Sunday, May 12, 2019

Alarm Bells for the Indian Economy


Even as the world’s largest democracy is taken up with the choice of the next Government, issues of a major slowdown in the Indian economy can probably no longer be ignored.  Both macro data like household savings and micro data like sector and company volumes showed Indian households may have cut consumption due to slow income growth, analysts said. The decline in demand stems from —an income growth slump in urban and rural areas that has forced people to curb spending, falling money supply in the economy since 2016, and rising uncertainty over the future of the economy. Demand side indicators of private consumption, capital spending and exports have all been slowing over several quarters. Immediate signs of distress are visible in the FMCG and auto sectors, both major drivers and indicators of India’s growth. Brokerages have started to issue warnings of a serious demand slowdown in consumer segments. Volume growth at leading FMCG companies that derive more than a third of sales from rural areas has dropped to a six-quarter low.
The slowdown is clearly visible not just in the sales projection of consumer goods companies but the major automakers for the month of April. Car sales grew 2.7 per cent in 2018-19, the worst performance in five financial years, data released by the Society of Indian Automobile Manufacturers (Siam) showed. Maruti Suzuki India (MSI) and Hyundai Motor India reported a decline in their domestic sales in April with 18.7 per cent fall and 10.1 per cent degrowth, respectively. MSI’s volumes dropped 17.2 per cent in April, the sharpest decline since August 2012. The sector is partially affected by the fact that customer response to price changes due to new regulatory norms pertaining to emissions is unknown. Similarly, the cumulative sales of the top six two-wheeler manufacturers declined to nearly 1.58 million units last month, from 1.88 million units during the same period a year ago. The story isn’t different for tractor sales also, where the fourth quarter saw a contraction of 5.78 per cent, with sales registering the weakest growth in three years. These three together indicates urban, semi-urban and rural demand.
India’s factory output entered negative territory in March after a gap of 21 months, contracting 0.1 per cent to signal a slowdown in consumption, as well as investment. Manufacturing, with 78 per cent weightage in the IIP, contracted 0.4 per cent in March, while mining and electricity grew 0.8 per cent and 2.2 per cent, respectively. The growth rate of India's factory production was flat in February 2019 as it inched up by just 0.1 per cent from 6.9 per cent reported for the corresponding month of 2018, as manufacturing output slipped 0.3 per cent. The Nikkei India Manufacturing PMI declined from 52.6 in March to 51.8 in April. This was weaker than the average for the 14-year survey history. A softer increase in new orders created a domino effect in the Indian manufacturing industry, restricting growth of output, employment, input buying and business sentiment, according to the PMI report. India's service sector activity slipped to a seven-month low in April as the Nikkei India Services PMI dropped to 51 in April from 52 in March, underscoring that the sector is losing momentum. Finally, even the Finance Ministry's monthly report acknowledges—India's economy slowed down slightly in the last fiscal due to declining growth in private consumption, slow increase in fixed investment and muted exports though it is still fastest growing major economy.
However, the fastest growing tag, in a situation where China is striving for policy driven slowdown to sustainable levels, will not cover up the realities on the ground for long. The World Bank's lower middle income range for countries is defined as per capita GNI of between $996 and $3,895. As per 2017 figures, the income of an average Indian was in the vicinity of $1,795, which placed the country well below the halfway mark, data from Bloomberg shows. During the same period, the comparable figure for China stood at $8,690, which put it well above the halfway mark in the upper middle income range — defined as GNI per capita between $3,89. Oxfam's Global Inequality Report 2018 showed that 73 per cent of the wealth generated in India in 2017-2018 went to the richest 1 per cent of the Indian population, while the poorest 50 per cent saw a marginal increase of 1 per cent in their wealth over the same period. All in all whom so ever takes charge of the Indian economy after the 23rd of May has a serious task ahead of them in completely rethinking polices and implementation thereof, particularly those related to investment, meaningful job creation and rural distress, and all so probably at the cost of fiscal slippage.

Monday, February 11, 2019

RBI’s February Rate Cut—Surprising or not so.....


In an interesting move, unexpected by many, in the February 2019 policy review the RBI decided to change the stance of monetary policy from calibrated tightening to neutral and to reduce the policy repo rate by 25 basis points to 6.25 percent with a 4:2 majority vote. Consequently, the reverse repo rate under the LAF stands adjusted to 6.0%, and the marginal standing facility (MSF) rate and the Bank Rate to 6.5%. Repo is the rate at which RBI lends to commercial banks, whereas reverse repo is the short-term borrowing rate at which the central bank borrows from other banks. The marginal cost of funds-based lending rate (MCLR) is the minimum interest rate below which a bank is not permitted to lend, barring a few exceptional cases permitted by RBI.
This is the first rate cut announced by the MPC since August 2017 and marks a reversal in the rate cycle. Over the course of 2018, the MPC had raised rates twice by a total of 50 basis points to 6.5 percent.

