<h4>FIIs to Invest in India’s Sovereign Green Bonds</h4><p>The Indian government has permitted <strong>Foreign Institutional Investors (FIIs)</strong> to invest in <strong>Sovereign Green Bonds (SGrBs)</strong>. This move aims to broaden the investor base for these specialized bonds.</p><div class="info-box"><p><strong>Sovereign Green Bonds</strong> are financial instruments issued by governments to raise funds specifically for environmentally friendly projects. These projects can include renewable energy, sustainable transport, and pollution prevention.</p></div><p>Allowing FIIs to invest enhances the attractiveness of India's green finance market. It also helps in mobilizing global capital towards domestic environmental initiatives.</p><div class="exam-tip-box"><p>UPSC often asks about new financial instruments and their implications. Understand the difference between traditional bonds and <strong>Green Bonds</strong>, and the role of <strong>FIIs</strong> in capital markets (<strong>GS Paper III: Economy</strong>).</p></div><h4>Sovereign Gold Bond Scheme (SGB)</h4><p>The <strong>Sovereign Gold Bond (SGB) Scheme</strong> was launched by the Government of India in <strong>November 2015</strong>. Its primary objective is to reduce the demand for physical gold and shift household savings into financial instruments.</p><div class="key-point-box"><p>Key features of SGBs include: (1) Issued by the <strong>Reserve Bank of India (RBI)</strong> on behalf of the Government. (2) Denominated in <strong>grams of gold</strong>. (3) Offers a fixed interest rate (currently <strong>2.50% per annum</strong>). (4) Capital gains are exempt from tax if held till maturity.</p></div><p>Investors buy SGBs in cash, and the redemption price is linked to the market price of gold at the time of maturity. This scheme provides an alternative to physical gold, offering benefits like storage safety and income generation.</p><div class="info-box"><ul><li><strong>Tenor:</strong> 8 years, with an exit option from the 5th year.</li><li><strong>Minimum Investment:</strong> 1 gram of gold.</li><li><strong>Maximum Investment:</strong> 4 kg for individuals, 20 kg for trusts.</li></ul></div><h4>Strengthening Regulatory Bodies</h4><p>A robust financial system relies heavily on strong and independent regulatory bodies. These institutions are crucial for maintaining stability, ensuring fair practices, and protecting consumer interests.</p><p>In India, bodies like the <strong>Reserve Bank of India (RBI)</strong>, <strong>Securities and Exchange Board of India (SEBI)</strong>, and <strong>Insurance Regulatory and Development Authority of India (IRDAI)</strong> play pivotal roles. Continuous efforts are made to enhance their powers and effectiveness.</p><div class="key-point-box"><p>Strengthening regulators involves: (1) Providing greater autonomy. (2) Enhancing technological capabilities. (3) Ensuring adequate human resources. (4) Implementing clear accountability frameworks.</p></div><div class="exam-tip-box"><p>Questions on the autonomy and effectiveness of regulatory bodies are common in <strong>UPSC Mains (GS Paper II & III)</strong>. Discuss their challenges and recent reforms.</p></div><h4>Insurance Sector in India</h4><p>India's insurance sector is a vital component of its financial landscape, providing risk coverage and mobilizing long-term savings. It comprises both life and non-life (general) insurance segments.</p><p>The sector is regulated by the <strong>Insurance Regulatory and Development Authority of India (IRDAI)</strong>. Recent reforms have aimed at increasing penetration, promoting innovation, and ensuring policyholder protection.</p><div class="info-box"><p>Key challenges for the Indian insurance sector include low penetration rates, especially in rural areas, and the need for greater awareness about insurance products. Digitalization offers significant opportunities for growth.</p></div><div class="exam-tip-box"><p>Be prepared to discuss the role of the insurance sector in financial inclusion and economic development. Understand the impact of foreign direct investment (<strong>FDI</strong>) limits and regulatory changes (<strong>GS Paper III</strong>).