Microeconomics

Middle Income Trap and its Causes in India | UPSC – IAS

Middle Income Trap and its Causes in India UPSC - IAS

Middle Income Trap and its Causes in India UPSC - IAS

Middle Income Trap and its Causes in India | UPSC – IAS

The middle income trap is a theoretical economic development situation, in which a country that attains a certain income (due to given advantages) gets stuck at that level. The World Bank defines as the ‘middle-income range’ countries with gross national product per capita that has remained between $1,000 to $12,000 at constant (2011) prices.

What is middle income trap? | UPSC – IAS

  • According to the idea, a country in the middle income trap has lost its competitive edge in the export of manufactured goods because of rising wages. However, it is unable to keep up with more developed economies in the high-value-added market.
  • The countries caught in the Middle Income Trap are unable to compete with low-income, low-wage economies in manufactured exports and unable to compete with advanced economies in high-skill innovations.
  • MIT is associated with a relatively sustained growth slowdown with both direct effects (e.g. income losses) as well as indirect effects (e.g. social conflicts).
  • Fuelled by the global slowdown, many countries, particularly in South East Asia (e.g. Thailand, Vietnam, and Malaysia etc.), Africa (e.g. South Africa) and Latin America (e.g. Brazil) currently face the predicament of MIT, which has impeded their transition from middle income to high income.
  • One of the most standard examples of an MIT country is Brazil where annual income growth rate plummeted to an average rate of 0.58% between 1997 and 2011. It was accompanied by one of the highest income inequalities worldwide (World Development Indicators, World Bank, 2016), poor institutional quality in comparison to developed countries and a wave of protests against the corruption and mismanagement in the country.

Why Do Countries Fall into the Middle Income Trap? | UPSC – IAS

  • Inability to shift growth strategies: If a country cannot make a timely transition from resource-driven growth, with low-cost labor and capital, to productivity-driven growth, it might find itself trapped in the middle income zone.
    • Traditional exports cannot be as easily expanded as before because wages are higher and cost competitiveness declines.
    • Moreover, export growth depends on introducing new processes and finding new markets. To do this, exporters must understand the quality, price, and consumer preference points of the global economy, which is a demanding task.
  • Skewed income distribution & stagnation in middle class population: Wealth inequality and the hierarchical distribution of income in developing countries is a downward drag on domestic demand, which results in stagnation. It slows down the upward mobility of families that are at lower levels, into middle class that is prepared to pay more for quality and differentiated products.
  • Recurring boom-bust cycles & procyclical lending: Many middle-income countries in Latin America have been through cycles of growth based on credit extended during commodity booms, followed by crisis, and then recovery. This stop–go cycle has prevented them from becoming advanced economies despite enjoying many periods of fast growth. This is in sharp contrast with successful countries in East Asia—Japan, Hong Kong, Taiwan, Singapore, and South Korea that have been able to sustain high growth over some 50 years.

Why India might get caught into middle income trap? | UPSC – IAS

  • Backlash against globalization: Hyperglobalization (that benefited the early convergers like China, South Korea & Japan) led to a backlash in the advanced countries, as seen through increasing protectionism & lowering World Trade-GDP ratios since 2011. This means that similar trading opportunities may no longer be available for the new convergers.
  • Thwarted Structural Transformation: Successful development requires two kinds of structural transformations: 1) a shift of resources from low productivity to high productivity sectors; and 2) a larger share of resources devoted to sectors that have the potential for rapid productivity growth. However, in late convergers like India, ‘premature deindustrialization’ (tendency for manufacturing to peak at lower levels of activity and earlier in the development process) is a major cause of concern.
  • Human Capital Regression: Human capital frontier for the new structural transformation has shifted further away making the transformation costlier. This is because the new advances in technology not only require skilled human capital, but also demands them to learn continually. As opposed to these requirements, there is a wider educational attainment gap between lower income countries and advanced economies.
  • Climate change-induced Agricultural Stress: Agricultural productivity is crucial both for feeding people and for ensuring human capital moves from agriculture to modern sectors. With climate change, ambient temperature has increased and weather extremities have become a recurrent phenomenon. This is, in particular, a threat to India where agriculture is heavily dependent on precipitation.
  • Fall in private consumption, muted rise in fixed investment and sluggish exports have led to slowdown in the economy and increase India’s vulnerability to the middle income trap.