In October, RBI had changed the policy stance to ‘calibrated tightening’ from neutral fearing that elevated core inflation poses upside risks to headline inflation. The shift in stance of monetary policy from calibrated tightening to neutral provides flexibility and the room to address the challenges to sustain growth of the Indian economy, as long as the inflation outlook remains benign, according to the latest policy announcement. The decisions of the MPC in this regard will be data driven and in consonance with the primary objective of monetary policy to maintain price stability.

The rate cut was not anticipated by a majority because it was against the RBI policy if inflation management and came at a time when there was no major downturn in growth, at least according to official data. Though headline inflation has softened considerably, the rate cut was a surprise given that the softening was mostly on account of the volatile food and fuel items, which showed a deflationary trend and expectations mostly in line with global cues as also seasonal factors. Any abatement in global trade tensions and already dovish US policy could well change inflationary expectations. Further, as per government statements the Indian economy is recording stellar performance which dilutes the need for a rate cut, particularly at a time when an expansionary budget had just been unveiled. The change of stance which implies from hawkish to neutral was expected, however, the dovish rate action caught analysts unawares, as it puts the central bank’s credibility at stake with doubts already hovering on the fiscal roadmap of the government.

The move, however, is not so surprising if one goes by a combination of factors mentioned by the RBI in its assessment and outlook, such as the slowdown in both external and domestic demand, weaker flows from institutional investors, borrowing costs remaining elevated, as well as a jobs report and higher frequency indicators showing signs of an economic slowdown. The statement on developmental and regulatory policies also reflects growth orientation. The highlight is the enhancement of the limit of collateral-free agriculture loan to Rs.1.60 lakh, to bring more farmers within the formal credit system. Neither is it surprising when one considers that in an election year, with the government unable to announce any measures for Industry in its February Budget presentation, the long standing demand for a rate cut should be met, given the change at the helm of RBI.

With the inflationary Interim budget and monetary policy being announced in tandem in the election year it will be interesting to see the stance and rate decisions in the subsequent monetary policies as inflation dynamics play out, particularly as core inflation, which is now a global benchmark has remained sticky, still hovering around near.6 percent.

Tuesday, February 5, 2019

Highlights of the Interim Budget 2019


This year’s Union Budget in February as per convention is an interim one awaiting results of elections to be held in May. A national Interim Budget refers to the budget of a government that is going through a transition period. The Interim Budget spans the transition time between the two governments in an election year so that the government can continue to function.  An Interim Budget usually is an account of income and expenditure and doesn't list out new schemes or doesn't unveil any policy measures. However, the ruling party at the Centre took this opportunity to reach out to a large electorate ahead of the Lok Sabha polls and presented a few new measures in form of tax rebates and benefits for the economically weaker sections.  
Following are the key highlights from the announcements made in the Interim Budget 2019-20:
- FY20 fiscal deficit target set at 3.4 percent
- Expenditure target for FY20 set at Rs 27.84 lakh crore
- Capital expenditure for FY20 set at Rs 3.36 lakh crore
- FY19 fiscal deficit pegged at 3.4 percent of GDP; current account deficit at 2.5 percent of GDP
- FY20 gilt repayment pegged at Rs 2.36 lakh crore
-Railway capital expenditure raised to Rs 64,586 crore in FY20 from Rs 53,060 crore in FY19
-Defence budget for FY20 raised to Rs 3 lakh crore

Taxation - Tax benefit of Rs 18,500 crore given to three crore middle-class tax payers
- Full tax rebate for income up to Rs 5 lakh per annum
-Income tax rebate for income up to Rs 6.5 lakh (Rs 5 lakh + Rs 1.5 lakh under 80C of the Income Tax Act)
- Standard deduction for salaried persons raised to Rs 50,000 from Rs 40,000
-Tax-free Gratuity limit increased from Rs 10 lakh to Rs 30 lakh
- TDS limit on bank and post-office savings hiked from Rs 10,000 to Rs 40,000
-TDS threshold on rental income raised from Rs 1.8 lakh to Rs 2.4 l lakh
- No tax on notional rent on second self-occupied house
- Benefit of rollover of capital tax gains under Section 54 to be increased from investment in one residential house to two, for capital gains up to 2 crore rupees
-Vision to create a tech enabled taxpayer friendly tax department
-Benefits under Sec 80(i)BA being extended for one more year for all housing projects approved till end of 2019-2020
-Businesses with less than Rs. 5 crore annual turnover, comprising over 90% of GST payers, will be allowed to file quarterly returns

