EXCHANGE RATE AND INTERNATIONAL ORGANISATION (WORLD BANK, IMF, WTO, etc.)

# Technical Barrier to Trade (TBT):

• Under this, the import of non-food items can be restricted.

# Special Safeguard Mechanism [SSM]:

• If agricultural imports increase excessively in a country, causing loss to domestic farmers, then such agricultural imports can be restricted.

• In WTO's Nairobi Conference, it was given theoretical recognition but it was not implemented.

# Most Favoured Nation (MFN):

• Under this principle, WTO members can give MFN status to other countries.

• If any trade facility is given to one MFN status holding country, then that trade facility is automatically available to other MFN status holding countries.

• In 1996, India gave MFN status to Pakistan. Although Pakistan has not given this status to India yet.

• Regional Trade Agreements are exceptions to this principle.

6 Regional Trade Agreements have been recognized in WTO.

1. Preferential Trade Agreement (PTA)
2.  Free Trade Agreement (FTA) -> in Goods
3. Comprehensive Economic Partnership Agreement (CEPA)
4. Custom Union
5. Common Market
6. Economic Union

(i) PTA - Countries between whom this agreement is done give preference in import duty compared to other countries.

(ii) FTA - Import duty is made zero in the sector of goods.

• Negative/Sensitive list - Goods kept in this list are not included in FTA.

• Rule of Origin - Under this, the benefit of FTA will be given only to those goods whose at least 35% part is produced in the FTA partner country.

  • If this rule is extremely strict, it is called a non-tariff barrier.

(iii) CEPA - Free trade is implemented in the sector of goods and services.

(iv) Custom Union - Uniform custom policies are adopted by member countries.

(v) Common Market - Free flow of goods, services, investment and human resources takes place                                                                                        between member countries.

(vi) Economic Union - Uniform monetary policies are adopted.

# Bali Ministerial Conference (2013):

• Trade Facilitation Agreement (TFA) was done in this conference whose main objective was simplification of custom rules and strengthening custom infrastructure.

• Custom rules are a type of non-tariff barrier.

• India agreed to sign this.

• In Bali conference, India's National Food Security Program was also challenged.

• Under this program, food security is provided to 67% of India's population and cheap grain is made available.

• This grain is made available through Public Distribution System (PDS).

• For this, the government purchases at Minimum Support Price (MSP).

• Minimum Support Price is Amber Box subsidy.

• Due to this program, the limit of Amber Box in Agreement on Agriculture is violated.

• India's reply was that -

  • "Providing food security to citizens is the responsibility of developing countries. This program is not to distort the market, so Agreement on Agriculture should be amended."

• India was given an exemption of 4 years from WTO, this is called Peace Clause.

• In 2014, NDA government was formed which refused to sign TFA and demanded to solve the food security matter first.

• This matter is also called Public Stockholding Issue.

• In 2014, an agreement was reached between USA and India in which it was agreed to extend the Peace Clause until the food security matter is resolved.

• In Nairobi Conference, Peace Clause was extended.

# Buenos Aires Conference (Dec 2017):

• This conference has failed, reasons for which are as follows -

1. Developing countries wanted a solution to the food security matter but developed countries did not agree to this.

2. Developed countries wanted to discuss some new issues like -> E-commerce, Investment Facilitation, Fisheries Subsidy. While developing countries wanted a solution to Doha Round issues before discussing new issues.

3. Developed countries alleged that the benefit of facilities available to developing countries is being received by large economies like India and China, this should be stopped.

                                           

                                                  NON - PERFORMING ASSET [NPA]:

• If the interest or principal of any loan is not paid for 90 days, then such loans are called NPA (Non-Performing Assets).

• 12 months after becoming NPA, the asset is called Sub-standard Asset.

• 12 months after this, the asset is called Doubtful Asset.

• 12 months after this, the asset is called Loss (Asset).

• At present, NPA is continuously increasing in the Indian banking sector.

• NPA of public sector banks is higher compared to private sector banks.

• For agricultural loans, if the principal or interest is not paid for two crop cycles for short-term crops and one crop cycle for long-term crops, then such loans are called NPA.

Effects of NPA -

1. This can increase the loss of banks.

2. Lending capacity of banks will decrease.

3. In some circumstances, banks can also become bankrupt.

4. Recession can come in the economy.

5. Investment is affected.

6. People's trust in the banking sector will decrease, which can affect the work of financial inclusion.

Reasons -

1. From year 2000-10, there was rapid economic growth in India. In this period, loans were given by banks on easy terms.
2. In 2007-08, economic recession came in the world due to which many companies went into loss.
3. Price war started between companies due to which many companies closed down.
4.  Economy also suffered due to judicial activism and environmental activism. * e.g. Cancellation of 2G licenses by Supreme Court and ban on mining of iron ore.
5. Government interference remained high in public sector banks due to which loans were given even to high-risk companies.
6. Scams were done in the banking sector by some people. * e.g. Nirav Modi.
7. Assessment of NPA was deliberately kept low by banks. 
8. Loans were not repaid by some people despite having capacity. Such people are called Willful Defaulters.