Avoiding the Middle Income Trap | UPSC – IAS

In 1960, India was a low-income country with per capita income around 6% of the US. However, India attained the status of lower middle income in 2008 with per capita income of about 12% of the US.
But, the growth has occurred with limited transfer of labour resources to high productivity and dynamic sectors, despite relatively modest agricultural growth. Thus, the risk of getting trapped in middle income zone remains.

To avoid becoming trapped without a viable high-growth strategy, India needs to:

  • Transitioning from diversification to specialization in production: Specialization allowed the middle-income Asian countries to reap economies of scale and offset the cost of disadvantages associated with higher wages (E.g. Electronics industry in South Korea).
    • High levels of investment in new technologies and innovation-conducive policies are 2 overarching requirements to ensure specialized production.
    • Developing good social-safety nets and skill-retraining programs can ease the restructuring process that accompanies specialization.
  • Shifting to productivity-led growth: Total factor-productivity growth in middle-income countries requires major changes in education, from primary & secondary schooling to tertiary education so that workers are adept in new skills as per the demands of the markets. Creating such knowledge economy requires long term planning and investment.
  • Opportunities for professional talent: To attract and retain a critical mass of professional talent that is becoming more internationally mobile, middle income countries like India must develop safe & livable cities that provide attractive lifestyles to professionals.
  • Addressing barriers to effective competition: There is a need to address rigidities that can arise from bankruptcy laws, stringent tax regulations, limited enforcement of IP regulations, imperfect information, discrimination etc.
  • Decentralized economic management: Greater powers should be vested in local governments to ensure speedier decision making
  • Sustaining macroeconomic stability through flexible fiscal framework that limited deficits and debt, and a flexible exchange rate mechanism backed up by a credible inflation-targeting monetary policy could help sustain long periods of growth. Effective restructuring, regulating, and supervising of the financial sector must be ensured so that the present NPA crisis can be effectively handled.
  • Changing orientation of social programmes that targets middle class besides poorer sections of the society which would propel the demand driven growth. E.g. low-cost housing for first-time home buyers in cities, programs to ensure that recent graduates get suitable employment opportunities, paying more attention to public goods like safety, urban transport, and green spaces etc.

Minimum Basic Income in India | UPSC IAS

Minimum Basic Income in India UPSC IAS The Hindu PCS

Minimum Basic Income in India UPSC IAS The Hindu PCS

Minimum Basic Income in India | UPSC IAS

Recently, there have been calls for introduction of Minimum Basic Income (MBI) in the India. The Minimum Basic Income is a social welfare system that guarantees a basic income to households, provided they meet certain conditions. This is different from Universal Basic Income (UBI) scheme, which is a periodic, unconditional cash transfer to all citizens on individual basis, without means-test or work requirement. To that extent, the Minimum Basic Income is a conditional UBI or a quasi UBI (targeted).

What are merits of the Minimum Basic Income (MBI) ? | UPSC IAS

  • Social Justice & Equity: There is a need for such ways to ensure a just society that needs to provide every individual a minimum income to provide for basic necessities.
  • Freedom of choice: The poor in India are treated as subjects of Government’s welfare policies, rather than economic decision makers. MBI treats them as agents and entrusts them with the responsibility of using welfare spending as they see best.
  • Poverty alleviation: According to Economic Survey (2016-17), income transfers can reduce poverty to 0.5% at a cost of about 4% to 5% of the GDP, if those in the top 25% income bracket are not included. Moreover, minimum income guarantee also covers urban poor.
  • MBI has potential to reduce rural distress for e.g. it can decrease long term rural indebtedness, as propensity to save increases.
  • Better social development: Pilot studies in Madhya Pradesh have shown that the income supplements can improve nutrient intake, school enrolment and attendance of female students, toilet building etc.
  • Financial Inclusion: by augmenting rural income & promoting usage of bank accounts, which further expands banking services.
  • Other advantages include administrative efficiency, gender equity (by taking individuals and not household as beneficiaries), insurance against shocks and flexibility in labor market.