Agricultural sector -Farmers with less than two hectares to be offered Rs 6,000 per year as direct transfer. Around 12 crore farmers to benefit from the scheme. This scheme will cost the government around Rs 75,000 crore (around 0.36% of the GDP (2019-20 Budget estimate).
-To provide Rs 750 crore in FY19 to support animal husbandry and fishing
-Farmers struck by natural calamities will now receive 2-5 percent interest subvention under insurance scheme
- Two percent interest subsidy to be given to farmers involved in animal husbandry activities via kisaan credit card scheme. An additional three percent subsidy will be paid on timely payment of loans
-Decision taken to increase MSP (minimum support price) by 1.5 times the production cost for all 22 crops

Micro, Medium and Small Enterprises (MSMEs) -2% interest rebate for MSMEs registered under GST for loans up to INR 1 crore
- Requirement of sourcing by government enterprises from SMEs increased up to 25%, of which, at least 3% to be sourced from women-led SMEs
-Government E-procurement Marketplace (GeM) platform extended to Central Public Sector Enterprises

Social security -Mega scheme has been announced for workers in the unorganised sector with a monthly income upto Rs 15,000. The scheme will provide them with an assured monthly pension of Rs 3,000. The scheme is contributory and the government will make a matching contribution
-Rs 60,000 crore allocated for MNREGA for FY20
-Employees' State Insurance eligibility cover limit has been raised to Rs 21,000 per month from Rs 15,000 per month
- Workers who suffer grievous injuries will now receive Rs 6 lakh from Rs 2.5 lakh through Employee Provident Fund Organisation (EPFO)

Income Tax rebates are provided for in place of increasing the non-Tax bracket as the government has made an explicit target to increase the number of tax filers in the country. In the Budget speech, it was pointed out that the number of returns filed has increased from 3.79 crore to 6.85 crore, a growth of 80% growth since 2014.
The Interim Budget announcements when implemented are likely to stimulate demand and boost economic growth, with a slew of benrfits for the middle class, farmers and workers in the unorganised sector, leading to more disposable income in their hands. The overall announcements are positive for consumption and investment, while being slightly negative for inflation, fiscal consolidation and bond markets. Analysts are also worried about how the revenue side estimates will actually pan out. The full budget, which is likely in July 2019, would have more details on spending and revenue mobilization.


Monday, January 28, 2019


Highlights of RBI’s Fifth Bi-monthly Monetary Policy Statement, 2018-19
Policy Measures

  •   The Monetary Policy Committee (MPC) decided to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.50%.
  •    Consequently, the reverse repo rate under the LAF remains at 6.25%, and the marginal standing facility (MSF) rate and the Bank Rate at 6.75%.
       The decision of the MPC is consistent with a neutral stance of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4% within a band of +/- 2%, while supporting growth. 

 Assessment
*Global economic activity has shown increasing signs of weakness on rising trade tensions. Among advanced economies (AEs), economic activity appears to be slowing in the US in Q4:2018, after a buoyant Q3. The Euro area growth lost pace in Q3, impacted by weaker trade growth and new vehicle emission standards. The Japanese economy contracted in Q3 on subdued external and domestic demand. Economic activity also decelerated in major emerging market economies (EMEs) in Q3. In China, growth slowed down on weak domestic demand. The ongoing trade tensions and the possible cooling of the housing market pose major risks to growth in China. The Russian economy lost some traction, pulled down largely by a weak agriculture harvest, though the growth was buttressed by strong performance of the energy sector. The Brazilian economy seems to be recovering gradually from the economic disruption in the first half of the year.

Crude oil prices have declined sharply, reflecting higher supplies and easing of geo-political tensions. The inflation scenario has remained broadly unchanged in the US and the Euro area. In many key EMEs, however, inflation has risen, though the recent retreat in energy prices, tightening of policy stances by central banks and stabilising of currencies may have a salutary impact, going forward.

