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1. MOODY’S DOWNGRADES INDIA’S RATING. 2. MINIMUM SUPPORT PRICES (MSPs) FOR KHARIF CROPS. 3. CABINET COMMITTEE OKAYS ₹50,000 cr. INFUSION FOR MSMEs. 4. SOCIAL STOCK EXCHANGE (SSE).
CATEGORIES Daily Current Affairs Daily News Articles/Editorials february 2020 January 2020
MOODY’S DOWNGRADES INDIA’S RATING
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CONTEXT
Rating agency Moody’s downgraded India’s foreign currency and local currency long term issuer ratings to Baa3 from Baa2, while maintaining a negative outlook.
WHAT DOES NEGATIVE OUTLOOK INDICATE?
The ‘negative’ outlook means that there are risks that there could be a lower rating, there could be another downgrade in future.Growth can continue to slow structurally to a much lower rate than in the past, deficits can continue to slip, and if the financial system does not improve and stabilise, that would further potentially exacerbate these growth risks.
WHY IT IS A CONCERN
Baa3 is the lowest in investment grade in Moody’s rating ladder. This means, India is just one notch above the non-investment grade or junk grade.Ultimately, it would be more costly and will crowd out the potential for spending on things that would help lift growth and improve livelihoods.It will increase government’s fiscal burden.
REASONS FOR DOWNGRADE
The country’s GDP to contract by 4% in the current financial year due to the shock from the pandemic and related lockdown measures. The GDP growth, however, is expected to pick up in the next fiscal to 8.7% and closer to 6% in the year after. Over the longer term, growth rates are likely to be materially lower than in the past, due to persistent weak private sector investment, tepid job creation and an impaired financial system, further deterioration in the government’s fiscal position. Slow reform momentum and constrained policy effectiveness have contributed to a prolonged period of slow growth, compared to India’s potential, that started before the pandemic. The lower economic growth to diminish the government’s ability to reduce its debt burden and the pandemic to increase the debt burden to rise to about 84% of GDP in the current financial year from 72%.
MINIMUM SUPPORT PRICES (MSPs) FOR KHARIF CROPS CONTEXT
The Cabinet Committee on Economic Affai₹ (CCEA) on Monday approved an increase in the minimum support prices (MSPs) for all mandated kharif crops, including paddy, pulses and cotton, for the 2020-21 marketing season.
MOTIVE FOR PROVIDING MSP
MSP acts an insurance for farmers against sharp drop in prices.The minimum support prices are a guarantee price for their produce from the Government. The major objectives are to support the farmers from distress sales and to procure food grains for public distribution. In case the market price for the commodity falls below the announced minimum price due to bumper production and glut in the market, government agencies purchase the entire quantity offered by the farmers at the announced minimum price. Besides government is providing MSP for a wide range of 22 crops so that farmers will be incentivized to sow other than paddy and sugarcane,which are water intensive crops,in order to diversify indian agricultural system.
HOW MSP IS DETERMINED
The Union Budget 2018-19 fixed the MSPs at a level of at least 1.5 times of the All-India weighted average Cost of Production (CoP), aiming at reasonably fair remuneration for the farmers. The minimum support prices are announced by the Government of India at the beginning of the sowing season for certain crops on the basis of the recommendations of the Commission for Agricultural Costs and Prices (CACP).While recommending commission takes into consideration various factors like cost of inputs,cost of marketing,general price level etc., to finally arrive at the guaranteed price.It is cabinet committe of economic affairs which finally approves the MSP suggested by the commission.
CABINET COMMITTEE OKAYS ₹50,000 cr. INFUSION FOR MSMEs CONTEXT
The Cabinet Committee on Economic Affairs on Monday approved ₹50,000 crore equity infusion for micro, small, and medium enterprises (MSMEs).
WHY EQUITY INFUSION
At initial stages it is difficult for small companies to raise funds for investment which hampers their growth potential.so the government decided to invest,using fund of funds, in such companies as equity so that they can get listed on stock exchange to avail required liquidity.Their share prices will go up,when it reaches a particular level,government will sell shares and then invest in others.It basically enables the small companies to raise their own capital by listing on stock exchanges.
WHAT IS FUND OF FUNDS
Based on the recommendations of UK Sinha Committee, the Fund of Funds was first announced in the Union Budget on February 1, 2020. An investment of Rs. 10,000 crore was proposed in the Budget for the scheme. The fund is meant to address the problem of shortage in growth capital for MSMEs, helping those companies in nascent and initial stages as there are no prospects for such units to raise funds through venture capitalists and professional corporations. The FoF scheme proposes to buy up to 15 percent equity in MSMEs, with high credit rating.
WHY MSME GROWTH IS CRUCIAL Employment: It is the second largest employment generating sector after agriculture. It provides employment to around 120 million persons in India. Contribution to GDP: With around 36.1 million units throughout the geographical expanse of the country, MSMEs contribute around 6.11% of the manufacturing GDP and 24.63% of the GDP from service activities. MSME ministry has set a target to up its contribution to GDP to 50% by 2025 as India becomes a $5 trillion economy. Exports: It contributes around 45% of the overall exports from India. Inclusive growth: MSMEs promote inclusive growth by providing employment opportunities in rural areas especially to people belonging to weaker sections of the society. Financial inclusion: Small industries and retail businesses in tier-II and tier-III cities create opportunities for people to use banking services and products. Promote innovation: It provides opportunity for budding entrepreneurs to build creative products boosting business competition and fuels growth.
SOCIAL STOCK EXCHANGE (SSE) CONTEXT
A working group constituted by the Securities and Exchange Board of India (SEBI) on social stock exchanges has recommended allowing non-profit organisations to directly list on such platforms while allowing certain tax incentives to encourage participation on the platform.
HOW TO RAISE FUNDS
The group has recommended allowing non-profit organisations to directly list through issuance of bonds while recommending a range of funding avenues, including some of the existing mechanisms such as Social Venture Funds (SVFs) under Alternative Investment Funds (AIFs).
WHY WOULD IT BE BENEFICIAL
There is a great opportunity to unlock funds from donors, philanthropic foundations and CSR spenders, in the form of zero coupon zero principal bonds. These bonds will be listed on the SSE,Which will provide them with necessary liquidity.once listed they will be required to report to stock exchanges on regular basis which will help for their better regulation eliminating fraud organisations.
NEED FOR SUCH PLATFORM
In india many NGO’s are involved in welfare activities.They have the advantage of better involvement with local people and equipped with better knowledge of grass root realities, but the lack of proper financial resources hinder their welfare activities. so a social stock exchange platform will help them coping up with such constraints.
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