</p></div><h4>Domestic Systemically Important Banks (D-SIBs)</h4><p><strong>Domestic Systemically Important Banks (D-SIBs)</strong> are banks whose distress or failure would cause significant disruption to the financial system and the wider economy. They are often referred to as "too big to fail."</p><div class="info-box"><p>The <strong>Reserve Bank of India (RBI)</strong> identifies D-SIBs annually. These banks are subjected to additional capital requirements and enhanced supervisory scrutiny to mitigate systemic risks.</p></div><p>The framework for D-SIBs was introduced by the RBI in <strong>2014</strong>, based on the <strong>Basel Committee on Banking Supervision (BCBS)</strong> framework. It ensures that these critical banks maintain higher resilience.</p><div class="key-point-box"><p>Currently, <strong>State Bank of India (SBI)</strong>, <strong>ICICI Bank</strong>, and <strong>HDFC Bank</strong> are identified as D-SIBs in India. Their continued stability is paramount for the overall financial health of the nation.</p></div><h4>Need of Sovereign Wealth Fund for India</h4><p>A <strong>Sovereign Wealth Fund (SWF)</strong> is a state-owned investment fund that invests in real and financial assets globally. These funds are typically created from balance of payments surpluses, official foreign currency operations, or revenues from natural resources.</p><p>For India, an SWF could serve multiple purposes, including long-term infrastructure financing, diversifying foreign exchange reserves, and providing a buffer against economic shocks. It could also invest in strategic domestic sectors.</p><div class="exam-tip-box"><p>Analyze the pros and cons of an <strong>SWF</strong> for India. Consider its potential impact on infrastructure development, foreign investment, and fiscal management (<strong>GS Paper III</strong>).</p></div><div class="info-box"><p>Many countries like Norway, Singapore, and UAE have successful SWFs. India currently has the <strong>National Investment and Infrastructure Fund (NIIF)</strong>, which functions somewhat similarly but is not a traditional SWF.</p></div><h4>India’s Taxation System</h4><p>India's taxation system is a complex structure designed to fund public expenditure and achieve socio-economic objectives. It broadly consists of <strong>Direct Taxes</strong> and <strong>Indirect Taxes</strong>.</p><p><strong>Direct taxes</strong> are levied on income and wealth, such as <strong>Income Tax</strong> and <strong>Corporate Tax</strong>. <strong>Indirect taxes</strong> are levied on goods and services, with the <strong>Goods and Services Tax (GST)</strong> being the most prominent.</p><div class="key-point-box"><p>Key principles of a good taxation system include: (1) <strong>Equity</strong> (fairness). (2) <strong>Efficiency</strong> (minimal distortion). (3) <strong>Simplicity</strong> (ease of compliance). (4) <strong>Revenue adequacy</strong> (sufficient funds for government).</p></div><p>Recent reforms, especially the implementation of <strong>GST</strong> in <strong>2017</strong>, aimed to simplify the indirect tax regime, broaden the tax base, and reduce cascading effects.</p><h4>Open Market Sale Scheme (Domestic) Policy</h4><p>The <strong>Open Market Sale Scheme (OMSS) (Domestic)</strong> is a policy under which the <strong>Food Corporation of India (FCI)</strong> sells food grains, especially wheat and rice, in the open market. This is done to moderate open market prices, particularly during lean seasons.</p><div class="info-box"><p>The primary objective of OMSS is to ensure food security and control inflation by releasing buffer stocks. It helps in stabilizing prices for consumers and ensuring availability.</p></div><p>The sale of food grains under OMSS is usually conducted through e-auctions. This ensures transparency and provides a level playing field for various buyers, including flour millers and private traders.</p><div class="exam-tip-box"><p>Understand how OMSS acts as a tool for price stabilization and its implications for farmers, consumers, and government subsidies. Relate it to food security and inflation management (<strong>GS Paper III</strong>).