 Global financial markets have been driven mainly by rising policy rates in the US, volatile crude oil prices and expectations of a slowdown compared with earlier projections. Among AEs, equity markets in the US witnessed a selloff on the weakening outlook for corporate earnings caused by rising borrowing costs, while the European stock markets declined on political uncertainties. The Japanese stock market also shed gains on global cues and the gradual strengthening of the yen. EM stock markets have corrected on shrinking global liquidity, weak economic data in some key EMEs, and lingering trade tensions. The 10-year yield in the US, which surged on robust economic data at the beginning of October, softened subsequently on the unchanged Fed stance. Among other AEs, bond yields in the Euro area and Japan softened on weak economic sentiment and idiosyncratic factors. In most EMEs, bond yields have softened in recent weeks on falling crude oil prices and steadying currencies. In currency markets, the US dollar, which was strengthening on a widening growth differential with its peers, eased in the second half of November. The euro has weakened on Brexit and budget concerns in Italy, while the yen appreciated on safe haven buying in November. EME currencies have been trading with an appreciating bias, supported by a sharp decline in crude oil prices and conservative domestic monetary policy stances.

In India GDP growth slowed down to 7.1 per cent year-on-year (y-o-y) in Q2:2018-19, after four consecutive quarters of acceleration, weighed down by moderation in private consumption and a large drag from net exports. Private consumption slowed down possibly on account of moderation in rural demand, subdued growth in kharif output, depressed prices of agricultural commodities and sluggish growth in rural wages. However, growth in government final consumption expenditure (GFCE) strengthened, buoyed by higher spending by the central government. Gross fixed capital formation (GFCF) expanded by double-digits for the third consecutive quarter, driven mainly by the public sector’s thrust on national highways and rural infrastructure, which was also reflected in robust growth in cement production and steel consumption. Growth of imports accelerated at a much faster pace than that of exports, resulting in net exports pulling down aggregate demand.
On the supply side, growth of gross value added (GVA) at basic prices decelerated to 6.9 per cent in Q2, reflecting moderation in agricultural and industrial activities. Slowdown in agricultural GVA was largely the outcome of tepid growth in kharif production. Within industry, growth in manufacturing decelerated due to lower profitability of manufacturing firms, pulled down largely by a rise in input costs, while that in mining and quarrying turned negative, caused by a contraction in output of crude oil and natural gas. Growth in electricity, gas, water supply and other utility services strengthened. Services sector growth remained unchanged at the previous quarter’s level. Of its constituents, growth in construction activity decelerated sequentially, but it was much higher on a y-o-y basis. Growth in public administration and defence services accelerated sharply.
The purchasing managers’ index (PMI) for manufacturing touched an eleven-month high of 54.0 in November, supported by an expansion in output, and domestic and export orders. According to the assessment of the Reserve Bank’s Industrial Outlook Survey (IOS), the overall business sentiment in Q3 remained stable, with sustained optimism about production and exports.

 Retail inflation, declined from 3.7 per cent in September to 3.3 per cent in October. A large fall in food prices pushed food group into deflation and more than offset the increase in inflation in items excluding food and fuel. Adjusting for the estimated impact of an increase in HRA for central government employees, headline inflation was 3.1 per cent in October. Within the food and beverages group, deflation in vegetables, pulses and sugar deepened in October. Inflation, however, showed an uptick in meat and fish, and non-alcoholic beverages. Inflation in the fuel and light group remained elevated, driven by LPG prices in October, tracking international petroleum product prices. However, electricity prices softened in October. Inflation in rural fuel items also moderated. CPI inflation excluding food and fuel accelerated to 6.1 per cent in October; adjusted for the estimated HRA impact, it was 5.9 per cent. Transport and communication registered a marked increase, pulled up by higher petroleum product prices, transportation fares and prices of automobiles. A broad-based increase was also observed in health, household goods and services, and personal care and effects. However, inflation moderated significantly in clothing and footwear, as also housing on waning of the HRA impact of central government employees.
Inflation expectations of households, measured by the November 2018 round of the Reserve Bank’s survey, softened by 40 basis points for the three-month ahead horizon over the last round reflecting decline in food and petroleum product prices, while they remained unchanged for the twelve-month ahead horizon. Producers’ assessment for input prices inflation eased marginally in Q3 as reported by manufacturing firms polled by the Reserve Bank’s IOS. Domestic farm and industrial input costs remained high. Rural wage growth remained muted in Q2, while staff cost growth in the manufacturing sector remained elevated.

