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Special Category Status for Andhra Pradesh

Paper : General Studies 2

Why in news?

CM-elect for Andhra Pradesh has reiterated the demand for Special Category Status (SCS) for Andhra Pradesh.

What is Special Category Status (SCS)?

  • Special Category Status (SCS) was granted under the earlier Planning Commission regime by the National Development Council.
  • The NDC granted this status based on a number of features of the States which included: hilly and difficult terrain, low population density or the presence of sizeable tribal population, strategic location along international borders, economic and infrastructural backwardness and non-viable nature of State finances.
  • The SCS States used to receive block grants based on the Gadgil-Mukherjee formula, which effectively allowed for nearly 30 percent of the Total Central Assistance to be transferred to SCS States as late as 2009-10.
  • Following the constitution of the NITI Aayog (after the dissolution of the Planning Commission) and the recommendations of the Fourteenth Finance Commission (FFC), Central plan assistance to SCS States has been subsumed in an increased devolution of the divisible pool to all States (from 32% in the 13th FC recommendations to 42%) and do not any longer appear in plan expenditure.


Why is Andhra Pradesh demanding SCS?

  • Following the bifurcation of A.P., Andhra lost a large volume of its revenue due to Hyderabad remaining the capital of Telangana.
  • Its debt had ballooned to Rs. 2.58 lakh crore from Rs. 97,000 crore at the time of partition. The interest payment itself is Rs. 20,000 crore per annum.


RBI to align NBFC norms with Banks

Paper : General Studies 3

Why in news?

  • Reserve Bank of India has put up a proposal to align norms for NBFCs with banks to put an end to liquidity disruptions in the sector.
  • NBFCs will, over a period of next four years, be required to hold an amount of high-quality liquid assets (HQLA) that’s enough to fund cash outflows for 30 days. During a period of financial stress, NBFCs like the banks will have to use their stock of HQLA.


What is a NBFC (Non-Banking Financial Company)?

  • A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 engaged in the business of loans and advances, acquisition of shares/stocks/bonds/debentures/securities issued by Government or local authority or other marketable securities of a like nature, leasing, hire-purchase, insurance business, chit business
  • It does not include any institution whose principal business is that of agriculture activity, industrial activity, purchase or sale of any goods (other than securities) or providing any services and sale/purchase/construction of immovable property.
  • A non-banking institution which is a company and has principal business of receiving deposits under any scheme or arrangement in one lump sum or in installments by way of contributions or in any other manner, is also a non-banking financial company (Residuary non-banking company).


What is the difference between NBFCs and Banks?

NBFCs lend and make investments and hence their activities are akin to that of banks; however there are a few differences as given below:

  • NBFC cannot accept demand deposits;
  • NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on itself;
  • Deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs, unlike in case of banks.


Who regulates the NBFCs?

To obviate dual regulation, certain categories of NBFCs which are regulated by other regulators are exempted from the requirement of registration with RBI

  • Venture Capital Fund/Merchant Banking companies/Stock broking companies registered with SEBI,
  • Insurance Company holding a valid Certificate of Registration issued by IRDA,
  • Nidhi companies as notified under Section 620A of the Companies Act, 1956,
  • Chit companies as defined in clause (b) of Section 2 of the Chit Funds Act, 1982,
  • Housing Finance Companies regulated by National Housing Bank, Stock Exchange or a Mutual Benefit company.




Divestment in Air India

Paper : General Studies 3

Why in news?

Centre is again mulling selling its stake in Air India to private entities. It may even go for a 100% stake sale.


What is disinvestment?

Disinvestment can be defined as the action of an organisation (or government) selling or liquidating an asset or subsidiary. It is also referred to as ‘divestment’ or ‘divestiture.’

Why does the government needs to divest?

The following reasons are the major reasons for disinvestment:

  • The new economic policy initiated in July 1991 clearly indicated that PSUs had shown a very negative rate of return on capital employed. Inefficient PSUs had become and were continuing to be a drag on the Government’s resources turning to be more of liabilities to the Government than being assets.
  • Also, once the private sector was mature enough, the Government should pull out of the sectors where the private sector can build the market on its own like hospitality and telecommunications.


What are the types of disinvestment?

As per the latest policy, disinvestment now covers two types: (

  • disinvestment through minority stake sale in which only a small stake is sold and management and majority stake remains with the government
  • strategic disinvestment in which majority stake (i.e. greater than 51% ) is sold off and management control is transferred.


What are the proceeds of disinvestment used for?

The funds of the disinvestment are transferred to the National Investment Fund which is a head under the Public Account of India. Its proceeds are used for:

  • Subscribing to the shares issued by the CPSEs including PSBs and Public Sector Insurance Companies, to ensure that 51% ownership of the Government in those CPSEs/PSBs/ Insurance Companies, is kept.
  • Preferential allotment of shares of the CPSE so that Government shareholding does not go down below 51% in all cases where the CPSE is going to raise fresh equity.
  • Recapitalization of public sector banks and public sector insurance companies.
  • Investment by Government in RRBs/IIFCL/ NABARD/Exim Bank;
  • Equity infusion in various Metro projects;
  • Investment in Bhartiya Nabhikiya Vidyut Nigam Limited and Uranium Corporation of India Ltd.
  • Investment in Indian Railways towards capital expenditure.