emergencies and criticalities .
• There is lack of transparency in private sector and stakeholders do not get the complete information about the functionality of the enterprise .
• Privatization has provided the unnecessary support to the Corruption and illegitimate ways of accomplishments of licenses and business deals
ADVANTAGES AND DISADVANTAGES OF PRIVATISATION IN INDIA

• Privatization loses the mission with which the enterprise was established and profit maximization agenda encourages malpractices like production of lower quality products, elevating the hidden indirect costs, price escalation etc..
  • Privatization results in high employee turnover and a lot of investment is required to train the lesser-qualified staff and even making the existing manpower of PSU abreast with the latest business practices .
  • There can be a conflict of interest amongst stakeholders and the management of the buyer private company and initial resistance to change can hamper the performance of the enterprise .
  • Privatization escalates price inflation in general as privatized enterprises do not enjoy government subsidies after the deal and the burden of this inflation effects common man

Impacts of Globalisation:-

Definition of Globalization/”>Globalization-3/”>Globalization :- Its a process(not an outcome) characterized by increasing global Interconnections by gradual removal of barriers to trade and investment between nation and higher economic efficiency through competitiveness.

Various economic, political, social and cultural effects of globalization are as follows:-

Economic:-

• Breaking down of national economic barriers
• International spread of Trade, Financial and productive activities
• Growing power of transnational cooperation and International financial Institutions(WTO, IMF)Through the process of:-

1- Liberalization- relaxation of restrictions, reduction in role of state in economic activities,decline in role of govt in key industries, social and infrastructural sector.

2- Privatization- Public offering of shares and private sale of shares, entry of private sector in public sector and sale of govt enterprises.

3- FDI

4- International regulatory bodies(WTO,IMF)

5- MNC’s

6- Infrastructural development

7- Expansion of Information and communication technology and birth of information age.

8- Outsourcing of services- ie BPO and Call Centres.

9- Trade related Intellectual Property Rights(TRIPS)- product based patent rather than process based.

Social effects:-

• Withdrawal of National govt from social sectors ie declining share of govt in public spending, reducing social benefits for worker(social dumping,pension cuts,subsidies reduction)
• Labor  reforms and deteriorating Labor welfare:-
  • Labour Market deregulation:-
    • Minimum wage fixing
    • Employment security
    • Modifying tax regulation
    • Relaxed standards of security
  • Increased Mechanization demands skilled labour and thus loss of job for unskilled labour
  • Loss of jobs for traditional workers for example bihar silk workers due to imported Chinese- Korean silk
• Feminism of Labour ie increased Women participation specially in soft industries
• Trickle down theory of poverty reduction has limited success and in agricultural nations poverty has infect increased.
• Unsustainable development practices such as:- excessive use of Fertilizers, Irrigation, fish trawling by mnc’s(Protein flight ),Exploitation of natural resources by MNC’s.
• Migration and Urbanization have lead to problem of slums
• Commercialization of indigenous knowledge:- patenting
• Rising inequality in wealth concentration

Cultural:-

• Increased pace of cultural penetration
• Globalization of culture
• Development of hybrid culture
• Resurgence of cultural nationalism ie shivsena opposing valentine day

Political:-

• Globalization of National Policies- Influenced by International agencies
• Reducing economic role of govt
• Political lobbying

Positive effects of Globalization

• Increased competition
• Employment generation
• Investment and capital flow
• Foreign Trade
• Spread of technical know how
• Spread of education
• Legal and ethical effects
• Improved status of women in the society
• Urbanization
• Agriculture:- greater efficiency,productivity, use of HYV seeds, Future contracts and Cooperative Farming
• Higher standard of living

Financial Stablity

Reasons for financial instability

• Increased non-official capital flows across countries through banks and international capital markets.
• Hasty and non-strategic liberalisation
• Deregulation of financial sector
• Opening up of the capital account in many countries

Intiatives by RBI

• Had set up the Committee on Financial Sector Assessment in 2009
• Will setup a dedicated interdisciplinary Financial Stability Unit with the remit to assess the health of the financial system with a focus on identify and analysing potential risks to systemic stability and carrying out stress tests on an ongoing basis
• Financial Stability Reports are being released