</p></div><h4>Concerns Over Cess and Surcharges in India</h4><p>In India's taxation system, <strong>Cess</strong> and <strong>Surcharges</strong> are additional levies imposed on the basic tax liability. While they serve specific purposes, their increasing use has raised several concerns.</p><div class="info-box"><ul><li><strong>Cess:</strong> Levied for a specific purpose (e.g., Swachh Bharat Cess, Health and Education Cess). The proceeds are typically earmarked for that purpose.</li><li><strong>Surcharge:</strong> An additional tax on the tax, usually levied on high-income earners or large corporations. It is not earmarked for specific purposes.</li></ul></div><p>A major concern is that the proceeds from cess and surcharges are not part of the divisible pool of taxes that is shared with state governments. This reduces the fiscal autonomy of states and impacts federal fiscal relations.</p><div class="key-point-box"><p>Other concerns include: (1) <strong>Lack of transparency</strong> regarding the utilization of funds. (2) <strong>Erosion of tax base</strong> for states. (3) <strong>Complexity</strong> in the overall tax structure.</p></div><h4>Decline In 10-Year Bond Yield</h4><p>A <strong>bond yield</strong> represents the return an investor receives on a bond. The <strong>10-year bond yield</strong> is a benchmark often used to gauge market sentiment and future interest rate expectations.</p><div class="info-box"><p>A decline in 10-year bond yield generally indicates that investors are willing to accept lower returns for holding government debt. This can happen due to increased demand for safe assets or expectations of lower inflation and economic growth.</p></div><p>Implications of a declining yield include: (1) Lower borrowing costs for the government and corporations. (2) Potential for lower interest rates on loans (e.g., home loans). (3) Can signal an economic slowdown or increased liquidity in the system.</p><div class="exam-tip-box"><p>Connect bond yields to monetary policy, inflation, and economic growth. Understand how global and domestic factors influence bond markets (<strong>GS Paper III</strong>).</p></div><h4>Microfinance Institutions (MFIs)</h4><p><strong>Microfinance Institutions (MFIs)</strong> are organizations that provide financial services to low-income individuals or groups who traditionally lack access to conventional banking and related services. These services typically include small loans (microcredit), savings, and insurance.</p><p>MFIs play a crucial role in promoting <strong>financial inclusion</strong>, particularly in rural and underserved urban areas. They empower marginalized communities, especially women, by providing access to capital for income-generating activities.</p><div class="key-point-box"><p>The success of MFIs is often attributed to: (1) <strong>Group lending models</strong> (peer pressure for repayment). (2) <strong>Doorstep service delivery</strong>. (3) Focus on <strong>capacity building</strong> and financial literacy.</p></div><div class="info-box"><p>In India, MFIs are regulated by the <strong>Reserve Bank of India (RBI)</strong>. They operate under various legal structures, including Non-Banking Financial Company-MFIs (NBFC-MFIs) and Self-Help Group (SHG)-Bank Linkage Programs.</p></div><h4>Increasing Real Effective Exchange Rate (REER) in India</h4><p>The <strong>Real Effective Exchange Rate (REER)</strong> is a measure of the value of a country's currency relative to a basket of other major currencies, adjusted for inflation. It reflects the country's competitiveness in international trade.</p><div class="info-box"><p>An <strong>increasing REER</strong> implies that a country's goods and services are becoming relatively more expensive compared to those of its trading partners. This can make exports less competitive and imports more attractive.</p></div><p>Factors contributing to an increasing REER can include: (1) Higher domestic inflation compared to trading partners. (2) Appreciation of the nominal exchange rate. (3) Strong capital inflows into the economy.</p><div class="exam-tip-box"><p>Analyze the impact of <strong>REER</strong> on India's balance of trade, export competitiveness, and overall economic policy. Distinguish it from <strong>Nominal Effective Exchange Rate (NEER)</strong> (<strong>GS Paper III</strong>).</p></div>