What are the Challenges ? | UPSC IAS

  • Definition of basic income: It is difficult to reach on a consensus-based definition of ‘Basic Income’, which will be sufficient to meet basic needs. Tendulkar Committee poverty line of 33/- a day works out basic income of 12,000/- a year. It will cost 11-12% of GDP, in comparison to the existing subsidy burden of 4-4.5% of GDP.
  • Fiscal challenges: Total fiscal cost will depend on 2 factors: (i) Coverage of the scheme (ii) Extent of substitution with existing subsidies/schemes. Further there are various challenges like difficulty in exiting subsidies, hostility in extracting more tax revenue from wealthy, medium term fiscal risk, and rising consumption may stroke inflationary pressure.
  • Cash vs Kind Dilemma: While giving income support, it is assumed that the beneficiaries would be wise in their discretion. However, it suffers from challenges like misuse of cash (on demerit or sin goods), increasing vulnerability of women and child as finances of families are controlled by men, direct monetary benefits not
    being inflation proof, etc.
  • Targeted vs universal: Universalisation is the key to efficient delivery of services against targeting proposed by these cash transfer schemes. Strict targeting may have its own problems like issues related to identification of beneficiaries. This needs an easily identifiable objective criterion. Otherwise, it cannot be claimed to be superior in terms of the leakages.
  • Basic income is no substitute for state capacity: In developed countries, the cash transfers supplement existing social security provisions and are a top-up over and above universal
    provision of health & education. In the Indian context, most arguments in favour of MBI are premised on the inefficiencies of existing social security interventions and seek to replace them with direct cash transfers.

    • Cash transfers seek to create demand for services without supplying the services, which leaves the poor to depend on private service providers. The privatisation of basic services such as health and education may lead to the problem of accessibility (e.g. in remote areas) and large scale exclusion of the poor and marginalised.
  • Reduce worker productivity and reduce incentive for skill development and increasing employability through constant effort.
  • Implementation Challenges: The success of cash transfers depend upon the outreach of banking system & last mile connectivity.

New E Commerce Rules, Regulation and Restriction in India 2019

Economic Concepts, Terms and Key Phrases | Glossary Investopedia

New E Commerce Rules, Regulation and Restriction in India 2019 The Hindu UPSC IAS PCS BPSC SSC Gk today

First Understanding the Models of E-Commerce – Marketplace Model

  • E-commerce Company provides an IT platform on a digital or electronic network to act as facilitator between buyers & sellers without warehousing the products.
  • It aggregates various retailers/brands and provide a sales channel (offers shipment, call centre, delivery and payment services) to them but cannot exercise ownership of the inventory.
  • It allows for a superior customer service experience, as many smaller brands have greater outreach now, with their fulfillment processes taken care of by online marketplaces. E.g. E-Bay/Shopclues etc
  • 100% FDI is allowed in marketplace model of e-commerce.

Inventory Model

  • Products are owned by the online shopping company. The whole process end-to-end, starting with product purchase, warehousing and ending with product dispatch, is taken care of by the company.
  • Allows speedier delivery, better quality control and improved customer experience and trust. But, it restricts cash flow and is difficult to scale
  • FDI in multi-brand retail is prohibited, including e-commerce retail (B2C); E.g. Jabong, YepMe etc.

Recently, government introduced changes in e-commerce norms which are said to be clarificatory in nature and are not new restrictions.

Changes introduced by the new rules

  • From February 1, 2019, e-commerce companies running marketplace platforms:-
    • Such as Amazon and Flipkart –  cannot sell products through companies, and of companies, in which they hold equity stake.
  • It put a cap of 25% on the inventory that a marketplace entity or its group companies can sell from a particular vendor. Inventory of a vendor will be deemed to be controlled by e-commerce marketplace entity if more than 25% its purchases are from the marketplace entity or its group companies.
  • No seller can be forced to sell its products exclusively on any marketplace platform, and that all vendors on the e-commerce platform should be provided services in a “fair and non-discriminatory manner”.
    • Services include fulfilment, logistics, warehousing, advertisement, cashbacks, payments, and financing among others.
  • The marketplaces will not be allowed to offer deep discounts through their in house companies listed as sellers (check price cartelization).
  • E-commerce marketplace entity will be required to furnish a certificate along with a report of statutory auditor to Reserve Bank of India, confirming compliance of the guidelines, by September 30 every year for the preceding financial year.
  • E-commerce entities will have to maintain a level playing field and ensure that they do not directly or indirectly influence the sale price of goods and services.

The above mentioned rules explain certain principles laid down in a 2017 circular on the operations of online marketplaces, wherein 100% foreign direct investment through automatic route is allowed. Some other discussion points in the circular were as follows:

  • Scope of Marketplace Model: E-Marketplace would include warehousing, logistics, order fulfillment, call
    centre, payment collection etc.

