Indian Economy Reforms | CAIIB ABM Study Material

Indian Economy Reforms Short Notes

1) The economic Reforms started in 1991.

2) Real Sector Policy measures mainly focused on the manufacturing sector in the early stages of reform process.

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3) MRTP Act Monopolies and Restrictive Trade Practices Act, 1969

4) APMC Act (Agricultural Produce Market Committee Act )

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5) The primary objective of The APMC Act in each state of India requires all agricultural products to be sold only in government – regulated markets. This was amended and permitting the farmers to bypass the mandatory requirement of regulated market.

6) Essential Commodities Act, 1955

7) Financial Sector reforms have been arrived out in accordance with the recommendations made by basically three committees:
i. Narasimham Committee report on financial sector Reforms (1992)
ii. Narasimham Committee report on Banking sector Reforms (1998)
iii. S H Khan Report (1998) of the working group for harmonize the role and operations of Development Financial Institutions and Banks reforms in financial Sector

8) IRS- Interest Rate Swaps

9) FRA – Forward Rate Agreements

10) Collateralized Borrowings and Lending Obligation – CBLO

11) CDs (Certificate of Deposits) are short-term borrowings in the form of Usance Promissory Notes having a maturity of not less than 15 days up to a maximum of one year.

12) Commercial Paper (CP) is an unsecured money market instrument issued in the form of a promissory note.

13) Who can issue Commercial Paper (CP)?
a. Highly rated corporate borrowers, primary dealers (PDs) and satellite dealers (SDs) and all-India financial institutions (FIs)

14) Futures and options represent two of the most common form of “Derivatives”.

15) Derivatives are financial instruments that derive their value from an ‘underlying’. The underlying can be a stock issued by a company, a currency, Gold etc.

16) The derivative instrument can be traded independently of the underlying asset.

17) The value of the derivative instrument changes according to the changes in the value of the underlying.

18) Derivatives are of two types –
i. Exchange traded and
ii. Over the counter.

19) Exchange traded derivatives, as the name signifies are traded through organized exchanges around the world. These instruments can be bought and sold through these exchanges, just like the stock market.

20) Some of the common exchange traded derivative instruments are futures and options.

21) Over the counter (popularly known as OTC) derivatives are not traded through the exchanges. They are not standardized and have varied features.

22) Some of the popular OTC instruments are forwards, swaps, swaptions etc.

23) Futures

24) A ‘Future’ is a contract to buy or sell the underlying asset for a specific price at a predetermined time. If you buy a futures contract, it means that you promise to pay the price of the asset at a specified time. If you sell a future, you effectively make a promise to transfer the asset to the buyer of the future at a specified price at a particular time. Every futures contract has the following features:
– Buyer                        – Seller             – Price              – Expiry

25) Some of the most popular assets on which futures contracts are available are equity stocks, indices, commodities and currency.

26) The difference between the price of the underlying asset in the spot market and the futures market is called ‘Basis’. (As ‘spot market’ is a market for immediate delivery)

27) Options
Options contracts are instruments that give the holder of the instrument the right to buy or sell the underlying asset at a predetermined price.

28) An option can be a ‘call’ option or a ‘put’ option.

29) A call option gives the buyer, the right to buy the asset at a given price. This ‘given price’ is called ‘strike price’. It should be noted that while the holder of the call option has a right to demand sale of asset from the seller, the seller has only the obligation and not the right. For e.g.: if the buyer wants to buy the asset, the seller has to sell it. He does not have a right.

30) A ‘put’ option gives the buyer a right to sell the asset at the ‘strike price’ to the buyer. Here the buyer has the right to sell and the seller has the obligation to buy.

31) The Payment and Settlement Systems Act, 2007 empowering the RBI to regulate and supervise payments and settlement system.

32) Cheque Truncation System(CTS)has been introduced in cheque clearing July 08 in New Delhi.

33) G Sec is market auction related instruments and they are paid by Ways and Means Advances, automatic monetization.

34) Foreign investment is of two kinds – (i) Foreign Direct Investment (FDI) and (ii) Foreign Portfolio Investment.

35) ‘FDI’ means investment by non-resident entity/person resident outside India in the capital of the Indian company under Schedule 1 of FEM (Transfer or Issue of Security by a Person Resident outside India) Regulations 2000.

36) Portfolio investment in both primary and secondary market by FII was opened up in 1992

37) ECB:
i. Source of funds for corporate from abroad with advantage of
ii. lower rates of interest prevailing in the international financial markets
iii. longer maturity period
iv. for financing expansion of existing capacity as well as for fresh investment

38) ECB is Defined as to include commercial loans [in the form of bank loans, buyers’ credit, suppliers’ credit, securitized instruments (e.g. floating rate notes and fixed rate bonds, CP)] availed from non-resident lenders with minimum average maturity of 3 years

39) Poverty is measured by Gini Coefficient, a standard measure of Income/Expenditure in equality

40) The Gini coefficient, invented by the Italian statistician Corado Gini, is a number between zero and one that measures the degree of inequality in the distribution of income in a given society. The coefficient would register zero (0.0 = minimum inequality) for a society in which each member received exactly the same income and it would register a coefficient of one (1.0= maximum inequality) if one member got all the income and the rest got nothing

41) Human Development Index (HDI) a widely used indicator of Socio- Economic Conditions has place India at 132 out of 189 countries in the world in the year 2006.

42) The Human Development Index (HDI) is a comparative measure of life expectancy, literacy, education and standards of living for countries worldwide. It is a standard means of measuring well-being, especially child welfare. It is used to distinguish whether the country is a developed, a developing or an under-developed country, and also to measure the impact of economic policies on quality of life. The index was developed in 1990 by Pakistani economist Mahbub ul Haq and Indian economist Amartya Sen.

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