Liquidity needs arising from the growth in currency and the Reserve Bank’s forex operations were met through a mixture of tools based on an assessment of the evolving liquidity conditions. The Reserve Bank injected durable liquidity amounting to Rs. 360 billion in October and Rs. 500 billion in November through open market purchase operations, bringing total durable liquidity injection to Rs. 1.36 trillion for 2018-19. Liquidity injected under the LAF, on an average daily net basis, was Rs. 560 billion in October, Rs. 806 billion in November. The WACR traded below the repo rate on an average by 5 basis points in October and 9 basis points in November. There was large currency expansion in October and especially during the festive season in November. Currency in circulation, however, contracted in each of the last three weeks in November. 

Merchandise exports rebounded in October 2018, after moderating in the previous month, driven mainly by petroleum products, engineering goods, chemicals, electronics, readymade garments, and gems and jewellery. Imports also grew at a faster pace in October relative to the previous month, contributed mainly by petroleum products and electronic goods. Consequently, the trade deficit widened in October, sequentially, as also in comparison with the level a year ago. Provisional data suggest a modest improvement in net exports of services in Q2:2018-19, which augurs well for the current account balance. On the financing side, net FDI flows moderated in April-September 2018. Portfolio flows turned positive in November on account of a sharp decline in oil prices, indications of a less hawkish stance by the US Fed and a softer US dollar. However, during the year, there were net portfolio outflows of US$14.8 billion (up to November 30). Non-resident deposits increased markedly in H1:2018-19 on a net basis over their level a year ago. India’s foreign exchange reserves were at US$393.7 billion on November 30, 2018.

Outlook
 GDP growth outlook for 2018-19 has been projected at 7.4 per cent (7.2-7.3 per cent in H2) as in the October policy, and for H1:2019-20 at 7.5 per cent, with risks somewhat to the downside. Although Q2 growth was lower than that projected in the October policy, GDP growth in H1 has been broadly along the line in the April policy when for the year as a whole GDP growth was projected at 7.4 per cent. Going forward, lower rabi sowing may adversely affect agriculture and hence rural demand. Financial market volatility, slowing global demand and rising trade tensions pose negative risk to exports. However, on the positive side, the decline in crude oil prices is expected to boost India’s growth prospects by improving corporate earnings and raising private consumption through higher disposable incomes. Increased capacity utilisation in the manufacturing sector also portends well for new capacity additions. There has been significant acceleration in investment activity and high frequency indicators suggest that it is likely to be sustained. Credit offtake from the banking sector has continued to strengthen even as global financial conditions have tightened. FDI flows could also increase with the improving prospects of the external sector. The demand outlook as reported by firms polled in the Reserve Bank’s IOS has improved in Q4. 

Headline inflation outlook is driven primarily by several factors. First, despite a significant scaling down of inflation projections in the October policy primarily due to moderation in food inflation, subsequent readings have continued to surprise on the downside with the food group slipping into deflation. The broad-based weakening of food prices imparts downward bias to the headline inflation trajectory, going forward. Secondly, in contrast to the food group, there has been a broad-based increase in inflation in non-food groups. Thirdly, international crude oil prices have declined sharply since the last policy; the price of Indian crude basket collapsed to below US$60 a barrel by end-November after touching US$85 a barrel in early October. However, selling prices, as reported by firms polled in the Reserve Bank’s latest IOS, are expected to edge up further in Q4 on the back of increased demand. Fourthly, global financial markets have continued to be volatile with EME currencies showing a somewhat appreciating bias in the last one month. Finally, the effect of the 7th Central Pay Commission’s HRA increase has continued to wane along expected lines. Taking all these factors into consideration and assuming a normal monsoon in 2019, inflation is projected at 2.7-3.2 per cent in H2:2018-19 and 3.8-4.2 per cent in H1:2019-20, with risks tilted to the upside.
Several uncertainties still cloud the inflation outlook. First, inflation projections incorporate benign food prices based on the realised outcomes of food inflation in recent months. The prices of several food items are at unusually low levels and there is a risk of sudden reversal, especially of volatile perishable items. Second, uncertainty continues about the exact impact of MSP on inflation, going forward. Third, the medium-term outlook for crude oil prices is still uncertain due to global demand conditions, geo-political tensions and decision of OPEC which could impinge on supplies. Fourth, global financial markets continue to be volatile. Fifth, though households’ near-term inflation expectations have moderated in the latest round of the Reserve Bank’s survey, one-year ahead expectations remain elevated and unchanged. Sixth, fiscal slippages, if any, at the centre/state levels, will influence the inflation outlook, heighten market volatility and crowd out private investment. Finally, the staggered impact of HRA revision by State Governments may push up headline inflation.