    • The move was aimed at bringing new entrants/smaller players in the e-commerce business.
    • It would also increase the need for office spaces, warehouses & logistics, providing a boost to the real estate business.
    • It would also check tax evasion through illegal warehousing.

Predatory Pricing

  • Predatory pricing (dominant player reducing prices to such an extent to edge out other players) is an anti-competition practice under Competition Act 2002. The government would appoint a regulator to check discounts offered by e-commerce players, so that they don’t sell below market prices & compliance with FDI norms.

Impact on E-commerce companies (UPSC IAS)

  • Most of e-commerce firms source goods from sellers who are related 3rd party entities. E.g. WS Retail contributes to 35-40% of Flipkart’s overall sales. Cloudtail India, the biggest retailer operating on Amazon, has its 49% equity held up by Amazon or its subsidiaries. Amazon also holds up 48% equity in another major retailer, Appario Retail. This will impact backend operations of e-commerce firms, as group entities would now have to be removed from the e-commerce value chain.
  • Also, players like Amazon and Flipkart, who have their private labels, will not be able to sell them on their platforms if they hold equity in the company manufacturing them.
  • Currently, most of the e-commerce are burning cash to attract consumer base and hence, are in deep losses. In the long run, this will help large companies build a viable business rather than just depend on discounts.

Retailers

  • The absence of large retailers will bring relief to small retailers selling on these platforms. Traditional brick-and-mortar stores, who now find it difficult to compete with the large e-commerce retailers with deep pockets, will become more competitive.
  • Marketplaces are meant for independent sellers, many of whom are MSMEs (Micro, Small & Medium Enterprises). These changes will enable a level playing field for all sellers, helping them leverage the reach of e-commerce.
  • But, it may also become difficult for small start-ups to raise funds from big e-retailer companies. Also, mandatory listing of inventory on different platforms may increase sales cost for MSMEs.
  • Consumers: Consumers may no longer enjoy the deep discounts offered by retailers that have a close association with marketplace entities.
  • Employment: The threat of job losses in the supply chain network has emerged as a major concern, as the number of e-commerce orders will go down, warehouse expansion plans may take a hit and the utilization of delivery executives will reduce, leading to significant job losses.
  • Growth of the sector: By 2022, the size of digital economy in India will be approximately $ 1 trillion and by 2030, it could constitute almost 50% of the entire economy. Licensing and price controls may depress a fast growing sector
  • International Trade Outlook: As 71 members led by countries like China, Japan and the US began exploring possible WTO framework on free cross-border e-commerce at Buenos Aires ministerial (2017), the new guidelines preempt any possible obligations on e-commerce imposed by WTO. It would enable Govt. to take a stand in international trade negotiations and discussions, which is fully cognizant of the need to preserve flexibility and create a level-playing field for domestic players.

A Way Forward (UPSC IAS)

  • E-Marketplaces should change their business model and begin to look at franchise channels, rather than equity investments channels, to do business in India.
  • The Government should come out with an E-Commerce policy which establishes a commonly accepted definition of e-commerce, provides a level playing field for domestic & foreign businesses. Draft E-Commerce Policy has already been submitted by the commerce ministry.
  • A single legislation should be enacted to address all aspects of e-commerce so that the legal fragmentation seen across the various laws is reduced, viz. the Information Technology Act, 2000, Consumer Protection Act 1986 etc.
  • Setting up an accreditation system for vetting e-commerce platforms which adhere to good business practices is the need of the hour.

Blue Economy its Significance and Challenges | UPSC – IAS

Blue Economy upsc

Blue Economy upsc

Blue Economy and its Components | UPSC – IAS

As per the World Bank, Blue Economy is the sustainable use of ocean resources for economic growth, improved livelihoods, and jobs while preserving the health of ocean ecosystem. It covers several sectors linked directly or indirectly to the oceans such as –

  • Fishing, minerals, shipping and port infrastructure,
  • Marine biotechnology,
  • Marine renewable energy,
  • Marine tourism,
  • Ocean governance and education.

Blue Economy its Significance and Challenges | UPSC - IAS

Significance of Blue economy | UPSC – IAS

Economic Benefits:

  • Oceans provide 30 percent of oil and gas resources.
  • 90% of goods trade takes place through Oceans Sea of Line Communication.
  • Ocean contributes $2.5 trillion to world economy with around 60 million people are employed in fisheries and aquaculture.
  • Seabed Mining of polymetallic nodules and polymetallic sulphides to extract nickel, cobalt, manganese and rare earth metals.