Efforts made to solve the problem of NPA -

• 4R solution was given in Economic Survey to solve the problem -

  1. Recognition (मान्यता)

  2. Resolution (समाधान)

  3. Recapitalization (पुनः पूँजीकरण)

  4. Reform (सुधार)

(1) Recognition -

(i) Special Mention Account (SMA) - Framework -

• Under this, loans were divided into three categories - 

(a) SMA - 0 - Those loans where payment has not been done for 1-30 days. 
(b) SMA - 1 - Those loans where payment has not been done for 31-60 days. 
(c) SMA - 2 - Those loans where payment has not been done for 61-90 days.

• It is mandatory to give information/report of all SMA loans to RBI.

(ii) Asset Quality Review -

• Under this, quality of assets was tested by independent agencies so that the problem of NPA can be assessed correctly.

(iii) Prompt Corrective Action (PCA) -

• Under this, direct action is taken by RBI against such banks whose NPA is high.                                                                                              e.g. Lending activities of Dena Bank were restricted.

• Under this, branch expansion can also be stopped.

• Recruitments can be stopped.

• Recently such action was taken against 11 government banks.

(iv) Willful Defaulters were identified.

(v) Fugitive Economic Offenders Act -

• Under this, action is taken against such economic offenders who have committed economic offence of more than 100 crores and have fled the country.

• Criminal case is registered against offenders.

• Special courts will be constituted to hear the case.

• Offender's assets can also be confiscated.

(2) Resolution -

• This is done in two ways -

(i) Restructuring - (पुनःगठन)

• Earlier schemes like SDR, S4A, 5/25 were run by RBI. Currently, all these schemes have been closed.

• In Feb 2018, a Resolution Framework was issued by RBI.

• Under this, for loans of more than 100 crores, the bank will have to make a resolution plan in which loan tenure can be increased, interest rate can be reduced and loan can be converted into equity.

• There should be agreement of an independent agency on this resolution plan.

• If loan is more than 500 crores, then agreement of two independent agencies will have to be taken.

• If loan is more than 2000 crores, then resolution plan should be implemented in 6 months.

• If loan is less than 2000 crores, then resolution plan should be implemented in two years.

• If resolution plan is not successful, then action will be taken under Insolvency and Bankruptcy Code.

(ii) Recovery (वसूली) -

(a) In 1993, Debt Recovery Tribunals (DRT) were established.

• These are special courts for loan recovery.

• 29 such DRTs were established.

(b) In 2002, SARFAESI Act (Securitisation and Reconstruction of Financial Asset and Enforcement of                             Security Interest Act) was implemented.

• Under this law, bank can securitize financial assets and loan can be sold to Asset Reconstruction Company (ARC).

• ARC are specialized agencies for loan recovery.

• Buys loan at low price.

• Mortgaged assets can be auctioned after 60 days notice.

(c) IBC (Insolvency and Bankruptcy Code) -

• If NPA is done by any company or individual, then action is taken against that company or individual under this law.

• For company, appeal is first made in National Company Law Tribunal (NCLT) and for individual, appeal is made in DRT.

• This appeal can be made by lender, owner of the company or employees also.

• If any company or individual is declared bankrupt, then Insolvency Professional (IP) is appointed.

• IP makes a Resolution Plan for which the time limit is 180 days, in some specific cases it can be taken 270 days also (Maximum).

• Under Resolution Plan, company can be acquired, merged, management can be changed and it can be auctioned.

• Resolution Plan is kept before Committee of Creditors.

• If it receives two-thirds votes, then this Plan is implemented otherwise auction process is started.

• IP, belongs to IP Agency.

• These agencies are controlled at all India level by Insolvency and Bankruptcy Board of India (IBBI) whose first Chairman M.S. Sahoo was appointed.

• Information Utility is constituted to keep all types of financial information at one place.

• First IU, National e-governance Services Pvt. Ltd. has been made.

• That company by whom NPA has been done or ineligible director is not included in this process.

• Recovery of 4-5 lakh crores has been done.

(3) Recapitalisation -

• Recapitalisation will increase the capacity of banks.

• Announcement of recapitalisation of 70000 crores was made.

• Recently announcement of recapitalisation of 2.11 lakh crores has been made.

  • In this 18000 crore rupees will come from budgetary support.

  • Bonds of 1.35 lakh crore will be issued.

  • Shares of 58000 crore will be sold.

• Recently a dispute occurred between RBI and government on the issue of recapitalisation.

• Government wanted to obtain additional reserve from RBI.

• For this matter, a technical committee was constituted under the leadership of Bimal Jalan on this issue.

(4) Reform -

• Indradhanush scheme was started by the government for reform in banks in which these 7 works are done -A - Appointment                                                                                                                                                                                                                                    B - Bank Board Bureau                                                                                                                                                                                                                               C - Capitalization                                                                                                                                                                                                                                             D - De-stressing                                                                                                                                                                                                                                               E - Empowerment                                                                                                                                                                                                                                           F - Framework for accountability                                                                                                                                                                                                  G - Governance