Financial Stability Report

• Three FSRs released till June 2011
• First was released in March 2010
• As per the three FSRs released so far, there is no serious threat to the Indian financial system
• FSR 2011
  • states that the Indian financial system remains stable in the face of some fragilities being observed in the global macro-financial environment.
  • Banking sector continues to be stable
  • Banking stability indicator confirms the overall improvement in the stability of banking sector
  • Toxity index/vulnerability index: the Probability of a bank causing distress to another bank or being affected by the distress of another bank

FS in India

• The relatively crisis free environment in the Indian financial system can be attributed to the strength of state home grown policies pursued with caution and prudence.
• In the late 1990s, FS was incorporated as a specific objective of the RBI’s policy after the Asian Financial crisis.
• Present weaknesses in the financial system
  • Greater access of domestic corporate to ECBs has resulted in increased currency mismatches
  • Increased reliance on market borrowings could adversely affect the liquidity position of banks
  • There remains gaps in the regulatory framework for NBFCs

 ,

Financial inclusion is the provision of access to financial services and products in a fair and affordable way to all segments of society, including the poor, women, and small businesses. It is a key component of economic development and poverty reduction, as it helps people to save, invest, and manage their money more effectively.

There are many benefits to financial inclusion. It can help people to:

• Save for emergencies and future goals
• Invest in their businesses and education
• Protect themselves from financial shocks
• Access credit to finance their needs
• Manage their money more effectively

Financial inclusion can also help to:

• Reduce poverty and inequality
• Promote economic growth
• Increase financial stability
• Support financial innovation

There are a number of challenges to financial inclusion. One challenge is that many people do not have access to formal financial institutions. This can be due to a number of factors, such as distance, cost, or lack of documentation. Another challenge is that many people lack the financial literacy skills they need to use financial services effectively.

There are a number of initiatives that are working to promote financial inclusion. These include:

• Expanding the reach of formal financial institutions
• Providing financial education and literacy training
• Developing innovative financial products and services
• Reducing the cost of financial services
• Addressing the needs of underserved populations

Financial inclusion is a complex issue, but it is one that is essential to economic development and poverty reduction. By working together, we can make financial services more accessible and affordable to everyone, regardless of their income or background.

Here are some specific examples of how financial inclusion can benefit individuals and communities:

• A woman in a rural village can save money for her children’s education by using a mobile money account.
• A small business owner can get a loan to expand their business by using a microfinance institution.
• A farmer can insure their crops against drought or pests by using a weather index insurance policy.
• A migrant worker can send money home to their family using a remittance service.

Financial inclusion can also have a positive impact on the economy as a whole. By increasing access to financial services, it can help to boost economic growth, reduce poverty, and promote financial stability.

There are a number of ways to measure financial inclusion. One common measure is the Percentage of adults with an account at a formal financial institution. Another measure is the percentage of adults who use a formal financial service in the past month.

Financial inclusion is a complex issue, but it is one that is essential to economic development and poverty reduction. By working together, we can make financial services more accessible and affordable to everyone, regardless of their income or background.

What is financial inclusion?

Financial inclusion is the process of ensuring that everyone has access to affordable, reliable, and convenient financial services. This includes access to basic banking products and services, such as checking and savings accounts, as well as credit, insurance, and investment products.

Why is financial inclusion important?

Financial inclusion is important because it helps people to improve their lives. When people have access to financial services, they are better able to save money, manage their finances, and build assets. This can lead to improved health, education, and employment opportunities.

What are the benefits of financial inclusion?

There are many benefits to financial inclusion, including:

• Increased economic growth: Financial inclusion can help to boost economic growth by increasing the number of people who are able to participate in the formal economy.
• Reduced poverty: Financial inclusion can help to reduce poverty by providing people with the tools they need to save money, manage their finances, and build assets.
• Improved financial stability: Financial inclusion can help to improve financial stability by reducing the number of people who are vulnerable to financial shocks.
• Increased financial literacy: Financial inclusion can help to increase financial literacy by providing people with access to financial education and resources.

What are the challenges of financial inclusion?

There are a number of challenges to financial inclusion, including:

• Lack of access to financial services: Many people around the world do not have access to basic financial services, such as checking and savings accounts.
• High costs of financial services: The cost of financial services can be a barrier to financial inclusion, especially for low-income people.
• Lack of financial education: Many people do not have the knowledge and skills they need to manage their finances effectively.
• Discrimination: Some people may be discriminated against when they try to access financial services.