Environmental Benefits:

  • Mangroves and other vegetated ocean habitats sequester 25 percent of the extra CO2 from fossil fuels, i.e., Blue Carbon.
  • Protection of coastal communities from disasters like floods and storms.
  • A Sustainable Blue Economy can help to achieve commitments under UN’s Sustainable Development Goals 2030, Paris climate agreement 2015 and the UN Ocean Conference 2017.

Challenges to Blue Economy | UPSC – IAS

  • Unsustainable development near marine areas: Physical alterations and destruction of marine and coastal habitats & landscapes largely due to coastal development, deforestation, & mining.
  • FAO estimates that approximately 57 percent of fish stocks are fully exploited and another 30 percent are over-exploited, depleted, or recovering.
  • Marine pollution: It is in the form of excess nutrients from untreated sewerage, agricultural
    runoff, and marine debris such as plastics. Deep sea mining can cause long term irreversible ecological damage to marine ecosystem.
  • Impacts of climate change: Threats of both slow-onset events like sea-level rise and more intense and frequent weather events like cyclones. Long-term climate change impacts on ocean systems like changes in sea temperature, acidity, and major oceanic currents.
  • Geopolitical issues: Geopolitical tussle between in various regions like South China Sea, Indian Ocean Region etc. and undermining International Laws like UNCLOS limits the countries from achieving the full potential of Blue Economy.
  • Unfair trade practices: Many times fishing agreements allow access to an EEZ of country to foreign operators. These operators restrict transfer of specific fishing knowledge to national stakeholders leading to low appropriation of fisheries export revenues by national operators. So the potential for national exploitation of those resources is reduced in the long run.
  • Other non-conventional threats: Defense and security related threats like piracy and terrorism combined with natural disasters (Small Island Developing States are particularly vulnerable).

Blue economy and India  | UPSC – IAS

India is trying to achieve the potential of Blue Economy by promoting the spirit of ‘SAGAR-Security and Growth for All in the Region’ in Indian Ocean Region. Some initiatives by India are:  (important for UPSC)

Sagarmala Project: Sagarmala initiative focus on three pillars of development

  • Supporting and enabling Port-led Development through appropriate policy and institutional interventions.
    • Port Infrastructure Enhancement, including modernization and setting up of new ports.
    • Efficient Evacuation to and from hinterland by developing new lines/linkages for transport (including roads, rail, inland waterways and coastal routes).
  • Coastal Economic Zones: 14 CEZs are being developed under Sagarmala initiative covering all the Maritime States.
    • CEZs are spatial economic regions comprising of a group of coastal districts or districts with a strong linkage to the ports in that region.
    • CEZ will help to tap synergies of planned economic corridors.
  • Resource exploration: India in recent times has shifted its focus towards Indian Ocean resource exploration. E.g. India has explored 75000 sq km of Indian Ocean Seabed and is developing technologies (like remotely operated vehicles) for mining the resources
  • International relations and security: India is cooperating with Indian Ocean littoral countries and projecting itself as ‘net security provider’ to ensure a safe, secure and stable Indian Ocean Region (IOR). India is also cooperating with extra regional powers like US, Japan in IOR. E.g. Asia-Africa growth corridor, QUAD etc.

Sustainable Blue Economy Conference

  • It’s the first global conference on the sustainable blue economy.
  •  It was convened by Kenya and co-hosted Canada and Japan.

Basel norms & Capital Adequacy Ratio | UPSC – IAS

Basel norms & Capital Adequacy Ratio | UPSC - IAS

Basel norms & Capital Adequacy Ratio | UPSC - IAS

Basel norms & Capital Adequacy Ratio | UPSC – IAS

Capital Adequacy Ratio is also known as Capital to Risk Assets Ratio, is the ratio of a bank’s capital to its risk. National regulators track a bank’s CAR to ensure that it can absorb a reasonable amount of loss and complies with statutory Capital requirements. It is a measure of a bank’s capital

Capital Adequacy Ratio (CAR)

Capital adequacy ratio is the ratio which determines the bank’s capacity to meet the time liabilities and other risks such as credit risk, operational risk etc. In the most simple formulation, a bank’s capital is the “cushion” for potential losses, and protects the bank’s depositors and other lenders.

