30 July, 2021 - Daily Current Affairs Analysis & MCQs - The Daily News Simplified from The Hindu
- Factoring Regulation Bill (Indian Polity/ Economy)
- Controversy over Appointment of Delhi Police Commissioner (Polity & Governance)
- High fiscal borrowings wonât crowd out private sector (Economy)
- Topics for Revision
- Question for the Day
UPSC Current Affairs: Factoring Regulation Bill | Page 09
UPSC Syllabus: Mains – GS Paper III – Economy
Sub Theme: Factoring Regulation Bill| UPSC
The Factoring Regulation (Amendment) Bill, 2020 was introduced in Lok Sabha on September 14, 2020. The Bill seeks to amend the Factoring Regulation Act, 2011 to widen the scope of entities which can engage in factoring business.
Under the Factoring Regulation Act, 2011, factoring business is a business where an entity (referred as factor) acquires the receivables of another entity (referred as assignor) for an amount. Receivables is the total amount that is owed or yet to be paid by the customers (referred as the debtors) to the assignor for the use of any goods, services or facility. Factor can be a bank, a registered non-banking financial company or any company registered under the Companies Act.
Registration of factors: Under the Act, no company can engage in factoring business without registering with the Reserve Bank of India (RBI). For a non-banking financial company (NBFC) to engage in a factoring business, its: (i) financial assets in the factoring business, and (ii) income from the factoring business should both be more than 50% (of the gross assets/net income) or more than a threshold as notified by the RBI. The Bill removes this threshold for NBFCs to engage in factoring business.
RBI to make regulations: The Bill empowers RBI to make regulations for: (i) the manner of granting registration certificates to a factor, (ii) the manner of filing of transaction details with the Central Registry for transactions done through the TReDS, and (iii) any other matter as required.
UPSC Current Affairs: Controversy over Appointment of Delhi Police Commissioner| Page 07
UPSC Syllabus: Mains – GS Paper III– Economy
Sub Theme: Crowding out |Debt from market | UPSC
UPSC Current Affairs: High fiscal borrowings won’t crowd out private sector| Page 09
UPSC Syllabus: Mains – GS Paper II – Polity and Governance
Sub Theme: Policing reforms| UPSC
"Deviation from Fiscal Deficit targets is a necessary evil during the current economic scenario". Justify this statement with relevant arguments.
The FRBM Act, 2003 requires the Government to maintain FD target of 3% to ensure fiscal discipline. However, during exceptional times such as Covid-19, such reasonable targets can force the government to adopt pro-cyclical fiscal policy and hence prolong economic revival.
As seen below, reasonable restrictions on FD is extremely critical to promote higher Tax-GDP ratio, rationalization of expenditure, ensure inter-generational equity and fiscal discipline and hence higher GDP growth rate.
However, during abnormal times such as Covid-19, the Government needs to adopt counter cyclical fiscal policy and hence such restrictions on FD can hinder economic revival. Thus, even though, increase in Fiscal deficit can have long term adverse consequences, the current economic scenario requires us to deviate from FD targets on account of following reasons:
Unprecedented Times: Deviation of 0.5% in FD which is allowed under FRBM act is not sufficient. Unprecedented times call for unprecedented measures.
Sticking to FD Limit- Counter-Productive: Sticking to FD Limità Cutting down on Expenditure and Increasing the tax ratesà Pro-cyclical Fiscal Policy
Key to Economic Revival: Both Investment and Consumption expenditure affected and unlikely to increase due to economic uncertainty. Hence, need for increasing Government expenditure (GFCE).
Higher FD- Not a matter of Concern:
- Lower absolute debt
- Negative IRGD- Higher Debt Sustainability
- Long term maturity profile of India’s Debt
- Adequacy of forex Reserves
- Downgrade in Sovereign Credit Ratings--> Minimal impact on India’s GDP growth rate
Hence, as rightly pointed out by Economic Survey 2020-21, the Government need not be worried out higher FD to provide fiscal stimulus to deal with present economic scenario. However, at the same time, there is a need to ensure higher quality of Fiscal deficit by increasing the share of Capital expenditure and reducing share of revenue expenditure. Necessary amendments would have to be introduced in the FRBM Act, 2003.