What are some of the ways to promote financial inclusion?

There are a number of ways to promote financial inclusion, including:

• Expanding access to financial services: Governments and financial institutions can work to expand access to financial services, especially for low-income people.
• Reducing the costs of financial services: Governments and financial institutions can work to reduce the costs of financial services, making them more affordable for low-income people.
• Promoting financial education: Governments and financial institutions can promote financial education, helping people to understand and manage their finances effectively.
• Addressing discrimination: Governments and financial institutions can address discrimination in the financial sector, ensuring that everyone has equal access to financial services.

What are some of the success stories of financial inclusion?

There are a number of success stories of financial inclusion, including:

• The Bolsa Família program in Brazil: The Bolsa Família program is a conditional cash transfer program that provides cash payments to poor families on the condition that they keep their children in school and get regular health checkups. The program has been successful in reducing poverty and inequality in Brazil.
• The Self-Employed Women’s Association (SEWA) in India: SEWA is a trade union that represents over 1.7 million self-employed women in India. SEWA provides its members with a range of financial services, including loans, savings accounts, and insurance. The organization has been successful in helping its members to improve their livelihoods.
• The M-PESA mobile money service in Kenya: M-PESA is a mobile money service that allows people to send and receive money using their mobile phones. The service has been successful in increasing financial inclusion in Kenya, with over 25 million people using the service.

What are some of the challenges that remain in achieving financial inclusion?

Despite the progress that has been made, there are still a number of challenges that remain in achieving financial inclusion. These challenges include:

• The high cost of financial services: The cost of financial services can be a barrier to financial inclusion, especially for low-income people.
• Lack of financial education: Many people do not have the knowledge and skills they need to manage their finances effectively.
• Discrimination: Some people may be discriminated against when they try to access financial services.

What are the future prospects for financial inclusion?

The future prospects for financial inclusion are positive. The global financial system is becoming more inclusive, and there is a growing recognition of the importance of financial inclusion for economic development. However, there are still a number of challenges that need to be addressed in order to achieve universal financial inclusion.

1. Which of the following is not a goal of financial inclusion?
   (A) To increase access to financial services for all
   (B) To reduce poverty and inequality
   (C) To promote economic growth
   (D) To increase the use of cashless payments

2. Which of the following is not a barrier to financial inclusion?
   (A) Lack of access to financial institutions
   (B) High costs of financial services
   (C) Lack of financial literacy
   (D) Lack of trust in financial institutions

3. Which of the following is a government program that aims to increase financial inclusion?
   (A) The Pradhan Mantri Jan Dhan Yojana (PMJDY)
   (B) The Aadhaar-Enabled Payment System (AePS)
   (C) The National Rural Livelihood Mission (NRLM)
   (D) All of the above

4. Which of the following is a non-government organization that works to promote financial inclusion?
   (A) The Bill & Melinda Gates Foundation
   (B) The World Bank
   (C) The United Nations Capital Development Fund (UNCDF)
   (D) All of the above

5. Which of the following is a microfinance institution?
   (A) A bank that offers loans to low-income borrowers
   (B) A non-profit organization that offers loans to low-income borrowers
   (C) A credit union that offers loans to low-income borrowers
   (D) All of the above

6. Which of the following is a mobile money service?
   (A) A service that allows users to send and receive money using their mobile phones
   (B) A service that allows users to pay for goods and services using their mobile phones
   (C) A service that allows users to access financial services using their mobile phones
   (D) All of the above

7. Which of the following is a digital financial service?
   (A) A service that allows users to access financial services online
   (B) A service that allows users to access financial services using their mobile phones
   (C) A service that allows users to send and receive money using their mobile phones
   (D) All of the above

8. Which of the following is a benefit of financial inclusion?
   (A) It can help to reduce poverty and inequality
   (B) It can promote economic growth
   (C) It can increase financial stability
   (D) All of the above

9. Which of the following is a challenge of financial inclusion?
   (A) It can be difficult to reach the unbanked and underbanked
   (B) It can be difficult to provide affordable financial services to low-income households
   (C) It can be difficult to build trust in financial institutions among low-income households
   (D) All of the above

10. Which of the following is a policy that can promote financial inclusion?
    (A) Expanding access to financial institutions
    (B) Reducing the costs of financial services
    (C) Promoting financial literacy
    (D) All of the above