  • CAR = (Tier I + Tier II Capital)/Risk Weighted Assets
  • Expressed as a percentage of a bank’s risk weighted credit exposures.
  • Measure of bank’s financial strength to ensure that banks have enough cushions to absorb losses before becoming insolvent and losing depositors’ funds.
  • CAR is required to be 9% by RBI (based on BASEL III norms), where 7% has to be met by Tier 1 capital while the remaining 2% by Tier 2 capital.

Provisioning requirement

  • Setting aside a portion of profits, in proportion of risk weighted loans given, to compensate a probable loss due to incomplete loan recovery is called provisioning.
  • Like CCB & CAR requirements, provisioning is one of the contingency measures to contain risk.
  • Different types of assets have different risk profiles e.g. Government debt has 0% risk weight
  • A high-risk weight discourages lending by increasing the capital requirement for lenders.

Criticism of BASEL norms

  • Reserve bank of India, already has sufficient “backup” mechanisms to prevent banking crisis in India- such as Cash reserve ratio (CRR), Statutory liquidity ratio (SLR), all banks are required to make fortnightly reporting to RBI about their finance and operations and so on.

Partial Credit Enhancement – NBFCs Bonds | UPSC – IAS

Partial Credit Enhancement – NBFCs Bonds | UPSC – IAS

The RBI recently allowed banks to provide partial credit enhancement (PCE) to bonds issued by systemically important non-deposit taking NBFCs registered with the RBI and Housing Finance Companies (HFCs) registered with the National Housing Bank.

  • Provide partial credit enhancement or Credit enhancement means improving the credit rating of a corporate bond. For example, if a bond is rated BBB, credit enhancement, which is basically an assurance of repayment by another entity, can improve the rating to AA. This is done to provide an additional source of assurance or guarantee to service the bond.

The move comes at a time when NBFCs and HFCs have requested the government and regulators to ensure that confidence returns to the market.

  • FACT: Provide partial credit enhancement (PCE), which was introduced in 2015, is expected to help NBFCs and HFCs raise money from insurance and provident or pension funds who invest only in highly-rated instruments.

Current problems with NBFCs | UPSC – IAS

  • Multiple regulatory bodies: RBI doesn’t regulate all the NBFC. Other institutions such as NHB (National Housing Bank), SEBI, Insurance Regulatory and Development Authority (IRDAI), etc. are also involved depending on the type of NBFC.

Difficulties in access to credit

  • There is a reversal of interest rate cycle as interest rates are now going up both domestically and also in the
    international market. The RBI has steadily hiked interest rates in the recent months.
  • Another fundamental issue is the asset-liability mismatch in the operations of NBFCs as these firms borrow funds from the market — say for 3 or 5 years — and lend for longer tenures — 10 to 15 years. It has led to a situation where the NBFCs are facing a severe liquidity crunch in the short term.
  • The mutual fund is among the biggest fund provider to NBFCs via commercial papers and debentures. These investors are getting reluctant to lend post the IL&FS crisis.

Significance of NBFC DIGITALLY LEARN IAS UPSC PCS UPPCS UPPSC.

(UPSC IAS)

Riskier Lending Pattern:

  • Unlike banks, NBFCs are less cautious while lending. For example NBFCs have grown their portfolio of small and micro loans in a big way where there are risks of lack of credit history, scale and historically high NPAs.
  • The unsecured loan segment is also on the rise in the NBFC segment.
  • Cascading effect of Infrastructure Leasing and Financial Services (IL&FS) default: Default followed by downgrade of IL&FS recently has created a liquidity squeeze for the entire non-banking financial company (NBFC) sector.
  • Delayed Projects: Many infrastructure projects financed by NBFCs are stalled due to various reasons like delayed statutory approvals, problems of land acquisition, environmental clearance, etc. which has impacted their financial health.

Suggestions and Solutions | UPSC – IAS

  • RBI must encourage non-banking financial companies to securitise their assets that can be purchased by banks.
  • RBI must revisit lending restrictions placed on banks under Prompt Corrective Action and consider allowing them lending to NHB.
  • RBI may also open special window for mutual funds to get refinance against collateral.
  • A coordinated and consultative approach at this point of time to address the various problems of the sector is critical to national economic health and stability.

Keywords: Provide partial credit enhancement (PCE), NBFCs, RBI, UPSC IAS