Developmental and Regulatory Policies
 External Benchmarking of New Floating Rate Loans by Banks
It is proposed that all new floating rate personal or retail loans (housing, auto, etc.) and floating rate loans to Micro and Small Enterprises extended by banks from April 1, 2019 shall be benchmarked to one of the following:
- Reserve Bank of India policy repo rate, or
- Government of India 91 days Treasury Bill yield produced by the Financial Benchmarks India Private Ltd (FBIL), or
- Government of India 182 days Treasury Bill yield produced by the FBIL, or
- Any other benchmark market interest rate produced by the FBIL.
The spread over the benchmark rate — to be decided wholly at banks’ discretion at the inception of the loan — should remain unchanged through the life of the loan, unless the borrower’s credit assessment undergoes a substantial change and as agreed upon in the loan contract. Banks are free to offer such external benchmark linked loans to other types of borrowers as well. In order to ensure transparency, standardisation, and ease of understanding of loan products by borrowers, a bank must adopt a uniform external benchmark within a loan category.

Aligning Statutory Liquidity Ratio with Liquidity Coverage Ratio
As per the existing roadmap, scheduled commercial banks have to reach the minimum Liquidity Coverage Ratio (LCR) of 100 per cent by January 1, 2019. Presently, Statutory Liquidity Ratio (SLR) is 19.5 per cent of Net Demand and Time Liabilities (NDTL). Further, the assets allowed to be reckoned as Level 1 High Quality Liquid Assets (HQLAs) for the purpose of computing the LCR of banks, inter alia, include (a) Government securities in excess of the minimum SLR requirement; and (b) within the mandatory SLR requirement, Government securities to the extent allowed by RBI under (i) Marginal Standing Facility (MSF) [presently 2 per cent of the bank's NDTL] and (ii) Facility to Avail Liquidity for Liquidity Coverage Ratio (FALLCR) [presently 13 per cent of the bank's NDTL]. In order to align the SLR with the LCR requirement, it is proposed to reduce the SLR by 25 basis points every calendar quarter until the SLR reaches 18 per cent of NDTL. 




Financial Markets

Access for Non-Residents to the Interest Rate Derivatives Market
The draft directions in this regard propose allowing non-residents to hedge their rupee interest rate risk flexibly using any available IRD instrument. Non-residents will also be permitted to participate in the Overnight Indexed Swap (OIS) market for non-hedging purposes, subject to a macro-prudential limit on exposure of all non-residents in terms of the interest rate risk undertaken.

 Measures to Improve Liquidity Management by Banks
 In order to enable banks to forecast their liquidity requirements with a greater degree of precision, it has been decided that the Reserve Bank will provide information on daily CRR balance of the banking system to market participants on the very next day. Accordingly, the daily Money Market Operations press release will contain the CRR figure for the previous day.

 Rationalisation of Borrowing and Lending Regulations under FEMA, 1999
As part of the ongoing efforts at rationalising multiple regulations framed over a period of time under FEMA, 1999, it is proposed to consolidate the regulations governing all types of borrowing and lending transactions between a person resident in India and a person resident outside India in both foreign currency and INR, in consultation with the Government. The proposed regulations, viz., Foreign Exchange Management (Borrowing or Lending) Regulations, 2018 shall subsume the existing ones and rationalise the extant framework for external commercial borrowings and Rupee denominated bonds with a view to improving the ease of doing business. 

Customer Education, Protection and Financial Inclusion

 Ombudsman Scheme for Digital Transactions
With the digital mode for financial transactions gaining traction in the country, there is an emerging need for a dedicated, cost-free and expeditious grievance redressal mechanism for strengthening consumer confidence in this channel. It has therefore been decided to implement an ‘Ombudsman Scheme for Digital Transactions’ covering services provided by entities falling under Reserve Bank’s regulatory jurisdiction.

        Framework for Limiting Customer Liability in respect of Unauthorised Electronic Payment Transactions
The Reserve Bank has issued instructions on limiting customer liability in respect of unauthorised electronic transactions involving banks and credit card issuing non-banking financial companies (NBFCs). As a measure of consumer protection, it has been decided to bring all customers up to the same level with regard to electronic transactions made by them and extend the benefit of limiting customer liability for unauthorised electronic transactions involving Prepaid Payment Instruments (PPIs) issued by other entities not covered by the extant guidelines.

        Expert Committee on Micro, Small and Medium Enterprises
An Expert Committee will be constituted by the Reserve Bank of India to identify causes and propose long-term solutions for the economic and financial sustainability of the MSME sector.